DAVID W. TOMERLIN, Plaintiff and Respondent, v. THE CANADIAN INDEMNITY COMPANY, Defendant and Appellant
S. F. No. 21371
In Bank
Aug. 13, 1964
September 10, 1964
61 Cal. 2d 638
Defendant argues that the proximate cause of the accident was not the defective condition of the foot brakes but was the failure of the two welds holding the rear axle housing in place. However, the evidence shows that the failure of the welds was caused by the application of the hand brakes and that plaintiff would not have been forced to use the handbrakes had the foot brakes functioned. It appears that the hand brakes exerted more pressure on the welds than would have resulted from foot brakes in proper condition. Under the circumstances it could reasonably be inferred that the accident would not have happened but for the defective condition of the foot brakes.
The judgment is affirmed.
Traynor, J., Schauer, J., McComb, J., Peters, J., Tobriner, J., and Peek, J., concurred.
Appellant‘s petition for a rehearing was denied September 10, 1964.
McCormick, Barstow, Sheppard, Coyle & Best and Robert E. Coyle for Plaintiff and Respondent.
TOBRINER, J.—This case involves four issues which emanate from the representations of an attorney retained by an insurance company to defend an insured under a personal liability insurance policy. First, we hold that substantial evidence supports the trial court‘s findings that the attorney possessed the authority to bind the insurer by his representations respecting the coverage of the policy; second, we believe that the attorney‘s representations estop the insurer from denying such coverage; third, we find no dictate in public policy that prevents an estoppel from imposing liability found upon an intentional tort; finally, the damages, predicated upon estoppel, must comprise the promised coverage.
On August 28, 1959, plaintiff personally assaulted and battered one Maurice Jack Villines. On September 3, 1959, at defendant‘s request, plaintiff executed a reservation of rights agreement providing that defendant could investigate the incident and defend any action by Villines “without prejudice to the [defendant] under the policy, and still reserving unto the said [defendant] all its rights and defenses under said policy. . . .” Shortly thereafter, Villines filed an action against plaintiff alleging assault and battery and claiming compensatory and punitive damages.
Plaintiff engaged Hollis G. Best as his personal attorney. Best contacted defendant‘s adjuster, who eventually notified Best that defendant would defend the action under the reservation of rights agreement. Defendant thereafter retained a San Francisco attorney, Edward A. Friend, to defend plaintiff and “represent . . . [defendant‘s] interests in the lawsuit.” Best advised Friend that he was plaintiff‘s personal counsel and that Friend was to keep him informed of all proceedings in the Villines suit. Until his withdrawal from the case, Best remained in continuous contact with Friend, and was listed on the depositions as attorney of record together with Friend.
On September 14, 1960, Villines filed an amended complaint adding two counts of negligence to the assault and battery allegation. The answer filed on plaintiff‘s behalf raised as affirmative defenses, the defense of self and defense of property.
On November 15, 1960, while Friend and Best were discussing the Villines case, Friend referred to the decision in Walters v. American Insurance Co. (1960) 185 Cal.App.2d 776 [8 Cal.Rptr. 665],1 giving his views of its effect. Best
After this court, on December 21, denied a hearing in Walters, Best and Friend again discussed the matter. Best asked Friend whether defendant‘s position on the reservation of rights had altered as a consequence of the Walters decision. Friend replied that defendant “was continuing without a reservation of rights to defend the action.” Best correctly interpreted Friend‘s statement to mean that defendant would afford coverage, and not that it merely would present the defense, which, in fact, it was rendering under the reservation of rights agreement. Best told Friend that “in view of that” he would no longer “be concerned with representing Mr. Tomerlin. . . .” Best then informed plaintiff that defendant was accepting liability without reservation, and that plaintiff no longer needed personal counsel. Best had nothing further to do with the Villines suit.
On the first day of trial, counsel for Villines dismissed the two negligence counts and the claim for punitive damages. Plaintiff testified that “At this time I asked Mr. Friend if this changed my picture as far as my insurance coverage was concerned, and he said no, that the coverage is still the same as it had been before he dropped the negligence counts.” On the same day plaintiff‘s wife asked Friend if “this lets the insurance company off the hook?” to which Friend replied “No, not as far as I am concerned.”
In March 1961, the jury returned a verdict of $15,000 against plaintiff. When a juror attempted to console Mrs. Tomerlin, by telling her that “it was all insurance money,” Friend, who was present, did not deny coverage but stated only that it was a staggering amount. A short time later Friend again assured Mrs. Tomerlin that under the Walters decision the insurance company remained liable. In April 1961, however, Friend notified plaintiff that defendant disclaimed any liability to pay the Villines judgment.
The primary issue in this case turns upon whether an attorney hired by an insurance company to defend an insured possesses the authority to bind the insurer with regard to coverage of the policy. We have concluded that upon the facts of this case the attorney, Friend, had both actual and ostensible authority to bind defendant.
Initially we point out that defendant‘s contention on appeal that Friend lacked such authority constitutes a challenge to the sufficiency of the evidence; we need therefore determine only whether the record contains any substantial evidence to support the findings of the trial court. (Nichols v. Mitchell (1948) 32 Cal.2d 598 [197 P.2d 550]; Kazanteno v. California-Western etc. Ins. Co. (1955) 137 Cal.App.2d 361 [290 P.2d 332]; Correa v. Quality Motor Co. (1953) 118 Cal.App.2d 246 [257 P.2d 738].)
Actual authority arises as a consequence of conduct of the principal which causes an agent reasonably to believe that the principal consents to the agent‘s execution of an act on behalf of the principal. (
The record contains substantial evidence to support the finding of both actual and ostensible authority. With respect to actual authority the evidence shows that defendant engaged Friend to represent plaintiff in the Villines suit, and, in the words of defendant‘s claims manager, “to represent . . . our interests in the lawsuit.” Defendant failed to notify Friend of any actual limitations upon his authority although it knew that Friend concerned himself with the question of policy coverage, and, indeed, had notified defendant that its reservation of rights agreement was ineffective.
Mr. Biglow, defendant‘s counsel in the instant proceeding, stated to the trial court that “. . . in every one of these situations, the defense attorneys hired by . . . the insurance company . . . are called upon by [the insurer] to write letters and express opinions relative to the efficacy of insurance policies. . . .” The record, in fact, discloses a volume of correspondence between Friend and defendant concerning coverage problems. Defendant‘s silence in the face of this continuing correspondence could reasonably cause Friend to believe that he possessed actual authority to represent defendant in his relations with plaintiff concerning questions of coverage.
Friend‘s conduct subsequent to the Villines trial further substantiates the finding of his actual authority. Friend wrote to Best on two occasions informing him that defendant did not intend to pay the Villines judgment or to post an appeals bond. In denying coverage on these occasions Friend spoke for defendant. The trial court could reasonably infer from this evidence that Friend served in fact as defendant‘s conduit for conveying its intentions regarding coverage both before and after the trial and possessed actual authority to bind defendant.
As to ostensible authority, defendant‘s conduct in retaining Friend and in remaining silent in the face of actual knowledge of Friend‘s participation in coverage problems
Defendant must have known that during the course of the defense the insured‘s attorney would be frequently required to discuss questions of insurance coverage. Indeed, as we noted above, during the first day of the Villines trial the rapid change of circumstances compelled Friend to express authoritatively defendant‘s intention regarding coverage.
Moreover, Mr. Best, testifying in his capacity as an experienced counsel in personal injury actions, stated that in cases involving defense by an insurance company the uniform practice with regard to all questions involving the insurer is for the parties to the action to deal with the attorney retained by the insurer.
Finally, defendant, rather than plaintiff, must bear the burden of blame for any misconstruction that plaintiff may have placed upon the precise scope of Friend‘s authority. Defendant created, as between plaintiff and Friend, a relationship of the highest confidence. Plaintiff necessarily reposed his absolute trust in Friend. Such trust, by its very nature, precludes the drawing of delicate distinctions as to the exact extent of Friend‘s authority. The situation is similar to that which occurred in Kazanteno v. California-Western etc. Ins. Co., supra, 137 Cal.App.2d 361, 374, in which the court found that an insurer‘s agent exercised ostensible authority despite the policy‘s express denial of such authority. The court quoted from Raulet v. Northwestern etc. Ins. Co. (1910) 157 Cal. 213, 230 [107 P. 292], to the effect that “The insured usually confides implicitly in the agent securing the insurance, and it is only just and equitable that the company should be required to call specifically to the attention of the policy-holder [limitations upon the agent‘s authority].”
Defendant would rebut the above showing of Friend‘s actual and ostensible agency by the citation of cases which hold that an attorney in an adversary proceeding lacks the authority to surrender his client‘s rights. (Bice v. Stevens (1958) 160 Cal.App.2d 222, 231 [325 P.2d 244]; People v. Davis (1957) 48 Cal.2d 241, 256 [309 P.2d 1]; Britschgi v. McCall (1953) 41 Cal.2d 138, 142 [257 P.2d 977]; Fresno City High School Dist. v. Dillon (1939) 34 Cal.App.2d 636, 646 [94P.2d 86]; but see Gagnon Co., Inc. v. Nevada Desert Inn, Inc. (1955) 45 Cal.2d 448, 461 [289 P.2d 466] [“[T]here is a rebuttable presumption that [the attorney] had such authority“]; Pacific Tel. & Tel. Co. v. Fink (1956) 141 Cal.App.2d 332, 338 [296 P.2d 843].) Yet these cases, distinguishable from the instant one, involved the attorney‘s consent to the virtual destruction of the very subject matter of the litigation.
In Bice, for instance, plaintiffs had brought an action for fraud against several defendants; yet without express authority and without plaintiffs’ knowledge, plaintiffs’ attorney inadvertently dismissed the action against one of the defendants, thereby effecting a dismissal of the entire case. Emphasizing the manifest inequity of the dismissal, the court reinstated plaintiffs’ case, saying, “Plaintiffs did not at any time authorize their attorney to dismiss with prejudice and thus dispose of a $60,000 lawsuit . . . for $25 which their attorneys, without their authority, received from one who probably was not a party to the action.” (160 Cal.App.2d at p. 233.)
With the exception of Britschgi, all of defendant‘s cases involved the surrender of a client‘s right during the pendency of litigation between the client and the party benefiting from the surrender. The nature of the adversary proceeding itself places the attorney on notice that his client would not subscribe to the relinquishment of the right which is the essence of the litigation. In the instant case, however, Friend‘s surrender of his client‘s defense under the insurance contract did not occur in the context of a proceeding in which defendant and plaintiff met as adversaries. Moreover, in the instant case, plaintiff, relying upon Friend‘s surrender of his client‘s right, suffered substantial detriment; none of defendant‘s citations disclose a situation in which the beneficiary of the surrender of the defense relied upon such surrender and thereby suffered a substantial detriment.
Thus, as we have shown, Friend possessed the authority to bind defendant. The question then arises as to whether defendant, by reason of Friend‘s representations, is estopped from denying liability under the policy. We proceed to point out that plaintiff, relying upon Friend‘s representations that defendant would afford full coverage, withdrew his personal attorney from participation in the Villines action and thus suffered substantial detriment.
Such detriment inheres in the denial of personal representa-
Similarly, in cases involving multiple claims against the insured, some of which fall within the policy coverage and some of which do not, the insurer may be subject to substantial temptation to shape its defense so as to place the risk of loss entirely upon the insured.3 (Cf. O‘Morrow v. Borad (1946) 27 Cal.2d 794, 798 [167 P.2d 483, 163 A.L.R. 894].) Moreover, since defendant here had previously denied all liability under the policy, its sole economic motive for prosecuting a vigorous defense had been eliminated.
It is true, of course, that defendant‘s attorney owes to the insured a legal duty to defend in good faith, but as Professor Keeton points out “On the other hand [the] company has no duty to sacrifice its own interests when they conflict with those of the insured.” (Keeton, Liability Insurance & Responsibility for Settlement, supra, 67 Harv.L.Rev. 1136, 1170.)
Customarily, insurers, in cases involving tort claims in excess of policy limits, notify the insured that he may employ his own attorney to participate in the defense. (Id. at p. 1169.) A like duty must arise in the instant case in which potential conflict stemmed not only from the multiple theories of the Villines complaint and the propriety of settlement, but from the total absence in defendant of any economic interest in the outcome of the suit. Here defendant not only failed to discharge its duty to notify plaintiff of the threat to his interests presented by Friend‘s dual agency, but actually
Defendant argues, however, that Best‘s withdrawal caused plaintiff no detriment because in any event defendant retained the right, under the policy, to conduct the defense. Defendant‘s contention rests upon the erroneous assumption that it could exclusively control the case even though it lacked an economic interest in its outcome. In actions in which the insurer lacks an economic motive for a vigorous defense of the insured, or in which the insurer and insured have conflicting interests, the insurer may not compel the insured to surrender control of the litigation. (See O‘Morrow v. Borad, supra, 27 Cal.2d 794, 799; Fidelity & Casualty Co. of N.Y. v. Stewart Dry Goods Co. (1925) 208 Ky. 429 [271 S.W. 444, 43 A.L.R. 318]; Compton Heights Laundry Co. v. General Accident, Fire & Life Assur. Corp. (1917) 195 Mo.App. 313 [190 S.W. 382]; 7A Appleman, Insurance Law & Practice (1962) p. 425.)
Concluding that Friend‘s representations estop defendant from denying liability under the policy, we turn to defendant‘s contention that the instant judgment violates public policy because it compels performance of a promise to extend coverage for liability based upon an intentional tort. Although an insurer may not indemnify against liability caused by the insured‘s wilful wrong (
Finally, we turn to the question of the proper measure of plaintiff‘s recovery. Plaintiff‘s cause of action is essentially one of promissory estoppel. (See Claverie v. American Casualty Co. of Reading, Pa. (4th Cir. 1935) 76 F.2d 570, 572.) And, as frequently happens in promissory estoppel cases, the value of the plaintiff‘s detrimental reliance need not be identical with, or equated to, the value of the defendant‘s promise. The cases hold that the appropriate remedy lies in the enforcement of the defendant‘s promise.6 The promise here, of course, consisted of defendant‘s commitment that it stood liable under the policy for the amount of the judgment against plaintiff. The measure of damages must therefore be the amount of the judgment. (West v. Hunt Foods, Inc. (1951) 101 Cal.App.2d 597, 604 [225 P.2d 978]; Hunter v. Sparling (1948) 87 Cal.App.2d 711, 726 [197 P.2d 807]; Rest., Contracts (1938) § 90.) The detrimental reliance serves as the substitute for consideration, giving rise to a contract right in the plaintiff. (Rest., Contracts, supra, § 90.)
In any event, application of a different approach, based upon a theory of “tort,” rather than contract, would, in-
The insurer here was the author of the ambiguity which caused the insured to act to his substantial detriment. It led the insured into reliance upon its promise of coverage; yet it could have quite simply clarified the situation by a direct communication to the insured. It promised the coverage which it now would avoid. The sensitive relation of the insurer to the insured, which the courts long have strictly enforced, was clouded here by the insurer‘s misleading and confusing conduct; in the special circumstances of this case it must bear the loss.
The judgment is affirmed.
Gibson, C. J., Traynor, J., Schauer, J., Peters, J., and Peek, J., concurred.
McCOMB, J.—I dissent. I would reverse the judgment for the reasons expressed by Mr. Justice Brown (R.M.) in the opinion prepared by him for the District Court of Appeal in Tomerlin v. Canadian Indemnity Co. (Cal.App.) 37 Cal.Rptr. 15.