A general liability insurer had no duty to reimburse its insureds, who were licensed attorneys, for the time they spent defending themselves in a case brought by a third party. ( Richards v. Sequoia Ins. Co . (2011) 195 Cal.App.4th 431)
Facts
Linda and Thomas Richards were licensed attorneys who owned a lodge and bar. The Richardses purchased a general liability policy for the lodge / bar through Sequoia Insurance Company. The policy included liquor liability coverage.
The Richardses allegedly furnished alcohol to an underage bar patron, 20-year-old Robin Morris. After Morris left the bar, she was killed in a single car accident. The administrator of Morris’ estate filed a wrongful lawsuit against the Richardses alleging that the Richardses had negligently furnished alcohol to Morris and that such negligence had contributed to her death.
The Richardses tendered defense of the wrongful death lawsuit to Sequoia. Sequoia responded with a letter stating that it was referring the matter to coverage counsel for evaluation, and that in the meantime the Richardses should retain their own defense counsel. The letter further stated that if Sequoia determined it had a duty to defend the Richardses, Sequoia would reimburse the Richardses for their “reasonable defense costs incurred from the date of tender….”
The Richardses allegedly did not have money to pay an attorney. The Richardses thus contacted an attorney who agreed to represent them without a retainer, with the understanding that the Richardses themselves “would do the majority of the legal research, pleadings, and investigation necessary in the case.”
Sequoia later accepted the Richardses’ defense. Sequoia paid the fees of the Richardses’ personal attorney and also the fees of the attorneys who Sequoia appointed to represent the Richardses. Sequoia ultimately settled the wrongful death lawsuit on behalf of the Richardses.
After the wrongful death lawsuit was settled, the Richardses wrote to Sequoia and threatened to sue Sequoia for its initial “denial” of the defense in the wrongful death lawsuit. The Richardses offered to compromise their claims against Sequoia for $30,000, representing the time the Richardses themselves had allegedly spent working on the lawsuit before Sequoia had agreed to defend the Richardses.
When Sequoia did not respond to the Richardses’ settlement offer, the Richardses sued Sequoia for breach of contract and bad faith. The Richardses alleged that initially Sequoia had wrongly “denied” the Richardses a defense in the wrongful death lawsuit, and that as a result the Richardses had incurred reasonable defense expenses. The trial court entered summary judgment in favor of Sequoia. The Richardses appealed.
Holding
The Court of Appeal affirmed the summary judgment in favor of Sequoia. The appellate court assumed for the sake of discussion that Sequoia had delayed in accepting the Richardses’ tender of defense. However, court noted that the measure of damages for any breach of Sequoia’s contractual duty to defend would be the “costs and attorneys fees expended by the insured in defending the underlying action.” The court then concluded that the value of the Richardses’ own self-representation was not the equivalent of “attorney’s fees expended by the insured.” Since the value of the legal work the Richardses themselves performed did not represent attorney’s fees “expended” by the insured, the Richardses had no damages to support a claim for breach of contract.
The appellate court further held that any claim for bad faith required that the insured show proof of economic loss. However, for the reasons already discussed, the time the Richardses themselves spent working on the case was not a compensable economic loss claim. Thus, since the Richardses could not show any economic loss, the court held that summary judgment was also proper as to the bad faith claim.
Comment
The appellate court in this case relied on the California Supreme Court’s decision in Trope v. Katz (1995) 11 Cal.4th 274. Both cases stand for the proposition that an attorney representing himself or herself is not entitled to recover fees for his or her own services in litigation. Since such fees are not actually “expended,” they are not recoverable and will not support a claim for breach of insurance contract or bad faith.