Harris v. Sequoia Ins. Co. CA2/6 ( 2014 )

Filed 1/21/14 Harris v. Sequoia Ins. Co. CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or
ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
GLENN HARRIS, 2d Civil No. B247972
(Super. Ct. No. 56-2012-00410577-
Plaintiff and Appellant, CU-BC-VTA)
(Ventura County)
v.
SEQUOIA INSURANCE COMPANY,
Defendant and Respondent.
Glenn Harris appeals a judgment of nonsuit and an order denying his motion
for summary adjudication against Sequoia Insurance Company (Sequoia) for breach of a
settlement agreement, tortious breach of the implied covenant of good faith and fair
dealing, and fraud by false promise. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Harris is an officer and owner of Southern California Gold Products, Inc.
(SCGP). SCGP provides armor solutions for military-type vehicles. Sequoia insured
SCGP from 2007 to 2009 under a business insurance policy (the Policy). The Policy was
later rescinded by agreement as explained below.
In 2007, Frederick Reva was struck and killed by a support vehicle during
the 2007 Baja 1000 off-road automobile race. Harris participated in the race and one of his
team members drove the support vehicle that killed Reva.
In an unrelated case that same year, American Defense Systems, Inc. sued
SCGP for misappropriation of trade secrets. (American Defense Systems, Inc. v. Southern
California Gold Products, Inc. (C.D.Cal. Feb. 21, 2008, No. CV 07-7134-CAS (AJWx)
[nonpub. opn.] ("the ADSI case").) After investigating that claim, Sequoia concluded that
SCGP had misrepresented the nature of its business activities in its insurance application
when it described SCGP's only business as retail "Automobile Parts & Supplies Stores."
On May 11, 2009, Sequoia notified SCGP of its decision to deny defense in the ADSI case
and reserved its right to rescind the Policy based on material misrepresentation. We refer
to the resulting coverage litigation as "the Zurich action." (Southern California Gold
Products, Inc. v. Zurich-American Insurance Group (Super. Ct. Ventura County, No.
56-2009-00353066-CU-IC-VTA.)
On May 22, 2009, Frederick Reva's family sued SCGP, Glenn Harris, Daniel
Wreesman, Cameron Thieriot, and others for wrongful death. (Reva v. Wreesman (Super.
Ct. Sonoma County, No. SCV 243311 ("the Reva action").) The Reva family sued Harris,
both as an officer of SCGP and in his individual capacity. They alleged that Harris and
SCGP organized and financed the race team.
Sequoia and Harris now agree that Harris's involvement in the race was
actually social and did not arise out of any business activities of SCGP. The team was
owned and organized by Harris's friend, Cameron Thieriot.
Sequoia accepted the defense of SCGP and Harris in the Reva action with a
reservation of rights. The reservation of rights letter stated, "Under the terms of the
Business Liability coverage, that coverage is triggered where there is a claim for damages
made against an insured in an insured capacity."
Harris was not insured by Sequoia in his individual capacity. The Policy
defined the insureds to include SCGP's executive officers and directors, "but only with
respect to their duties as [SCGP's] officers or directors."
Sequoia retained attorney Dwight Bishop to defend SCGP and Harris in the
Reva action. A Sequoia representative testified at trial that Sequoia provided incidental
defense of the claims against Harris in his individual capacity until it settled all potentially
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covered claims in December 2010. Harris's personal attorney, Malcolm Tator, also
monitored the Reva action on Harris's behalf.
In February 2010, Tator tendered Harris's individual defense to another
carrier, State Farm, pursuant to his homeowner's policy and personal liability umbrella
policy. Tator wrote, "At present Mr. Harris is being defended through Sequoia Insurance,
carrier for his company [SCGP]. The initial theory of the case was that the race was
connected commercially to [SCGP]. In actuality, it was simply a social event. Due to a
phone message left on my answering machine, I take it that plaintiff's counsel now realizes
that, and will switch his theory from Mr. Harris' company to Mr. Harris individually. [¶]
Accordingly, we therefore tender Mr. Harris' defense to State Farm . . . . [¶] . . . I do not
know whether State Farm would wish to join in the retention of Mr. Bishop or prefer to
associate counsel of its own." State Farm refused to defend Harris in the Reva action.
In December 2010, Sequoia and SCGP agreed to settle the Zurich action.
Under the terms of the Zurich settlement agreement, the Policy would be rescinded.
Sequoia would refund the Policy premiums and forego any reimbursement claims, but
Sequoia would continue to defend "the Sequoia Insureds" in the Reva action.
The Zurich settlement agreement provided, "The Parties acknowledge and
agree that, as a result of the rescission of the Sequoia Policy contemplated in Section II,
above, the Sequoia Policy is void ab initio, relieving Sequoia of any contractual obligation
to defend or indemnify the Reva Action. However, as and for valuable consideration for
the promises exchanged herein, the Parties agree that Sequoia will continue to defend the
Sequoia Insureds in the Reva Action pursuant to the June 16 and June 18, 2010 reservation
of rights letters attached hereto as Exhibit C. Sequoia shall continue this defense
notwithstanding the rescission of the Sequoia Policy and with the understanding that
Sequoia reserves its right to refuse to indemnify all or any portion of any judgment entered
in the Reva Action on any applicable ground other than the grounds of or for rescission of
the Sequoia Policy." (Italics added.) "The Sequoia Insureds" were defined in recital H of
the Zurich settlement agreement to mean "SCGP and Glenn Harris (in his capacity as an
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officer or director of SCGP pursuant to the Sequoia Policy 's 'Who Is an Insured'
provision)." (Italics added.)
Tator represented Harris in the negotiation and drafting of the Zurich
settlement agreement. Harris initialed recital H and signed the agreement. He testified
that he did not understand that as a result he would be financially responsible for the
defense of claims asserted against him individually.
Trial in the Reva action was to begin on January 14, 2011. On January 11,
Sequoia settled all claims against SCGP and all claims against Harris in his capacity as an
officer or director of SCGP for $25,000. Sequoia did not obtain a release of claims against
Harris in his individual capacity. The release expressly excluded claims against Harris in
his individual capacity. Harris testified that he did not attend the settlement negotiations.
The trial court continued the Reva trial because the Revas' counsel had a
medical emergency. The remaining parties eventually settled. Bishop continued to
defend Harris through trial and settlement, at Harris's expense. Harris testified that he
personally paid Bishop $15,854.75 for his services from February 2011 through trial and
settlement. A representative of Sequoia testified that, although she believed Sequoia had
no obligation to defend Harris in his individual capacity after the Zurich settlement
agreement, Sequoia paid Bishop's fees through February 17 to allow Harris and Bishop
time to come to an agreement concerning fees and did not seek reimbursement for defense
costs from Harris. Harris testified that he or SCGP paid Tator about $40,000. He testified
that his wife paid Tator's bills with SCGP checks, but he reimbursed SCGP. He did not
submit documentary proof that he reimbursed SCGP.
In August 2011, Harris was dismissed from the Reva action pursuant to a
global settlement to which he contributed $75,000 by personal check. Cameron Thieriot
and his carrier contributed $925,000.
Harris sued State Farm for bad faith refusal to defend him in the Reva action.
Pursuant to a settlement agreement, State Farm paid him $140,000, consisting of $75,000
for his contribution, plus $5,625 in interest, $37,609.75 for attorney fees and costs of
defense in the Reva action, and $1,765.25 for other costs.
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Harris filed this action against Sequoia for breach of the Zurich settlement
agreement, breach of the implied covenant of good faith and fair dealing, and fraud by
false promise. Harris moved for summary adjudication on the grounds that it was
undisputed that Sequoia had a duty to continue to defend him in the Reva action in his
individual capacity under the terms of the Zurich settlement agreement. He argued that
Sequoia had defended him as an individual before and after the Zurich settlement until
January 11, 2011, and that it agreed to "continue" to defend its insureds.
The trial court denied Harris's motion for summary adjudication, finding that
he had "not established" that he was a Sequoia insured under the Zurich settlement
agreement and that he had "not established" that he was "a Sequoia insured in his
individual capacity."
At trial, Harris presented the testimony of Sequoia's chief claims officer,
Carola Hogan, his own testimony, and documentary evidence. After Harris rested, the trial
court granted Sequoia's motion for nonsuit on the grounds that Harris had presented no
evidence that Sequoia failed to do something it was required to do under the Zurich
settlement agreement; no evidence that he personally suffered any out-of-pocket losses;
and no evidence that Sequoia falsely promised to represent him in his individual capacity.
DISCUSSION
Order Denying Summary Adjudication
An order denying a motion for summary judgment, while not directly
appealable, may be reviewed on appeal from the final judgment. (Gackstetter v. Frawley
(2006) 135 Cal. App. 4th 1257, 1268.) We independently assess the correctness of the trial
court's ruling, applying the same legal standard as the trial court to determine whether
Harris was entitled to summary adjudication as a matter of law. (Id. at p. 1270.) The trial
court correctly concluded that Harris had not established as a matter of law that in his
individual capacity he was a "Sequoia Insured" within the meaning of the Zurich
settlement agreement. The agreement unambiguously defines "the Sequoia Insureds" to
include Harris only in his capacity as an officer or director of SCGP. Harris argues that the
words of the agreement required Sequoia to "[c]ontinue [w]hat [i]t [h]ad [b]een [d]oing."
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(Boldface omitted.) But the plain meaning of the words of the agreement only required
Sequoia to "continue to defend the Sequoia Insureds," as "the Sequoia Insureds" were
defined in the agreement. The court did not err when it denied Harris's motion for
summary adjudication.
Judicial Estoppel
Harris argues that Sequoia is judicially estopped from prevailing on nonsuit
because Sequoia argued there were triable issues of fact when it opposed Harris's motion
for summary adjudication. (People ex rel. Sneddon v. Torch Energy Services, Inc. (2002)
102 Cal. App. 4th 181, 189.) We disagree. In opposition to Harris's motion, Sequoia
argued that Harris had not established in his moving papers as a matter of law that he was a
"Sequoia Insured" in his individual capacity. In support of its motion for nonsuit, Sequoia
argued that Harris had not produced any evidence at trial to prove that he was a "Sequoia
Insured" in his individual capacity. Sequoia's positions were consistent.
Judgment of Nonsuit
A trial court may not grant a defendant's motion for nonsuit if the plaintiff's
evidence would support a jury verdict in the plaintiff's favor. (O'Neil v. Crane Co., (2012)
53 Cal. 4th 335, 347.) In determining whether plaintiff's evidence is sufficient, the court
may not weigh the evidence or consider credibility of witnesses. (Ibid.) The court must
accept as true the evidence most favorable to plaintiff and disregard conflicting evidence.
(Ibid.) The court must indulge every legitimate inference that may be drawn from the
evidence in plaintiff's favor. (Ibid.) We are guided by the same rules on appeal from
judgment of nonsuit. (Ibid.)
Harris contends that sufficient evidence would support a jury verdict in his
favor because a jury could find that Sequoia was required by the terms of the Zurich
settlement agreement to defend him in his individual capacity in the Reva action. We
disagree.
It is true that when a liability insurance policy exists, the insurer owes a
broad duty to defend its insured against any claims that create a potential for indemnity
and that duty to defend may extend to incidental defense against claims that are not even
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potentially covered. "Once the defense duty attaches, the insurer is obligated to defend
against all of the claims involved in the action, both covered and noncovered, until the
insurer produces undeniable evidence supporting an allocation of a specific portion of the
defense costs to a noncovered claim." (Horace Mann Ins. Co. v. Barbara B. (1993) 4
Cal. 4th 1076, 1081.) The insurer may later seek reimbursement from the insured for
defense costs that can be allocated solely to the claims that were not potentially covered.
(Buss v. Superior Court (1997) 16 Cal. 4th 35, 48, 52-53.) Sequoia relinquished this right
to reimbursement under the Zurich settlement agreement.
Here, no liability policy exists. The Policy was rescinded in December 2010.
Harris's complaint in this action relies entirely on the Zurich settlement agreement. Harris
does not allege the existence of an insurance policy or even refer to the Policy in his
pleadings. In his first cause of action for breach of contract, Harris alleges that he was a
"third-party beneficiary" to the Zurich settlement agreement between Sequoia and SCGP;
that Sequoia provided a defense to him in his individual capacity before and after entering
into that agreement; that Sequoia breached the settlement agreement went it stopped
defending him on January 11, 2011; and that, as a result, he suffered $60,165.91 in
attorney fees and $75,000 to settle the Reva action. In his second cause of action for
breach of the implied covenant of good faith and fair dealing, Harris alleges that Sequoia
"breached the covenant of good faith and fair dealing by settling with the Revas and
cutting off plaintiff Glenn Harris' defense three days before trial by [¶] (1) Not getting a
complete release for Glenn Harris, [¶] (2) Preferring one insured, SCGP, over another,
Glenn Harris, [¶] (3) Bank-rolling Glenn Harris' opponent, namely the Revas, and [¶] (4)
Not keeping Glenn Harris informed of settlement negotiations." But Harris does not allege
that an insurance contract gave rise to the implied covenant, nor could he because the
Policy was rescinded. The only alleged contractual basis for the implied covenant is the
Zurich settlement agreement. In his third cause of action for fraud by false promise (added
by amendment), Harris alleges that Sequoia promised in the Zurich settlement agreement
to represent him in his individual capacity without the intention to do so.
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Sequoia is entitled to judgment because no evidence presented at trial would
support a jury finding that the Zurich settlement agreement required Sequoia to defend
Harris in his individual capacity. Although Sequoia previously provided Harris with an
incidental defense to claims against him as an individual for which there was no potential
coverage, Sequoia did not agree to continue to do so after the Policy was rescinded. In
exchange for rescission, Sequoia agreed relinquish its claims for reimbursement, to refund
the Policy premiums, and to "continue to defend the Sequoia Insureds in the Reva Action
pursuant to the June 16 and June 18, 2010 reservation of rights letters attached hereto as
Exhibit C." (Italics added.) "The Sequoia Insureds" were defined to include only "SCGP
and Glenn Harris (in his capacity as an officer or director of SCGP pursuant to the Sequoia
Policy's 'Who Is an Insured' provision)"; and Harris, represented by counsel, demonstrated
his agreement when he signed the agreement and initialed the definition of "the Sequoia
Insureds" in recital H.
Harris contends that he was entitled to a continuing defense as an individual
because Sequoia necessarily referred to him as an insured in all capacities when Hogan
wrote in an internal report that "the insured was not in a business capacity." Hogan
testified at trial that she used the term "insured" to refer to Harris in his capacity as
president of SCGP and that Harris was not individually insured. Harris could not have
relied on the document because the undisputed evidence was that Harris had not seen any
internal reports at the time the parties negotiated the Zurich settlement agreement.
Under the terms of the Zurich settlement agreement, Harris received the
benefit of a continuing defense from Sequoia in his capacity as an officer of SCGP ,
notwithstanding a substantial risk that the court in the Zurich action might have rescinded
the Policy as fraudulent, relieving Sequoia of any duties to him or to SCGP and exposing
SCGP and Harris to reimbursement claims. The parties received what they bargained for
under the agreement. Therefore, Sequoia is entitled to nonsuit on Harris's first cause of
action for breach of the Zurich settlement agreement. There was no evidence from which a
jury could conclude that Zurich failed to perform under the agreement.
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Sequoia is entitled to nonsuit on Harris's second cause of action for breach of
the implied covenant of good faith and fair dealing for the same reason. Moreover, Harris
did not plead or prove the existence of an insurance policy to support his claims that
Sequoia had a duty to Harris in his individual capacity to obtain a complete release, treat
him equally to other insureds, or to keep him informed of settlement negotiations. Harris
argues that the settlement agreement did not sever the insurance relationship between the
parties, but the agreement stated that "the Sequoia Policy is void ab initio, relieving
Sequoia of any contractual obligation to defend or indemnify the Reva Action."
Sequoia is also entitled to nonsuit on Harris's third cause of action for fraud
by false promise because Harris did not present any evidence from which a jury could
conclude that Sequoia promised in the Zurich settlement agreement to defend Harris in his
individual capacity. Because each cause of action lacked proof of other essential elements,
we do not reach the question of whether Harris presented evidence from which a jury
could conclude he suffered damage.
DISPOSITION
The judgment and order are affirmed. Respondent shall recover costs on
appeal.
NOT TO BE PUBLISHED.
GILBERT, P.J.
We concur:
YEGAN, J.
PERREN, J.
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Charles R. McGrath, Judge
Superior Court County of Ventura
______________________________
Law Offices of Malcolm Tator, Malcolm Tator, for Plaintiff and Appellant.
Archer Norris, GailAnn Y. Stargardter, Erin M. Gallagher, for Defendant
and Respondent.
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