Johnson v. Medranos Restaurant

Filed 8/1/07 Johnson v. Medranos Restaurant CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

SECOND APPELLATE DISTRICT

DIVISION FOUR

APPEAL from a judgment of the Superior Court of Los Angeles County, Frank Jackson, Judge. Reversed and remanded.

Burnham Brown, Eric Haas and Andrew Shalauta for Intervenor and Appellant.

Stoll, Nussbaum & Polakov and Brian S. Nelson; Law Office of Marian H. Tully and Marian H. Tully for Plaintiff and Respondent.

The trial court denied a motion under Code of Civil Procedure section 473 by appellant NIC Insurance Company (NIC) to set aside the judgment in respondent Michael Johnsons action against NICs insureds.^[1] We reverse.

RELEVANT FACTUAL AND PROCEDURAL HISTORY

Johnson initiated the underlying action against Manuel Medrano, Jose Medrano, Bobby Bates, and Medranos Restaurant on March 7, 2003. His first amended complaint (FAC), which was filed on March 28, 2003, alleged that Bates was employed as a bouncer at Medranos Restaurant, which was owned by Manuel and Jose Medrano. According to the FAC, Johnson was a customer at Medranos Restaurant on January 3, 2003, when he was negligently ejected from the restaurant and suffered injury as a result. It further alleged that on that date, Bates did intentionally, negligently, willfully, maliciously, wrongfully, and without probable cause, provocation, or legal justification, accost, assault, batter and injure Johnson. The FAC asserted a claim for assault and battery against Bates, a claim for negligent supervision, hiring, and training against Jose and Manuel Medrano and Medranos Restaurant, and a claim for negligence and premises liability against all the defendants.

The defendants tendered the FAC to NIC, which had issued a commercial general liability policy regarding Medranos Restaurant effective from August 1, 2002, to August 1, 2003. In a letter dated July 10, 2003, NIC stated that it had conducted an investigation and determined that it had no duty to defend or indemnify its insureds in connection with Johnsons lawsuit. The letter asserted that Batess assault and battery did not constitute an occurrence under the coverage provisions of the policy, and that coverage was otherwise precluded by an assault and battery exclusion and an exclusion for bodily injury expected or intended from the standpoint of the insured.^[2]

A three-day bench trial in Johnsons action began on August 15, 2005. On the first day of trial, the court heard testimony from Jose Medrano and Johnson. Jose Medrano testified that he was working as a manager at Medranos Restaurant on the evening of January 3, 2003, but did not witness how Johnson may have incurred his injuries. Johnson testified that he had no memory of the events on that evening between his karaoke singing at 9:00 p.m. and his awakening in a hospital, aside from an impression that something had fallen on him. After the first day of trial, the parties waived the presence of a court reporter, and no record was made of the testimony from the remaining witnesses, including Bates.

On October 25, 2005, the trial court issued its statement of decision and entered a judgment in Johnsons favor. The statement of decision indicated that aside from Jose Medrano and Johnson, the sole witness at trial present at Medranos Restaurant on January 3, 2003, was Bates. The trial court summarized Batess testimony as follows: He was a security guard at Medranos Restaurant. . . .  He was in the process of escorting [Johnson] to another part of the restaurant when he tripped on a black strip between the tile floor and the carpet floor and fell onto [Johnson]. The black strip between the carpeting and the tile caused him to fall . . . on [Johnson]. The trial court found no evidence that Bates had intentionally hit or assaulted Johnson, and determined that Johnson had suffered injuries due to the negligence of Bates and his employers. It awarded Johnson $1,879,976 in damages for medical expenses and lost earnings.

On April 17, 2006, the trial court accorded NIC leave to intervene in Johnsons action, and NIC filed a motion under section 473 to set aside the judgment. The motion contended that the judgment had been entered through inadvertence and surprise as NIC had no prior notice that the claims in this case had dramatically transformed from an assault and battery by a security guard at the time of NICs investigation and denial of coverage, to a slip and fall accident at the time of the court trial . . . . The trial court denied the motion on May 2, 2006. This appeal followed.

DISCUSSION

NIC contends that the trial court erred in denying its motion under section 473 because the judgment was the result of surprise within the meaning of that provision. We agree.

A. Governing Principles

Section 473 provides that [t]he court may, upon any terms as may be just, relieve a party . . . from a judgment, dismissal, order, or other proceeding taken against him or her through his or her mistake, inadvertence, surprise, or excusable neglect, provided that application for relief is made within a reasonable time, in no case exceeding six months, after the judgment, dismissal, order, or proceeding was taken. ( 473, subd. (b).) The term surprise, as used in section 473, refers to some condition or situation in which a party . . . is unexpectedly placed to his injury, without any default or negligence of his own, which ordinary prudence could not have guarded against. (State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 611, quoting Credit Managers Assn. v. National Independent Business Alliance (1984) 162 Cal.App.3d 1166, 1173.)

The crux of NICs argument is that it properly declined to defend its insureds upon the tender of Johnsons complaint, and thus Batess trial testimony  -- which established a potential basis for coverage under the policy -- constituted surprise under section 473.^[3] Generally, [t]he determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy. (Horace Mann Ins. Co.v. Barbara B., supra,4 Cal.4th at p. 1081.) Facts extrinsic to the complaint also trigger the duty to defend when they reveal a possibility that the claim may be covered by the policy (id. at p. 1081); alternatively, they establish the absence of the duty when they conclusively eliminate a potential for liability (Montrose, supra, 6 Cal.4th at p. 299). However, an insurer does not have a continuing duty to investigate whether there is a potential for coverage. If it has made an informed decision on the basis of the third party complaint and the extrinsic facts known to it at the time of tender that there is no potential for coverage, the insurer may refuse to defend the lawsuit. (Gunderson v. Fire Ins. Exchange (1995) 37 Cal.App.4th 1106, 1114, italics deleted.)

The trial courts ruling under the applicable provisions of section 473 is reviewed for an abuse of discretion. (State Farm Fire & Casualty Co. v. Pietak, supra, 90 Cal.App.4th at p. 610.) With respect to a discretionary ruling, [w]e are required to uphold the ruling if it is correct on any basis, regardless of whether such basis was actually invoked. (Plut v. Firemans Fund Ins. Co. (2000) 85 Cal.App.4th 98, 103, quoting In re Marriage of Burgess (1996) 13 Cal.4th 25, 32.)

B. Underlying Proceedings

There are no disputes regarding the following facts: Prior to issuing the denial letter, NIC consulted the FAC and a police incident report, and interviewed Bates and Jose Medrano. According to the incident report, two Los Angeles County deputy sheriffs investigated an incident described as suspicious circumstances -- possible assault. They responded to a call from a nurse at the Antelope Valley Hospital, who had reported an assault upon Johnson. When they arrived at the hospital, Johnson was in surgery. The deputy sheriff who prepared the report stated: I contacted [Johnson] after he returned to his room. [Johnson] stated he was at Medranos Restaurant singing karaoke at the bar. He could not read the music so he went to a bouncer . . . to borrow his flashlight. [Johnson] was very intoxicated. The bouncer said, You need to leave. [Johnson] was grabbed around the chest (bear hug) by the bouncer. [Johnson] felt a large pain to his rib area. He walked to his personal vehicle and called for paramedics. They transported him to [the] hospital.

According to the summary of NICs interview with Bates, a customer approached Bates and asked to use his flashlight to see the karaoke lyrics. The customers behavior convinced Bates that he was intoxicated, and Bates told him to leave the restaurant. The summary continued: Mr. Bates stated that he did not put a hand on the customer. He specifically denied grabbing the customer in a bear-hug-style grasp. Mr. Bates stated that he did not push the customer. He stated that he did not hit the customer. Mr. Bates simply walked the customer to the main entrance of the restaurant and watched the customer walk out toward the parking lot. He did not follow the customer but remained in the restaurant. []  Mr. Bates stated that he did recall mentioning this incident to Jose Medrano, indicating that a customer wanted to borrow his flashlight and that he asked the customer to leave. [] Mr. Bates stated that roughly 30 minutes after the customer left, he recalled seeing an ambulance in the parking area, outside the restaurant. He did not go out to investigate, as he felt he had nothing to do with the incident.

The summary of NICs interview with Jose Medrano stated: Mr. Medrano . . . had absolutely no recollection of anything unusual or out of the ordinary occurring on that evening. He was in the restaurant from 4:00 p.m. until about 2:30 a.m. or 3:00 a.m. that night. Mr. Medrano stated that when a customer misbehaves or there is some unusual incident, he will be among the first to know about it . . . .[] Mr. Medrano stated that Mr. Bates made no report of anything unusual occurring that night. [] Mr. Medrano stated that he did recall seeing an ambulance in the parking area, outside of the restaurant. He did not go outside to investigate. Mr. Medrano recalled that one of the customers mentioned that the ambulance was there because someone had reported chest pain. Mr. Medrano assumed that someone might have been having heart problems. [] Mr. Medranos first knowledge that this claim was being made came on the day the [s]heriffs deputies came out to the restaurant and interviewed him and the bartenders who were working that night. He stated that he was aware that both bartenders told the [deputies] that they knew nothing of the incident whatsoever.

On June 12, 2003, NIC sent a letter to Johnsons counsel denying liability for Johnsons injuries. The letter stated: Your client admitted to [the investigating deputy sheriff] that he was very intoxicated. [Bates] has been interviewed and will make an excellent witness and states that your client was the aggressor. We know of no other witnesses to this alleged incident and by not allowing us to interview your client, you are preventing us from obtaining not only his version of the alleged incident but also from determining if [he] can identify[] any other potential witnesses. NIC invited Johnsons counsel to provide any additional evidence or information bearing on its decision.

After NIC issued its denial letter to its insureds on July 10, 2003, they and Johnson repeatedly asked NIC to reconsider its decision, but did not tender any additional evidence bearing on the underlying events. NIC agreed to provide a defense in Johnsons action under a reservation of rights only when it received the statement of decision, which described Batess trial testimony.

In denying NICs motion under section 473, the trial court stated: [NIC] was on notice based upon the complaint that there were two negligen[ce] causes of action. [NIC] was on further notice when they conducted their own investigation and took statements from Mr. Medrano and Mr. Bates. Mr. Medrano confirmed that there was no assault and battery and [] Bates denied an assault and battery or an intentional tort. It appears to the court that [NIC] relied on an inadmissible and somewhat ambiguous police report in denying coverage. The opposition [to NICs motion] is replete with notice to [NIC] of the basis for the claim, including [a] subpoena for records for the trial, numerous contacts from defense counsel and a medical pay request from [Johnson]. The trial court concluded: It appears that [NIC] either chose to ignore the [FAC] or elected not to provide a defense . . .  despite the two causes of action based upon negligen[ce] theories. [] If [NIC] had a good faith belief that there was no coverage, [it] still could have defended the action with a reservation of rights or [it] could have filed a separate declaratory relief action. Instead it elected to deny the request and take its chances.

C. Analysis

In view of this record, we conclude that NIC properly determined it had no duty to defend under the policy, and thus the trial court erred in ruling that the judgment was not the product of surprise.

1. Duty to Defend

It is undisputed that no party provided NIC with evidence of Batess trip-and-fall after NIC denied a defense and prior to trial. Accordingly, the focus of our inquiry is whether NIC correctly found no potential for coverage after Johnsons claims were first tendered to it. To establish the absence of a duty to defend, an insurer must show that the underlying claim cannot come within the policy coverage by virtue of the scope of the insuring clause or the breadth of an exclusion. (Montrose Chemical Corp. v. Superior Court, supra, 6 Cal.4th at p. 301.) Here, NIC concluded that Johnsons injuries fell outside the policys insuring clause and that two exclusions otherwise precluded coverage. On appeal, NIC contends solely that its determination was proper under the assault and battery exclusion. We therefore examine the breadth of [that] exclusion. (Ibid.)

The assault and battery exclusion, as recited in NICs July 10, 2003 letter, provides in pertinent part: [T]his policy will not provide coverage, meaning indemnification or defense costs for damages alleged or claimed[,] for: [] Bodily Injury . . . or any other damages resulting from assault and battery or physical altercations that occur in, on, near or away from the insureds premises[:] [] 1. Whether or not caused by, at the instigation of, or with the direct or indirect involvement of the insureds employees, patrons or other persons in, on, near or away from the insureds premises, or [] 2. Whether or not caused by or arising out of the insureds failure to properly supervise or keep the insureds premises in a safe condition, or []  3. Whether or not caused by or arising out of any insureds act or omission in connection with the prevention or suppression of the assault or battery or physical altercation, including but not limited to, negligent hiring, training and/or supervision.

This exclusion precludes coverage for any claim based on an assault and battery, irrespective of the theory of liability alleged against the insured. (Century Transit Systems, Inc.v. American Empire Surplus Lines Ins. Co. (1996) 42 Cal.App.4th 121, 126-128 & fn. 5.) It thus bars coverage for claims against an employer for bodily injury arising from an assault and battery involving an employee, regardless of whether the pertinent complaint alleges (a) that the employee negligently committed the assault and battery, (b) that the employer negligently hired, trained or supervised the employee, or (c) that the employer negligently permitted the assault and battery to occur on its premises. (Ibid; Essex Ins. Co.v. Yi (N.D. Cal. 1992) 795 F.Supp. 319, 321-324; see also Zelda, Inc. v. Northland Ins. Co. (1997) 56 Cal.App.4th 1252, 1261 (Zelda).) Accordingly, the allegation in the FAC that Bates did . . .  negligently . . . accost, assault, batter and injure Johnson, as well as every allegation of negligence based on this conduct, fell within the exclusion and was thus insufficient to trigger a potential for coverage.

The remaining question, therefore, is whether the possibility of coverage was established by the allegations of negligence in the FAC that do not expressly refer to the alleged assault and battery -- for example, that Johnson was negligently ejected from Medranos Restaurant -- or other facts known to NIC. Generally, where the extrinsic facts eliminate the potential for coverage, the insurer may decline to defend even when the bare allegations in the complaint suggest potential liability. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 19.) As the court explained in Uhrichv. State Farm Fire & Casualty Co. (2003) 109 Cal.App.4th 598, 611: [C]laims do not exist in the ether, they consist of pleaded allegations coupled with extrinsic facts. That is what defines the insurers coverage duties, not the label chosen by the pleader. [Citation.] Facts extrinsic to the complaint can defeat as well as invoke coverage. [Citation.] (Ibid.) Thus, a party cannot invoke coverage simply by pleading negligence in the complaint. (Ibid.)

We therefore address whether the facts available to NIC upon investigation indicated that Johnsons injuries, if attributable in any manner to its insureds, might have arisen from an event other that an assault and battery by Bates. The adequacy of an insurers investigation implicates the principle of constructive notice.^[4] (KPFF, Inc. v. California Union Ins. Co. (1997) 56 Cal.App.4th 963, 974-975; California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 37.) In an assessment whether an insurer properly declined to offer a defense, the insurer is charge[d] . . . with notice of all those facts which [it] might have ascertained had [it] diligently pursued the requisite inquiry. (California Shoppers, Inc. v. Royal Globe Ins. Co., supra, 175 Cal.App.3d at p. 37; see KPFF, Inc. v. California Union Ins. Co., supra, 56 Cal.App.4th at p. 974; State Farm Mut. Auto. Ins. Co. v. Martinez-Lozano (E.D.Cal. 1996) 916 F.Supp. 996, 1005.) However, mere speculation that extrinsic facts establishing liability may emerge does not trigger the insurers duty to defend. (Gundersonv.Fire Ins. Exchange, supra, 37 Cal.App.4th at p. 1114.)

Nothing before us suggests NIC could have learned about Batess purported trip-and-fall onto Johnson from any source available to it when it conducted its investigation. The record indicates NIC interviewed or otherwise obtained an account of the underlying events from every potential witness it could identify, namely, Bates, Johnson, Jose Medrano, and the bartenders. The only two witnesses who claimed to have seen the incident were Bates, who told NIC he had not touched Johnson in any manner, and Johnson, who told the deputy sheriffs Bates had injured him by grabbing him around the chest in a bear hug. Johnson refused to speak to NICs investigators, and neither Johnson nor NICs insureds directed NICs attention to other possible percipient witnesses. The sole evidence of a trip-and-fall first emerged at trial, when both Bates and Johnson abandoned their prior accounts of the incident. Under these circumstances, NIC is not reasonably charged with notice that Bates might have accidentally fallen upon Johnson. (See Gundersonv.Fire Ins. Exchange, supra, 37 Cal.App.4th at p. 1117 [duty to defend is not triggered by facts that surfaced only after insured completed its investigation and declined to provide defense].)

Johnson contends the extrinsic facts available to NIC established a potential for coverage because they supported conflicting versions of the underlying events. It is true that, the existence of a disputed fact determinative of coverage[] establishes the duty to defend. (Amato v. Mercury Casualty Co. (1993) 18 Cal.App.4th 1784, 1790, italics deleted.) However, as explained in Quan v. Truck Ins. Exchange (1998) 67 Cal.App.4th 583 (Quan) and Zelda, supra,56 Cal.App.4th 1262, this duty is not triggered by factual disputes whose resolution does not implicate the potential for coverage.

In Quan, a woman asserted claims for assault and battery, negligence, and infliction of emotional distress against a man who allegedly sexually assaulted and raped her. (Quan, supra, 67 Cal.App.4th at pp. 583, 587, 592-593.) Following an investigation, the mans insurer denied it had any duty to defend, asserting that the womans complaint alleged intentional misconduct that did not constitute an accident within the meaning of the policys coverage provision. (Id. at pp. 585 & fn. 5, 595.) When the man sought declaratory relief against the insurer, he contended the insurer knew he flatly denied the alleged misconduct, and that this conflict in the facts required the insurer to provide a defense in the womans action. (Id. at p. 600.) The court rejected this contention, reasoning that however the conflict was resolved, no potential for coverage would be established. (Ibid.) It thus concluded that the facts available to the insurer eliminated the possibility of coverage. (Id. at pp. 600-601.)

In Zelda, a customer of a bar asserted claims for negligence and assault and battery against the bars owners, contending he had been injured when a bartender punched him. (Zelda, supra, 56 Cal.App.4th at pp. 1256-1258.) The owners insurer denied it had a duty to defend, citing an assault and battery exclusion in the policy. (Id. at pp. 1257-1258.) After the trial court granted summary judgment for the insurer in the owners action against it, this court affirmed, finding the insurer had properly determined it had no duty to defend under the policy. (Id. at pp. 1261-1262.) We explained that the facts known to the insurer supported only two versions of the underlying events -- either the bartender had assaulted the customer, or the customer had assaulted the bartender, who responded in self-defense -- and thus the altercation, however viewed, fell squarely within the exclusion. (Id. at p. 1262.) Accordingly, we concluded the facts known to the insurer did not trigger a potential for policy coverage. (Ibid.)

On the record before us, we reach the same conclusion. Johnson asserted that Bates assaulted and battered him, and Bates denied any conduct that might be causally responsible for Johnsons injuries. However this dispute was resolved, neither version of the underlying events implicated policy coverage. Accordingly, NIC properly determined it had no duty to defend.

Johnson contends NIC improperly relied on the incident report because it is ambiguous, untrustworthy, and tends to discredit Johnsons account of an assault and battery. We disagree. Generally, [t]he duty to defend is determined by reference to the policy, the complaint, and all facts known to the insurer from any source. [Citation.] (Montrose Chemical Corp. v Superior Court, supra, 6 Cal.4th at p. 300, italics added.) In view of this principle, NIC properly consulted the incident report. (See, e.g., Safeco Ins. Co. of America v. Parks (2004) 122 Cal.App.4th 779, 793; Ace American Ins. Co. v. Walker (2004) 121 Cal.App.4th 1017, 1026; Zelda,supra, 56 Cal.App.4th at p. 1261.)

Johnson contends the report is ambiguous because it refers to him as I/Johnson, where the I is the first-person pronoun or an abbreviation for informant, and thus the statements attributed to him may be first-person quotations or the deputy sheriffs description of his remarks. However, this purported ambiguity does not create any material uncertainty regarding what Johnson told the deputy sheriff about his encounter with Bates.

Johnson also contends the report is unreliable, pointing to his trial testimony that he was heavily sedated after his surgery and could not recall what he said to the deputy sheriffs. Because the report does not suggest Johnson was heavily sedated when he talked to the deputy sheriffs and he declined to meet with NICs investigators, NIC cannot reasonably be charged with notice of this source of potential unreliability in the report when it conducted its investigation.

Finally, Johnson contends the report indicates the deputy sheriffs did not interview Bates, and thereby raises the inference that they gave little credit to Johnsons account of Batess conduct. The record does not support this contention. The report itself states the deputy sheriffs went to Medranos Restaurant to interview possible witnesses but found it closed. Furthermore, NICs statements from Bates and Jose Medrano establish that deputy sheriffs later returned to the restaurant and interviewed both men, as well as other employees.^[5]

2. Surprise

In view of this conclusion, we examine whether Batess and Johnsons trial testimony constituted surprise within the meaning of section 473. We find dispositive guidance on this question in Lipson v. Jordache Enterprises, Inc. (1992) 9 Cal.App.4th 151 (Lipson).

There, an employee filed an action against her employer, asserting claims for fraud, breach of contract, and wrongful termination. (Lipson, supra, 9 Cal.App.4th at pp. 153-154.) Following an investigation, the employers insurer declined to provide a defense in the action, asserting that neither the asserted claims nor the extrinsic facts in its possession established a potential for coverage. (Id. at pp. 151, 158-159.) Two days before trial, the employee filed an amended complaint that added claims for negligence and defamation, and with the agreement of the parties, the trial court conducted a 25-minute bench trial and entered judgment in favor of the employee. (Id. at pp. 154-155.) It subsequently denied the insurers section 473 motion for relief from the judgment on the basis of surprise or inadvertence. (Lipson, at p. 156.) The court of appeal reversed, reasoning that the insurer had properly declined to provide a defense regarding the employees initial claims, and that the facts known to the insurer did not reasonably indicate the employee could assert other claims implicating policy coverage. (Id. at pp. 159-161.)

Here, as in Lipson, NIC properly declined to provide a defense, and thus it had no duty to monitor Johnsons action for the emergence of new facts (Gunderson v. Fire Ins. Exchange, supra, 37 Cal.App.4th at p. 1117). Moreover, much like the insurer in Lipson, NIC could not reasonably have anticipated from the facts in its possession that Bates and Johnson would set aside their previous accounts of the underlying events and testify that Bates accidentally fell on Johnson. We therefore conclude the trial court erred in denying NIC relief under section 473.

Johnson contends the trial court properly concluded the judgment was not the result of surprise. His reliance on Eigner v. Worthington (1997) 57 Cal.App.4th 188 (Eigner), and Garcia v. Gallo (1959) 176 Cal.App.2d 658 (Garcia) is misplaced because these cases are factually distinguishable.^[6]

In Eigner, a mother and her son were sued for assault, harassment, and stalking by their neighbors, whose complaint alleged they had suffered emotional distress and other injuries according to proof at trial. (Eigner, supra, 57 Cal.App.4th at pp. 198-199, italics omitted.) When the mother tendered the complaint to her insurer, the insurer declined to defend without any investigation beyond an inspection of the pleadings. (Id. at p. 192.) The insurer stated the complaint did not allege bodily injury or property damage and thus did not assert claims within policy coverage. (Id. at pp. 192-193.) The neighbors testified at trial they had suffered property damage, and judgment was entered against the mother and her son. (Id. at pp. 193-194.) After the trial court denied the insurers motion under section 473 to set aside the judgment, the court of appeal affirmed, reasoning that the complaint, on its face, alerted the insured to the need for further investigation. (Eigner, at p. 199.) Here, unlike the insurer in Eigner, NIC conducted an adequate investigation before declining to provide a defense.

In Garcia, the insureds minor son was involved in an accident while driving the insureds car, and both were named as defendants in an action for damages. (Garcia, supra, 176 Cal.App.2d at p. 660.) Because the insureds policy contained a provision barring coverage to drivers under 25 years of age, his insurer declined to provide a defense, notwithstanding that shortly after the insured tendered the complaint, the California Supreme Court held that the pertinent coverage limitation was unenforceable. (Id. at p. 661.) The insured and his son failed to appear in the action, and a default was entered against them. (Id. at p. 660.) The court in Garcia concluded the trial court properly denied relief from the default under section 473, reasoning that the insurer had no reasonable grounds for failing to provide a defense.^[7] (Garcia, at pp. 666-669.) As we have explained, that is not the case here. In sum, the trial court erred in denying NICs motion under section 473 to vacate the judgment.

DISPOSITION

The order denying NICs motion under section 473 is reversed, and the matter is remanded with directions to the trial court to vacate the order and enter a new order granting the motion. NIC is awarded its costs.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

MANELLA, J.

We concur:

WILLHITE, Acting P. J.

SUZUKAWA, J.

Publication courtesy of San Diego pro bono legal advice.

Analysis and review provided by Poway Property line attorney.

^[1] All further statutory references are to the Code of Civil Procedure.

^[2] The record does not contain a copy of the policy. According to NICs denial letter, the policy was issued to Ramiro and Jorge Medrano, doing business as Medranos Mexican Restaurant. At trial, Jose Medrano testified that he is merely an employee of Medranos Restaurant, which is owned by Ramiro and Jorge Medrano, who are, respectively, his father and brother.

^[3] As our Supreme Court explained in Horace Mann Ins. Co.v. Barbara B. (1993) 4 Cal.4th 1076, 1081: [A] liability insurer owes a broad duty to defend its insured against claims that create a potential for indemnity. (Grayv. Zurich Insurance Co. (1966) 65 Cal.2d 263. . . . ) As we said in Gray, the carrier must defend a suit which potentially seeks damages within the coverage of the policy. [Citation.] In Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 300, the Supreme Court further clarified: [In Gray] we said that the insurer need not defend if the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage. [Citation.] The quoted language cannot reasonably be understood to refer to anything beyond a bare potential or possibility of coverage as the trigger of a defense duty. Thus, the duty to defend may exist even where coverage is in doubt and ultimately does not develop. [Citation.] (Id. at p. 295, quoting Saylin v. California Ins. Guarantee Assn. (1986) 179 Cal.App.3d 256, 263.)

^[4] Under Civil Code section 19, [e]very person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact.

^[5] Johnson also suggests the fact that the deputy sheriffs never arrested Bates put NIC on notice that Bates may have injured Johnson by conduct that fell short of an assault and battery. Again, we disagree. The record establishes that Johnson and Bates presented the deputy sheriffs with conflicting accounts of the underlying events: Johnson alleged that Bates assaulted and battered him; Bates denied any responsibility for Johnsons injuries. As we have explained, this factual conflict, whether resolved in favor of Johnsons or Batess version of events, does not implicate the potential for coverage. Accordingly, nothing the deputy sheriffs did or failed to do triggered NICs duty to defend.

^[6] Johnson also cites Mack v. Eummelen (1916) 31 Cal.App. 506, 507-508, in which the court held that a bank was properly denied leave to intervene in an action because it knowingly declined to become a party until an unfavorable judgment was entered. Because NIC was permitted to intervene in Johnsons action and Mack does not address section 473, the case is inapposite.

^[7] Johnson also contends that NIC failed to show it lacked notice of the factual basis for his negligence claims before the judgment was entered in the underlying action on October 25, 2005, and that this failure constitutes an alternative basis for affirming the denial of NICs section 473 motion. We disagree. In support of the motion, NIC submitted a letter dated April 19, 2006, in which it stated: NIC has recently obtained new information through testimony referenced in the Courts October 25, 2005 Statement of Decision indicating that [Johnsons] claim may have arisen from a covered accident. The trial court admitted this letter over Johnsons objection, and Johnson has not challenged this ruling on appeal.