Opinion
A112061 A112341
4-30-2007
JOE BOB SCHMIDT, Plaintiff and Appellant, v. ALLSTATE INDEMNITY CO. et al., Defendants and Respondents. KATHLEEN ANN DUDGEON, Plaintiff and Appellant, v. ALLSTATE INDEMNITY CO., Defendant and Respondent.
NOT TO BE PUBLISHED
In this consolidated appeal, plaintiffs Joe Bob Schmidt and Kathleen Ann Dudgeon appeal from adverse judgments entered on their complaints against defendants Allstate Insurance Company and Allstate Indemnity Company (collectively Allstate). Schmidt also appeals from an adverse judgment on his complaint against defendants Anthony J. Allard and the law firm of Bennett, Samuelsen, Reynolds & Allard (collectively Allard). Allstate provided coverage for appellants, and Allard represented Schmidt, in an earlier personal injury action against Schmidt and Dudgeon. However, Allstate refused to provide coverage when the injured party filed a second action alleging that Schmidt and Dudgeon had fraudulently induced him to settle the personal injury claim by hiding assets and misrepresenting Schmidts financial condition. We conclude that the trial court properly rejected all of appellants claims and shall affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
In April 1995, Schmidt was involved in an automobile accident in which Rick Payne was injured. At the time, Schmidt was driving Dudgeons car, which was insured through Allstate. Dudgeons policy named Schmidt as a permissive driver. After the accident, Payne sued Schmidt and Dudgeon for his injuries. (Payne v. Schmidt (Sup. Ct. Contra Costa County, No. C-95-04254 (Payne I ).) Allstate provided a defense to Schmidt and Dudgeon, hiring Allard to represent Schmidt. During settlement negotiations, Payne contended that his injuries far exceeded the $200,000 combined policy limits, but the action was settled in 1998 for the policy limits after Schmidt provided a declaration stating that he had no other assets. In 1997, while Paynes action was pending, Schmidt filed a petition for bankruptcy under Chapter 7 of the Bankruptcy Act.
In 2000, Payne filed a second action against Schmidt and Dudgeon for fraudulent transfer and concealment of assets. (Payne v. Schmidt (Sup. Ct. Contra Costa County, No. C-00-01787 (Payne II ).) The complaint alleges that because Schmidt knew that there was a "probability of a large judgment against him" in Payne I, and to frustrate Paynes ability to collect on such a judgment, he transferred several pieces of real estate to others, including Dudgeon. The complaint alleges that Schmidt transferred property valued at "not less than $400,000" to Dudgeon for "no compensation" and that Dudgeon accepted the property "with knowledge that the transfer was being done to avoid paying [Payne] on a probable excess judgment."
In July and August of 2000, Schmidt and Dudgeon tendered their defense in Payne II to Allstate. On August 28, 2000, Allstate denied both tenders on the grounds (1) the wrongdoing alleged in the complaint did not involve the use of an automobile; (2) the injury Payne alleged was purely economic and thus not covered under the policy; and (3) fraud was uninsurable.
In May 2001, Schmidt filed the present action against Allstate and Allard. As amended, the complaint alleges malpractice against Allard and breach of contract and bad faith against Allstate. Schmidt alleges that Allard was negligent in failing to include in the settlement agreement a provision for attorney fees if either party breached the agreement. The complaint alleges further, "Had [Allard] exercised proper skill and care, plaintiff could get his costs of defense from Payne, including attorneys fees, if Payne breached the settlement and attempted to avoid the restrictions in the settlement agreement for [Payne I] by filing another action." The complaint alleges that Allstate breached its duty of care and acted in bad faith by, among other things, "representing that a continuing duty to defend [Payne I] was not applicable when Payne attempted to avoid the restrictions in the settlement agreement of [Payne I]" and by "representing that a duty to defend [Payne II] was not applicable." Further, "under the subject policy, Insurer has a continuing duty to defend any other action filed by Payne, arising from the subject auto accident." "[Allstate] became obligated to provide a defense by competent counsel to [the complaint in Payne II] on behalf of plaintiff, since that case also arose out of the subject auto accident." Later, Dudgeon filed a nearly identical complaint against Allstate for breach of contract and bad faith.
In March 2002, Allard demurrered to the malpractice cause of action on the ground that the underlying litigation with Payne had not yet been concluded so that Schmidt could not allege that he was the prevailing party entitled to attorney fees in that action. The court sustained the demurrer without leave to amend, noting, however, that "the dismissal of the second amended complaint is without prejudice until such time as the plaintiff can allege that he is the prevailing party in Payne II." In April 2005, Schmidt filed a motion to amend the complaint to reassert a claim for malpractice against Allard. However, the motion was not based on the allegation that Schmidt had become the prevailing party in Payne II. Rather, Schmidt sought to allege that Allard was negligent in failing to obtain the bankruptcy trustees approval for the release of potential third party claims arising out of the accident. The trial court denied the motion on the ground that the proposed amendment was untimely.
Payne II was dismissed by Payne in February 2005 after the parties settled their dispute. (Payne v. Schmidt (Feb. 22, 2006, A109971, A110630) [nonpub. opn.].) The parties "agreed that Schmidt had made representations during settlement negotiations that Payne later had reason to believe were false, although Schmidt believed that they were true." (Id. at p. 4.) Schmidt nonetheless appealed the judgment challenging, among other things, the trial courts rejection of his attempt to rescind the settlement agreement and the courts determination that he was not the prevailing party. These rulings were upheld on appeal. (Id. at p. 9.) Pursuant to a request by Allstate, we have taken judicial notice of the appellate opinion rendered in Payne II. We deny on the ground of relevancy Allstates request that we take judicial notice of an order entered in the bankruptcy proceedings.
In March 2003, Allstate moved for summary adjudication of Schmidts cause of action for bad faith and his claim for punitive damages. The court granted the motion, finding that "Allstates denial of coverage for the Payne II suit may have been erroneous, but its conduct was not unreasonable as a matter of law. Allstate has produced evidence that it acted in good faith in determining non-coverage. The face of the pleading in Payne II indicates the suit was not one for motor vehicle negligence, but for fraud. . . . [¶] Plaintiffs evidence does not create a triable issue of material fact." The court similarly granted the motion with respect to Schmidts claim for punitive damages, finding that "[w]ithout proof of `bad faith, plaintiffs remaining cause of action, for breach of contract, cannot support a punitive damage award." Allstates demurrer to Dudgeons identical claims for bad faith and punitive damages was sustained in January 2005.
The two actions were consolidated and the remaining breach of contract claim was tried before the court in August 2005. The court heard argument from the parties and the matter was submitted on a joint set of exhibits. On September 16, 2005, the court entered judgment in favor of Allstate. The court explained, "[I]t is very clear that the claim in Payne II does not arise out of the use of the automobile. . . . It arises out of allegations of fraud in the inducement, with regard to a settlement agreement. And I do not see that there is any way that this relates to the use of the automobile. . . . [¶] The argument also is that because the claim relates to fraud concerning the settlement, the underlying settlement agreement, that somehow Allstate should treat this as an effort to rescind and therefore resurrect the case or somehow require Allstate to come to court to enforce the settlement or to pay to have the settlement enforced, and I find neither argument persuasive. [¶] The language is clear that what is covered is bodily injury or property damage arising out of ownership, maintenance, or use of an automobile. There is no ambiguity. There is no coverage for allegations of fraud. . . . [T]he complaint does not allege bodily injury or property damage. It alleges solely economic loss. And therefore, for that additional reason, there is no coverage under the policy." Schmidt and Dudgeon filed timely notices of appeal and their appeals have been consolidated for all purposes.
DISCUSSION
1. Schmidts Claim Against Allard
Schmidt asserts that he is appealing from the "demurrer decision . . . on or about March 12, 2002 in favor of Allard on the issue of Allards liability for malpractice" and from the "decision . . . on or about June 3, 2005 in favor of Allard on refusing to allow an amendment to add Allard back into the case and re-allege the issue of Allards liability for malpractice based on newly-discovered information." However, nowhere in his brief does Schmidt discuss these orders or articulate what he considers to be the error in these orders. Allard is entirely correct that these arguments should be deemed abandoned. (In re Sade C. (1996) 13 Cal.4th 952, 994 [Appellant "must raise claims of reversible error or other defect [citation], and `present argument and authority on each point made [citations]. If he does not, he may, in the courts discretion, be deemed to have abandoned his appeal"].)
Because of the provisional nature of the courts ruling on the demurrer, we treat the order as interlocutory and therefore deny the motion to dismiss the appeal on the ground of untimeliness. In light of the abandonment, the issue is largely academic.
2. Schmidt and Dudgeons Claims Against Allstate
Schmidt and Dudgeon contend that the trial court erred in concluding that Allstate did not have a duty to defendant Schmidt and Dudgeon in Payne II.
In Schmidts opening brief he also states that he is challenging the trial courts "summary adjudication decision . . . on October 20, 2003 in favor of Allstate on the issues of insurance bad faith liability and punitive damages" and the subsequent order "refusing to allow an amendment to add the issues of bad faith liability and punitive damages (e.g., the second cause of action) back into the case based on newly-discovered information." Beyond these conclusory statements, Schmidt has not further discussed these rulings. Accordingly, we deem him to have abandoned these contentions as well. (In re Sade C., supra, 13 Cal.4th at p. 994.)
"It is well settled that when, as in the present case, the interpretation of a written instrument is a question of law (i.e., it is not dependent on a resolution of conflicts in extrinsic evidence), the appellate court must make its own independent determination of the meaning of the contract. [Citations.] [¶] Despite the strong authority mandating construction of ambiguous language in an insurance contract in favor of the insured [citations], it is clear that `[s]ome actual or apparent ambiguity must be present before the rule comes into play [citations]. [¶] `It is, of course, well established that an insurer has a right to limit the policy coverage in plain and understandable language, and is at liberty to limit the character and extent of the risk it undertakes to assume [citations]. [Citations.] It is likewise axiomatic that an insurance policy is but a contract and that like all other contracts, it must be construed from the language used; where, as here, its terms are plain and unambiguous, the courts have a duty to enforce the contract as agreed upon by the parties. [Citations.] [¶] Thus, courts may not rewrite the insurance contract or force a conclusion to exact liability where none was contemplated." (Hackethal v. National Casualty Co. (1987) 189 Cal.App.3d 1102, 1108-1109.)
Here, the trial court determined that Allstate did not have a duty to defend Schmidt and Dudgeon in Payne II because the claims made in that action are unrelated to the use of the automobile. As noted by the court, the Allstate policy covers liability for damages arising out of the use of an insured vehicle. Schmidt argues, "Since there was no independent grounds for fraud (because no debt was owed by Schmidt), the fraud action had to involve the use of an automobile . . . because there was no other basis for any cause of action by Payne against Schmidt." Dudgeon argues that Paynes fraud claim "relates" to the use of the automobile because Allstate had knowledge of the claim before the settlement agreement was signed and thus "had a duty to defend Dudgeon in Payne II by enforcing [Paynes 1998] release agreement" of Dudgeon through Paynes waiver of Civil Code section 1542 in the Payne I release agreement. Neither argument has merit.
At oral argument, Dudgeons attorney suggested that pretrial rulings by different judges overruling Allstates demurrer and denying Allstates motion for summary judgment obligated Allstate to provide a defense in Payne II at least until the court finally resolved the issue at trial. However, Allstate did not have an obligation to provide a defense for Dudgeon in Payne II unless there was a potential for coverage. If, upon receipt of Dudgeons tender, Allstate correctly determined that there was no potential for coverage it was entitled to refuse to provide a defense. Allstates risk was that a court might later determine that there was a potential for coverage and it would then be required to reimburse Dudgeon for her defense costs. (See American Internat. Bank v. Fidelity & Deposit Co. (1996) 49 Cal.App.4th 1558, 1570-1571.) The interim rulings did not conclusively establish a potential for coverage and are irrelevant to the correctness of the subsequent trial court ruling, which is the subject of this appeal, that there was no such potential.
The relevant portion of the policy provides, "Under these coverages, your policy protects an insured person from liability for damage arising out of the ownership, maintenance or use, loading or unloading of an insured auto."
Dudgeon suggests that this court should determine "[w]hether Paynes pre-settlement claim that Dudgeon had helped co-defendant Schmidt conceal his assets in preparation for settling Payne I was necessarily included in Paynes 1998 release of Dudgeon through Paynes waiver of Civil Code section 1542." This issue, however, is beyond the scope of the trial courts ruling and is unnecessary to the disposition of the appeal.
Contrary to Schmidts contention, Paynes fraud claims are independent of the automobile accident. While the measure of the damages incurred by Payne may be the same (i.e., compensation for personal injuries that Payne did not receive because of the allegedly fraudulently induced settlement), the basis of Schmidts asserted liability for those damages is entirely distinct. Any liability for those injuries arising out of Schmidts use of the automobile, for which Allstate owed Schmidt a duty to defend, has been satisfied by the settlement of the personal injury action. Payne has affirmed the settlement agreement and is not seeking to recover additional damages based on that liability. Rather, Payne seeks to recover damages based on the alleged fraud committed by Schmidt and Dudgeon in connection with the settlement negotiations. Schmidts suggestion that Payne II is "simply a continuation or resurrection of the Motor Vehicle Action [Payne I]" mischaracterizes the nature of the claims asserted in the second action. The fact that the alleged fraud could not have occurred without the accident does not mean that there is a causal relationship between the accident and any liability Schmidt may have incurred because he lied about his assets. (SeeAenta Casualty & Surety Co v. Safeco Ins. Co. (1980) 103 Cal.App.3d 694, 698 [" `[a]lthough the word "use" must be given an all-inclusive connotation, there must be a causal connection between the use and the injury "].) The circumstances of the motor vehicle accident and resulting litigation provide the context for the alleged fraud but the fraud does not arise out of the use of the automobile.
Dudgeons contention that Allstate has a duty to enforce the release of all known claims included in the settlement agreement is similarly without merit. Assuming, as Schmidt and Dudgeon argue, that Paynes fraud claim was released by the settlement agreement, Paynes fraud claim is nonetheless not a covered claim. The Allstate policy does not include coverage for the enforcement of the settlement agreement against a claim of fraud. To the contrary, the policy provides coverage for liability arising only out of the use of the automobile. As discussed above, Paynes claims in the second action do not arise out of the use of the automobile. The trial court did not err in entering judgment in favor of Allstate.
Dudgeon contends the trial court erred in refusing to admit into evidence a May 7, 1998 letter written by Dudgeons attorney in Payne I to Allstate in which the attorney indicated that Payne was concerned that Schmidt was concealing assets. She argues that this letter was admissible to establish that Paynes fraud claim was a "known claim" for purposes of the release contained in the settlement agreement. While the letter may be relevant to the interpretation of the release, that issue goes only to the merits of Paynes fraud claim and not to whether coverage for that claim was provided by the Allstate policy.
DISPOSITION
The judgment is affirmed. Allstate and Allard shall recover their costs on appeal.
We concur:
Parrilli, Acting P. J.
Siggins, J.