Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County, No. 30-2008-00114931, Ronald L. Bauer, Judge.
Law Offices of Steven R. Young, Steven R. Young and Jim P. Mahacek for Plaintiffs and Appellants.
Hughes & Nunn, Randall M. Nunn and E. Kenneth Purviance for Defendant and Respondent.
OPINION
MOORE, J.
A homeowners insurance carrier agreed to defend a sexual abuse case under a reservation of rights to deny coverage based on a business pursuits exclusion. The insureds, who were the parents of the alleged perpetrator, filed a declaratory relief and bad faith action against their insurer for failure to provide Cumis counsel. The court granted summary judgment in favor of the insurer on the theory that if the insureds were liable because of their business pursuits, they would necessarily be liable in other capacities for which they were insured. The insureds appeal.
The term is derived from San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358. See now Civil Code section 2860.
We affirm. This case does not turn on triable issues of material fact. Rather, in this matter, the insurer sought to show that it had a complete defense to the lawsuit against it, inasmuch as it was not required to provide Cumis counsel as a matter of law. It met this burden. The interests of the insureds and the interests of the insurer were aligned. In order to defend the action, retained counsel had to show either that no molestation occurred, or if it did, the insureds had no actual knowledge of the perpetrator’s propensities or had no reason to know of them. If retained counsel was unsuccessful in either respect, he or she could not steer the litigation towards liability only on the business pursuits theory, to the exclusion of other, covered theories of liability.
I
FACTS
On April 10, 2008, John A.J. Doe filed a sexual abuse lawsuit against 100 does. The first four does were described as the Mormon Church. The fifth doe was described as the perpetrator—an adult male who was allegedly “a teacher, spiritual advisor, youth counselor, mentor, employee, manager, agent, and supervisor of the Mormon Church[, ]” as well as a reserve sheriff’s officer and the operator of a photography and video company (Video Production Company). The sixth doe was the Video Production Company itself, which was purportedly located on Birch Street in Newport Beach, California.
The seventh and eighth does were the perpetrator’s parents, who allegedly owned the Birch Street property. The ninth doe was a construction company (Birchdale Properties, Inc.), also alleged to own, as well as operate, the Birch Street property. In addition, the eighth doe, the perpetrator’s father, was alleged to be a priest of the Mormon Church and an owner of Birchdale Properties, Inc. The complaint alleged that the perpetrator was an employee of his parents, the Video Production Company and Birchdale Properties, Inc..
The plaintiff alleged that he was a student and parishioner of the Mormon Church. He further alleged that the perpetrator sexually abused him during the period of 1990 to 1999. The acts of abuse allegedly took place “on numerous occasions, and in various locations, including on the grounds owned and operated by” the Mormon Church, the perpetrator, the perpetrator’s parents, the Video Production Company and Birchdale Properties, Inc.
The parties agree that in 1990, the plaintiff was 12 and the perpetrator was 19.
The 49-page complaint asserted, against all defendants, causes of action for negligence, negligent supervision, negligent hiring/retention, negligent failure to warn, constructive fraud (Civ. Code, § 1573), intentional infliction of emotional distress, sexual harassment (Civ. Code, § 51.9), and gender violence (Civ. Code, § 52.4). In addition, the complaint asserted, against the perpetrator only, causes of action for sexual battery and assault.
The perpetrator’s parents are Roger and Pamela Summers, who were insured under a State Farm homeowners insurance policy. On July 31, 2008, State Farm informed the Summers that it would defend the action against them under a reservation of rights, explaining that coverage could be denied under the policy’s business pursuits exclusion. Less than two weeks later, the Summers’ private attorneys, the Law Offices of Steven R. Young, Steven R. Young and Jim P. Mahacek, sent a letter to State Farm demanding to be appointed as Cumis counsel.
On September 25, 2008, State Farm’s coverage counsel sent a letter to Attorney Mahacek denying the request for appointment as Cumis counsel. Counsel noted that State Farm had not reserved its rights with respect to either the intentional acts exclusion or the definition of “occurrence” as contained in the policy, and stated that case law showed there was no entitlement to Cumis counsel based on a reservation of rights with respect to a business pursuits exclusion. On November 12, 2008, the Summers filed a bad faith action against State Farm in federal court seeking, inter alia, declaratory relief and bad faith damages in an amount not less than $1,250,000, plus attorney fees in an amount not less than $200,000. On November 18, 2008, they filed a substantially similar lawsuit in state court.
We are not apprised of the outcome of the federal litigation.
State Farm filed a motion for summary judgment and the Summers filed a cross-motion for summary adjudication. Summary judgment was entered in favor of State Farm and the Summers appeal.
As far as the status of the underlying litigation, State Farm, in its respondent’s brief, represents: “The John A.J Doe Action is over as against the Summers and Birchdale [Properties, Inc.]. State Farm settled the claims against the Summers and Scottsdale [Insurance Company] settled the claims against Birchdale [Properties, Inc.]. The claims against Todd Summers and the video production business were also eventually settled.” In their reply brief, the Summers state: “Full disclosure requires the Summers to note that only after the Court entered judgment, a settlement of [the plaintiff’s] claims against Summers occurred.” It is unclear whether the Summers are referring to a judgment in the sexual abuse litigation or in the insurance coverage litigation.
II
DISCUSSION
A. Summary Judgment:
“Under summary judgment law, any party to an action, whether plaintiff or defendant, ‘may move’ the court ‘for summary judgment’ in his [or her] favor on a cause of action... or defense (Code Civ. Proc., § 437c, subd. (a)) — a plaintiff ‘contend[ing] ... that there is no defense to the action, ’ a defendant ‘contend[ing] that the action has no merit’ (ibid.). The court must ‘grant[]’ the ‘motion’ ‘if all the papers submitted show’ that ‘there is no triable issue as to any material fact’ (id., § 437c, subd. (c)) — that is, there is no issue requiring a trial as to any fact that is necessary under the pleadings and, ultimately, the law [citations] — and that the ‘moving party is entitled to a judgment as a matter of law’ (Code Civ. Proc., § 437c, subd. (c)).” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.)
“[I]n moving for summary judgment, a ‘defendant... has met’ his [or her] ‘burden of showing that a cause of action has no merit if’ he [or she] ‘has shown that one or more elements of the cause of action... cannot be established, or that there is a complete defense to that cause of action. Once the defendant... has met that burden, the burden shifts to the plaintiff... to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto....’ (Code Civ. Proc., § 437c, subd. (o)(2).)” (Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 849.)
See now Code of Civil Procedure section 437c, subdivision (p)(2).
“‘“‘[T]he propriety of the application of [summary judgment to] declaratory relief lies in the trial court’s function to render such a judgment when only legal issues are presented for its determination.’” [Citations.]’ [Citation.] When summary judgment is appropriate, the court should decree only that plaintiffs are not entitled to the declarations in their favor. [Citations.] Thus, in a declaratory relief action, the defendant’s burden is to establish the plaintiff is not entitled to a declaration in its favor. It may do this by establishing (1) the sought-after declaration is legally incorrect; (2) undisputed facts do not support the premise for the sought-after declaration; or (3) the issue is otherwise not one that is appropriate for declaratory relief.” (Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1401-1402.)
Here, “[t]o meet its threshold summary judgment burden, [the insurer] was required to demonstrate that [the insured] was not entitled to the judicial declaration it sought—that [the insured] could not establish [retained counsel] was able to control the outcome of coverage to [the insured’s] detriment by positions it might take in litigation nor was [retained counsel’s] representation rendered ‘less effective’ by reason of its relationship with [the insurer]. [Citations.] Alternatively, [the insurer] could have demonstrated... that [the insured] did not possess and could not reasonably obtain needed evidence to show the existence of an actual conflict of interest. [Citation.]” (Gafcon, Inc. v. Ponsor & Associates, supra, 98 Cal.App.4th at p. 1423.)
On review of a summary judgment, we “examine the record de novo and independently determine whether [the] decision is correct. [Citation.]” (Colarossi v. Coty U.S. Inc. (2002) 97 Cal.App.4th 1142, 1149.)
B. Pleadings:
(1) The Summers’ Complaint
In their complaint, the Summers asserted three causes of action: (1) declaratory relief, seeking an order directing State Farm to provide Cumis counsel; (2) breach of contract, based on breach of the implied covenant of good faith and fair dealing, for failure to provide Cumis counsel; and (3) bad faith, also based on the failure to provide Cumis counsel. The Summers argued that they were entitled to Cumis counsel because the plaintiff in the sexual abuse litigation alleged both that the perpetrator “was potentially acting within the scope of the ‘business pursuits’ exemption and that he was not.” In addition, they said that the plaintiff “also alleged, alternatively, that [the] Summers were merely negligent in that [they] knew or should have known that [the perpetrator] was allegedly molesting [the plaintiff] on [their] residential property and failed to take reasonable steps to prevent it....”
(2) State Farm’s Motion for Summary Judgment
In its motion for summary judgment, State Farm argued that it was not required to provide Cumis counsel because “none of the limited coverage defenses reserved by State Farm involve[d] issues which [could] be controlled by retained counsel....” As to the reservation of rights based on the business pursuits exclusion, State Farm argued the appointment of Cumis counsel was not required for at least three reasons: (1) any conflict had to be actual, not theoretical, and there was no evidence either that the perpetrator was employed by his parents or that any liability of the Summers arose out of their business pursuits; (2) State Farm would have no incentive to argue that any liability on the part of the Summers arose out of their business pursuits, because any knowledge of abuse that the Summers acquired in the business setting would be imputed to them generally; and (3) State Farm could not control the outcome of the coverage issue since the Summers’ business was being represented by separate counsel, and “[a] finding that [the Summers] knew of the abuse and failed to stop it would result in individual liability even if the abuse occurred on business premises.”
In addition to the foregoing, State Farm, in its motion for summary judgment, argued that it had not breached any contractual obligation to the Summers, the Summers’ bad faith claim was without merit, and their punitive damages claim was without merit as well.
State Farm’s motion for summary judgment was supported by a separate statement of undisputed facts. State Farm’s separate statement addressed the nature of the homeowners insurance policy and its exclusions, the filing of the sexual abuse lawsuit, the allegations of the sexual abuse complaint, the tender of defense, the agreement to defend under a reservation of rights with respect to the business pursuits exclusion, and State Farm’s good faith belief that no Cumis counsel was necessary, based on the analysis of coverage counsel.
State Farm’s separate statement also said that the plaintiff in the sexual abuse litigation had testified at deposition that he was not then aware of any evidence that the perpetrator was employed by his parents, the Summers had denied ever employing the perpetrator, and the Scottsdale Insurance Company had hired the law firm of Green & Hill to defend Birchdale Properties, Inc. and had also been ordered in a federal lawsuit to pay that defendant’s actual cost of defense through the Law Offices of Steven R. Young.
(3) The Summers’ Opposition to the Motion for Summary Judgment
The Summers did not dispute the vast majority of the facts presented by State Farm. However, they did dispute the assertion that State Farm reasonably believed that Cumis counsel was not required and the assertion that State Farm did not act with malice.
The Summers opposed the motion for summary judgment on several grounds. As to State Farm’s factual issue concerning employment, the Summers stated that even though they maintained that they did not employ the perpetrator and there was no evidence that any potential liability arose out of their business pursuits, the matter had not yet gone to trial and the jury had not yet made any findings on those points. As to State Farm’s factual issues concerning the defense of Birchdale Properties, Inc., the Summers argued that the involvement of counsel for that defendant was irrelevant to the question of their own defense. The counsel for that defendant did not also represent the Summers.
With respect to State Farm’s legal issue, the Summers argued that State Farm was required to provide Cumis counsel because the “resolution of some issue in the lawsuit between the third party and the insured will bear directly on the outcome of the coverage dispute, ” and, put another way, “the manner in which the liability action is defended can predetermine the outcome of any subsequent coverage determination.” The Summers explained: “Here, the core issue on which State Farm based its ‘reservation of rights’ was whether [the perpetrator] together with Mr. and Mrs. Summers were engaged in a ‘business pursuit’ or whether [the perpetrator] and Mr. and Mrs. Summers had no business relationship regarding the alleged child abuse. Obviously, State Farm might avoid its duty of indemnity if the jury returned a verdict that a business pursuit did exist – as [the plaintiff] alleged. State Farm would, on the other hand, have the duty to indemnify the Summers if the jury returned a verdict that there was no business relationship and that this was a common ‘negligence’ claim of failure by parents to supervise their child who was molesting [the plaintiff] in their home.”
(4) The Summers’ Motion for Summary Adjudication
In their cross-motion for summary adjudication, the Summers argued that each of their three causes of action was with merit. Their arguments in support of their cross-motion for summary adjudication were contained in a combined memorandum of points and authorities supporting their cross-motion and opposing State Farm’s motion. The most significant of those arguments have already been addressed, above.
C. Ruling:
At the hearing on State Farm’s motion and the Summers’ cross-motion, the court first stated that it had to deny the cross-motion. After explaining why, the court turned its attention to State Farm’s motion for summary judgment.
State Farm orally represented that it had asserted the business pursuits exclusion in order to preclude any claim by the Summers that State Farm was obligated to defend their business. It also argued that retained counsel could not steer the case towards liability based on uncovered business pursuits, because showing that the Summers, in connection with their business pursuits, knew that the perpetrator engaged in molestation and did nothing to prevent it, would be to prove the case against the Summers personally. Although we have no written ruling on the motion, the reporter’s transcript indicates that the court, in granting the motion, accepted this argument. It impliedly found that there was a complete defense to the Summers’ causes of action, because State Farm was not required to provide Cumis counsel as a matter of law.
On appeal, the Summers characterize the court’s reasoning in various ways. At one point, they simply quote several pages of dialogue out of the reporter’s transcript as providing the court’s ruling. They say both that the court “opined that there was no way the business pursuits exclusion could apply in this action” and also that it opined “that there was no way that the business pursuits exclusion could apply absent a preliminary finding of parental liability.” (Capitalization omitted.) We find either construction of the court’s remarks to be unduly narrow.
Counsel for State Farm said: “[T]he key factor here is in terms of the liability of Mr. and Mrs. Summers on the State Farm homeowners policy; there is no need to show employment status. All they have to do is come in and show that the parents were aware of this propensity for molestation and did nothing to prevent it and were tortious. To get to the next level, the employment issue, of course, they’d have to add on to that the fact that he was employed and was acting within the course and scope of his employment. There is nothing defense counsel can do to change that. And in fact, what they’re saying is that defense counsel would try to steer this towards the employment situation which obviously he would not because to do so defense counsel would have to prove the case against them personally by proving that they did have knowledge of the molestation and did not do anything to prevent it.” In other words, counsel argued that the key to the liability of the Summers in any capacity was proof that they knew of the molestation and did nothing to stop it. Evidence to that effect could give rise to their liability on a variety of alleged grounds, only one of which would be their business pursuits. In making the argument, counsel loosely referred to the Summers either as “Mr. and Mrs. Summers” or as “the parents.”
The court later said “... I think you advanced the suggestion... that... liability of the Summers is a gateway to liability of the business.” After counsel responded in the affirmative, the court asked, “And that if that path is followed, the Summers will be personally liable and covered by State Farm?” The court was momentarily inclined to deny State Farm’s motion, because the Summers could be found culpable in either covered circumstances or uncovered circumstances. The court stated: “I can change my mind if you’re telling me that a finding of... liability of the business necessarily would require a finding of liability by the parents....” State Farm’s counsel responded in the affirmative and the court granted the motion.
Taken in context, we do not construe the court’s statements as an indication that it had determined that there could be no liability in connection with business pursuits unless the Summers were also held liable in their capacities as parents, for the failure to supervise and control their adult child. Rather, the court, as did State Farm’s counsel, seemed to use the term “parents” as synonymous with “Mr. and Mrs. Summers.” In other words, there could be no liability in connection with business pursuits unless the parents—the Summers—knew about the molestation and failed to prevent it, in connection with their business pursuits. If the Summers knew about the molestation and failed to prevent it, then it is likely that they would also be held liable in connection with other covered activities, such as their activities as parents, property owners, church authorities, etc.
D. Arguments on Appeal:
On appeal, the Summers make numerous arguments including, without limitation: (1) the plaintiff alleged both that they were liable for non-business pursuits, which would be covered liabilities, and for business pursuits, which would be uncovered liabilities; (2) the reservation of rights with respect to business pursuits created a conflict of interest concerning an issue that retained counsel could control in a manner contrary to their interests; (3) the conflict of interest was actual, not theoretical; (4) because State Farm had issued a reservation of rights based on a policy exclusion, they were entitled to Cumis counsel as a matter of law; (5) the fact that they and State Farm each sought to defeat the plaintiff’s claims did not change this entitlement; (6) the plaintiff alleged facts that could give rise to liability arising out of a business pursuit alone; (6) the court erred in finding that the plaintiff’s claims could never fall within the business pursuits exclusion; and (7) the court erred in concluding that there could be no liability based on business pursuits unless there was also parental liability.
We observe that in too many instances, the Summers’ briefs do not “include citations to the page cited when providing legal authorities. Counsel is admonished that case citations are to include the internal page reference where the applicable point is found. [Citation.]” (Del Real v. City of Riverside (2002) 95 Cal.App.4th 761, 768.)
We decline to address the last two arguments because, as we have stated, we do not view the Summers’ characterization of the court’s reasoning as accurate. In order to address the remaining contentions, we turn now to the law regarding the duty to provide Cumis counsel.
E. Duty to Provide Cumis Counsel:
“Generally, an insurer owing a duty to defend an insured, arising because there exists a potential for liability under the policy, ‘has the right to control defense and settlement of the third party action against its insured, and is... a direct participant in the litigation.’ [Citations....] The insurer typically hires defense counsel who represents the interests of both the insurer and the insured. [Citations....] In this ‘usual tripartite relationship existing between insurer, insured and counsel, there is a single, common interest shared among them. Dual representation by counsel is beneficial since the shared goal of minimizing or eliminating liability to a third party is the same.’ [Citations.]” (Long v. Century Indemnity Co. (2008) 163 Cal.App.4th 1460, 1468.) “Under certain circumstances, however, a conflict of interest or potential conflict of interest may impose upon the insurer a duty under [Civil Code] section 2860 to provide independent counsel, commonly referred to as ‘Cumis counsel, ’ for the insured. ‘Usually, these conflicts involve the insured trying to obtain coverage and the insurer trying to avoid it. [Citation.]” (Id. at pp. 1468-1469.)
“The term ‘Cumis counsel’ derives from the holding of Cumis, supra, 162 Cal.App.3d 358, which recognized the insurer’s duty to appoint independent counsel for its insured under certain circumstances. The Legislature codified that duty in 1987 by enacting section 2860. [Citations.]” (Long v. Century Indemnity Co., supra, 163 Cal.App.4th at p. 1468, fn. 6.)
“Section 2860 provides, ‘(a) 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, at the time the insured is informed that a possible conflict may arise or does exist, the insured expressly waives, in writing, the right to independent counsel.... [¶] (b) For purposes of this section, a conflict of interest does not exist as to allegations or facts in the litigation for which the insurer denies coverage; however, 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 a conflict of interest may exist....” (Long v. Century Indemnity Co., supra, 163 Cal.App.4th at pp. 1468-1469, fn. 7.)
“Although an insurer’s agreement to provide a defense pursuant to a reservation of rights may give rise to a conflict of interest requiring appointment of independent or Cumis counsel, it is not inevitable. Section 2860, subdivision (b) provides, ‘For purposes of this section, a conflict of interest does not exist as to allegations or facts in the litigation for which the insurer denies coverage; however, 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, a conflict of interest may exist....’ Thus, when the reservation of rights is based on coverage disputes that have nothing to do with the issues being litigated in the underlying action—for example, whether the defendant is an ‘insured’ under the insurance policy [citation]—there is no conflict of interest, and no duty to appoint independent counsel. [Citations.] Conversely, when the facts on which resolution of the reserved coverage dispute depends are at issue in the underlying action, independent counsel must be appointed because counsel selected and controlled by the insurer could determine the outcome of those issues in the third party action. [Citation.]” (Long v. Century Indemnity Co., supra, 163 Cal.App.4th at pp. 1470-1471, fns. omitted.)
“Attorney control of the outcome of a coverage dispute is written into Civil Code section 2860, subdivision (b) as an example of a conflict of interest which may require appointment of independent counsel. It is not, however, the only circumstance in which Cumis counsel may be required. The language of Civil Code section 2860 ‘does not preclude judicial determination of conflict of interest and duty to provide independent counsel such as was accomplished in Cumis so long as that determination is consistent with the section.’ [Citation.]” (Golden Eagle Ins. Co. v. Foremost Ins. Co. (1993) 20 Cal.App.4th 1372, 1395-1396, fn. omitted.)
“For independent counsel to be required, the conflict of interest must be ‘significant, not merely theoretical, actual, not merely potential.’ [Citation.]” (James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093, 1101.) “Some of the circumstances that may create a conflict of interest requiring the insurer to provide independent counsel include: (1) where the insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by the insurer’s retained counsel [citations]; (2) where the insurer insures both the plaintiff and the defendant [citation]; (3) where the insurer has filed suit against the insured, whether or not the suit is related to the lawsuit the insurer is obligated to defend [citation]; (4) where the insurer pursues settlement in excess of policy limits without the insured’s consent and leaving the insured exposed to claims by third parties [citation]; and (5) any other situation where an attorney who represents the interests of both the insurer and the insured finds that his or her ‘representation of the one is rendered less effective by reason of his [or her] representation of the other.’ [Citations.]” (Id. at pp. 1101-1102.)
As applied to the case before us, the questions are whether State Farm’s retained counsel could control the outcome of the coverage issue and whether such counsel’s representation of the Summers could be rendered less effective by reason of his or her concurrent representation of State Farm. For reasons we shall show, we answer these questions in the negative.
F. Analysis:
The 49-page complaint asserts liability against the Summers on too many theories to enumerate. For example, they were allegedly liable as the perpetrator’s parents, as persons having control over the perpetrator who resided with them, as property owners, as authorities within the Mormon Church, as co-conspirators with the church, and as the perpetrator’s employers—through the church, the Video Production Company, and Birchdale Properties, Inc. In addition, every defendant, including the Summers, was alleged to be the alter ego, successor in interest, agent, representative, partner, trustee, servant, shareholder, joint venturer, contractor and/or employee of every other defendant. The abuse purportedly transpired at many different places over the years, including by way of example, the Summers’ residence and business property, church property, and various buildings, houses and motor vehicles situated in such locations as Catalina Island, Costa Mesa, Long Beach, Los Angeles, Newport Beach, and San Diego. The complaint asserted both intentional and unintentional tort causes of action. However, as stated previously, State Farm did not reserve its rights to deny coverage for intentional torts.
In order to determine whether retained counsel could have steered any basis of liability towards one arising only out of business pursuits, for which there would be no insurance coverage, and away from all other possibility bases of liability, for which there might be insurance coverage, we must consider the general underpinnings of tort liability.
“‘“A tort, whether intentional or negligent, involves a violation of a legal duty, imposed by statute, contract or otherwise, owed by the defendant to the person injured....”’ [Citations.] Absent a legal duty, any injury is an injury without actionable wrong. [Citation.]” (Romero v. Superior Court (2001) 89 Cal.App.4th 1068, 1078.) “If there is no duty, there can be no liability, no matter how easily one may have been able to prevent injury to another. And, while questions concerning whether a duty has been breached and whether that breach caused a plaintiff’s injury may be questions of fact for a jury, the existence of the duty in the first place is question of law for the court. [Citation.] The existence and scope of any duty, in turn, depends on the foreseeability of the harm, which, in that context, is also a legal issue for the court. [Citation.]” (Margaret W. v. Kelley R. (2006) 139 Cal.App.4th 141, 150.) Foreseeability boils down to knowledge, and the element of knowledge has different significance depending on whether the cause of action is predicated on misfeasance or nonfeasance.
“‘Misfeasance is the improper performance of an act that is otherwise proper and nonfeasance is the nonperformance of an act that should be performed.’ [Citation.] ‘Misfeasance exists when the defendant is responsible for making the plaintiff’s position worse, i.e., defendant has created a risk.’ [Citation.] ‘[N]onfeasance is found when the defendant has failed to aid plaintiff through beneficial intervention. [L]iability for nonfeasance is largely limited to those circumstances in which some special relationship can be established. If, on the other hand, the act complained of is one of misfeasance, the question of duty is governed by the standards of ordinary care ....’ [Citation.]” (Romero v. Superior Court, supra, 89 Cal.App.4th at p. 1079.)
In the context of misfeasance, “‘An act or an omission may be negligent if the actor realizes or should realize that it involves an unreasonable risk of harm to another through the conduct of the other or a third person which is intended to cause harm, even though such conduct is criminal.’ [Citation.]” (Pamela L. v. Farmer (1980) 112 Cal.App.3d 206, 209-210, italics added.) So, in the case of misfeasance, what the defendant knew or should have known, is key.
The same would be true in the context of negligent hiring. “An employer may be liable to a third person for the employer’s negligence in hiring or retaining an employee who is incompetent or unfit. [Citation.]” (Roman Catholic Bishop v. Superior Court (1996) 42 Cal.App.4th 1556, 1564-1565.) “‘The principal may be negligent because he has reason to know that the... agent, because of his qualities, is likely to harm others in view of the work or instrumentalities entrusted to him.... If liability results it is because, under the circumstances, the employer has not taken the care which a prudent man would take in selecting the person for the business in hand.... [] Liability results... not because of the relation of the parties, but because the employer antecedently had reason to believe that an undue risk of harm would exist because of the employment....’ [Citation.]” (Id. at p.1565.)
In the context of nonfeasance, “[t]he existence of a special relationship... is only the beginning of the analysis. [Citations.] In order for there to be a duty to prevent third party criminal conduct, that conduct must be foreseeable. [Citations.]” (Margaret W. v. Kelley R., supra, 139 Cal.App.4th at p. 152.) It has been held that in “analyzing defendants’ liability for the criminal conduct of a third party... foreseeability is the crucial factor [citation] and that—no matter whether a heightened or lesser degree of foreseeability was required and no matter whether the actual crime committed or only similar conduct needed to be foreseen—foreseeability must be measured by what the defendant actually knew.” (Id. at p. 156, italics added.)
The bottom line, for our purposes, is that whether the various tort causes of action are based on misfeasance or nonfeasance, foreseeability is a factor in determining duty and foreseeability is based on knowledge. In order to hold the Summers’ liable on any theory, there must be evidence to show either that they knew or had reason to know of the perpetrator’s propensities.
As State Farm argues, “defense counsel had to defend the action on the basis that the alleged conduct did not occur, but if it did, the Summers had no knowledge of the conduct and were not responsible for the claimed injuries in any capacity.” So, the first line of defense would be to try to demonstrate that there was no evidence to show that any molestation ever occurred. Then the Summers would not be liable under any theory, covered or uncovered. If that failed, then tort liability would turn on foreseeability, which is dependent upon knowledge. The second line of defense would be to show that the Summers had no actual knowledge of the perpetrator’s propensities and no reason to know of them. If such were the case, then again, the Summers would not be liable on any theory, covered or uncovered. But if during the litigation the evidence came to show that the Summers knew or should have known of the perpetrator’s propensities, and that, therefore, they could be liable in tort, what could retained counsel have done to show that the Summers were only liable as business owners and not in any other capacity?
It would appear that the only way to do that would be to try to exclude facts bearing upon liability in any capacity other than as business owners. For example, “a host parent assumes a special relationship with children invited into [his or] her home. [Citation.]” (Margaret W. v. Kelley R., supra, 139 Cal.App.4th at p. 152.) If the plaintiff had been invited into the Summers’ home, and they had actual knowledge of the perpetrator’s propensities but nonetheless allowed the perpetrator to sequester the plaintiff in the perpetrator’s bedroom unsupervised, it may have been foreseeable that the abuse of the plaintiff would result. But how could retained counsel exclude facts showing that the plaintiff was invited into the Summers’ home and somehow lay blame on business pursuits?
Or, for example, if the evidence showed that Rogers Summers was a priest within the Mormon Church and further, that he did, as a priest, supervise certain youth activities on church property, and, knowing of the perpetrator’s propensities nonetheless permitted him to take the plaintiff to a locked room, it may have been foreseeable that sexual abuse would result. But how could retained counsel exclude facts showing that the acts took place on church property during church activities under the supervision of Roger Summers as a priest, and instead demonstrate that Roger Summers’s activity was in furtherance of his Birchdale Properties, Inc. business pursuits?
The Summers observe that one theory fairly presented by the complaint is that they knowingly hired a pedophile to work for their Video Production Company, assigned him the duty of photographing children, and while he was performing that task he molested the plaintiff. These allegations, they say, have nothing to do with their capacities as parents or homeowners, but would give rise to liability based only on their business pursuits. Even were that true, it would not necessarily follow that the provision of Cumis counsel was required. The questions, as we have stated, are whether State Farm’s retained counsel could control the outcome of the coverage issue and whether such counsel’s representation of the Summers could be rendered less effective by reason of his or her concurrent representation of State Farm.
The point of the matter is that the interests of the Summers and State Farm were aligned. Retained counsel needed to show that no abuse occurred, or if it did, the Summers had no actual knowledge of the perpetrator’s propensities and no reason to know of them. Then the Summers would have no liability, covered or uncovered. If retained counsel was unsuccessful in that mission, there was nothing he or she could do to exclude all facts that would show liability on a covered theory of liability and develop only those facts that would show liability on a theory arising out of business pursuits. “‘Insurance counsel had no incentive to attach liability to [the Summers]. [State Farm] recognized its liability for certain damages flowing from [the Summers’] liability; thus it was to the advantage of both [the Summers] and [State Farm] to minimize [the Summers’] underlying liability. [Citation.]’ [Citation.]” (James 3 Corp. v. Truck Ins. Exchange, supra, 91 Cal.App.4th at p. 1103.)
III
DISPOSITION
The judgment is affirmed. State Farm shall recover its costs on appeal.
WE CONCUR: RYLAARSDAM, ACTING P. J., ARONSON, J.