Parallax Design v. Certain Underwriters at Lloyds

Filed 4/26/07 Parallax Design v. Certain Underwriters at Lloyds CA1/2

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FIRST APPELLATE DISTRICT

DIVISION TWO

Parallax Design and Construction, Inc. (Parallax) and Parallaxs officers, George Perrenod, Jr., Stan Thompson, and Martin Romo (collectively, Parallaxs officers) obtained directors and officers (D & O) insurance from Certain Underwriters at Lloyds London (Underwriters). Perrenods former employer sued Parallax and Parallaxs officers and they tendered the lawsuit to Underwriters. Underwriters refused to provide a defense for them in the lawsuit, and Parallax and its officers sued Underwriters for breach of contract and breach of the covenant of good faith and fair dealing.

The trial court granted Underwriters motion for summary judgment against Parallax on the basis that the exclusionary clause in the insurance policy barred Parallaxs claim. The court denied the motion as to Parallaxs officers. Parallax appealed.

Subsequently, the trial court granted Underwriters motion for judgment on the pleadings against Parallaxs officers. It found that they suffered no damages in their breach of contract claim because Parallax paid the settlement and costs in connection with the lawsuit. Parallaxs officers appealed.

We consolidated the appeals of Parallax and Parallaxs officers. We affirm the judgment as to Parallax, as we conclude the exclusionary clause in the insurance policy applied to Parallaxs claim. We reverse the judgment as to Parallaxs officers. The question whether Parallaxs officers suffered any damages is a factual issue and was not properly decided by judgment on the pleadings.

BACKGROUND

Perrenod is a licensed general contractor who worked for Saarman Construction, Ltd. (Saarman) as a project manager from the middle of 1997 until December 7, 2001.^[1] While at Saarman, Perrenod worked on projects for the Shelter Creek Homeowners Association (Shelter Creek).

Perrenod became dissatisfied with his employment at Saarman and, while still working for Saarman, he formed Parallax in November 2001. The officers and/or directors of Parallax were Perrenod, Thompson, and Romo.

On December 6, 2001, Perrenod learned that Saarman had proposed to Shelter Creek that it should be Shelter Creeks sole general contractor on a non-competitive basis; Perrenod also learned that this proposal was likely to be accepted by Shelter Creek. Perrenod did not want to continue working for Saarman as he felt Saarman was not treating Shelter Creek fairly. He learned later that same day, however, that Shelter Creek had decided not to enter into a noncompetitive relationship with Saarman.

The following day, December 7, 2001, Perrenod resigned from Saarman. Later that day, Perrenod informed the property manager for Shelter Creek, Michael Doelger, that he had left Saarman. Doelger invited Perrenod to bid on a project at Shelter Creek (Shelter Creek project). On December 8, 2001, Perrenod told Thompson that he had resigned from Saarman and that he wanted to obtain insurance for Parallax as soon as possible.

On December 10, 2001, Saarman delivered a letter to Perrenod (Saarman letter), which stated in relevant part: You have an obligation not to misuse or disclose to third parties confidential proprietary including information concerning specific confidential projects you worked on as a Saarman employee. This means that you will not, directly or indirectly, disclose to any third person, or use for the benefit of any one other than Saarman, any trade secrets, confidential information, or other secret or proprietary information of the Company or its customers. [] Saarman has received information that indicates that you have breached these obligations. Specifically, Saarman has received reliable information that you misappropriated a Saarman business opportunity for work at the Shelter Creek Homeowners project, and diverted it to your new business venture. . . . [] Specifically, we have learned that you have solicited our employees for your new venture, negotiated with the Shelter Creek Homeowners board to obtain their new business, developed bids and pricing information for that new business, and requested information from Saarman suppliers to prepare for such bids. Further, you did not disclose the business opportunities that you were pursuing to the Company. This was all done while Saarman employed you as a project manager. . . .

The Saarman letter continued: Such actions show a clear intent to misappropriate business opportunities belonging to Saarman and to engage in unfair competition. . . . The information received indicates that you have breached your duty of loyalty, have misused and intend to misuse confidential, proprietary information in your new venture, and have misappropriated a Saarman business opportunity. [] Your conduct appears to make you, and those who may be associated with you, liable for a variety of serious legal wrongs. [] This letter is a warning that you must cease and desist any unlawful conduct, and return all company property within the next 3 days. . . . You appear to be already exposed to significant liability. . . .

The Saarman letter ended with the following: Continuation of any wrongful conduct will force Saarman to initiate legal action seeking compensatory and punitive damages as well as a court order compelling you to refrain from any unlawful conduct that interferes with its business.

Perrenod did not respond to the Saarman letter. He did not view the letter as a threat or a demand for action as he did not have any materials belonging to Saarman; nor did he believe that he had any access to any confidential information. Further, Perrenod believed he had not signed a noncompetition agreement with Saarman.

Cary White of Gallagher Construction Services recommended to Thompson on December 11, 2001, that Parallax obtain D & O insurance. White advised Thompson that, based on Whites past dealings with Saarman, it was within the realm of possibility that Saarman would sue Parallax. White stated that the D & O policy provided a defense to the claims brought by a former employer.

On December 19, 2001, Perrenod submitted his bid on the Shelter Creek project on behalf of Parallax. Shelter Creek accepted his bid. It is undisputed that Perrenod became aware of this project as a result of his employment with Saarman as a project manager.

Perrenod authorized White to apply for D & O insurance for Parallax. On December 28, 2001, Perrenod, as President of Parallax, signed the application for the D & O policy for Parallax. Under section IV., entitled Prior Activities Information, was the following question: 1. Within the last three years, has any person or entity proposed for this insurance been the subject of or involved in any: [] . . . [] e. litigation, administrative proceeding, demand letter or formal or informal governmental investigation or inquiry including any investigation by the Department of Labor or the Equal Employment Opportunity Commission? If yes, please provide details on a separate page. Perrenod responded [n]o to this question.

In section V., entitled Other Information, subparagraph 4 provided: It is agreed that in the event there is any misstatement or untruth in the answers to the questions contained herein, Underwriters have the right to exclude from coverage any claim based upon, arising out of or in connection with such misstatement or untruth.

After the application was submitted, Underwriters issued a D & O policy to Parallax with a limit of liability of one million dollars for claims first made during the certificate period of December 28, 2001, to December 28, 2002 (the policy or the D & O policy). At the time the application was submitted and the D & O policy was purchased, Perrenod was the sole shareholder of Parallax.

The D & O policy provided coverage under Insuring Clauses in section A., as follows: 1. Underwriters shall pay on behalf of the Directors and Officers Loss resulting from any Claim first made against the Directors and Officers during the Certificate Period for a Wrongful Act. [] 2. Underwriters shall pay on behalf of the Assured Organization Loss which the Assured Organization is required or permitted to pay as indemnification to any of the Directors and Officers resulting from any Claim first made against the Directors and Officers during the Certificate Period for a Wrongful Act. [] 3. Underwriters shall pay on behalf of the Assured Organization Loss resulting from any Claim first made against the Assured Organization during the Certificate Period for a Wrongful Act.

The policy had an exclusions section under section C. Subparagraph 2 in this section stated: Underwriters shall not be liable to make any payment under this Coverage Section in connection with any Claim made under Insuring Clause 3 against the Assured Organization: [] b) based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving: [] (i) any actual or alleged infringement, misappropriation, or violation of copyright, patent, service marks, trade marks, trade secrets, title or other proprietary or licensing rights or intellectual property of any products, technologies or services . . . .

On January 11, 2002, Saarman filed a complaint against Perrenod and Parallax in the superior court (Saarman lawsuit). Saarman alleged causes of action for misappropriation of trade secrets, unfair competition, breach of contract, fraud, constructive fraud, interference with prospective economic advantage, accounting, imposition of constructive trust, and permanent injunction. The complaint asserted that Perrenod had signed a confidentiality agreement on June 11, 1999. The complaint further alleged that Perrenod had solicited and obtained the patronage of SAARMANs clients, including without limitation Shelter Creek Homeowners Association, during his employment with SAARMAN contrary to the terms of the Contract, the Confidentiality Agreement, his fiduciary duties, and in violation of the Labor Code.

On February 14, 2002, the Saarman lawsuit was tendered to Underwriters. The letter to Underwriters specified that allegations were being made against [Perrenod] as a director and officer of Parallax. Initially, Underwriters accepted the defense of Perrenod and Parallax in the Saarman lawsuit, subject to a full reservation of its rights.

On April 18, 2002, Underwriters informed Perrenod that it was denying coverage for the Saarman lawsuit as to Parallax because of the exclusionary clause in section C.2.b.i. in the policy. It agreed to defend Perrenod in the Saarman lawsuit, while reserving all rights with respect to Perrenod, including the right to deny coverage at a later date and to obtain reimbursement of any covered defense costs paid by Underwriters.

On this same date, April 18, 2002, Underwriters requested a copy of all prelitigation communications with Saarman. Underwriters received a copy of the Saarman letter on May 14, 2002. On June 3, 2002, Underwriters terminated the defense of Perrenod on the basis that the claims in the Saarman lawsuit predated the certificate period.^[2]

On April 30, 2003, Saarman entered into a settlement with Parallax and Parallaxs officers in the Saarman lawsuit. Parallax and Parallaxs officers agreed to be jointly obligated to pay Saarman $175,000. However, Parallax paid the entire sum of $175,000. Parallax also paid a total of $67,700 in attorney fees in connection with the Saarman lawsuit. Underwriters did not pay any portion of the attorney fees and costs incurred in the defense of the Saarman lawsuit.

Parallax and Parallaxs officers filed a complaint against Underwriters and others^[3]and filed their second amended complaint on August 16, 2004. They alleged causes of action for breach of contract and breach of the covenant of good faith and fair dealing against Underwriters.

Underwriters moved for summary judgment against Parallax and Parallaxs officers.^[4] The trial court granted Underwriters motion as to Parallax on the ground that Underwriters owed no duty to defend Parallax because of the trade secrets exclusion in the policy. The court rejected Underwriters claim that it had no duty to defend based on the claims falling outside the policy period and arising prior to coverage; it therefore denied Underwriters motion as to Parallaxs officers.

Parallax moved for a new trial, which the court denied on January 23, 2006. On February 17, 2006, Parallax filed its notice of appeal from the judgment.

Underwriters moved for judgment on the pleadings against Parallaxs officers on the basis that they suffered no damages since it was undisputed that Parallax paid the settlement sum and the costs of defending the Saarman lawsuit. On January 10, 2006, the trial court entered an order granting Underwriters motion for judgment on the pleadings against the officers. Parallaxs officers filed a timely notice of appeal.

The parties stipulated to consolidating the two appeals, and this court consolidated the appeals.

DISCUSSION

I. Summary Judgment Against Parallax

A. Standard of Review

Parallax is appealing from the trial courts grant of summary judgment against it. The court properly grants summary judgment if the record establishes no triable issue as to any material fact and the moving party is entitled to a judgment as a matter of law. (Code Civ. Proc.,  437c, subd. (c).) [T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact. . . . A prima facie showing is one that is sufficient to support the position of the party in question. [Citation.] (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850-851, fns. omitted.) Although the burden of production shifts, the moving party always bears the burden of persuasion. (Id. at p. 850.) There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof. (Ibid.) We review the record de novo. (Id. at p. 860.)

B. The Exclusionary Clause in the Policy and Parallaxs Claim

The trial court found that Underwriters did not have a duty to defend Parallax in the Saarman lawsuit because of the exclusion in the policy found in section C.2.b.i. of the policy. Parallax contends that the language in the exclusionary clause was not clear and unambiguous and therefore Underwriters had a duty to defend. (See, e.g., DeMay v. Interinsurance Exchange (1995) 32 Cal.App.4th 1133, 1137.)

1. Duty to Defend and Interpreting an Insurance Policy

[A]n insurer has a duty to defend an insured if it becomes aware of, or if the third party lawsuit pleads, facts giving rise to the potential for coverage under the insuring agreement. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 19.) The nature and kinds of risks covered by the insurance policy establish the scope of the duty to defend. (Ibid.) [I]n an action wherein none of the claims is even potentially covered,  the insurer does not have a duty to defend. (Scottsdale Ins. Co. v. MV Transportation (2005) 36 Cal.4th 643, 655.) [I]f, as a matter of law, neither the complaint nor the known extrinsic facts indicate any basis for potential coverage, the duty to defend does not arise in the first instance. (Ibid.) In a mixed action, in which some of the claims are at least potentially covered and the others are not, the insurer has a duty to defend the entire action. (Buss v. Superior Court (1997) 16 Cal.4th 35, 47-49.) The interpretation of an insurance policy is a question of law. (Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115.) We therefore examine the exclusionary clause in the policy to determine, as a question of law, whether the D & O policy provided a potential for coverage of claims in the Saarman litigation against Parallax.

The interpretation of an insurance policy corresponds to the interpretation of contracts generally. The parties mutual intention when they form the contract governs the interpretation of the policy. The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264.) If possible, we infer this intent solely from the written provisions of the insurance policy. [Citation.] If the policy language is clear and explicit, it governs. [Citation.] [] When interpreting a policy provision, we must give its terms their  ordinary and popular sense, unless used by the parties in a technical sense or a special meaning is given to them by usage. [Citation.] We must also interpret these terms in context [citation], and give effect to every part of the policy with each clause helping to interpret the other. (Palmer v. Truck Ins. Exchange, supra, 21 Cal.4th at p. 1115.) A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. [Citation.] But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract. (Waller v. Truck Ins. Exchange, Inc., supra, 11 Cal.4th at p. 18.)

On the other hand, [i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it. [Citations.] This rule, as applied to a promise of coverage in an insurance policy, protects not the subjective beliefs of the insurer but, rather, the objectively reasonable expectations of the insured. [Citation.] Only if this rule does not resolve the ambiguity do we then resolve it against the insurer. (Bank of the West v. Superior Court, supra, 2 Cal.4th at pp. 1264-1265.)

We observe that few California appellate decisions have interpreted D & O polices. Consequently, California courts often look to decisions of California federal courts and out-of-state cases in resolving coverage issues and interpreting policy provisions. (ML Direct, Inc. v. TIG Specialty Insurance Co. (2000) 79 Cal.App.4th 137, 144.) A recent California appellate decision explains that D & O insurance is a specialized form of coverage for (i) claims against corporate directors and officers based on acts committed in their corporate capacities; [and] (ii) the corporations indemnification obligations to its directors and officers for such claims . . . . [] . . . [] [U]nlike general liability insurance, which is typically written on standard forms, D & O policy provisions often vary depending on a number of factors, including the nature of the insureds business, the insureds financial condition, and [the] insureds status as a public or private company. Cases must therefore be reviewed in the context of the specific policy language at issue. (August Entertainment, Inc. v. Philadelphia Indemnity Ins. Co. (2007) 146 Cal.App.4th 565, 573-574.) Further, D & O policies generally do not contain a duty to defend, but the insurer is usually obligated to pay defense costs as part of the  loss. (Ibid.)
2. Interpreting the D & O Policy
Parallax made its claim under insuring clause 3 in the D & O policy. Insuring clause 3, which is under section A., provides that Underwriters shall pay on behalf of the Assured Organization Loss resulting from any Claim first made against the Assured Organization during the Certificate Period for a Wrongful Act. Section B. provides the definitions used in the policy and subparagraph 2 defines Assured Organization as the Named Assured, and any Subsidiary. Subparagraph 5 in this same section states that the Named Assured means the entity named in Item A. of the Declarations. Item A. in the Declarations states that the Named Assured is Parallax.

Section C. sets forth the exclusions in the policy. Exclusion C.2.b.i. of the D & O policy states, in relevant part: Underwriters shall not be liable to make any payment under this Coverage Section in connection with any Claim made under Insuring Clause 3 against the Assured Organization: [] b) based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving: [] (i) any actual or alleged infringement, misappropriation, or violation of copyright, patent, service marks, trade marks, trade secrets, title or other proprietary or licensing rights or intellectual property of any products, technologies or services . . . .

The clear language of the exclusionary clause provides that the Assured Company, Parallax, is not covered for any alleged misappropriation of trade secrets. Thus, this policy excluded coverage for any claims in the Saarman lawsuit related to Parallaxs misappropriation of trade secrets.

Parallax contends that the exclusionary clause is ambiguous because it precludes coverage for the Assured Organization, but does not prohibit coverage for the organizations officers and directors. Parallax maintains that the causes of action in the Saarman lawsuit were asserted against both Parallax and Perrenod, not simply against Parallax. Moreover, any action taken by Parallax could only have been taken through the actions of Perrenod. Parallax concludes: [W]here as here, there is no practical distinction between the actions of Perrenod as Parallaxs sole officer and director, and the actions of Parallax itself, the exclusion cannot be meaningfully applied.

Parallaxs argument has little merit. There is no authority that provides that an exclusionary clause is ambiguous or void because it is too narrow. In the present case, the exclusionary clause unambiguously applies to Parallax only; it is not ambiguous or invalid simply because it is narrowly drawn not to include Parallaxs officers. The parties to an insurance contract are free to define the scope of coverage between them. (Buss v. Superior Court (1997) 16 Cal.4th 35, 58.) Further, D & O policies generally cover only the liability of the companys officers and directors and the companys reimbursement for payments made to indemnify them; they often do not cover the liability of the corporation as an entity. (See Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2006) 7:1566, 7:1567, 7:1572, pp. 7F-6 to 7F-8; 7:1578, p. 7F-10; Nordstrom Inc. v. Chubb & Son, Inc. (9th Cir.1995) 54 F.3d 1424, 1432; see also Clark v. General Acc. Ins. Co. (D.Virginia Islands. 1997) 951 F.Supp. 559, 562 [the fact that [the company] only acts through the actions of its board members does not render [the company] and the officers and directors one and the same for purposes of insurance coverage].)

Accordingly, we conclude that the exclusionary clause unambiguously excludes from coverage any claim of misappropriation of trade secrets against Parallax.

3. Applying the Exclusionary Clause in the Policy to the Saarman Lawsuit

Parallax maintains that the exclusionary clause barring any coverage for claims against Parallax involving the misappropriation of trade secrets may have applied to some of the causes of action in the Saarman lawsuit, but did not apply to all of them. Therefore, according to Parallax, Underwriters still had a duty to defend this mixed action.

Parallax fails to specify which causes of action in the Saarman lawsuit fell outside the exclusionary clause. A review of the pleading establishes that all of the 10 causes of action set forth in the Saarman lawsuit were predicated upon the alleged misappropriation of trade secrets. The first cause of action was misappropriation of trade secrets. The second cause of action for unfair competition alleged that Perrenod had access to Saarmans trade secrets and Parallax and Perrenod engaged in the misappropriation of the Trade Secrets in order to compete with SAARMAN, all of which also constitutes unfair competition. The third cause of action was for breach of contract and the implied covenant of good faith, and it incorporated the prior allegations. Under this cause of action, the pleading further claimed the following: All of PERRENODs wrongful conduct alleged herein, including but not limited to, his misappropriation of Trade Secrets and unfair competition, constitute further breaches of the implied covenant of good faith and fair dealing. Similarly, the fourth cause of action for fraud also incorporated the prior allegations and asserted that Perrenod misrepresented his true intent to disclose to unauthorized persons or use for his own purposes SAARMANs confidential business information and Trade Secrets so as to induce SAARMAN . . . to continue to provide him access to Trade Secrets.

The fifth through tenth causes of action in the Saarman lawsuit were similarly based on misappropriation of trade secrets. The fifth cause of action for constructive fraud was based on the allegation that Perrenod on various occasions abused the trust and confidence reposed in him by Saarman, misappropriating SAARMANs Trade Secrets for defendants own use and engaged in unfair competition with SAARMAN by misappropriating SAARMANs Trade Secrets . . . . The sixth cause of action for wrongful interference with prospective economic advantage asserted that Perrenod intentionally and purposefully disrupted SAARMANs favorable business relationship with its suppliers and customers by misappropriating SAARMANs Trade Secrets . . . . The seventh cause of action for promissory estoppel alleged that Perrenods promises induced Saarman to continue to entrust to him Saarmans trade secrets. The eighth and ninth causes of action for accounting and constructive trust, respectively, incorporated the prior allegations and claimed that Perrenod and the other defendants derived great profits from misappropriating Saarmans trade secrets and therefore an accounting and disgorgement were necessary. Finally, the tenth cause of action for a permanent injunction requested a permanent injunction to restrain and enjoin Perrenod and the other defendants from disclosing or using SAARMANs Trade Secrets . . . .

Accordingly, we conclude that the exclusion in section C.2.b.i. in the D & O policy applied to the entire Saarman lawsuit.

C. Duty to Defend Under Insuring Clause 2

Parallax maintains that, even if the trade secrets exclusion applied to Insuring Clause 3, this exclusion did not apply to Insuring Clause 2. Insuring clause 2 reads as follows: 2. Underwriters shall pay on behalf of the Assured Organization Loss which the Assured Organization is required or permitted to pay as indemnification to any of the Directors and Officers resulting from any Claim first made against the Directors and Officers during the Certificate Period for a Wrongful Act.

Parallax argues that, since Underwriters never addressed insuring clause 2 in its summary judgment motion and never established that Parallax had no rights under this clause, it never met its burden of establishing a complete defense to Parallaxs breach of contract claim against it. (See, e.g., Consumer Cause, Inc. v. SmileCare (2001) 91 Cal.App.4th 454, 468 [ defendant has the initial burden to show that undisputed facts support each element of the affirmative defense ].)

Parallax concedes that it did not raise any argument or issue regarding this clause in its own documents in the lower court until it moved for a new trial pursuant to Code of Civil Procedure section 657. Nevertheless it maintains the issue was properly raised for the first time in the motion for a new trial and can be raised now on appeal. Legal questions may be raised for the first time in a motion for a new trial and on appeal (see, e.g., Hoffman-Haag v. Transamerica Ins. Co. (1991) 1 Cal.App.4th 10, 15), and therefore Parallax claims it could raise a different legal theory of recovery after the judgment.

Underwriters responds that it moved for summary judgment and it declined coverage for Parallax pursuant to exclusion C.2.b.i. At no time did Parallax argue that it was entitled to coverage under insuring clause 2, and there is no evidence that it sought coverage under this clause. It maintains that it had no obligation to consider coverage under this clause when Parallax never raised coverage under this insuring clause. (See, e.g., Aydin Corp. v. First State Ins. Co. (1998) 18 Cal.4th 1183, 1188.)

The burden was on Parallax to establish that the occurrence forming the basis of its claim was within the basic scope of insurance coverage. (Aydin Corp. v. First State Ins. Co., supra, 18 Cal.4th at p. 1188.) The facts are undisputed that no such claim was ever made by Parallax prior to the judgment. It is only after an insured makes this showing that the burden shifts to the insurer to prove the claim is specifically excluded. (Ibid.) Since Parallaxs officers made a claim under insuring clause 1^[5]and Parallax made a claim under insuring clause 3, Underwriters burden was to establish that the exclusion in the policy barred coverage for Parallax under insuring clause 3. Underwriters met this burden and therefore the lower court did not err in granting summary judgment.

It is true that legal questions may be raised for the first time after judgment, but the question whether Parallax was entitled to coverage under insuring clause 2 is not a purely legal question. There is nothing in this record to establish that Parallax was either required or permitted to pay as indemnification to any of the directors and officers the claims in the Saarman lawsuit. Indeed, in an attempt to establish that Parallax was authorized to indemnify the directors and officers of the corporation, Parallax submitted its Articles of Incorporation in support of its motion for a new trial.^[6] This evidence was not submitted in support of its opposition to Underwriters motion for summary judgment and such evidence will not now be considered on appeal.

Accordingly, on this record, no evidence supports a finding that Parallax was authorized to indemnify Parallaxs officers. Thus, Parallax has failed to establish that the trial court erred in finding that Underwriters had no duty to defend Parallax.^[7]

II. Judgment on the Pleadings Against Parallaxs Officers

A. Standard of Review

A motion for judgment on the pleadings may be made on the ground that the pleading at issue fails to state facts sufficient to constitute a legally cognizable claim. (Colberg Inc. v. State of California ex rel. Dept. of Pub. Wks. (1967) 67 Cal.2d 408, 411-412.) We review the trial courts decision to grant or deny a motion for judgment on the pleadings under the same standard as the decision to sustain or overrule a demurrer. (Boccato v. City of Hermosa Beach (1994) 29 Cal.App.4th 1797, 1803-1804, superseded by statute on another issue.) [W]e treat the properly pleaded allegations of [the] complaint as true, and also consider those matters subject to judicial notice. [Citations.] Moreover, the allegations must be liberally construed with a view to attaining substantial justice among the parties. [Citation.] Our primary task is to determine whether the facts alleged provide the basis for a cause of action against defendants under any theory.  (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1232.) We review de novo whether, assuming the truth of the pleadings, the complaint states causes of action. (Boccato, supra, at pp. 1803-1804.)

B. Damages

Underwriters motion for judgment on the pleadings assumed for the purpose of that motion that it owed a contractual obligation to pay the settlement and costs in the Saarman lawsuit on behalf of Parallaxs officers and that it breached that contractual obligation. In its motion for judgment on the pleadings, Underwriters argued that Parallaxs officers could not establish a breach of contract claim because they could not establish that they suffered any damages because the parties stipulated to the fact that Parallax paid the settlement and costs connected to the Saarman lawsuit.

To establish liability for breach of contract, the plaintiff must establish the well-known elements of the existence of the contract, plaintiffs performance, defendants breach, and damages. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.) Contractual damages are the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom. (Amato v. Mercury Casualty Co. (1997) 53 Cal.App.4th 825, 831.) The general measure of damages for a breach of the duty to defend an insured, even if it is ultimately determined there is no coverage under the policy, are the costs and attorney fees expended by the insured defending the underlying action. (Hogan v. Midland National Ins. Co. (1970) 3 Cal.3d 553, 564.) Where the policy provides coverage for the claim and the insured settles the underlying action, an insured may also recover from the insurer the amount of any reasonable, good faith settlement. (Tradewinds Escrow, Inc. v. Truck Ins. Exchange (2002) 97 Cal.App.4th 704, 712.)

Underwriters maintains that the case law makes it clear that there can be no breach of contract claim against an insurer when the insured incurred no economic harm as a result of the breach of contract. (Pan Pacific Retail Properties, Inc. v. Gulf Ins. Co. (S.D.Cal., July 14, 2004, No. 03-CV-679 WQH) 2004 WL 2958479, *15 [summary judgment granted against claim for reimbursement for defense costs because defense costs paid by another party and reimbursement for costs would be windfall]; Ceresino v. Fire Ins. Exchange (1989) 215 Cal.App.3d 814, 823 (Ceresino); Berg v. First State Ins. Co. (9th Cir. 1990) 915 F.2d 460, 465 [no injury when no damages paid while uninsured and directors replaced policy at no additional cost].)^[8] Thus, for example, in Ceresino, the court held that the insurers failure to defend was of no consequence to the insured when another insurance company paid for the defense. (Ceresino, supra, at p. 823.)

The case law is clear that an insured has no claim against an insurance carrier that refuses to defend a claim where there are several policies of insurance on the same risk and the insured has recovered the full amount of its loss from one or more of the insurance carriers. (See, e.g., Bramalea California, Inc. v. Reliable Interiors, Inc. (2004) 119 Cal.App.4th 468, 472-473 [contractor who sued for construction defects could not recover attorney fees from subcontractors under indemnity provisions of subcontracts obligating them to pay the contractors attorney fees where the fees were paid by the contractors own insurer]; Atlantic Mutual Ins. Co. v. J. Lamb, Inc. (2002) 100 Cal.App.4th 1017, 1042-1043 [insured who settled with one insurer for an unallocated portion of the defense and settlement costs incurred can only recover . . . the balance of the unreimbursed indemnification expense that it incurred]; Prichard v. Liberty Mutual Ins. Co. (2000) 84 Cal.App.4th 890, 909 [where multiple insurers potentially provide coverage, an insured cannot insist the insurers should each be required to pay the whole of an attorneys bill].)

When another insurance carrier pays the defense and costs as in Ceresino, the insured clearly suffers no injury. However, in the present case the risk was not covered by a different insurance policy and each of Parallaxs officers incurred an obligation to pay the settlement and costs.

Parallaxs officers argue that they suffered an injury under the policy once they became liable for payment of the settlement, and that the fact of a legal injury is sufficient to prove their claim of breach of contract. We agree that they suffered an injury because they were deprived of the expertise and resources available to insurance carriers in making prompt and competent investigations as to the merits (Ceresino, supra, 215 Cal.App.3d at p. 823) during the defense of the Saarman lawsuit and because they were jointly liable for the settlement costs. However, establishing a claim under the policy does not mean that they can actually establish damages. Rather, they must prove that the breach of contract resulted in a pecuniary loss to them.

We disagree with the lower courts finding that the fact that Parallax paid the settlement and costs associated with the Saarman lawsuit established as a matter of law that the Parallax officers suffered no economic loss. This is a factual issue as Parallaxs officers may be able to establish that Parallax is seeking reimbursement from them or that they personally suffered a financial loss as a result of Parallaxs paying the settlement of the Saarman lawsuit.

Further, although not addressed by either party, this case presents policy considerations. It would be bad policy to permit an insurance carrier to escape liability simply because the company rather than the officers paid the settlement, when all three suffered a loss as defined by the policy and they were jointly and severally liable. The officers should not be forced to pay the sum owed in settlement and defense of the Saarman litigation simply to preserve their rights under the policy against Underwriters (see Xebec Development Partners, Ltd. v. National Union Fire Ins. Co. (1993) 12 Cal.App.4th 501, 537, disapproved on other grounds in Essex Ins. Co. v. Five Star Dye House, Inc. (2006) 38 Cal.4th 1252), as they may be much less able to pay it than the company. However, Parallaxs officers are not entitled to a windfall and can only recover damages if they establish that they suffered or will suffer pecuniary damages as a result of Underwriters failure to provide them with a defense.

We therefore conclude that the lower court erred when it granted the motion for judgment on the pleadings because the question of damages could not be determined as a matter of law. The fact that Parallax paid the settlement and costs associated with the Saarman lawsuit is not dispositive; Parallaxs officers may still be able to establish that they have suffered or they are likely to suffer financial hardship or harm as a result of Parallaxs payment of this settlement.

Accordingly we reverse the judgment of the pleadings as to Parallaxs officers.

DISPOSITION

The judgment as to Parallax is affirmed. The judgment as to Parallaxs officers, Perrenod, Thompson, and Romo is reversed. Each party is to bear its own costs of appeal.

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Lambden, J.

We concur:

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Kline, P.J.

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Richman, J.

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^[1] Many of the facts are not in dispute and were set forth in the parties joint stipulation of facts.

^[2] At that time, neither Romo nor Thompson were parties in the Saarman lawsuit. Underwriters subsequently supplemented its letter denying coverage when tender was made on behalf of Romo. It is unclear from this record whether tender was made on behalf of Thompson.

^[3] The other defendants in the action were another insurance company and Gallagher Construction Services.

^[4] Parallax and Parallaxs officers also moved for summary judgment against Underwriters. The trial court denied this motion for summary judgment.

^[5] Insuring clause 1 provides as follows: 1. Underwriters shall pay on behalf of the Directors and Officers Loss resulting from any Claim first made against the Directors and Officers during the Certificate Period for a Wrongful Act.

^[6] Parallax did not argue in its opening brief that the trial court abused its discretion in denying its motion for a new trial, and therefore it has waived raising this issue on appeal.

^[7] Underwriters argues that summary judgment was also proper on the basis that Parallaxs claim predated the policy period. The trial court rejected this argument when ruling on the summary judgment motion, and we agree with this ruling. The definition of claim in the policy is any written or oral demand for damages and any judicial, administrative, or arbitration proceeding. Since it is undisputed that no judicial proceeding had been initiated against Parallax at the time it applied for insurance, we agree with the trial court that Parallaxs claim did not predate the policy period.

Although not raised in the briefs before this court, we also note that another grounds for moving for summary judgment was the assertion that Parallax did not correctly answer questions in the application for insurance. In its papers moving for summary judgment, Underwriters presented no evidence of materiality and reliance. We therefore do not have an adequate record before us to consider this issue.

^[8] Both parties cite to an unreported superior court opinion in Delaware (AT&T Corp. v. Clarendon America Ins. (Del.Super.Ct., Sept. 18, 2006, No. 04C-11-167) 2006 WL 2685081). We need not consider this unreported out-of-state case when it is not squarely on point and relevant California authority exists.