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J.R. Marketing, L.L.C. v. Hartford Casualty Insurance Co.

California Court of Appeals, First District, Third Division

May 17, 2013

J.R. MARKETING, L.L.C. et al., Plaintiffs, Cross-Defendants and Respondents,
v.
HARTFORD CASUALTY INSURANCE COMPANY, Defendant, Cross-Complainant and Appellant.

Certified for publication 6/11/13

San Francisco County Superior Court No. CGC-06-449220 Hon. Loretta Giorgi Trial Judge

Counsel for Cross-complainant and Appellant: Hartford Casualty Insurance Company David M. Axelrad, Andrea A. Ambrose HORVITZ & LEVY Dean B. Herman Catherine L. Rivard MENDES & MOUNT Ira G. Greenberg EDWARDS WILDMAN PALMER Counsel for Respondent:

J.R. Marketing L.L.C. et al. Ethan A. Miller Barry D. Brown, Jr. Michelle M. Full SQUIRE SANDERS (US) LLP Pierre H. Bergeron

Jenkins, J.

This is an appeal from an order sustaining the demurrers of respondents/cross-defendants Squire Sanders L.L.P. (Squire) and Scott Harrington in a cross-action by appellant Hartford Casualty Insurance Company (Hartford) for reimbursement of allegedly excessive or otherwise inappropriate legal fees and costs billed by Squire to Hartford. Squire served as independent counsel for cross-defendants J.R. Marketing, L.L.C., Noble Locks Enterprises, Inc., Jane and Robert Ratto, Lenore and Germain DeMartinis, and Penelope Kane (collectively, insured cross-defendants) in a California tort action after Hartford disclaimed coverage for the action under the relevant insurance policy. Squire also served as counsel for certain of the insured cross-defendants in two non-California actions, and as counsel for the non-insured cross-defendants – to wit, Harrington, Wheatland Baking Inc., and Kane Processing, L.L.C. – in the California action or one or more of the non-California actions (collectively, uninsured cross-defendants). According to Hartford, some portion of the fees and costs billed by Squire and paid by Hartford were for legal services provided to cross-defendants outside the scope of Hartford’s contractual obligations as insurer under the relevant policy. For reasons discussed below, we affirm the order.

FACTUAL AND PROCEDURAL BACKGROUND

This is not the first time this court been called upon to review trial court rulings in this insurance coverage lawsuit. We have twice before decided appeals in this matter. (See J.R. Marketing, L.L.C. v. Hartford Cas. Ins. Co., A115472 (Oct. 30, 2007) (nonpub); J.R. Marketing, L.L.C. v. Hartford Cas. Ins. Co., A115846 (Nov. 30, 2007) (nonpub).)[1] As such, we have already set forth in detail much of the relevant factual and procedural background of this coverage dispute, allowing us, in the name of judicial efficiency, to borrow extensively from our previous opinions for purposes of this appeal. With respect to more recent events, however, we abide by well-established principles requiring us, when reviewing an order on demurrer, to accept as true all factual allegations set forth in the operative complaint. (Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 664, fn. 2.) We thus turn to the relevant facts.

In Summer 2005, Hartford issued two commercial general liability policies, the first policy to cross-defendant Noble Locks Enterprises, Inc., effective July 28, 2005 to July 28, 2006, and the second policy to cross-defendant J.R. Marketing, L.L.C., effective August 18, 2005 to August 18, 2006 (collectively, the J.R. Marketing and Noble Locks policies). Under these policies, Hartford promised to defend and indemnify claims against the named insureds for certain business-related damages subject to various exclusions of coverage.

In September 2005, several individuals, including Meir Avganim, sued cross-defendants (except Wheatland Baking, Inc.) and others for intentional misrepresentation, breach of fiduciary duty, unfair competition, restraint of trade, defamation, interference with business relationships, conversion, accounting, mismanagement and conspiracy in Marin Superior Court (Marin or Avganim matter). Cross-complaints were subsequently filed by J.R. Marketing, L.L.C., the Rattos, Kane and Kane Processing, L.L.C. The Marin matter was immediately tendered to Hartford for defense and indemnity under the J.R. Marketing and Noble Locks policies.

Around the same time, two actions were brought against various of the cross-defendants in non-California courts (non-California matters). The complaints in the non-California matters were likewise tendered to Hartford for defense and indemnity under the J.R. Marketing and/or Noble Locks policies.

In the Marin matter, Hartford refused to defend or indemnify the named cross-defendants on the ground, among others, that the acts complained of appeared to have occurred before the relevant insurance policy’s inception date. Hartford nonetheless invited them to provide more information should they believe its position to be erroneous. In February 2006, cross-defendants J.R. Marketing, L.L.C., Noble Locks Enterprises, Inc., the Rattos, and Kane, represented by Squire, filed this coverage lawsuit, after which Hartford reconsidered its position and, based on newly provided information, agreed in March 2006 to provide a defense in the Marin matter under the J.R. Marketing policy subject to a reservation of rights. In doing so, Hartford continued to refuse to pay defense costs incurred before January 19, 2006, or to provide the named cross-defendants independent counsel in place of its panel counsel. The named cross-defendants thus moved for summary adjudication on the issue of whether Hartford owed them a duty to defend, including a duty to provide independent counsel, from the initial tender of the Marin matter in September 2005. The trial court granted their motion on July 26, 2006, finding a legal duty to defend and to fund independent (“Cumis”) counsel under the J.R. Marketing policy.[2]

The trial court also granted a subsequent motion by cross-defendants J.R. Marketing, L.L.C., Noble Locks Enterprises, Inc., the Rattos, and Kane to enforce Hartford’s duty to defend and fund independent counsel under the J.R. Marketing policy (hereinafter, enforcement order). Specifically, on September 27, 2006, the trial court ordered Hartford to pay the insured cross-defendants’ outstanding invoices within 15 days and to pay “all future reasonable and necessary defense costs within 30 days of receipt.” Acknowledging a right of reimbursement, the enforcement order provided, “[t]o the extent Hartford seeks to challenge fees and costs as unreasonable or unnecessary, it may do so by way of reimbursement after resolution of the Avganim matter. American Motorists Insurance Co. v. Superior Court (“AMICO”) (1998) 68 Cal.App.4th 864, 874; Buss v. Superior Court (1997) 16 Cal.4th 35, 50 et seq.”[3]

Finally, the order provided that, while Squire’s bills had to be reasonable and necessary, Hartford was barred from invoking the protective provisions afforded insurers under Civil Code section 2860 because it “has breached and continues to breach its defense obligations by (1) failing to pay all reasonable and necessary defense costs incurred by the insured and by (2) failing to provide Cumis counsel.”[4] (See, e.g., Stalberg v. Western Title Ins. Co. (1991) 230 Cal.App.3d 1223, 1233.) In so ordering, the trial court expressly reasoned there was “no authority for the proposition that once an insurer breaches its duty to defend by refusing to provide Cumis counsel, when that insurer is later ordered to provide Cumis counsel, and continues to refuse the order, but later agrees to provide that counsel, it can unilaterally take advantage of the rate limitation provision of Section 2860. Indeed, such an outcome would encourage insurers to reject their Cumis obligation for as long as they chose, safe in the notion that they could, at any point, invoke the protection of the statute, effectively forcing their policyholder to transfer the file to yet another law firm whose rates are lower.” In this case, the court added, “such a result would work an injustice, since Hartford has already forced its policyholders to transfer the defense of the Avganim matter from [Squire] to Hartford’s panel counsel, only to have it come back again.” Finally, the court concluded: “[T]he province of the Court is not to continually monitor the conduct of a breaching insurer to determine at what point it is no longer in ‘breach’ so that it may benefit from a statute whose protection it previously waived.”

This court affirmed both the enforcement order and the underlying summary adjudication order in the aforementioned nonpublished ...


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