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McMillin Companies, LLC v. American Safety Indemnity Co.

California Court of Appeals, Fourth District, First Division

January 22, 2015

McMILLIN COMPANIES, LLC, Plaintiffs and Appellants,
v.
AMERICAN SAFETY INDEMNITY COMPANY, Defendant and Appellant.

[CERTIFIED FOR PARTIAL PUBLICATION[*]]

APPEAL from a judgment of the Superior Court of San Diego County, Super. Ct. No. 37-2009-00083837-CU-IC-CTL Judith F. Hayes and Lorna A. Alksne, Judges.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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COUNSEL

Wilson, Elser, Moskowitz, Edelman & Dicker, Gregory D. Hagen and John R. Clifford for Defendant and Appellant.

Law Offices of Greg J. Ryan and Greg J. Ryan for Plaintiffs and Appellants.

Morris Sullivan & Lemkul, Shawn D. Morris and Matthew J. Yarling for Brookfield Del Mar Builders, Inc., as Amicus Curiae on behalf of Plaintiffs and Appellants.

Wilson, Elser, Moskowitz, Edelman & Dicker, Gregory D. Hagen and John R. Clifford for Defendant and Appellant.

OPINION

IRION, J.

The parties cross-appeal from a final judgment of the superior court in an insurance coverage dispute between a general contractor (and, according to the general contractor, its related entities) and the commercial general liability insurer of one of its subcontractors. We will dismiss the appeal as to all parties other than the general contractor (McMillin Construction Services, L.P., doing business as McMillin Homes, a Corky McMillin Company (McMillin)) and the insurer (American Safety Indemnity Company (ASIC)) and will reverse the judgment and remand for further proceedings.

I. MOTIONS IN THE CROSS-APPEALS [*]

Page 522

II. ISSUES IN THE CROSS-APPEALS

A. The Entities

McMillin was the general contractor and B&B Framing, Inc. (B&B) was the framing subcontractor in a series of construction contracts related to various residential real estate development projects in Temecula, Riverside County, California.

ASIC is a non-admitted insurance company that issued two policies of commercial general liability insurance to B&B: policy No. XGI 02 2922 001, covering the time period January 18, 2002, to January 18, 2003; and policy No. XGI 03 2922 002, covering the time period January 18, 2003, to January 18, 2004. Although both policies are alleged in the original and first three amended complaints in this action, the parties agree that only the first policy, No. XGI 2 2922 001 (Policy) is at issue.

B. The Construction Defect Litigation

In October 2007, 117 homeowners in the Brookhaven, Castle Pines and Cypress Point projects (projects) filed an amended complaint in Riverside County Superior Court against McMillin and others, alleging construction defect claims related to the homeowners' residences in the projects (Baker litigation).

In December 2007, McMillin (and a number of its related entities named as defendants in the Baker litigation) tendered the defense of the Baker litigation to ASIC under the terms of both of the policies, contending it was an additional insured under the policies. Approximately six months later, ASIC denied the tender.

C. The Present Insurance Coverage Litigation

1. The Complaint and Amended Complaints

In February 2009, eight McMillin-related entities (but not McMillin) filed the underlying complaint against ASIC and 11 other insurance companies. The plaintiffs alleged that each of the defendants was an insurer to one or more of the subcontractors on the projects, that each of the plaintiffs was an additional insured under each of the respective policies, that each of the defendant insurers owed each of the plaintiffs a duty to defend the Baker litigation, and that by denying the tender of the defense of the Baker litigation

Page 523

each of the defendants breached a contract of insurance and its implied covenant of good faith and fair dealing.

In a first amended complaint filed in July 2010, McMillin and nine related entities named the same defendants as in the original complaint and alleged essentially the same facts and causes of action.

Two months later, in a second amended complaint (SAC), McMillin and two related entities (SAC plaintiffs) named the same defendants as in the first two complaints and alleged essentially the same facts and causes of action.

In November 2011 McMillin, as the sole plaintiff, filed a third amended complaint (TAC) against ASIC, as the sole defendant, alleging essentially the same facts and causes of action as in the prior three complaints.[4] This was after the denial of ASIC's motion for summary judgment, the settlements with all defendants except ASIC, and the filing of the parties' pretrial motions in limine, but before the rulings on the in limine motions—all discussed post.

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2. ASIC's Motion for Summary Judgment

In January 2011, ASIC filed a motion for summary judgment directed to the then-operative SAC. ASIC argued that all three causes of action—declaratory relief, breach of contract and breach of the implied covenant of good faith and fair dealing—failed as a matter of law on the following independent grounds: (1) none of the SAC plaintiffs qualified as an "additional insured" under the terms of the Policy; (2) the Policy only covered B&B's "ongoing operations, " which ASIC contended had ceased prior to the occurrences alleged in the Baker litigation; (3) the Policy only covered liability arising out of B&B's negligence; (4) the Policy's exclusion j. (5) precluded coverage; and (5) the Policy's exclusion j. (6) precluded coverage.[5] We will discuss the substance of the specific arguments, as necessary, in the Discussion, post.

The SAC plaintiffs opposed the motion, ASIC replied to the opposition, and the court issued a tentative ruling and entertained lengthy oral argument.

By minute order filed July 29, 2011, the court denied ASIC's motion, ruling in relevant part: (1) ASIC met its initial burden of establishing that there is not an "additional insured endorsement" on the Policy expressly identifying any of the SAC plaintiffs; (2) the SAC plaintiffs then did not meet their burden of raising a triable issue of material fact as to the absence of an effective "additional insured endorsement" identifying any of the SAC plaintiffs; but (3) the applicable " 'blanket' additional insured endorsement" contained in the Policy provided benefits in circumstances that ASIC did not disprove as a matter of law.

3. The Settlements

During the time period May 2010 through October 2011, the SAC plaintiffs settled their claims in the coverage action with all the defendants except ASIC (Settlement). Of the total $690, 154 in Settlement proceeds, the Settlement documentation affirmatively allocated $274, 154 to defense expenses from the Baker litigation, and $416, 000 was unallocated.[6]

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4. The Motions in Limine

In October 2011, in anticipation of trial, the parties filed motions in limine. One dealt with ASIC's alleged duty to defend, and two dealt with the effect of the Settlement proceeds on the SAC plaintiffs' alleged damages.

With regard to the duty to defend, the SAC plaintiffs filed a motion to exclude testimony and argument disputing that ASIC had a duty to defend the Baker litigation. With regard to the Settlement proceeds, the SAC plaintiffs filed a motion to exclude evidence or argument about the Settlement (or any of its details); and ASIC filed a motion to preclude McMillin from arguing either (a) that the Settlement proceeds are not offsets to McMillin's alleged damages for breach of the duty to defend (breach of contract claim) or (b) that the Settlement proceeds are allocated to McMillin's alleged damages for breach of the implied covenant of good faith and fair dealing (tort claim). By the time the motions were fully briefed and decided, the operative complaint was the TAC filed by McMillin. Since McMillin was the only plaintiff at the time the court ruled on the motions, we will refer only to McMillin unless context requires otherwise.

a. Duty to Defend

Relying on Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1078 [17 Cal.Rptr.2d 210, 846 P.2d 792] (Horace Mann), and Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 301 [24 Cal.Rptr.2d 467, 861 P.2d 1153] (Montrose), McMillin argued that the denial of ASIC's motion for summary judgment established as a matter of law that ASIC had a duty to defend them in the Baker litigation. Opposing the motion, ASIC disputed the legal effect of the denial of its summary judgment motion, contending that because the court did not deny the motion by expressly finding a disputed factual issue, the effect of the ruling did not establish the duty to defend as a matter of law.

In denying summary judgment, the court (Judge Nevitt) had ruled that, with regard to four allegedly undisputed issues, "ASIC has not met its initial burden of proof." During the in limine proceedings, ASIC argued that the court (Judge Alksne) could not consider the denial of the summary judgment, relying in part on Judge Nevitt's following comments at the conclusion of the hearing in which he denied ASIC's motion: "However, I remind counsel that this ruling is of no evidentiary value later. I don't know what other evidence

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may be presented to the Court when these issues are next presented. Whether foundations may have been laid for things, not laid here, and so forth. And so should this issue come before the Court again under different circumstances and with potentially different evidence, you should not necessarily count on the same result."

Considering both Judge Nevitt's comment and the written order, Judge Alksne explained at the in limine hearing that ASIC's failure to meet its initial burden in its summary judgment motion was a decision that there was a disputed issue of material fact as to coverage, and that such a disputed issue established the duty to defend. The court's minute order granted the motion to exclude testimony and argument disputing that ASIC had a duty to defend the Baker litigation.

b. Offset[7]

Both motions sought pretrial rulings as to whether the court would allow evidence of the Settlement and, more specifically, whether the parties could present evidence or argument as to the application of the Settlement proceeds as an offset to the alleged damages.[8] McMillin's alleged damages were limited to: contract damages for breach of ASIC's duty to defend (consisting of McMillin's unreimbursed defense expenses from the Baker litigation (Baker fees)[9]); and tort damages for breach of the implied covenant of good faith and fair dealing (consisting of McMillin's attorney fees and costs incurred to compel payment from ASIC of insurance benefits under the Policy (Brandt fees)[10]).

In its motion in limine, McMillin principally argued in the alternative: (1) all evidence of the Settlement was inadmissible under the collateral source

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rule;[11] or (2) where the Settlement agreements with the settling insurers did not expressly allocate their Settlement payments either to unreimbursed defense expenses in the Baker litigation (after Settlement, $416, 000)[12] or to consideration for the settlement of the coverage action, ASIC should not be allowed unilaterally to allocate those proceeds to Baker fees. ASIC responded: (1) the collateral source rule was inapplicable, since it affects only tort, not contract, claims, and McMillin's principal claim here was breach of contract; and (2) application of Emerald Bay Community Assn. v. Golden Eagle Ins. Corp. (2005) 130 Cal.App.4th 1078 [31 Cal.Rptr.3d 43] (Emerald Bay) required the court to offset all Settlement proceeds (whether allocated or unallocated) from McMillin's alleged damages in order to preclude McMillin from recovering more in contract damages than it actually suffered.[13]

In its motion in limine, ASIC affirmatively sought the relief it argued in opposition to McMillin's motion. Again relying on Emerald Bay (see fn. 13, ante), ASIC attempted to establish that McMillin suffered no contract damages. Given that McMillin had, in fact, incurred unreimbursed defense expenses during the Baker litigation (i.e., Baker fees), the only way for ASIC to prove its point was to have the trial court apply the equitable doctrine of offset, such that each dollar of Settlement proceeds offset each dollar of Baker fees.[14] More specifically, ASIC argued that because McMillin had recovered more in Settlement proceeds than its Baker fees, McMillin could no longer prove an essential element of its cause of action for breach of contract—namely, damages. From there ASIC reasoned that, without the ability to recover for breach of contract, as a matter of law McMillin could not prove an essential element of its cause of action for breach of the implied covenant of good faith and fair dealing—namely, breach of the insurance contract.

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In opposition to ASIC's motion, McMillin argued that, of the total Settlement proceeds ($690, 154), only $274, 154 had been allocated specifically to settle the contract claim, leaving $416, 000 in unallocated Settlement proceeds; that McMillin still had unreimbursed defense expenses from the Baker litigation of $309, 957; and that ASIC could not arbitrarily and unilaterally allocate the $416,000 to Baker fees.

At a hearing on August 1, 2012, Judge Alksne orally ruled that the court would allow evidence of the Settlement at trial.[15] Following many rounds of briefing and oral argument hearings, Judge Alksne took under submission the in limine motions regarding the Settlement. In a minute order filed in October 2012, the court granted ASIC's motion in limine without further explanation, thereby ruling that McMillin would be precluded from presenting evidence or argument that the Settlement proceeds either are not offsets to the Baker fees (McMillin's contract damages) or are allocated to the Brandt fee (McMillin's tort damages).[16] In so doing, Judge Alksne necessarily allocated at least $309, 957 of the previously unallocated Settlement proceeds ($416, 000) to McMillin's breach of contract cause of action against the settling insurers, completely offsetting McMillin's contract damages (i.e., Baker fees) by Settlement proceeds.

5. The Judgment

The parties agreed that the effect of the rulings in the in limine motions - namely, that although ASIC had breached its duty to defend, the Settlement proceeds ($690, 154) would be applied as an offset to McMillin's Baker fees ($309, 957)—was that McMillin could not prove any contract damages, and without contract damages, McMillin could not maintain a cause of action for breach of the implied covenant of good faith and fair dealing. The parties further agreed that, based on the effect of the rulings, judgment could be entered in favor of ASIC—with all parties reserving their rights to appeal.

The court entered judgment, and ASIC gave notice of its entry on March 5, 2013. McMillin timely appealed, and ASIC timely cross-appealed.

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III.

DISCUSSION

As we explain post, the trial court erred in granting McMillin's motion in limine to preclude evidence or argument that disputed ASIC's duty to defend; the trial court erred in granting ASIC's motion in limine to preclude McMillin from presenting evidence or argument either that the Settlement proceeds are not an offset to McMillin's Baker fees or that the Settlement proceeds are allocated to Brandt fees; and we are unable to affirm that portion of the judgment in favor of ASIC on McMillin's cause of action for breach of the implied covenant of good faith and fair dealing.

A. The Trial Court Erred in Granting the Motions in Limine

1. Introduction and Standard of Review

Motions in limine are designed to facilitate management of a case by deciding difficult evidentiary issues in advance of trial. (Amtower v. Photon Dynamics, Inc. (2008) 158 Cal.App.4th 1582, 1593 [71 Cal.Rptr.3d 361] (Amtower); see Super. Ct. San Diego County, Local Rules, rule 2.1.18 ["Motions in limine must be limited in scope in accordance with Clemens v. American Warranty Corp. (1978) 193 Cal.App.3d 444, 451 [238 Cal.Rptr. 339] . . ." : e.g., evidentiary issues where attempts to 'unring the bell' would be unduly prejudicial or futile."].) Although trial courts may exercise their inherent powers to permit other uses of motions in limine (Amtower, at p. 1595; Coshow v. City of Escondido (2005) 132 Cal.App.4th 687, 701-702 [34 Cal.Rptr.3d 19] [proper exercise of "inherent powers" by construing motions in limine as a motion for judgment on the pleadings]), when used in such fashion they become substitutes for dispositive statutory motions (Amtower, at p. 1594).

Like many evidentiary rulings, orders on motions in limine are generally reviewed for abuse of discretion. (Piedra v. Dugan (2004) 123 Cal.App.4th 1483, 1493 [21 Cal.Rptr.3d 36].) However, as we explain post, that standard does not apply where (as here) the grant of the motion becomes a substitute for a summary adjudication or nonsuit motion, which requires a ruling as a matter of law in the first instance and de novo review on appeal.

By granting McMillin's motion as to the duty to defend, the court essentially granted a summary adjudication motion in favor of McMillin on one of the elements of its cause of action for breach of contract, ruling as a matter of law that ASIC had a duty to defend. (See Code Civ. Proc., § 437c, subd. (f)(1) ["party may move for summary adjudication as to... one or

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more issues of duty"].) For this reason, we will review de novo the order granting McMillin's in limine motion. (Lomes v. Hartford Financial Services Group, Inc. (2001) 88 Cal.App.4th 127, 131 [105 Cal.Rptr.2d 471] ["the appellate court independently reviews an order granting summary adjudication of the duty to defend"].)

Similarly, by granting ASIC's motion as to offset, the court essentially granted "a motion for nonsuit after [McMillin's] opening statement" in favor of ASIC on McMillin's causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing - all resulting from ASIC's alleged breach of the duty to defend.[17] (Amtower, supra, 158 Cal.App.4th at pp. 1594, 1595; see Edwards v. Centex Real Estate Corp. (1997) 53 Cal.App.4th 15, 27 [61 Cal.Rptr.2d 518] (Edwards) [where the grant of defendant's motion in limine precludes plaintiff from presenting all evidence on an issue at trial, the effect is "the functional equivalent of an order sustaining a demurrer to the evidence, or nonsuit"].) Accordingly, like the trial court in ruling on a motion for nonsuit, "on this appeal we must view the evidence most favorably to [McMillin], resolving all presumptions, inferences and doubts in [its] favor, and uphold the judgment for [ASIC] only if it was required as a matter of law" (Edwards, at p. 28), recognizing that "the grant of such a motion is not favored" (Amtower, at p. 1595). Since this determination raises only an issue of law, we review the order de novo. (M&F Fishing, Inc. v. Sea-Pac Ins. Managers, Inc. (2012) 202 Cal.App.4th 1509, 1532 [136 Cal.Rptr.3d 788].)

2. Duty to Defend

An insurer owes a duty to defend any lawsuit "which potentially seeks damages within the coverage of the policy." (Gray v. Zurich Insurance Co. (1966) 65 Cal.2d 263, 275 [54 Cal.Rptr. 104, 419 P.2d 168].) Since the duty arises whenever the claim against the insured seeks damages on any theory that, if proved, would be covered by the policy, the insurer is relieved of its duty only when " 'the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.' " (Montrose, supra, 6 Cal.4th at p. 300.) Thus, where the insurer moves for summary judgment based on the lack of a duty to defend, the insurer must present undisputed facts that establish "the absence of any such potential" for

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coverage.[18] (Montrose, at p. 300.) In so doing, if coverage depends on an unresolved dispute over & factual question, the very existence of that dispute would not only result in a denial of the motion, but also establish a possibility of coverage and thus a duty to defend. (Horace Mann, supra, 4 Cal.4th at p. 1085.)

In its cross-appeal, ASIC's principal argument is that Judge Alksne erred when she ruled that, based on Judge Nevitt's denial of ASIC's motion for summary judgment, ASIC was precluded from presenting evidence or argument disputing that ASIC owed the SAC plaintiffs a duty to defend the Baker litigation.[19] Although Judge Alksne's minute order merely granted, without explanation, McMillin's motion in limine, Judge Nevitt's minute order denying ASIC's summary judgment motion explained:

" 'Undisputed issue' 7 concerns ASIC's contention that there is not an 'additional insured endorsement on the policies which specifically identifies any of the [SAC p]laintiffs' [citation]. [The SAC p]laintiffs appear to agree with ASIC.... Therefore, ASIC has met its initial burden of proof, and [the SAC] plaintiffs have not raised a triable issue of material fact as to the absence of an effective additional insured endorsement specifically naming [the SAC] plaintiffs (or any of them) as an additional insured. However, this is not dispositive.

"ASIC acknowledges that there is a ' "blanket" additional insured endorsement' (AIE).... The AIE includes an Amendment limiting coverage. ASIC's 'undisputed issues' 1, 2, 5 and 6 are based on provisions of this Amendment. ASIC contends that the underlying action [citation] does not involve, or potentially involve, '[o]ngoing operations performed by the Named Insured [B&B Framing] on or after the effective date [of] this endorsement, ' '[l]iability arising out of or relating to the Named Insured's sole negligence, ' or ' "bodily injury" or "property damage" caused by an "occurrence" under Coverage A not otherwise excluded in the policy to which the Endorsement applies.' (AIE's Amendment, emphasis added.) ASIC's arguments are not persuasive as to any of these four 'undisputed issues, ' i.e., ASIC has not met its initial burden of proof." (Last italics added.)

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We focus on the last statement that "ASIC has not met its initial burden of proof."[20]

Horace Mann instructs: Where "factual issues exist precluding summary judgment in the insurer's favor..., the duty to defend is then established, absent additional evidence bearing on the issue." (Horace Mann, supra, 4 Cal.4th at p. 1085.) Given this language, ASIC contends that, because Judge Nevitt denied ASIC's motion on the basis ASIC "has not met its initial burden"—not because factual issues existed—the duty to defend was not established as a matter of law. McMillin's response is that under the "doctrine of implied findings, " Judge Nevitt's denial of ASIC's motion necessarily found that the SAC plaintiffs were additional insureds under the "blanket additional insured endorsement."[21] We agree with ASIC. The reason for the above-quoted language in Horace Mann is that, "[i]f coverage depends on an unresolved dispute over a factual question, the very existence of that dispute would establish a possibility of coverage and thus a duty to defend." (Mirpad, LLC v. California Ins. Guarantee Assn. (2005) 132 Cal.App.4th 1058, 1068 [34 Cal.Rptr.3d 136] (Mirpad).) Here, however, Judge Nevitt's summary judgment ruling did not find a factual dispute that necessarily established a possibility of coverage. Rather, the ruling established only that ASIC did not meet its initial burden of production to make a prima facie showing that there are no triable issues of material fact. As further support for this position, we note that Judge Nevitt did not "specify one or more material facts raised by the motion"—a requirement when the court denies the motion "on the ground that there is a triable issue as to one or more material facts." (Code Civ. Proc., § 437c, subd. (g).)[22]

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Judge Alksne's statement from the bench indicates a possible source of misunderstanding. In granting McMillin's motion in limine as to the duty to defend, she explained to ASIC's counsel: "[Judge Nevitt's] written order says... that you [ASIC] didn't meet your burden of proof. And the case law says [if] you don't meet your burden of proof, [then] you" have "a duty to defend." However, as we clarified ante, in order for the denial of an insurer's motion for summary judgment to establish a duty to defend, the denial must be based on "an unresolved dispute over a factual question, " because only that type of dispute "establish[es] a possibility of coverage and thus a duty to defend." (Mirpad, supra, 132 Cal.App.4th at p. 1068; see Horace Mann, supra, 4 Cal.4th at p. 1085.) Denying a summary judgment motion because the moving party failed to meet its initial burden of production is not the same as denying the motion based on an unresolved factual dispute.

Accordingly, the trial court erred in ruling prior to trial that ASIC was precluded from presenting evidence or argument that disputed whether ASIC had a duty to defend the SAC plaintiffs in the Baker litigation.[23] In making such a ruling in limine, the trial court essentially granted summary adjudication as to the breach of ASIC's alleged duty to defend without requiring the statutory procedural protections associated with summary judgment proceedings, thereby not requiring McMillin to prove its case and not allowing ASIC to defend McMillin's proof.

3. Offset

McMillin contends the court erred in ruling that McMillin was precluded from arguing or presenting evidence either that the Settlement proceeds are

Page 534

not offsets to the contract damages or that the Settlement proceeds are allocated to settling the tort (as opposed to contract) cause of action. We agree, but not for the same reasons suggested by McMillin. As we will explain post, because of procedural context of the requested relief (in limine proceedings) and the standard of review (de novo), on this record ASIC was not entitled to an offset based on equitable principles at this stage of the litigation.

a. Offset as an Affirmative Defense

Based on inconsistencies in the record and appellate briefing, we requested and received Government Code section 68081 supplemental briefing on the issue whether ASIC was asserting offset as an affirmative defense. (See Code Civ. Proc., § 431.70.) We received responses from both McMillin and ASIC, and they are in agreement: ASIC's claim of offset at issue in this appeal is not being asserted or defended as an affirmative defense.

While that answer satisfies our inquiry, we note the parties' lack of clarity in their appellate briefing regarding the basis of ASIC's requested application of offset and the related burden of proof, especially in light of the parties' express arguments in the trial court regarding the affirmative defense of offset and the parties' citations to and reliance on authorities in their appellate briefing applicable to the affirmative defense of offset.

b. Offset as Equitable Relief

From the parties' presentations throughout this case, we perceive a basic misunderstanding as to the effect of the type of equitable offset ASIC is asserting. Both ASIC and McMillin treat the entire Settlement proceeds ($690, 154) as potential offsets to damages. The Settlement proceeds do not affect McMillin's damages. Rather, in the event of an award of damages at trial, Settlement proceeds that are found to be offsets by the trial court[24] affect only McMillin's right to recover the full amount of damages awarded at trial. (See Goodman v. Lozano (2010) 47 Cal.4th 1327, 1338 [104 Cal.Rptr.3d 219, 223 P.3d 77] [in the context of determining the prevailing party for purposes of awarding costs, settlement offsets affect whether a party has a " 'net monetary recovery' "].) If we assume (solely for the purpose of this illustration) that ASIC breached its duty to defend, "the proper measure of damages is the reasonable attorneys' fees and costs incurred by [McMillin] in defense of the [Baker litigation]." (Marie Y. v. General Star Indemnity Co. (2003) 110 Cal.App.4th 928, 961 [2 Cal.Rptr.3d 135] (Marie Y.); see Hogan v. Midland National Ins. Co.

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(1970) 3 Cal.3d 553, 564 [91 Cal.Rptr. 153, 476 P.2d 825] [same, even where no duty to indemnify].) In the context of this record, that means all attorney fees and costs McMillin incurred other than those that were paid by insurer(s) that accepted the tender of, and participated in, the defense of the Baker litigation. The significance of this distinction—namely, that an offset affects the right to recover damages, not the amount of damages suffered—is that McMillin should be allowed to present at trial evidence of the contract damages it suffered; and if the trier of fact awards contract damages and finds support for the other elements of McMillin's claim for breach of the implied covenant of good faith and fair dealing, then McMillin may also recover tort damages, subject to proof (and the potential posttrial request for offset to reduce McMillin's recovery). The fact that the 11 other insurer defendants settled with McMillin should not, and does not, affect whether ASIC breached the duty to defend or the implied covenant of good faith and fair dealing. At best, the Settlement proceeds from the other 11 insurers may reduce (by way of offset) the amount ASIC ultimately owes McMillin for contract or tort damages.

In our Government Code section 68081 letter, we indicated an intent to treat Judge Alksne's ruling on the motion in limine as a ruling on a motion for nonsuit, inquiring if the result would be different depending on whether ASIC had asserted its right to offset as an affirmative defense or as an equitable claim. McMillin responded that the result would be the same, repeating its request for a reversal.

Rather than responding to the question presented, ASIC argued that its motion in limine was not really a motion in limine; "it is better understood as a shifting of the order of proof." According to ASIC, "the parties stipulated that the court was to make certain damage determinations before presenting the remainder of the case." ASIC described its understanding of the stipulated procedure as follows: "The setoff issue was thus decided by the trier of fact (stipulated to be the trial judge who usually addresses third party payments post trial) following the presentation of the evidence—the only difference being that Judge Alksne made the same factual and legal determinations at the start of trial that she would have made after trial." From this description of the procedure, ASIC argued that because the parties presented evidence in support of their respective positions, some of which Judge Alksne credited and applied as an offset to damages, McMillin is not entitled to the presumptions, inferences and doubts that benefit an appellant in an appeal from the grant of a nonsuit after opening statement, as we suggested in our Government Code section 68081 letter.[25] Finally, ASIC repeated its principal

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(already briefed) contention that, because Emerald Bay is factually and legally indistinguishable from the present case, the trial court correctly ruled as it did, and we have no choice but to affirm based on the standards of review suggested by ASIC.

We disagree with ASIC's representation of the scope of the proceedings before Judge Alksne (and, accordingly, the standard of review to be applied) and with ASIC's insistence that Emerald Bay and similar cases are controlling. As we will explain post, Emerald Bay and ASIC's related authorities are factually distinguishable and thus inapplicable. In Emerald Bay, the insured did not suffer any damages because the participating insurers paid the insured's entire costs of defense as they were incurred, whereas here McMillin actually suffered contract damages of at least $309, 957, even if the eventual application of an equitable offset precludes McMillin from recovering some or all of these damages. We will then explain that because the record on appeal does not support ASIC's representation that the parties stipulated to have Judge Alksne decide either the amount of damages in lieu of trial or the amount of any offset, there is no support for ASIC's suggestion of a standard of review other than de novo with all presumptions, inferences and doubts in favor of McMillin.

(i) Emerald Bay

Throughout the briefing at all stages in both the trial and appellate courts, ASIC has relied on the opinion in Emerald Bay, supra, 130 Cal.App.4th 1078, as authority requiring the court to rule as a matter of law that McMillin did not suffer any contract damages. We disagree; Emerald Bay is not controlling, except to the extent it supports the claim that McMillin suffered damages here, whereas the insured in Emerald Bay did not.

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In Emerald Bay, an insured sued Golden Eagle Insurance Corporation for breach of the duties to defend and to indemnify under a policy of commercial general liability insurance. (Emerald Bay, supra, 130 Cal.App.4th at pp. 1082-1083.) Although Golden Eagle had refused to defend or indemnify the insured in the underlying action at a certain point in time, Federal Insurance Company, another of the insured's insurers, provided a complete defense (and indemnification) at all times. (Id. at pp. 1083-1084.) The trial court granted summary judgment in favor of Golden Eagle—and the Court of Appeal affirmed—on the ground that, since Federal had provided a complete defense at all times, the insured " 'suffered no cognizable damages' " in its claims both for breach of contract and for breach of the implied covenant of good faith and fair dealing. (Id. at pp. 1087-1096.)

ASIC's reliance on Emerald Bay is misplaced, because the predicate in Emerald Bay—namely, that at all times the insured had been provided a complete defense by a participating insurer (Emerald Bay, supra, 130 Cal.App.4th at p. 1084)—is not present here. ASIC's other authorities are also unpersuasive because of ASIC's failure to appreciate that, in each, the insured was never without a complete defense provided by someone other than the defendant. (Bramalea California, Inc. v. Reliable Interiors, Inc. (2004) 119 Cal.App.4th 468, 471-473 [14 Cal.Rptr.3d 302] [in an action against subcontractors to recover costs of defense from an underlying construction defect action, all of the contractor's attorney fees in the third party action were paid by the contractor's insurer]; Patent Scaffolding Co. v. William Simpson Constr. Co. (1967) 256 Cal.App.2d 506, 510-511 [64 Cal.Rptr. 187] [where defendant contractor had agreed to procure fire insurance but did not and plaintiff subcontractor suffered fire loss, because plaintiff recovered all losses from its own insurer plaintiff did not suffer damages]; Ringler Associates Inc. v. Maryland Casualty Co. (2000) 80 Cal.App.4th 1165, 1187 [96 Cal.Rptr.2d 136] [plaintiff insured did not suffer damages when defendant insurer withdrew from providing a defense, because insured "was fully protected from having to pay any costs of its own defense by other insurers"]; Tradewinds Escrow, Inc. v. Truck Ins. Exchange (2002) 97 Cal.App.4th 704, 712 [118 Cal.Rptr.2d 561] [defendant insurer not liable for costs of defense in third party action "where other insurers were on the risk and assumed the insured's defense"]; Prichard v. Liberty Mutual Ins. Co. (2000) 84 Cal.App.4th 890, 909 [101 Cal.Rptr.2d 298] [no breach of duty to defend where multiple insurers shared total defense expenses]; Ceresino v. Fire Ins. Exchange (1989) 215 Cal.App.3d 814, 823 [264 Cal.Rptr. 30] [where one insurer paid for insured's defense in underlying litigation, second insurer's failure to do so "was of no consequence" to insured].) ASIC fails to distinguish the situation where the insured is provided a complete defense (the plaintiffs in Emerald Bay and related authorities) from the situation

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where the insured is without a complete defense but later, following litigation, recovers payments from others that arguably compensate the insured for having to provide its own defense (McMillin here).

On appeal, ASIC acknowledges that only a portion of McMillin's defense expenses in the Baker litigation were covered by other insurers, thereby essentially conceding that McMillin did, in fact, suffer damages in the amount of the unpaid portion defense expenses in the Baker litigation.[26] (Marie Y., supra, 110 Cal.App.4th at p. 961 ["the proper measure of damages [for breach of the duty to defend] is the reasonable attorneys' fees and costs incurred by the insured in defense of the claim"].) In its most recent letter brief, in reliance on Emerald Bay and related authorities, ASIC emphasizes that "the measure of damages for breach of the duty to defend are the costs and attorney fees that were paid by McMillin and remain 'unreimbursed.' " ASIC presents no authority (and we are aware of none) that supports the italicized portion of ASIC's statement requiring an insured's damages to "remain 'unreimbursed ' " at the time of trial in order to establish damages as an element of the cause of action. The timing and source of "reimbursement" may affect the insured's ability to recover damages awarded, but not whether the insured suffered the damages.

Emerald Bay is neither controlling nor persuasive, except to the extent it confirms that, in contrast with the insured in Emerald Bay, the insured here (McMillin) does have evidence of damages—namely, McMillin's attorney fees and costs incurred in defending the Baker litigation that were not paid by the insurers that participated in McMillin's defense of that action. Thus, according to Emerald Bay and ASIC's related authorities, the existence of the Settlement proceeds is irrelevant to the determination of whether McMillin suffered damages as a result of the alleged breach of the duty to defend.

(ii) Purported Stipulation

After merits briefing of 152 pages and amicus curiae briefing of 32 pages, for the very first time in its letter brief, ASIC advises that "the parties

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stipulated that [Judge Alksne] was to make certain damage determinations before presenting the remainder of the case" and "McMillin agreed to have [Judge Alksne], not the jury, decide whether [McMillin] still had damages at the start of trial." In support of this new revelation, ASIC refers us to the following statements, which it attributes to McMillin during the in limine proceedings:

" 'Plaintiff McMILLIN joins with Defendant ASIC in requesting that the court address the issue of offset before the remainder of the case. Plaintiff concurs with Defendant ASIC that the issue of damage offsets is one for the trial judge, not the jury to decide.' "

" 'McMILLIN joins... in requesting that the court address the issue of offset before the remainder of the case.' "

The first statement is contained in one of McMillin's briefs on the issue of offsets. ASIC did not provide a record reference for the second statement, and thus we may disregard it. (Cal. Rules of Court, rule 8.204(a)(1)(C); Liberty National Enterprises, L.P. v. Chicago Title Ins. Co., supra, 194 Cal.App.4th at p. 846.) In any event, neither statement alone nor both statements together establish an agreement by McMillin and ASIC to have Judge Alksne decide the issue of damages based on declarations and oral argument. At most, McMillin asked the court to decide the potential effect of the Settlement proceeds on McMillin's alleged damages in order to limit or exclude evidence of the Settlement, [27] not to preclude McMillin from going to trial on the causes of action in the TAC. Finally—and tellingly—ASIC does not tell us where in the record it agreed to the procedure that it now contends was intended by the parties and accepted by the court; and our familiarity with the record does not disclose such an agreement.

(iii) Trial Court's Error

As explained at part III.A.1, ante, we consider ASIC's motion in limine as if it had been a motion for nonsuit after opening statement. As such, we review the trial court's ruling de novo, viewing the evidence and offers of proof most favorably to McMillin, and resolving all presumptions, inferences and doubts in its favor; and we will uphold the order granting ASIC's motion only if it is required as a matter of law. (Edwards, supra, 53 Cal.App.4th at p. 28; Amtower, supra, 158 Cal.App.4th at pp. 1594-1595.) Under this standard, Judge Alksne's order granting ASIC's motion in limine—and, therefore, the related judgment—must be reversed.

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The parties do not dispute that pursuant to express language in certain of the Settlement agreements, $274, 154 was allocated to McMillin's defense expenses in the Baker litigation. McMillin presented this evidence to the trial court, explaining: "[I]f it was McMillin and the settling carriers' intent to allocate a portion of the [settlement] funds to settlement of defense costs, then the allocation would have been set forth explicitly in the settlement agreement[s]." This statement and a reasonable inference from it establish that because the remaining Settlement proceeds ($416, 000) were unallocated, the settling parties did not intend that those funds be allocated to Baker fees—i.e., those Settlement funds instead should be allocated to settling insurers' resolution of the cause of action for breach of the implied covenant of good faith and fair dealing, not to the cause of action for breach of the contract duty to defend. Doing so leaves McMillin with its claim for Baker fees—sufficient evidence to defeat a motion for nonsuit after opening statement, the standard we are to apply.[28]

Thus, under the standards for ruling on motions for nonsuit—which are the same for purposes of our standard of review on appeal (Edwards, supra, 53 Cal.App.4th at p. 28)—Judge Alksne erred in rejecting McMillin's presentation (that unallocated Settlement proceeds be allocated to resolving the tort claim) and accepting ASIC's presentation (that unallocated Settlement proceeds be allocated first to resolving the contract claim), leaving McMillin without evidence of damages. In making such a ruling in limine, the trial court essentially granted a nonsuit as to the issue of McMillin's alleged damages without requiring the statutory procedural protections associated with nonsuit proceedings, thereby precluding McMillin from trying its case.

(iv) Conclusion

In ruling that McMillin was precluded from arguing that the unallocated Settlement proceeds either are not an offset to contract damages or are allocated to the tort damages, the trial court erred in essentially granting a nonsuit in ASIC's favor.

ASIC's arguments regarding offsets based on the Settlement proceeds do not defeat McMillin's right to go to trial on the TAC. The fact that McMillin may have obtained the Settlement from 11 other insurers years after the tender of defense to ASIC—regardless how the Settlement proceeds are

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allocated—affects only McMillin's potential right to recover damages from ASIC, not whether McMillin suffered damages as a result of ASIC's alleged breaches.[29]

4. The Orders Granting the Motions in Limine Are Reversed

The minute order filed July 26, 2012, precluding ASIC from disputing its alleged duty to defend is reversed; and on remand, the court should enter an order denying the SAC plaintiffs' motion in limine. The minute order filed October 22, 2012, precluding McMillin from arguing that the unallocated Settlement proceeds either are not an offset to contract damages or are allocated to the tort damages, is reversed; and on remand the court should enter an order denying ASIC's motion in limine.[30]

As evidenced in this appeal, using an in limine motion as a substitute for a potentially dispositive statutory motion produces substantial risk of prejudicial error. "The disadvantages of such shortcuts are obvious. They circumvent procedural protections provided by the statutory motions or by trial on the merits; they risk blindsiding the nonmoving party; and, in some cases, they could infringe a litigant's right to a jury trial." (Amtower, supra, 158 Cal.App.4th at p. 1594.) Accordingly, "[t]he better practice in nearly every case is to afford the litigant the protections provided by trial or by the statutory processes." (Id. at p. 1588.)

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B. ASIC Is Not Entitled to Judgment on McMillin's Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing

As part of its cross-appeal, ASIC asks us to affirm that portion of the judgment in its favor on McMillin's third cause of action for breach of the implied covenant of good faith and fair dealing.

However, since only a "party aggrieved" can prosecute an appeal (Code Civ. Proc., § 902), we question whether ASIC has standing to raise this request in its cross-appeal. A party is legally "aggrieved" for appeal purposes only if its "rights or interests are injuriously affected by the judgment." (County of Alameda v. Carleson (1971) 5 Cal.3d 730, 737 [97 Cal.Rptr. 385, 488 P.2d 953].) Here, ASIC raised the request as an appellant (in a cross-appeal), yet ASIC's rights or interests are hardly "injuriously affected" (ibid.) by a judgment that is entirely in its favor—including specifically as to McMillin's cause of action for breach of the implied covenant of good faith and fair dealing.

Even if we treat this portion of ASIC's cross-appeal as if it were raised by ASIC as the respondent in McMillin's appeal (as an alternative way to affirm the judgment as to the tort claim), we still are unable to grant the relief. ASIC moved only for summary judgment and did not seek summary adjudication on the cause of action for breach of the implied covenant of good faith and fair dealing, and we may not consider relief ASIC did not request in the summary judgment proceedings.[31] (Barber v. Chang (2007) 151 Cal.App.4th 1456, 1469 [60 Cal.Rptr.3d 760]; Motevalli v. Los Angeles Unified School Dist. (2004) 122 Cal.App.4th 97, 114 [18 Cal.Rptr.3d 562] ["a motion for summary adjudication cannot be considered by the court unless the party bringing the motion for summary judgment duly gives notice that summary adjudication is being sought as an alternative to summary judgment, in the event summary judgment is denied"].)

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DISPOSITION

The appeal is dismissed as to all appellants other than McMillin Construction Services, L.R, doing business as McMillin Homes, a Corky McMillin Company. The judgment is reversed and the matter remanded for further proceedings. The parties will bear their respective costs on appeal. (Cal. Rules of Court, rule 8.278(a)(3), (5).)

Nares, Acting P. J., and Aaron, J., concurred.


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