California Court of Appeals, Second District, Seventh Division
APPEAL from a judgment of the Superior Court of Los Angeles County No. EC055177, Laura A. Matz, Judge.
Blasco & Hawekotte General Counsel Services and Richard E. Blasco for Plaintiff and Appellant.
Robie & Matthai and Kyle Kveton for Defendant and Respondent.
SEGAL, J. [*]
An insurer agrees to provide a defense with a reservation of rights and approves independent counsel selected by the insured to represent the insured in an underlying tort action, pursuant to Civil Code section 2860 and San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358 (Cumis). The insurer subsequently withdraws all reservations of rights and coverage defenses that give rise to the insured’s right to Cumis counsel. Must the insurer continue to pay the insured’s Cumis counsel after the insurer’s withdrawal of the Cumis-triggering reservations eliminated the conflict that created the need for Cumis counsel? We answer this question in the negative.
Plaintiff Terry Ann Swanson appeals from a judgment entered after the trial court had granted a motion for summary judgment in favor of defendant State Farm General Insurance Company (State Farm). The trial court determined that State Farm did not breach its insurance contract with Swanson by refusing to pay any attorneys’ fees incurred by her Cumis counsel after State Farm withdrew its reservation of rights. We affirm.
State Farm issued Swanson Homeowners Insurance Policy No. 71-71-9553-0 (the Policy) that provided personal and general liability coverage for her real property in La Crescenta, for the period of May 12, 2004 to May 12, 2006. The Policy provided that if a third party brought a suit against an insured for damages for covered “bodily injury” or “property damage” caused by an “occurrence, ” State Farm would “provide a defense at our expense by counsel of our choice.” (Bold omitted.)
On October 21, 2005 Swanson’s personal attorney, Richard E. Blasco, requested that State Farm defend and indemnify Swanson in an action on a cross-complaint by her neighbors, Mark and Patricia Bitetti (the Bitetti Action), which alleged claims for premises liability and negligence in connection with an incident that occurred on January 10, 2005. Blasco was already representing Swanson in the underlying lawsuit on her claims against the Bitettis for damage to her property and for personal injury caused by failure of the Bitettis’ retaining wall after the La Crescenta area experienced substantial rainfall in December 2004.
On November 4, 2005 State Farm wrote to Swanson and stated that it was accepting “the defense of the lawsuit subject to our reservation of rights.” State Farm tentatively accepted Swanson’s choice of Blasco as her Cumis counsel, subject to his compliance with the requirements of Civil Code section 2860. State Farm asserted that there was “a question whether we have a duty, under the terms of the policy, to defend or indemnify” Swanson for the loss alleged in the Bitetti Action. The rights reserved by State Farm involved questions regarding whether some of the claimed damages “would qualify as bodily injury or property damage as defined by the policy, ” whether they “arose out of an occurrence as defined by the policy, ” and whether they were excluded from coverage by policy provisions excluding certain bodily injury or property damage. (Bold omitted.) State Farm also advised Swanson that it was “reserving the right to supplement or amend this reservation of rights to add or remove any policy defenses, ” as well as “the right to withdraw this defense if we determine there is no duty to defend or indemnify you.” State Farm also reserved the right “to submit any disagreement over [defense attorney] fees to arbitration as outlined in C[ivil] C[ode section] 2860.”
On December 5, 2005 Blasco responded that the terms of State Farm’s November 4, 2005 letter were generally acceptable, except for State Farm’s proposed hourly rate of $150. Blasco requested an hourly rate of $200, the same rate Swanson had been paying him. Blasco also provided information about himself and his firm to demonstrate his qualifications to serve as defense counsel under Civil Code section 2860.
On December 20, 2005 State Farm notified Blasco that he had met the requisite statutory qualifications for Cumis counsel but advised him that the compensated hourly rate would remain $150. The parties resolved the issue by Blasco agreeing to accept payment from State Farm at the hourly rate of $150 and Swanson agreeing to pay Blasco the $50 hourly rate difference.
On April 11, 2006 State Farm amended its original reservation of rights and withdrew certain policy defenses it had previously asserted in its reservation of rights. It is undisputed that State Farm’s withdrawal of these reservations “eliminated the Cumis-triggering conflict” between the insurer and its insured. State Farm informed Swanson that it had chosen and retained an attorney from the firm of Procter, McCarthy and Slaughter (Procter) to “take over the defense of” the Bitetti Action. State Farm also advised Swanson that “elimination of the Cumis-triggering conflict” relieved it of its obligation “to pay for independent counsel.” State Farm explained that “in the absence ...