Safeco Ins. v. Parks and Miller

Filed 7/5/06 Safeco Ins. v. Parks and Miller CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

Safeco Insurance Company of America (Safeco) appeals from the trial court's orders denying its motion for attorney's fees as cost of proof sanctions against respondents Jamey Lynn Parks and Michelle Miller pursuant to Code of Civil Procedure section 2033.420,^[1] setting aside the declaratory judgment previously entered in favor of Safeco, and striking Safeco's memorandum of costs. The trial court's orders are based on a misunderstanding of our prior published opinion in this matter, Safeco Ins. Co. of America v. Parks (2004) 122 Cal.App.4th 779. We reverse the order vacating the declaratory judgment and direct the trial court to reinstate the judgment. We reverse the orders denying Safeco's motion for attorney's fees and striking its memorandum of costs and remand these matters to permit the trial court to exercise its discretion to determine the amount of fees and costs, if any, to which Safeco is entitled.

Facts

The Accident

We described the facts of the underlying accident in our published opinion in this matter, Safeco Ins. Co. of America v. Parks, supra, 122 Cal.App.4th 779. Briefly, Parks was struck by an automobile in the early morning hours of February 28, 1999, after he wandered, drunk, into traffic lanes on Highway 101 north of Santa Barbara. Parks ended up on the side of the freeway because his then girlfriend, 16-year old Michelle Miller, and two of her friends left him there. Miller had been driving the drunken Parks home in his car when the car got a flat tire. She called her friend, Teresa Cooney, to come pick them up. Cooney arrived with her friend Isaiah Rivera to drive the couple back to Santa Maria. Parks either refused to get into the car or was soon forced out of it because he was being violent toward Miller. He was hit by a passing car as he walked back toward his own disabled car. Parks sustained serious, permanent injuries. (Id. at p. 783.)

Parks' Negligence Action Against Miller

Parks sued Miller, Cooney and Rivera for negligence. Cooney's automobile insurer settled the claims against Cooney and Rivera for $30,000. An arbitrator awarded Parks $2,187,886 on his claim against Miller. That award was confirmed in a judgment. Miller settled with Parks by assigning to him any claims she might have against Safeco.

At the time of Parks' accident, Miller was a minor whose parents were divorced. Her father, Charles Miller, had sole legal and physical custody of her. He and Michelle lived with his mother, Evelyn Miller, at 821 David Road in Santa Maria. Michelle's mother, Gloria Barnette, lived with her boyfriend Eddie Barnette (whom she later married), in a house that Eddie Barnette owned at 340 Townsend Lane in Santa Maria.

Safeco issued a homeowners policy to Eddie Barnette for the Townsend Lane house (the "Barnette policy"). Miller tendered the defense of Parks' lawsuit to Safeco under the Barnette policy. Before doing so, Miller stated in several different contexts that she resided at the David Road house and not at Barnette's Townsend Lane house. Both Eddie Barnette and Miller's mother insisted to the Safeco adjuster that Miller did not reside in Barnette's Townsend Lane house. Safeco declined the defense on the ground that Miller was not an insured under the Barnette policy.

The Declaratory Relief and Bad Faith Actions

After Safeco declined the defense, Parks sued Safeco for bad faith failure to settle his claims against Miller within the limits of the Barnette policy. Safeco filed a declaratory relief action, contending it owed no duty to defend or indemnify Miller. The only insurance policy referenced in Safeco's complaint for declaratory relief is the Barnette policy.

During discovery, Safeco served Parks and Miller with requests for admission which asked each litigant to, "Admit that Michelle Miller was not an insured under [the Barnette policy] on February 28, 1999." Parks and Miller each responded, "Deny." Respondents further denied "that on February 28, 1999, Michelle Miller was not in the care of Eddie Barnette." They also denied that Miller "was not a resident of the household of Eddie Barnette." ~(Id.)~

Eddie Barnette died before the trial on Safeco's declaratory relief action. At trial, Miller and her mother recanted their earlier statements concerning Miller's residence at the time of the accident. They now testified that Miller resided in the Townsend Lane house and that Barnette had forced them to conceal that fact because he did not want to pay a large deductible that would otherwise have been due under the policy. The trial court found that Miller was an insured under the Barnette policy because she was a resident of Eddie Barnette's household and was under his care. (Safeco Ins. Co. of America v. Parks, supra, 122 Cal.App.4th at p. 788.) It further found that Safeco had a duty to defend and indemnify Miller. Safeco appealed. Parks' complaint and Miller's cross-complaint against Safeco for bad faith were stayed pending resolution of Safeco's appeal.

The Prior Appeal

We reversed the trial court's judgment, holding that Safeco had no duty to defend Miller "because the information then made available to Safeco by its insured and other interested parties disclosed no potential that Miller was an insured under the policy." (Id. at p. 783.) Although we acknowledged that the trial court's findings were "consistent with evidence in the trial record," we also concluded the findings were "irrelevant to the question whether Safeco breached a duty to defend Miller because the findings [were] based entirely on facts that were unknown to and concealed from Safeco before Safeco declined the defense." (Id. at p. 790.)

Turning to the question of whether Safeco had a duty to defend under the Barnette policy, we noted the settled rule that, "Where the facts create no potential for coverage, however, there is no duty to defend." (Id.) We further noted that the Barnette policy "included a promise by Safeco to defend and indemnify its 'insured.' " (Id. at p. 791.) We held that Safeco had no duty to defend Miller "unless the facts known to it revealed that she was an 'insured' under the terms of the policy. We conclude that they did not." (Id.) After discussing at length the policy's definition of an insured, we held "[T]he only evidence disclosed to Safeco before it declined the defense indicated that Miller was more like a guest in Barnette's house than a resident of it. These undisputed facts established that Miller was not an insured within the meaning of the policy. Safeco had no duty to defend her and did not act in bad faith by declining to do so." (Id. at pp. 793-794.)

The Miller Homeowner's Policy

While the appeal was pending, Parks learned that Safeco had issued a homeowners policy to Miller's grandmother, Evelyn Miller, for the David Road house (the "Evelyn Miller policy"). This is the house where Miller lived with her father and grandmother at the time of the accident. The Evelyn Miller policy was in effect when Parks was injured. Parks amended his complaint against Safeco to allege a third cause of action for bad faith failure to defend and indemnify Miller under the Evelyn Miller policy.

The Declaratory Judgment and Safeco's Motion for Attorney's Fees

After our decision on appeal became final, Safeco moved in the trial court for entry of judgment on its declaratory relief complaint. Parks and Miller opposed the motion on the ground that entry of judgment should be deferred until their bad faith actions against Safeco were resolved. The trial court granted Safeco's motion, entered a declaratory judgment in its favor and granted Safeco its costs. To prepare the judgment, the trial court made handwritten revisions to a proposed order Safeco had filed with its motion for entry of judgment. The judgment prepared by the trial court reads: "In consideration of the moving, opposition and reply papers, and arguments of counsel, and the decision in Safeco Ins. Co. of America v. Parks (2004) 122 Cal.App.4th 779, the court finds that Safeco is entitled to entry of judgment on the complaint for declaratory relief in this action. [¶] IT IS THEREFORE ORDERED that the motion for entry of judgment is granted. Judgment is entered accordingly. Safeco is entitled to recover from defendants its costs in the amount of $_____."

Safeco filed a memorandum of costs for $196,804, including $180,720 in attorneys fees incurred by Safeco to prove the facts that Parks and Miller denied in their responses to Safeco's requests for admission. (§ 2033.420, subd. (a).)[2] It simultaneously filed a motion for attorneys fees based on Parks' and Miller's responses to those requests for admission. Parks and Miller filed motions to strike or tax Safeco's costs and oppositions to the motion for attorneys fees. They contended that they each had a "reasonable ground to believe that [they] would prevail on the matter." (§ 2033.420, subd. (b)(3).)

The Trial Court's Ruling

The trial court denied Safeco's motion for attorneys fees. It found: "The Court of Appeal decision never addressed Miller's status as an insured under the Barnette policy. Safeco's contention to the contrary . . . takes the court's comments out of contex, and suggests a finding which was never made by the Court of Appeal. The decision makes crystal clear that the court only addressed the duty to defend, based upon information in Safeco's possession at the time Safeco denied the defense. The court stated that at the time Safeco declined the defense, the facts within its possession established that Miller was not an insured within the meaning of the policy, and Safeco was thereby reasonable in declining the defense. It does not state that Miller is actually not an insured under the policy." The trial court noted that Safeco moved for entry of judgment on its complaint "without pointing out to the court that no court had ever made any finding on Miller's status as an insured under the Barnette policy . . . ." It denied the request for attorney's fees for the same reason: "In any event, Safeco's motion for fees is denied, since it did not prove the truth of any of the facts it requested Miller or Parks to admit, either before the trial court or in the Court of Appeal." ~(Id.)~

The Motion to Vacate the Declaratory Judgment

Safeco immediately filed a notice of appeal from this order. Meanwhile, Parks moved to vacate the judgment pursuant to section 473 subdivision (b). He contended that, in moving for entry of judgment Safeco "leaped to the conclusion that there was a finding of no coverage. While the Court of Appeal decision addressed the duty to defend . . . the opinion does not conclude that Michelle Miller was not an insured. Since the judgment includes a finding of no coverage, the judgment is in error." Parks' counsel conceded his inadvertence and excusable neglect "in failing to object to the overbreadth of SAFECO'S proposed judgment which was signed by the court."

The trial court granted Parks' motion and vacated the judgment it had entered on Safeco's complaint for declaratory relief. Apparently referring to the comments it made when denying Safeco's motion for attorney's fees, the trial court concluded the judgment was void because the pleadings and this court's prior opinion provided "more than sufficient information to establish the invalidity of the judgment." It later struck Safeco's cost bill because the underlying judgment had been vacated and there was no basis for an award of costs. Safeco appealed. We consolidated Safeco's appeals.

Discussion

Standard of Review

An order vacating a judgment pursuant to section 473 is ordinarily reviewed for abuse of discretion. (Luri v. Greenwald (2003) 107 Cal.App.4th 1119). The trial court, however, lacks discretion to enter an order that is contrary to applicable rules of law. (Horsford v. Board of Trustees of California State University (2005) 132 Cal.App.4th 359, 393.) "Action that transgresses the confines of the applicable principles of law is outside the scope of discretion and we call such action an 'abuse' of discretion." (City of Sacramento v. Drew (1989) 207 Cal.App.3d 1287, 1297.) The question whether the trial court's order is consistent with applicable legal principles, including the law of the case as established in our prior opinion, is one of law on which we exercise our independent judgment. (See e.g., Powerline Oil Co. Inc. v. Superior Court (2005) 37 Cal.4th 377, 390; E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 470; Ghirado v. Antonioli (1994) 8 Cal.4th 791, 799.)

Trial Court Jurisdiction

The trial court considered Parks' motion to vacate the declaratory judgment after Safeco filed its notice of appeal from the order denying its motion for attorney's fees. Safeco contends that the pending appeal deprived the trial court of jurisdiction to vacate the declaratory judgment. Respondents contend the trial court had jurisdiction because the order denying Safeco's motion for attorney's fees was on a collateral matter and because the trial court may set aside a void judgment at any time. We agree.

Here, despite the pending appeal, the trial court had jurisdiction to determine whether the declaratory judgment was void on its face. "A trial court has the

inherent power to set aside a judgment void on its face at any time." (Connelly v. Castillo (1987) 190 Cal.App.3d 1583, 1588.) "As [to] such void judgments or orders, the normal rule that 'the perfecting of an appeal stays proceedings in the trial court . . . ' ([Code Civ. Proc.] § 961, subd. (a)) does not apply." (Lovret v. Seyfarth (1972) 22 Cal.App.3d 841, 854.) That it erred in its analysis does not deprive it of jurisdiction.

Motion to Vacate the Declaratory Judgment

Safeco contends the trial court erred when it granted Parks and Miller's motion to vacate the declaratory judgment because the judgment was consistent with our opinion on the prior appeal. We agree. Our prior opinion considered only the Barnette policy. No other policy was alleged in Safeco's complaint for declaratory relief or mentioned in the record on appeal. After considering the terms of the Barnette policy and the evidence of Miller's relationship to him, we held that "Miller was not an insured within the meaning of the policy. Safeco had no duty to defend her and did not act in bad faith by declining to do so." (Id. at pp. 793-794.) We did not expressly rule on the question of whether Safeco had a duty to indemnify Miller under the Barnette policy, but that result necessarily follows from our holding that Safeco had no duty to defend her. (See e.g., Montrose Chemical Corp. of California v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 659, fn. 1.)

Our Supreme Court addressed the relationship between the duty to defend and the duty to indemnify in Certain Underwriters at Lloyd's of London v. Superior Court (2001) 24 Cal.4th 945. There, our Supreme Court noted that the duties to defend and indemnify are " 'correlative' " but not " 'coterminous.' " (Id. at p. 958.) "They differ in their triggering: Whereas the duty to indemnify can arise only after damages are fixed in the their amount [citations], the duty to defend may arise as soon as damages are sought in some amount [citations]. They also differ in their substance: Whereas the duty to defend 'entails the rendering of a service, viz., the mounting and funding of a defense' (Aerojet-General Corp. v. Transport Indemnity Co. [(1997)] 17 Cal.4th [38], 58; accord Buss v. Superior Court [(1997)] 16 Cal.4th [35], 46), the duty to indemnify 'entails the payment of money' (Aeroject-General Corp. v. Transport Indemnity Co., supra, 17 Cal.4th at p. 56; accord, Buss v. Superior Court, supra, 16 Cal.4th at p. 46). They differ as well in their scope: Whereas the duty to indemnify may indeed be broad, the duty to defend must perforce be broader still. (See, e.g., Aeroject-General Corp. v. Transport Indemnity Co., supra, 17 Cal.4th at p. 59; Buss v. Superior Court, supra, 16 Cal.4th at pp. 46-47.) With this result: Where there is a duty to defend, there may be a duty to indemnify; but where there is no duty to defend, there cannot be a duty to indemnify. (See Buss v. Superior Court, supra, 16 Cal.4th at p. 47, fn. 10.)" (Certain Underwriters at Lloyds of London v. Superior Court, supra, 24 Cal.4th at p. 958.)[3]

In the prior appeal, we considered only Safeco's potential duty to defend Miller under the Barnette policy. We held that it had no such duty. It follows that Safeco has no duty to indemnify Miller under that policy. (Id.) The judgment entered in the trial court properly includes both declarations.

Parks contends that, under the unique facts of this case, the absence of a duty to defend does not necessarily mean that Safeco had no duty to indemnify. This is because, he contends, the Barnette policy could be found to provide coverage based on facts first disclosed after Safeco declined the defense. These facts, outlined in our prior opinion, would include Michelle Miller's use of Barnette's address on a vehicle registration and certain tax documents, deposition testimony given by one of her friends, and the trial testimony of Miller and her mother. (Safeco Ins. Co. of America v. Parks, supra, 122 Cal.App.4th at pp. 785-788.) But these facts are relevant to the question whether Miller was an insured under the Barnette policy, the precise issue that has already been finally determined by our opinion on the prior appeal. We held that Miller was not an insured under the Barnette policy, foreclosing subsequent litigation on that issue and any finding that Safeco had a duty to indemnify her under that policy. That holding is the law of the case and conclusively determines the parties' rights and duties with respect to the Barnette policy. (Morohoshi v. Pacific Home (2004) 34 Cal.4th 482, 491.)

Both respondents and the trial court appear concerned that a final declaration of the scope and effect of the Barnette policy is somehow impacted by the subsequent discovery of the Evelyn Miller policy. The concern is misplaced. Because only the Barnette policy was at issue in the declaratory relief action, the resulting declaratory judgment relates only to it. The judgment does not declare the parties' rights or duties under the Evelyn Miller policy. Nor will it have res judicata or collateral estoppel effect on the question of whether Safeco owes a duty to defend or indemnify Miller under the Evelyn Miller policy. "[A] final judgment in a declaratory relief action is conclusive as to matters declared as well as any issues actually litigated and determined in the action[.]" (Aerojet-General Corp. v. American Excess Ins. Co. (2002) 97 Cal.App.4th 387, 403.) It does not, however, bar subsequent litigation on issues that could have been raised in the prior action, but were not. (Id. at pp. 402-403.) "[A] party with a declaratory judgment is free to pursue further declaratory or coercive relief as to matters not declared but is subject to the constraints of the determination that has been made." (Id. at p. 405.)

Attorney Fees and Costs

Safeco served both Parks and Miller with requests for admission asking them to admit that, on the date of the accident, Michelle Miller was not an insured under the Barnette policy, was not in the care of Eddie Barnette and was not a resident of his household. Parks and Miller denied each request for admission. After the declaratory judgment was entered, Safeco filed its memorandum of costs and a motion for attorney fees pursuant section 2033.420, subdivision (a). The trial court denied the motion for attorney fees on the ground that Safeco had not proven the facts at issue. It struck Safeco's memorandum of costs after the underlying judgment was vacated. Safeco contends both rulings were in error. We agree.

First, Safeco is plainly entitled to have its memorandum of costs reinstated because we have ordered that the declaratory judgment upon which it is based be reinstated. The question whether Safeco is entitled to recover its claimed costs is one on which we express no opinion because that question is addressed in the first instance to the sound discretion of the trial court. (Lincoln v. Schurgin (1995) 39 Cal.App.4th 100, 105; Texas Commerce Bank v. Garamendi (1994) 28 Cal.App.4th 1234, 1248-1249.)

Second, the trial court denied Safeco's motion for attorney fees pursuant to section 2033.420, subdivision (a) because, "Safeco has never proven that Miller was not an insured under the Barnette policy, and no court has ever made a finding to that effect." For the reasons stated above, this ruling was in error. Our opinion on the prior appeal established that Miller was not an insured under the Barnette policy. Section 2033.420, subdivision (b) requires the trial court to award cost of proof attorney's fees to Safeco unless it finds that one of the statutory exceptions applies. The trial court has never made any such findings. We remand the matter to permit it to do so.

Conclusion

The order vacating the judgment is reversed and the trial court is directed to reinstate the declaratory judgment entered June 15, 2005. The orders striking Safeco's memorandum of costs and denying its motion for attorney fees pursuant to section 2033.420, subdivision (a) are reversed. Safeco shall recover its costs on appeal.

NOT TO BE PUBLISHED.

YEGAN, J.

We concur:

GILBERT, P.J.

PERREN, J.

Thomas P. Anderle, Judge

Superior Court County of Santa Barbara

______________________________

Demler, Armstrong & Rowland; Raymon H. Goettsch and Scott K Murch, for Appellant.

Martin E. Pulverman, Ramond J. Pulverman and James S. Bianchi; Pulverman & Pulverman, for James Lynn Parks, Respondent.

Wayne McClean, for Michelle Miller, Respondent.

Publication Courtesy of California attorney referral.

Analysis and review provided by Vista Real Estate Lawyers.

[1] All statutory references are to the Code of Civil Procedure unless otherwise stated.

[2] Section 2033.420 subdivision (a) provides: "If a party fails to admit the genuineness of any document or the truth of any matter when requested to do so under this chapter, and if the party requesting that admission thereafter proves the genuineness of that document or the truth of that matter, the party requesting the admission may move the court for an order requiring the party to whom the request was directed to pay the reasonable expenses incurred in making that proof, including reasonable attorney's fees." (§ 2033.420, subd. (a).)

[3] Amato v. Mercury Casualty Co. (1997) 53 Cal.App.4th 825, relied upon by respondents, did not find a duty to indemnify in the absence of a duty to defend. To the contrary, the insurer in that case breached its duty to defend, but had no duty to indemnify. Its policy did not cover the loss at issue. The court of appeal held that, "where an insurer tortiously breaches the duty to defend and the insured suffers a default judgment because the insured is unable to defend, the insurer is liable for the default judgment, which is a proximate result of its wrongful refusal to defend." (Id. at p. 829.)