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Donald Dewitt v. Monterey Insurance Company

March 13, 2012

DONALD DEWITT, PLAINTIFF AND APPELLANT,
v.
MONTEREY INSURANCE COMPANY ET AL., DEFENDANTS AND RESPONDENTS.



(Super. Ct. No. 37-2008-00079852-CU-BC-CTL) APPEAL from a judgment and order of the Superior Court of San Diego County, David B. Oberholtzer, Judge. Affirmed.

The opinion of the court was delivered by: Aaron, J.

CERTIFIED FOR PUBLICATION

I. INTRODUCTION

A liability insurer's duty to defend its insured against third party claims applies to claims that are potentially within the scope of the insured's policy. The insurer's duty to indemnify applies only to claims that are covered by the policy. (Risely v. Interinsurance Exchange of the Automobile Club (2010) 183 Cal.App.4th 196, 207-208.) "From the covenant of good faith and fair dealing implied by law in all contracts, and from [a] liability insurer's duty to defend and indemnify covered claims, California courts have derived an implied duty on the part of [an] insurer to accept reasonable settlement demands on such claims within the policy limits." (Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718, 724 (Hamilton).) Case law has established that an "insurer has a duty to accept a reasonable settlement offer only with respect to a covered claim" (i.e., a claim for which the insurer owes the insured a duty of indemnity). (Marie Y. v. General Star Indemnity Co. (2003) 110 Cal.App.4th 928, 958 (Marie Y.).) The failure of a liability insurer to perform its implied duty to accept a reasonable settlement offer of a covered claim gives rise to a claim for the insured against the insurer for breach of the covenant of good faith and fair dealing, or a "bad faith" claim, based on the insurer's refusal to settle the third-party claim.

In this appeal, we conclude that the trial court did not err in denying plaintiff Donald DeWitt's request to instruct the jury pursuant to the standard jury instruction that sets forth the elements of a bad faith claim based on a refusal to settle (CACI No. 2334). We reach this conclusion because DeWitt neither established as a matter of law, nor requested that the jury in this case determine, that defendants Monterey Insurance Company and California Capital Insurance Company (collectively respondents)*fn1 owed DeWitt a duty of indemnity with respect to claims brought against him in a prior action.*fn2 Accordingly, we affirm the judgment and the trial court's order denying DeWitt's motion for new trial.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The underlying action*fn3

In December 2001, Lisa Cappelletti owned an apartment complex in San Diego. On December 31, 2001, a New Year's Eve party was held at Cappelletti's apartment complex. Erica Howard, who was 15 years old at the time, got a ride to the party with Paul Peterson, who was also a minor. Peterson became intoxicated at the party. After they left the party, Peterson lost control of his car and it rolled over several times. Howard suffered severe permanent injuries as a result of the accident.

At the time of the accident, Cappelletti was insured against personal injury and property damage claims under a business owner policy issued by respondents (Cappelletti's Policy). Cappelletti's Policy had a liability limit of $1 million per occurrence. In addition to naming Cappelletti as an insured, Cappelletti's Policy provided in relevant part:

"2. Each of the following is also an insured:

"a. Your employees, other than your executive officers, but only for acts within the scope of their employment by you. . . . [¶] . . . . [¶]

"b. Any person (other than your employee), or any organization while acting as your real estate manager."

In April 2002, Howard filed an action against Peterson and his parents, Cappelletti, Ron Hammett and Ron Hammett Properties (together Hammett), the apartment complex's property manager, and DeWitt (Howard Action). With respect to DeWitt, Howard alleged that DeWitt lived at the apartment complex and was the "onsite property manager"; that he was the agent or employee of Cappelletti or Hammett; that he had been "present during the party [and] facilitated and promoted the party by charging admission"; and that he had purchased alcohol and furnished it to minors at the party, including Peterson, who became "obviously intoxicated." The complaint also alleged that both Cappelletti and Hammett breached their duties of care by "hiring [DeWitt] as an onsite manager [and] not monitoring [his] conduct as an onsite manager."

Cappelletti and Hammett provided a copy of the complaint to respondents, which accepted their defense. After conducting an investigation as to whether DeWitt was an insured under Cappelletti's Policy, respondents concluded that DeWitt was not in fact an insured, and declined to provide him with a defense.

In January 2004, the court approved a good faith settlement pursuant to which Howard accepted Peterson's $250,000 insurance policy limit in settlement of Howard's claims against him.*fn4

In November 2006, Howard filed a request for entry of default against DeWitt. Shortly thereafter, the trial court entered a default against DeWitt. In December 2006, the court held a prove-up hearing and entered a default judgment for Howard against DeWitt in the amount of $4,697,318.

In March 2007, Howard's counsel sent a letter to respondents demanding the $1 million policy limit contained in Cappelletti's Policy, for settlement of Howard's claims against Cappelletti, Hammett and DeWitt. The letter asserted that respondents had breached their duty to defend DeWitt, that the breach had resulted in the entry of a default judgment against DeWitt, and that respondents' failure to settle for policy limits would expose respondents to excess liability for the entire judgment. Respondents did not accept the settlement demand.

In April 2007, Cappelletti and Hammett served Howard with an offer to compromise the claims against them for a total of $50,000. Howard accepted the offer, and Cappelletti and Hammett were dismissed from the action in June 2007.

In May 2007, respondents moved for an order setting aside the default and default judgment against DeWitt and granting respondents leave to file a complaint in intervention. In January 2008, the trial court denied the motion. Respondents filed an appeal of the order denying the motion to set aside, and in July 2009, this court affirmed the trial court's order.

In August 2009, respondents paid $3.5 million to Howard in satisfaction of the default judgment against DeWitt. Howard subsequently filed a satisfaction of judgment indicating that the default judgment against DeWitt had been satisfied in full.

B. DeWitt's action against respondents

DeWitt filed this action against respondents in March 2008. DeWitt's complaint contained two causes of action--breach of contract and breach of the covenant of good faith and fair dealing (bad faith claim). In the breach of contract cause of action, DeWitt alleged, "As a result of [respondents'] refusal to defend and indemnify DeWitt, a default was entered against him on November 11, 2006 and a default judgment was entered against him in the amount of $4,697,318.00 on December 20, 2006." In the bad faith cause of action, DeWitt alleged that respondents had "tortiously breached the implied covenant of good faith and fair dealing by failing to defend and indemnify DeWitt from claims asserted in the Howard Action despite their knowledge that DeWitt was covered or potentially covered under [Cappelletti's Policy]."

In September 2008, DeWitt filed a motion for summary adjudication on the issue of whether respondents had breached their duty to defend him in the Howard Action. In September 2009, the trial court granted DeWitt's motion for summary adjudication. In its order, the trial court stated, "The court finds [respondents] owed DeWitt a duty to defend and breached its duty to defend in [the Howard Action.]" The court reasoned that the duty to defend is triggered by the potential for coverage under an insurance policy and that "during the pendency of the [Howard Action], there was a possibility of coverage for DeWitt under [Cappelletti's Policy]."

Respondents filed a motion for summary adjudication as to DeWitt's bad faith claim and his claim for punitive damages. The trial court denied the motion as to DeWitt's bad faith claim, but granted the motion as to DeWitt's claim for punitive damages. With respect to DeWitt's bad faith claim, the trial court reasoned in part, "[T]here are triable issues of material fact as to whether [respondents'] refusal to defend, settle, or pay policy benefits on behalf of DeWitt was reasonable."

The trial court conducted a jury trial on DeWitt's claims in March and April 2010. At trial, DeWitt presented evidence in support of various theories by which he contended that respondents had breached the covenant of good faith and fair dealing in the Howard Action, including unreasonably refusing to defend him, failing to accept reasonable settlement offers, and failing to timely pay policy benefits.*fn5

As discussed in greater detail in part III., post, during a conference on jury instructions, DeWitt's counsel requested that the trial court instruct the jury pursuant to CACI No. 2334 concerning an insurer's duty to accept reasonable settlement offers. The trial court denied the request. The jury returned a special verdict finding that respondents had not unreasonably failed to defend DeWitt in the Howard Action.*fn6 The trial court entered judgment in favor of respondents on the jury verdict.

DeWitt filed a motion for new trial in which he claimed that the trial court had erred in denying his request to instruct the jury pursuant to CACI No. 2334. The trial court denied the motion. DeWitt timely appealed from the judgment and the order denying his motion for new trial.

III. DISCUSSION

The trial court properly refused to instruct the jury pursuant to CACI No. 2334

DeWitt claims that the trial court erred in refusing his request to instruct the jury ...


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