LINCOLN PROPERTY COMPANY v. THE TRAVELERS INDEMNITY

Filed 3/20/06

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

May an insured bring separate actions against its insurer for breaching its obligation to defend a claim against the insured and for breach of the implied covenant of good faith and fair dealing in the handling of the claim? We hold that it may not, because the two claims involve breach of the same primary right, precluding the insured from splitting the cause of action. Hence, we affirm the ruling of the trial court sustaining a demurrer to the insured's complaint in the second of the two actions.

Plaintiff Lincoln Property Company, N.C., Inc. (Lincoln) appeals from the judgment dismissing its complaint against The Travelers Indemnity Company and The Travelers Indemnity Company of Illinois (Travelers). Lincoln's complaint alleges, among other things, that Travelers breached the covenant of good faith and fair dealing implied in its insurance policy by acting in an unreasonable and untimely manner in responding to Lincoln's demand for a defense in an underlying personal injury action. The trial court sustained Travelers' demurrer without leave to amend on the ground that the present action is barred by the judgment entered on a cross-complaint in the underlying action, in which Lincoln sought damages from Travelers for breach of the duties to defend and indemnify against the injured party's claim. Lincoln contends the trial court erred in holding that it had impermissibly split a single cause of action. We disagree.

Factual and Procedural History[1]

This appeal follows a lengthy course of litigation arising out of a work-related injury suffered at the Larkspur Court apartment complex. The Larkspur Court is owned by Larkspur Courts Associates (LCA), a joint venture comprised of Prudential Insurance of America (Prudential) and Lincoln. LCA contracted with Lincoln to manage and maintain the Larkspur Court complex.

In June 1998, Lincoln, on behalf of LCA, entered into a painting contract with Krata, Inc., doing business as Five Star Services (Krata). The painting contract required Krata to paint and repair siding on 25 buildings in the Larkspur Court complex. The contract required Krata to carry general liability insurance in an aggregate amount of no less than $2 million. On June 23, 1998, Travelers issued a comprehensive general liability policy to Krata. The policy, with a limit of $1 million per occurrence, named LCA as an additional insured. The policy also included a â€