Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC339716. Elizabeth A. Grimes, Judge.
Mendes and Mount, Dean B. Herman, Catherine L. Rivard, Matthew A. Levy for Defendant, Cross-complainant and Appellant.
Musick, Peeler & Garrett, David A. Tartaglio, Cheryl A. Orr for Plaintiff, Cross-defendant and Respondent.
BOREN, P.J.
An insured purchased two general liability insurance policies. A lawsuit arose, and both insurers accepted the insured’s defense under a reservation of rights. One insurer paid for the insured’s attorney fees and costs. After the insured prevailed in the underlying litigation, the paying insurer sued to force the nonpaying insurer to contribute toward the insured’s defense. The trial court ordered the nonpaying insurer to make equitable contribution. We affirm.
FACTS
The lawsuit was presented to the trial court on a stipulation of facts, documents, and issues. Our statement of facts is based on the parties’ stipulation.
a. The Underlying Lawsuit
The insured is Deckers Outdoor Corporation (the insured), a footwear and clothing manufacturer. The insured filed a federal lawsuit against its rivals, alleging trademark infringement. The insured’s rivals made numerous counterclaims against the insured for trade libel, unfair competition, and cancellation of trademark, among other causes of action. Apart from the counterclaims, the defendants in the underlying lawsuit filed a third party complaint against the insured.
b. The Insurance Policies
1. The Hartford Policy
Appellant Hartford Insurance Company of the Midwest (Hartford) issued a commercial general liability (CGL) policy to the insured effective 2003 to 2004. The Hartford policy covered personal and advertising injuries. The policy conditions required that the insured “[c]ooperate with us in the investigation or settlement of the claim or defense . . . .”
2. The Royal Policy
Respondent Royal Indemnity Company (Royal) issued a CGL policy to the insured effective 2002 to 2003. The Royal policy covered personal and advertising injuries.
c. The Insured Tenders Its Defense
The insured tendered its defense of the counterclaims to Hartford and Royal. Both of the insurers accepted the insured’s defense under a reservation of rights. Hartford took the position that none of the claims against the insured are covered by its CGL policy, except a claim for product disparagement. It disclaimed coverage for declaratory relief; cancellation of trademark; Lanham Act violations; interference with prospective contract; unfair competition; and violation of the Sherman and Clayton Acts.
Hartford undertook defense of the disparagement claim while reserving the right to recover from the insured attorney fees and costs incurred by the insurer in its defense of noncovered claims. The reservation of rights “in no way restricts or limits [Hartford] from relying upon [or] asserting other facts and grounds that are, or may become, available to it,” in order to deny coverage to the insured. Hartford specifically listed exclusions for material published prior to the policy period and nonliability for infringement of intellectual property rights. However, Hartford “further reserves the right to assert additional reasons for disclaiming any duty to defend and/or indemnify any purported insured, based upon the terms, conditions, exclusions and limitations contained in the insurance contract, and/or based upon law or fact.”
For its part, Royal agreed that one counterclaim was potentially covered by its CGL policy, “and Royal agrees to defend [the insured] in connection with the counterclaim.” Royal listed various policy terms and conditions that “may apply to limit or preclude coverage,” and reserved the right to withdraw from the defense and seek reimbursement from the insured if it determined that any claims, damages, liability or costs were excluded from coverage. Though Royal claimed the right to appoint defense counsel for the insured, it acknowledged the involvement of the insured’s counsel and agreed to consider counsel’s continued defense of the insured in connection with the counterclaim “if we can work out a reasonable agreement to allocate fees and costs . . . .”
d. Dispute Over Defense Counsel
The insured identified the law firm that it wished to use in the underlying lawsuit: “we are adamant on the decision that . . . Sheppard Mullin will represent us on this matter.” Hartford informed the insured that “[w]e are providing a full defense to the action and will be using the Sedgwick law firm . . . . Sheppard Mullin can monitor the case for the insured if they wish, but the insured will be responsible to pay their legal bill.” The insured replied, “I’m sorry to disagree with you but I do not authorize the Sedgwick firm to work on this matter. Sheppard Mullin will proceed with this matter.” Hartford wrote that it “will not be paying Sheppard Mullin’s legal bill regarding this matter.”
Royal agreed to pay for the insured’s chosen counsel. Counsel for Royal wrote, “This will confirm that Royal approves the Sheppard, Mullin firm as independent defense counsel for this case.” Further, “Royal remains willing to assign defense counsel at Royal’s sole expense if you wish to waive the right to independent counsel.”
Hartford objected that it was not being permitted to take over the handling of the insured’s defense. It wrote, “If [the insured] expects [ ] Hartford to pay for its defense, we will do so only if it is counsel we select pursuant to our right to do so. If [the insured] rejects the Sedgwick law firm handling the case (in conjunction with the other defense attorney) then they may be jeopardizing their coverage under this policy pursuant to the cooperation and [ ] voluntary payments provisions of the policy.” Hartford felt that the insured was not entitled to independent counsel because there was no conflict of interest. The insured’s attorney responded that there was a conflict, and, in any event, there was more than one insurance policy, and Royal had agreed to pay for Sheppard Mullin. Hartford then wrote that the insured’s failure to refer the defense to counsel selected by Hartford “constitutes a breach of the insurance contract which terminates any entitlement of the Insured to benefits under the policy, including either defense or indemnity in connection with this suit.”
Counsel for the insured began cooperating with the Sedgwick law firm, sending it copies of pleadings, motions, court filings, orders and discovery. Hartford voiced its dissatisfaction with the level of cooperation and the insured’s failure to authorize appearances by the attorneys from Sedgwick. Hartford reiterated its position that the insured was in breach of policy provisions requiring cooperation in the defense of the lawsuit.
e. The Underlying Lawsuit Settles
The insured moved for summary judgment, through its counsel Sheppard Mullin. The parties to the underlying suit began settlement discussions. Ultimately, the insured and its adversaries settled their dispute. The insured was not required to pay any money. Instead, the insured received $100.
f. Royal Files Suit Against Hartford Seeking Indemnity And Contribution
Royal paid defense fees of $390,096.98 to Sheppard Mullin. Hartford has not reimbursed Royal for any of these fees. Royal filed this lawsuit against Hartford seeking contribution, indemnity, and declaratory relief, based on Hartford’s refusal to reimburse Royal for any of the defense fees incurred on behalf of the insured. Hartford filed a cross-complaint against Royal, claiming it has no obligation to reimburse Royal, due to the insured’s failure to turn over its defense to Hartford.
g. The Judgment
The matter was tried by court. The court found that “Royal is entitled to equitable indemnity/contribution from Hartford. Hartford is not entitled to the declaration of rights that it seeks. The parties stipulated that if the court ruled in favor of Royal, the amount of the judgment of contribution in favor of Royal and against Hartford is $150,000.00.” Judgment was entered in favor of Royal for $150.000, plus prejudgment interest. The appeal is timely.
DISCUSSION
Royal’s entitlement to contribution from Hartford “rests on the application of equitable principles to stipulated facts. Accordingly, we are presented with a question of law, which we decide de novo.” (Truck Ins. Exchange v. Unigard Ins. Co. (2000) 79 Cal.App.4th 966, 973 (Unigard).)
An insured may purchase more than one policy to cover the same risk. “A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest.” (Ins. Code, § 590.) “If a loss occurs, the insured may recover benefits under each policy that covers the loss.” (Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2007) ¶ 8.3, p. 8-1.) In this case, the insured purchased two CGL policies, one from Royal and one from Hartford, which covered the same risk of loss. Neither is an excess insurance policy.
If a claim against an insured is “potentially” covered under a policy, the insured is entitled to a defense. (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 299.) The duty to defend is broader than the duty to indemnify, and any doubts about the existence of a duty to defend must be resolved in favor of the insured. (Id. at pp. 299-300.) In this case, both Royal and Hartford agreed to defend because one of the claims made against the insured was covered or potentially covered by the CGL policies.
When multiple insurers have insured a loss, “the courts will generally apply equitable considerations to spread the cost among the several policies and insurers.” (Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 687.) “Equitable contribution . . . is the right to recover, not from the party primarily liable for the loss, but from a co-obligor who shares such liability with the party seeking contribution. In the insurance context, the right to contribution arises when several insurers are obligated to indemnify or defend the same loss or claim, and one insurer has paid more than its share of the loss or defended the action without any participation by the others. Where multiple insurance carriers insure the same insured and cover the same risk, each insurer has independent standing to assert a cause of action against its coinsurers for equitable contribution when it has undertaken the defense of indemnification of the common insured. Equitable contribution permits reimbursement to the insurer that paid on the loss for the excess it paid over its proportionate share of the obligation, on the theory that the debt it paid was equally and concurrently owed by the other insurers and should be shared by them pro rata in proportion to their respective coverage of the risk. The purpose of this rule of equity is to accomplish substantial justice by equalizing the common burden shared by coinsurers, and to prevent one insurer from profiting at the expense of others.” (Fireman’s Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal.App.4th 1279, 1293, fn. omitted.)
Notably, the rights and duties of multiple insurers “‘do not arise out of contract, for their agreements are not with each other. . . . Their respective obligations flow from equitable principles designed to accomplish ultimate justice in the bearing of a specific burden. As these principles do not stem from agreement between the insurers their application is not controlled by the language of their contracts with the respective policy holders.’” (Signal Companies, Inc. v. Harbor Ins. Co. (1980) 27 Cal.3d 359, 369.) In an equitable contribution setting, “a party to a joint, or joint and several obligation, who satisfied more than his share of the claim against all, may require a proportionate contribution from all the parties joined with him.” (Civ. Code, § 1432.) An insurer cannot “avoid paying a just claim in hopes that the claimant will obtain payment from the coindemnitor.” (California Food Service Corp. v. Great American Ins. Co. (1982) 130 Cal.App.3d 892, 901.)
Equitable contribution is distinguishable from “equitable subrogation,” in which the insurer seeking reimbursement is said to “‘“stand in the shoes”’ of [the] insured.” A subrogated insurer is in the same position as an assignee of the insured’s claim, has no greater rights than the insured, and is subject to the same defenses that may be asserted against the insured. (Fireman’s Fund Ins. Co. v. Maryland Casualty Co., supra, 65 Cal.App.4th at p. 1292.)
Hartford argues that its obligation to contribute to the defense paid for by Royal was extinguished by the insured’s alleged breach of the Hartford insurance policy. Specifically, Hartford points to the insured’s (1) refusal to allow Hartford to appoint counsel and control the defense; (2) refusal to cooperate with defense counsel selected by Hartford; and (3) payment of defense costs to Sheppard Mullin, without Hartford’s approval.
Hartford’s right to appoint counsel for the insured and to control the defense hinges upon whether there are “divergent interests” between the insurer and the insured that entitle the insured to have independent counsel. (San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 375 (Cumis).) If a conflict arises, “brought about by the insurer’s reservation of rights based on possible noncoverage under the insurance policy, the insurer must pay the reasonable cost for hiring independent counsel by the insured. The insurer may not compel the insured to surrender control” of the defense. (Ibid., italics added.)
The holding in Cumis has been codified: “If the provisions of a policy of insurance impose a duty to defend upon an insurer and a conflict of interest arises which creates a duty on the part of the insurer to provide independent counsel to the insured, the insurer shall provide independent counsel to represent the insured” unless the insured waives its right to independent counsel. (Civ. Code, § 2860, subd. (a).) A conflict of interest arises “when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim . . . .” (Id., subd. (b); Blanchard v. State Farm Fire & Casualty Co. (1991) 2 Cal.App.4th 345, 350.)
Hartford maintains that it was entitled to control the insured’s defense without providing independent counsel because it did not invoke the “intentional acts” exclusion of its policy. An insurer is not liable for losses caused by an insured’s willful acts. (Ins. Code, § 533.) Because intentional acts are excluded from coverage, an inherent conflict may present itself in third party litigation: the insured seeks a verdict that either he is not liable or that his liability emanates from negligent conduct covered by his insurance policy; by contrast, the insurer has an economic interest in establishing either that its insured is free from liability or that liability emanates from intentional conduct not covered by the policy. Independent counsel is warranted when the insurer’s “best interests are served by a finding of willful conduct because it thus may not be deemed liable.” (Previews, Inc. v. California Union Ins. Co. (9th Cir. 1981) 640 F.2d 1026, 1028.)
Although Hartford’s reservation of rights letter did not expressly list the intentional acts exclusion, the insurer reserved the right to deny coverage based on “other facts and grounds that are, or may become, available to it. The complaint seeks damages that have no potential for coverage.” Hartford also reserved the right to disclaim any duty to defend or indemnify “based on the terms, conditions, exclusions and limitations” in the policy. (Italics added.) Hartford’s reservation of rights thus encompassed the intentional acts exclusion in its policy, and every other possible coverage limitation, including the exclusion for publishing material “with knowledge of its falsity.” (Compare James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093, 1103 [insurer “agreed to defend the insureds against the trademark infringement and related claims without any reservation of rights”].)
Hartford took the position, when reserving its rights, that none of the claims asserted against the insured are covered by its CGL policy, except a claim for product disparagement. In other words, the underlying lawsuit is a “mixed action” with both covered and uncovered claims. (Buss v. Superior Court (1997) 16 Cal.4th 35, 48.) A mixed action may give rise to a conflict, and to the right to independent counsel. “[I]n 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.” (Tomerlin v. Canadian Indemnity Co. (1964) 61 Cal.2d 638, 647.)
In a mixed action, there is a potential conflict of interest because “[t]he insured will want any judgment limited to covered claims, while the insurance company will be better off if judgment is imposed on claims not covered under the policy.” (Croskey et al., Cal. Practice Guide: Insurance Litigation, supra, at ¶ 7:785, p. 7B-96.) “It seems doubtful that the conflict of interest can be avoided merely by the insurer’s instructing defense counsel to ignore coverage defenses.” (Id., ¶ 7:788, p. 7B-98.)
“The paradigm case requiring independent counsel is one in which the way counsel retained by the insurance company defends the action will affect an underlying coverage dispute between the insurer and the insured.” (Golden Eagle Ins. Co. v. Foremost Ins. Co. (1993) 20 Cal.App.4th 1372, 1395.) So, if the underlying lawsuit alleges that the conduct of the insured was intentional, there is a likely conflict of interest that operates upon the attorney selected by the insurer. The insurer’s interests diverge from those of the insured because a finding of intentional conduct would free the insurer from liability, while nonintentional conduct would be covered. (Cumis, supra, 162 Cal.App.3d at pp. 364-365.) The insurer’s reservation of rights letter in Cumis was general, and did not specifically list the intentional acts exclusion. (Id. at p. 362, fn. 2.) In this situation, “‘the insurer may not compel the insured to surrender control of the litigation.’” (Id. at p. 369.) “If the insurer must pay for the cost of defense and, when a conflict exists, the insured may have control of the defense if he wishes, it follows the insurer must pay for such defense conducted by independent counsel.” (Ibid.)
Hartford relies upon a case in which (1) the insurer “agreed to waive its contractual right to control the defense by ceding control” to the insured’s attorney, and (2) the court expressly declined to consider what happens when an insurer “insists upon appointed counsel rather than allowing the insured to control the defense . . . .” (Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999, 1007, fn. 6, 1008.) The Dynamic case is not applicable here, because Hartford insisted upon appointed counsel and refused to cede control.
Given Hartford’s position on coverage, it left the insured vulnerable on all claims. It demanded that the insured cede control over its entire defense to an insurer who asserted that only one of numerous claims against the insured potentially qualified for coverage and indemnity. And, even then, Hartford reserved the right to refuse indemnification on the potentially covered claim for product disparagement if the facts showed--as alleged in the underlying lawsuit--that the insured acted intentionally or disparaged its rivals’ products “with knowledge of falsity.”
The counterclaim made against the insured alleged that the insured made representations “knowing they were false.” It also alleged that the insured used terms “intentionally designed to deceive” customers. With respect to product disparagement, the counterclaim alleged that the insured made false statements about the quality of the counterclaimants’ products “either knowingly or with reckless disregard of their falsity.”
An insurer need only indemnify claims “actually covered, in light of the facts proved.” (Buss v. Superior Court, supra, 16 Cal.4th at p. 46.) Hartford’s duty to defend and indemnify could be extinguished early in the litigation, “if it is shown that no claim can in fact be covered.” (Ibid.) Defense counsel controlled solely by Hartford was in a position to damage the insured’s interests, because Hartford had an economic disincentive to defend vigorously against claims of intentional wrongdoing.
Hartford argues that even if it was required to provide independent counsel, it must still prevail in this action because the insured failed to cooperate. Hartford cites a statutory provision stating that in cases where independent counsel is required, the insurer’s counsel will be allowed to participate in the litigation and receive cooperation: “Nothing in this section shall relieve the insured of his or her duty to cooperate with the insurer under the terms of the insurance contract.” (Civ. Code, § 2860, subd. (f).)
This court has observed that “‘Where an insured violates a cooperation clause, the insurer’s performance is excused if its ability to provide a defense has been substantially prejudiced.’” (American Internat. Specialty Lines Ins. Co. v. Continental Casualty Ins. Co. (2006) 142 Cal.App.4th 1342, 1366 (AISLIC); Campbell v. Allstate Ins. Co. (1963) 60 Cal.2d 303, 305.) Hartford cannot prove that it was “substantially prejudiced” by the insured’s lack of cooperation because the insured scored a complete victory and was not required to pay any money on the counterclaims. Sedgwick’s participation would not have added anything to the victorious outcome secured by Sheppard Mullin: no opportunity to get a better result was missed when the insured refused to use Hartford’s law firm.
Hartford argues that its obligations were extinguished because the insured breached the “no voluntary payments” clause of the policy. Hartford waived this theory by failing to assert it in the trial court. (CNA Casualty of California v. Seaboard Surety Co. (1986) 176 Cal.App.3d 598, 618; Whiteley v. Philip Morris, Inc. (2004) 117 Cal.App.4th 635, 690.) In any event, Royal agreed that it was contractually bound to pay Sheppard Mullin’s fees as independent counsel. Therefore, the insured was not making “voluntary payments” because Royal was on the hook for the payments, which were necessary due to an insurer/insured conflict over coverage. Royal was not acting as a “volunteer.”
Hartford relies upon two cases holding that equitable contribution may be defeated if a coinsurer is not informed of the existence of a claim, lawsuit, or “occurrence” that would give rise to coverage. In the Unigard case, for example, an insured tendered the defense of multiple lawsuits to one of its insurers. After paying defense costs and indemnity, the participating insurer looked to a coinsurer for contribution. The coinsurer refused to contribute because the lawsuit was not tendered to it, and it was not asked to participate in the litigation. (79 Cal.App.4th at pp. 970-972.) The question was, “when does an insurer that is providing a defense have to raise the issue of contribution with potential coinsurers that are not participating in the litigation due to a lack of tender.” (Id. at pp. 978-979.) Because the insured failed to tender its defense to the coinsurer, the coinsurer was not obliged to do anything for its insured; without notice, the coinsurer was deprived of the opportunity to investigate the matter and decide whether to join in the defense. (Id. at pp. 979-980.) When the insured failed to give notice, the burden then fell on the participating insurer to promptly notify its coinsurer of the potential for contribution. (Id. at pp. 981-982.)
Similarly, this Division held that an insurer who settles litigation against the insured may not recover from a coinsurer on an equitable contribution theory if the insured (and the settling insurer) failed to notify the coinsurer that a lawsuit is pending, and the coinsurer is unaware of its potential liability for contribution. (AISLIC, supra, 142 Cal.App.4th at p. 1366.) We concluded, “we hold that the settling insurers cannot recover from [the coinsurer] because they did not notify [the coinsurer] of its potential liability for contribution prior to [the insured’s] settlement.” (Ibid.)
Neither Unigard nor AISLIC is apposite here. The insured in this case did notify Hartford of the lawsuit, and tendered its defense. Hartford and Royal both accepted the defense. Unlike the coinsurers in Unigard and AISLIC, Hartford cannot claim to be unaware of the pending litigation. In fact, Hartford aggressively tried to take unilateral control of the defense. Neither Unigard nor AISLIC involved a refusal to provide independent counsel following a reservation of rights.
In sum, the equities in this case favor Royal, not Hartford. The insured was entitled to independent counsel because there were multiple claims, both covered and uncovered, and Hartford reserved its right to invoke policy exclusions and deny coverage as to all of them. The product disparagement cause of action that Hartford identified as a potentially covered claim was framed in the underlying lawsuit as an intentional act of misconduct by the insured. Hartford is not liable for intentional acts of misconduct. This created a conflict between the interests of the insurer and the interests of the insured. Because the insured was entitled to independent counsel, Hartford was not entitled to control the insured’s defense with its appointed counsel. The absence of Hartford’s appointed counsel ultimately made no difference at all because the insured prevailed on the claims against it, using independent counsel. The trial court properly ordered Hartford to contribute to the cost of defending the parties’ insured.
Finally, we reach the issue of prejudgment interest. Prejudgment interest is awarded when the prevailing party’s damages are calculable on a date certain. (Civ. Code, § 3287.) In a dispute between two insurance companies as to who is liable for coverage, prejudgment interest may properly be awarded. (Fireman’s Fund Ins. Co. v. Allstate Ins. Co. (1991) 234 Cal.App.3d 1154, 1173-1174; Hartford Accident & Indemnity Co. v. Sequoia Ins. Co. (1989) 211 Cal.App.3d 1285, 1305-1307.)
Hartford does not contest the applicability of Civil Code section 3287 to equitable contribution disputes between insurers. Instead, it contends that Royal waived its right to prejudgment interest by stipulation. The stipulation reads: “If the Court determines that Royal has a right of recovery, Royal’s damages shall be $150,000.” The trial court correctly rejected Hartford’s waiver argument. A waiver is an intentional relinquishment of a known right. (Waller v. Truck Ins. Exchange, Inc. (1995)11 Cal.4th 1, 31.) The parties’ stipulation does not specify that Royal was giving up its right to prejudgment interest; rather, it specifies the amount of money Hartford was required to contribute toward the insured’s defense. Because the stipulation does not encompass prejudgment interest, only damages, no waiver occurred.
DISPOSITION
The judgment is affirmed.
We concur: ASHMANN-GERST, J., CHAVEZ, J.