Burgett, Inc. v. American Zurich Insurance Company

Filing 36

ORDER signed by Judge Morrison C. England, Jr on 8/6/12 ORDERING that the plaintiff's motion is DENIED in its entirety. (Becknal, R)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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BURGETT, INC.,
No. 2:11-cv-01554-MCE-JFM

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Plaintiff,
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v.

MEMORANDUM AND ORDER

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AMERICAN ZURICH INSURANCE
COMPANY,

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Defendant.

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----oo0oo----

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This matter arises out of Plaintiff Burgett, Inc.’s

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(“Plaintiff”) motion for partial summary judgment for payment of

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attorneys’ fees plaintiff incurred prior to November 23, 2010,

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the date plaintiff tendered to Defendant the defense of the

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underlying action brought against it by Persis International

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Inc.1 and Edward F. Richards (collectively, “Persis”).

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Persis Internationl, Inc. v. Burgett, Inc., 1:09-cv-07451
(N.D. Ill. 2011). Plaintiff attached the relevant complaint in
the underlying action to its complaint. (See Pl.’s Compl., ECF
No. 1, Ex. 2.)
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Defendant, American Zurich Insurance, Inc. (“Defendant”),

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Plaintiff’s general liability insurance carrier, opposes the

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motion.

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DENIED.

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For the reasons set forth below, Plaintiff’s motion is

On November 23, 2011, the court issued an order granting

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Plaintiff’s motion for partial summary judgment.

(See Order, ECF

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No. 22.)

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its duty to defend Plaintiff in the underlying Persis action.

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(Id. at 22:26-28.)

Specifically, the court held that Defendant breached

The court also held that Plaintiff should be

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“awarded reasonable attorneys’ fees for breach of its duty to

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defend the underlying Persis action.”

(Id. at 23:1-2.)

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Since the court issued its order, Defendant has paid Zurich

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$68,388.85 for expenses, fees and prejudgment interest Plaintiff

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has incurred defending the Persis2 action.3

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Uncontroverted Facts (“UF”), ECF No. 28-4, ¶ 8.)

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however, refused to pay any fees Plaintiff incurred prior to

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tendering defense of the Persis action to Defendant.

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(Pl.’s Stmt. of
Defendant,

(Id. ¶ 17.)

Plaintiff filed its motion on March 22, 2012, asking the

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court to order Defendant to pay Plaintiff for those fees it

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incurred defending the Persis action prior to tendering defense

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of that action to Defendant.

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Plaintiff also asks the court to order Defendant to pay
for fees Plaintiff incurred in defending an unrelated action —
the “Richards Lawsuit.” (Pl.’s Mot. for Summ. J. [“MSJ”], ECF
No. 26, at 2:10-4:2.) The “Richards Lawsuit,” however, is not,
and never has been, at issue before the court. To that end,
Plaintiff’s motion is denied to the extent it seeks fees incurred
defending actions other than the Persis action.
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Plaintiff conceded that Defendant has reimbursed it for
all fees incurred for its post-tender defense of the Persis
Action. (See Pl.’s Reply to Def.’s Opp’n to MSJ [“Reply”], ECF
32 at 12:9-10.)
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The sole issue before the court, therefore, is purely a legal

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question: under California law, is an insurer who previously

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breached its duty to defend required to pay fees incurred by the

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insured prior to tendering defense of the underlying action?

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Plaintiff’s central argument in support of its motion is

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that, because Defendant originally declined to defend the Persis

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action, and Plaintiff had to seek a court order to invoke

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Defendant’s duty to defend, the date Plaintiff tendered defense

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of the Persis action is irrelevant.

More specifically, while

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Plaintiff concedes that the duty to defend does not arise until

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tender, Plaintiff asserts that the duty to reimburse is broader

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and requires a Defendant who has breached its duty to defend to

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pay all fees incurred by the insured, both pre- and post-tender.

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According to Plaintiff, “[i]n addition to Zurich’s undisputed

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duty to defend post-tender, there is an additional implied-in-law

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duty which requires Zurich to reimburse Burgett for its expenses

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incurred in defending the Persis . . . action[] which predated

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the date of tender in” the Persis action.

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Plaintiff maintains that “[s]uch rules of law, even when not

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squarely articulated, are properly deduced from the courts’

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decisional logic.”

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(MSJ at 10:26-11:2.)

(Reply at 2:23-3:1.)

Defendant argues that California case law has long held that

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“no duty to defend can arise before the insured tenders the

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defense of the third party lawsuit to the insurer.”

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MSJ, ECF 29 at 3:18-19.)

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defense is a condition precedent to the insured’s right to be

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indemnified.

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cannot create a duty to reimburse fees incurred prior to tender,

(Opp’n to

Defendant asserts that “[t]ender of

Thus, whatever a carrier might do after tender

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since no duty exists until tender.”

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original.)

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reimburse Plaintiff for fees and costs it incurred prior to

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tendering defense of the action.

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(Id. at 4:1-3.) (Emphasis in

Therefore, Defendant maintains, it has no duty to

The court finds that Plaintiff is only entitled to those

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fees it would have incurred had Defendant initially accepted

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defense of the Persis action, and thus, Plaintiff’s motion should

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be denied.

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in-law” obligation upon Defendant to reimburse fees incurred

While Plaintiff asks the court to impose an “implied-

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prior to tender, Defendant has directed the court to a

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significant body of California case law containing express

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language stating that there is no duty to defend until the

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insured tenders defense of the underlying action.

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Specifically, under California law, “[i]t is well understood

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. . . that an insurer's duty does not arise until defense is

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tendered by the insured and the known facts point to a potential

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for liability under the policy.”

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Services, Inc., 118 Cal. App. 4th 462, 473 (2004).

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was firmly established by the California Supreme Court in

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Montrose Chemical Corp. v. Super. Ct., 6 Cal. 4th 287, 295

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(1993), which held that “[t]he defense duty is a continuing one,

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arising on tender of defense and lasting until the underlying

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lawsuit is concluded.”

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Valentine v. Membrila Ins.

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This axiom

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This principle has been consistently reiterated since the holding

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in Montrose.

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Ins. Co., 18 Cal. 4th 857, 886 (1998) (holding that “the temporal

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limits of the insurer’s duty to defend” lies “between tender of

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the defense and conclusion of the action.”); Buss v. Super. Ct.,

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16 Cal. 4th 35, 46 (1997) (duty to defend “arises as soon as

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tender is made.”)

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defense fees, therefore, spans from the date Plaintiff tendered

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defense of the underlying action, November 3, 2010 (see Pl.’s

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Compl., ECF 1, Ex 3), to the conclusion of the Persis action.

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See Foster-Gardner, Inc. v. National Union Fire

Defendant’s duty to reimburse Plaintiff for

Plaintiff, conversely, has cited no California law holding

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that an insurer who declines to accept defense after tender will

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subsequently be obligated to pay pre-tender expenses if a court

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finds the insurer did owe a duty to defend.

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Plaintiff relies heavily on Jamestown Builders Inc. v. General

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Star Indemnity Co., 77 Cal. App. 4th 341 (1999). Jamestown,

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however, is inapposite.

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payment provision4 to preclude insurance coverage for repair

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expenses incurred by a home developer.”

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holding in Jamestown was that where an insured does not tender

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defense to the insurer, the insurance policy’s no voluntary

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payment provision will release an insurer’s obligation to

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indemnify a Plaintiff for a settlement entered into unilaterally,

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absent a showing of prejudice.

For example,

Jamestown involved a “no-voluntary-

Id. at 343. The primary

Id. at 350.

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The court notes that Defendant also argues that the
no-voluntary payment provision in its policy with Plaintiff also
negates any obligation to pay pre-tender costs. Because the
court finds that, under California law, the duty to Defendant
does not arise until tender, and thus, Defendant is not required
to pay pre-tender expenses, the court does not reach this issue.
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Plaintiff, however, relies on dicta stating that, where an

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insurer breaches its duty to defend, a no-voluntary payment

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provision will not protect the insurer unless it can show that a

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settlement entered into without its consent “was not reasonable

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or was the product of fraud or collusion.”

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Jamestown does not, however, create an “implied-in law”

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obligation upon insurers who originally decline the insured’s

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tender to later reimburse the insured for pre-tender expenses.

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Id. at 347-348.

Plaintiff’s inability to cite to any California law directly

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on point underscores the tenuous nature of its argument.

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Plaintiff cannot now, post hoc, argue that there is some

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unstated, yet implied, duty upon insurers to pay fees that it

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would not have had to pay had it originally accepted tender.

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Defendant, conversely, has cited to numerous cases supporting its

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contention that it is not obligated to reimburse Plaintiff for

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expenses incurred prior to tendering defense of the Persis

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action.

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consequences flowing directly from its breach, it is not liable

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for costs incurred before it did anything wrong, and was unaware

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that there was even a claim to defend.

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While an insurer is undoubtedly liable for the

For the foregoing reasons, Plaintiff’s motion is DENIED in
its entirety.
IT IS SO ORDERED.
Dated: August 6, 2012

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_____________________________
MORRISON C. ENGLAND, JR.
UNITED STATES DISTRICT JUDGE

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