Simonyan v. Nationwide Ins. Co. of America

Filed 4/19/22; Certified for Publication 5/16/22 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----
NSHAN SIMONYAN, C091100
Plaintiff and Appellant, (Super. Ct. No.
34201800240790CUBCGDS)
v.
NATIONWIDE INSURANCE COMPANY OF
AMERICA,
Defendant and Respondent.
This dispute between Nshan Simonyan and his insurer, Nationwide Insurance
Company of America (Nationwide), involves Nationwide’s handling of his defense in an
action arising out of a three-car accident in which Simonyan was a driver. Simonyan
asked Nationwide to appoint, as Cumis 1 counsel, a law firm that he had already hired to
advance his affirmative claim against the driver who hit him. Nationwide refused.
1 San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358(Cumis).
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Simonyan appeals from a judgment of dismissal after the trial court sustained
Nationwide’s demurrer to his second amended complaint without leave to amend.
Simonyan argues his allegations were sufficient to state claims for breach of contract and
breach of the implied covenant of good faith and fair dealing, and that the trial court
abused its discretion in denying his motion to reconsider based on new allegations. We
will affirm the judgment.
I. BACKGROUND
In the operative complaint, Simonyan alleges that, on October 18, 2017, he came
to a stop near an intersection and was rear-ended by a truck. He alleges the impact forced
his car to hit the car in front of him.
At the time of the accident, Simonyan was insured by Nationwide. He contacted
them to make a claim. He alleges that, after taking his statement regarding what
happened, Nationwide made an internal decision that he was liable for causing the
accident.
Simonyan retained Gavrilov & Brooks to represent him with respect to the
collision. In December 2017, Simonyan filed suit against the driver of the truck that hit
him.
In May 2018, Simonyan notified Nationwide that he had been sued by the driver
of the car that he had hit. Under the terms of the policy, Nationwide had agreed to “pay
damages for ‘bodily injury’ or ‘property damage’ for which any ‘insured’ becomes
legally responsible because of an auto accident. . . . We will settle or defend, as we
consider appropriate, any claim or suit asking for these damages. In addition to our limit
of liability, we will pay all defense costs we incur.” The policy requires Simonyan, as a
person seeking coverage, to “[c]ooperate with [Nationwide] in the investigation,
settlement or defense of any claim or suit.”
Simonyan requested that Nationwide appoint Gavrilov & Brooks as Cumis
counsel. Simonyan argued there was a conflict of interest between him and Nationwide
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because Nationwide had already determined he was liable for causing the accident.
Further, he argued Gavrilov & Brooks was already familiar with the case. Nationwide
denied there was a conflict of interest, but agreed to appoint outside counsel “as an
accommodation to the insured’s concerns.” Nationwide appointed the law firm of Porter
Scott. Simonyan complained this failed to correct the alleged conflict of interest and
created a new conflict of interest because Nationwide often retains Porter Scott, and the
law firm “would have an incentive to litigate in a way that would cause [Nationwide] to
send the firm more work.” Simonyan further contended representation by two law firms
would hinder his ability to receive fair treatment at trial and complicate the discovery
process.
Nationwide replied that it would not pay for Gavrilov & Brooks as Cumis counsel
and demanded that Simonyan cooperate with Porter Scott and Nationwide, or else
Nationwide would decline to pay any defense costs or judgments against him in the
defense action. Nationwide stated its internal decision that Simonyan was at fault for the
collision was not a final decision and it had a financial interest in vigorously defending
him.
Several months later, in October 2018, Nationwide raised Simonyan’s policy
premiums based on its determination that he was at fault for the October 2017 collision
and removed various discounts.
In the interim, Simonyan had initiated this action against Nationwide. The
original complaint and the second amended complaint both allege two causes of action:
(1) breach of the implied covenant of good faith and fair dealing, and (2) breach of
contract.
Nationwide demurred to the second amended complaint on the grounds that
neither cause of action stated facts sufficient to constitute a cause of action. The trial
court sustained the demurrer without leave to amend.
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Simonyan filed a motion for reconsideration based on Porter Scott’s subsequent
refusal to sign a substitution of attorney allowing Gavrilov & Brooks to withdraw from
the action. The court denied the motion.
The court entered judgment dismissing Simonyan’s second amended complaint
with prejudice. Simonyan filed a timely appeal.
II. DISCUSSION
A. Standard of Review
“It is well established that a demurrer tests the legal sufficiency of the complaint.
[Citations.] On appeal from a dismissal entered after an order sustaining a demurrer, we
review the order de novo, exercising our independent judgment about whether the
petition states a cause of action as a matter of law. [Citations.] We give the petition a
reasonable interpretation, reading it as a whole and viewing its parts in context.
[Citations.] We deem to be true all material facts that were properly pled. [Citation.]
We must also accept as true those facts that may be implied or inferred from those
expressly alleged. [Citation.] We may also consider matters that may be judicially
noticed, but do not accept contentions, deductions or conclusions of fact or law.” (City of
Morgan Hill v. Bay Area Air Quality Management Dist. (2004) 118 Cal.App.4th 861,
869-870; see also Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
“If the court sustained the demurrer without leave to amend, as here, we must
decide whether there is a reasonable possibility the plaintiff could cure the defect with an
amendment. [Citation.] If we find that an amendment could cure the defect, we conclude
that the trial court abused its discretion and we reverse; if not, no abuse of discretion has
occurred. [Citation.] The plaintiff has the burden of proving that an amendment would
cure the defect.” (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)
We review a trial court’s ruling on a motion for reconsideration under the abuse of
discretion standard. (New York Times Co. v. Superior Court (2005) 135 Cal.App.4th 206,
212.)
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B. Breach of Contract
Simonyan argues he sufficiently pled a breach of contract claim based on
Nationwide’s refusal to provide independent counsel. The second amended complaint
alleged this refusal is a breach of Nationwide’s contractual duty to defend.
“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.’ ” (Long v.
Century Indem. Co. (2008) 163 Cal.App.4th 1460, 1468.)
“In the landmark Cumis opinion, the court held that if a conflict of interest exists
between an insurer and its insured, based on possible noncoverage under the insurance
policy, the insured is entitled to retain its own independent counsel at the insurer’s
expense. [Citation.] [¶] The Cumis opinion was codified in 1987 by the enactment of
Civil Code section 2860, which ‘ “clarifies and limits” ’ the rights and responsibilities of
insurer and insured as set forth in Cumis.” (James 3 Corp. v. Truck Ins. Exchange (2001)
91 Cal.App.4th 1093, 1100, fn. omitted (James 3).)
Civil Code section 2860 provides, in relevant part:
“(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. . . .
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“(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.”
The duty to provide independent counsel “ ‘is not based on insurance law but on
the ethical duty of an attorney to avoid representing conflicting interests.’ ” (James 3,
supra, 91 Cal.App.4th at p. 1101.) “ ‘As statutory and case law make clear, not every
conflict of interest triggers an obligation on the part of the insurer to provide the insured
with independent counsel at the insurer’s expense.’ ” (Ibid.) “A mere possibility of an
unspecified conflict does not require independent counsel. The conflict must be
significant, not merely theoretical, actual, not merely potential.” (Dynamic Concepts,
Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999, 1007.)
“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.’ ” (James 3, supra, 91 Cal.App.4th at p. 1101.)
Here, Nationwide has agreed to defend without any reservation of rights and none of the
first four circumstances apply. There remains the catch-all principle that a “[c]onflict of
interest between jointly represented clients occurs whenever their common lawyer’s
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representation of the one is rendered less effective by reason of his representation of the
other.” (Spindle v. Chubb/Pacific Indemnity Group (1979) 89 Cal.App.3d 706, 713.)
However, Simonyan’s claim that there is a conflict of interest does not rely on the catch-
all standard either.
Simonyan argues a conflict of interest exists because there is a “significant risk”
Porter Scott’s representation of his interests will be “materially limited.” This proposed
standard is derived from rule 1.7(b) of the Rules of Professional Conduct, which
provides, in relevant part: “A lawyer shall not . . . represent a client if there is a
significant risk the lawyer’s representation of the client will be materially limited by the
lawyer’s responsibilities to or relationships with another client, a former client or a third
person, or by the lawyer’s own interests.” (Italics added.) Even if we assume the right to
independent counsel attaches at this point, the standard is unhelpful to Simonyan because
his allegations do not meet it. One of the comments to the rule explains this paragraph
applies where “there is a significant risk that a lawyer’s ability to consider, recommend or
carry out an appropriate course of action for the client will be materially limited as a
result of the lawyer’s other responsibilities, interests, or relationships, whether legal,
business, financial, professional, or personal.” (Com. 4 to Rules Prof. Conduct, rule
1.7(b).) “The mere possibility of subsequent harm” is insufficient. (Ibid.) “The critical
questions are the likelihood that a difference in interests exists or will eventuate and, if it
does, whether it will materially interfere with the lawyer’s independent professional
judgment in considering alternatives or foreclose courses of action that reasonably should
be pursued on behalf of each client.” (Ibid.) Simonyan has not alleged facts sufficient to
show such a likelihood.
Simonyan argues there is a conflict of interest because “[h]e thought the driver
who rear-ended him was at fault for the collision and filed an action against the driver,
whereas Nationwide determined Simonyan was at fault.” Simonyan alleges Nationwide
raised his premiums and removed his driving discounts based on this determination. He
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cites no authority that concludes that when an insurance company raises premiums based
on its belief of fault, it now has a conflict of interest. Regardless of Nationwide’s belief
of Simonyan’s fault, it is required by the insurance policy to pay for his defense and any
damages. Simonyan acknowledges Nationwide did not reserve its rights and agreed to
defend the claim fully. Thus, Nationwide’s interest in the litigation is to defeat liability
and minimize any damages. (See James 3, supra, 91 Cal.App.4th at p. 1103 [explaining
that the interests of the insured and insurer did not conflict vis-à-vis the defense of causes
of actions the insurer had agreed to defend without a reservation of rights]; cf. Nede
Mgmt., Inc. v. Aspen American Insurance Company (2021) 68 Cal.App.5th 1121, 1135
[explaining that belief of managing underwriter and insurer-appointed counsel that
insureds would be bad witnesses “is not a conflict of interest. If [insurer-appointed
counsel] had entertained such a view, it is part of an attorney’s honest assessment about
the merits of a case”].) The suggestion that Porter Scott would work against Simonyan’s
interest in the litigation because Nationwide has raised Simonyan’s premiums based on
its assessment of fault is no more than a mere possibility. Simonyan argues his
contractual duty to cooperate “crystalizes” the conflict. He posits a scenario where a
lawyer appointed by Nationwide “will prepare him to testify one way based on
Nationwide’s belief that he was at fault,” and he must “choose to cooperate with
Nationwide’s position that he is at fault, or he can choose to speak the truth and lose his
defense counsel.” Alleging “anticipated circumstances” that “have not occurred yet in
the underlying litigation” is insufficient to state a claim that independent counsel is
required. (Centex Homes v. St. Paul Fire & Marine Ins. Co. (2015) 237 Cal.App.4th 23,
31.) Simonyan has failed to establish any error with respect to the trial court’s sustaining
of the demurrer as to his breach of contract claim.
C. Breach of Implied Covenant of Good Faith and Fair Dealing
Our Supreme Court has explained “ ‘[there] is an implied covenant of good faith
and fair dealing in every contract [including insurance policies] that neither party will do
8
anything which will injure the right of the other to receive the benefits of the
agreement.’ ” (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573.) “The precise
nature and extent of the duty imposed by such an implied promise will depend on the
contractual purposes.” (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818.)
Simonyan argues he sufficiently alleged a claim for breach of the implied
covenant of good faith and fair dealing based on Nationwide’s selection of Porter Scott
instead of the counsel he had already retained. He relies primarily on Barney v. Aetna
Casualty & Surety Co. (1986) 185 Cal.App.3d 966 (Barney). We find this case unhelpful
to his position.
In Barney, the insured was injured in an automobile accident and retained her own
attorney to represent her in her personal injury claim against the driver of the other
vehicle. (Barney, supra, 185 Cal.App.3d at p. 970.) Meanwhile, the other driver filed a
personal and property damage action against the insured. (Ibid.) As the appellate court
explained, the insurer met its obligation under the contract to defend and indemnify the
insured by hiring counsel on her behalf and settling the claim within policy limits. (Id. at
p. 975.) The insurer had no duty to file a cross-complaint because “nothing in the policy
provisions imposes upon the insurer the duty to prosecute claims of the insured against
third parties.” (Ibid.) However, the insured alleged that the insurer was aware of her
“substantial counterclaim” against the driver and effectuated a settlement agreement
without her knowledge that operated to bar that counterclaim. (Id. at p. 976.) The court
held this was sufficient to allege a cause of action for breach of the implied covenant of
good faith and fair dealing. (Id. at p. 973.) The insurer had argued that “the insured’s
right to prosecute a claim against third parties is not a right under the policy and therefore
the covenant of good faith and fair dealing does not come into play.” (Id. at p. 977.) The
court disagreed: “Defendant’s interpretation of what constitutes a right under the policy
is too narrow when viewed in light of the reasonable expectations of the insured. . . . An
insured reasonably expects that the insurer, in using the authority granted under the
9
policy, will not knowingly effect a settlement which works to the detriment of the
insured. The insured can hardly be said to have received any benefit from the policy of
insurance if that benefit is totally voided by a countervailing detriment imposed upon him
by the insurer without his consent.” (Ibid.) The court held the insurer “had a duty not to
knowingly use its discretionary power under the policy to effect a settlement in a manner
injurious of [the insured]’s rights.” (Id. at p. 978.) Simonyan’s allegations do not
implicate Nationwide’s power to effect a settlement. They implicate Nationwide’s right
to control the defense it must provide under the contract. (See James 3, supra, 91
Cal.App.4th at p. 1106.) Regardless, Simonyan’s allegations fail to state a claim for
breach of the implied covenant of good faith and fair dealing.
The potential harms Simonyan identifies are not protected by the implied covenant
of good faith and fair dealing in his insurance policy. Simonyan argues Nationwide
breached this implied covenant in part by reminding him of his duty to cooperate under
the terms of the policy. Further, he argues having two law firms represent him would
increase litigation fees and costs. He asserts that two law firms “would needlessly
complicate the discovery process and trial presentation” and “create problems because
the trial court would likely not allow two attorneys who both represent Simonyan to
conduct voir dire, cross-examine a single witness, and deliver an opening statement and a
closing argument.” “[A] liability insurance policy’s purpose is to provide the insured
with a defense and indemnification for third party claims within the scope of the coverage
purchased, and not to insure the entire range of the insured’s well-being.” (Western
Polymer Technology, Inc. v. Reliance Ins. Co. (1995) 32 Cal.App.4th 14, 27 [alleged
injury to business reputation insufficient].) What Simonyan describes is the reality of the
parties’ rights under the policy—Nationwide has a duty to defend and in the absence of a
conflict it has a right to control the defense litigation and ask for cooperation. (See, e.g.,
Swanson v. State Farm General Ins. Co. (2013) 219 Cal.App.4th 1153, 1160 [insured had
“right to take control of the litigation with an attorney of its choosing and to cease paying
10
. . . Cumis counsel chosen by [the insured], after [insurer] withdrew its Cumis-triggering
reservation of rights”].) It would not be reasonable for Simonyan to expect otherwise
based on their agreement. As the trial court noted, Civil Code section 2860, subdivision
(f) provides: “Where the insured selects independent counsel pursuant to the provisions
of this section, both the counsel provided by the insurer and independent counsel selected
by the insured shall be allowed to participate in all aspects of the litigation. Counsel shall
cooperate fully in the exchange of information that is consistent with each counsel’s
ethical and legal obligation to the insured. 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.” Thus, even when Cumis counsel is provided, these issues may still exist.
Simonyan argues that “it seems probable that Nationwide thinks that by insisting
Simonyan has a ‘duty to cooperate,’ it could later force him to compromise his collateral
rights or lose his defense under the policy on the ground that he failed to ‘cooperate.’ ”
The main authority on which Simonyan relies is perhaps the best illustration of the
counterpoint. The insurer in Barney breached the implied covenant of good faith and fair
dealing by directing that counsel enter into a settlement agreement that allegedly caused
the insured to lose her claim for personal injuries. Moreover, given Barney’s holding that
an insurance company has “a duty not to knowingly use its discretionary power under the
policy to effect a settlement in a manner injurious of [the insured]’s rights,” we do not see
how we can infer a probability that such a breach would occur. (Barney, supra, 185
Cal.App.3d at p. 978.) The trial court did not err in granting the demurrer as to
Simonyan’s claim for breach of the implied covenant of good faith and fair dealing.
D. Motion for Reconsideration and Leave to Amend
Simonyan filed a motion for reconsideration pursuant to Code of Civil Procedure
section 1008. The statute provides that, within 10 days after service of notice of entry of
an order, a party may make a motion to reconsider “based upon new or different facts,
circumstances, or law.” (Code Civ. Proc., § 1008, subd. (a).) Simonyan’s motion
11
asserted that, after the trial court sustained Nationwide’s demurrer without leave to
amend, he determined he could not afford to pay Gavrilov & Brooks and decided that he
did not want two law firms to represent him in the same action. Simonyan sent a
substitution of attorney to Porter Scott for signature, and Porter Scott did not sign. An
attorney with Porter Scott explained, “I am not interested in taking Mr. Simonyan’s
plaintiff personal injury case and I will not be signing the substitution of attorney.”
Simonyan argued this refusal established a conflict of interest and he should be permitted
to amend his complaint on that basis “because Porter Scott is not adhering to its ethical
duties to him.” The trial court denied the motion for reconsideration. On appeal,
Simonyan argues the trial court abused its discretion in denying leave to amend based on
Porter Scott’s refusal to sign the substitution of attorney. We disagree.
The court explained that it “finds that Porter[] Scott’s ‘refusal’ to represent
plaintiff in his capacity as a personal injury claimant creates no conflict of interest which
justifies the reconsideration of the . . . order sustaining the demurrer to the [second
amended complaint] without leave to amend. In short, neither defendant Nationwide nor
Porter[] Scott is under any obligation to represent plaintiff in connection with his own
affirmative personal injury claims given that the subject insurance policy is by its own
terms otherwise limited to providing plaintiff with a defense when a covered claim is
made against him. [¶] Nothing in California Rules of Professional Conduct, Rule 1.7 . . .
changes this since plaintiff has failed to show the existence of any ‘significant risk’ that
Porter[] Scott’s representation of plaintiff in his capacity as a defendant in the underlying
action as expressly provided for in the subject insurance policy ‘will be materially limited
by the lawyer’s responsibilities to or relationships with another client, a former client, or
a third person, or by the lawyer’s own interests.’ ” We agree with the trial court’s
analysis. Simonyan has failed to establish the court abused its discretion in denying his
motion for reconsideration or in denying him leave to amend his complaint.
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III. DISPOSITION
The judgment is affirmed. Nationwide shall recover its costs on appeal. (Cal.
Rules of Court, rule 8.278(a)(1) & (2).)
/S/
RENNER, J.
We concur:
/S/
BLEASE, Acting P. J.
/S/
MAURO, J.
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Filed 5/16/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
THIRD APPELLATE DISTRICT
(Sacramento)
----
NSHAN SIMONYAN, C091100
Plaintiff and Appellant, (Super. Ct. No.
34201800240790CUBCGDS)
v.
ORDER CERTIFYING
NATIONWIDE INSURANCE COMPANY OF OPINION FOR
AMERICA, PUBLICATION
Defendant and Respondent. [NO CHANGE IN
JUDGMENT]
APPEAL from a judgment of the Superior Court of Sacramento County,
Christopher E. Krueger, Judge. Affirmed.
Gavrilov & Brooks, Sheila Wirkus Pendergast, and Ognian A. Gavrilov, for
Plaintiff and Appellant.
Dentons US, Sonia R. Martin, Emily S. Nozick, and David R. Simonton for
Defendant and Respondent.
THE COURT:
The opinion in the above-entitled matter filed April 19, 2022, was not certified for
publication in the Official Reports. For good cause it appears now that the opinion
1
should be published in the Official Reports, and it is so ordered. There is no change in
judgment.
/S/
_________________________
BLEASE, Acting P. J.
/S/
________________________
MAURO, J.
/S/
RENNER, J.
2