The California Court of Appeal has held that an insured seeking recovery for breach of contract and bad faith cannot file separate suits against the insurer, and must assert all theories of recovery in a single action. (Lincoln Property Company, N.C., Inc. v. The Travelers Indemnity Company (2006) 137 Cal.App.4th 905)
Facts
Lincoln Property Company, N.C., Inc. (Lincoln) hired a contractor to paint some buildings. The painting contract required the contractor to carry general liability insurance and to name Lincoln as an additional insured on the policy.
The contractor obtained a comprehensive general liability policy from The Travelers Indemnity Company (Travelers). The policy included a “Blanket Additional Insured” endorsement that added as an insured “any person or organization . . . whom you have agreed in a written contract, executed prior to loss, to name as additional insured.”
While the work was underway, a painter employed by the contractor fell from the roof of a building. The worker sued Lincoln, and Lincoln tendered defense of the action to both the contractor and Travelers. However, Travelers did not respond to Lincoln’s tender. Therefore, Lincoln hired an attorney and paid for its own defense costs for several months. Later, another insurer began providing Lincoln with a defense.
In the personal injury case, Lincoln filed a cross-complaint for breach of contract against the painting contractor and Travelers. Eventually, Travelers agreed to participate in Lincoln’s defense under a reservation of rights.
While Lincoln’s cross-complaint for breach of contract was still pending against Travelers, Lincoln filed a separate bad faith suit in which Lincoln alleged that Travelers had acted unreasonably by not timely responding to Lincoln’s request for defense and indemnity.
Travelers settled the personal injury case and obtained a general release in favor of Lincoln. In addition, Travelers reimbursed Lincoln for the attorney fees and costs Lincoln had incurred after Lincoln’s tender. Thereafter, the trial court entered summary judgment on Lincoln’s cross-complaint for breach of contract, ruling that Travelers and the other insurer had satisfied any potential contractual obligations to defend and indemnify Lincoln.
Next, the trial court in Lincoln’s separate action for bad faith ruled that the suit was barred because Lincoln had “split” a cause of action.
Holding
The Court of Appeal agreed, holding that Lincoln’s cross-complaint against Travelers for breach of contract and Lincoln’s separate complaint against Travelers for bad faith both arose out of an alleged violation of the same “primary right.” The Court held that, Travelers’ alleged breach of contract and its alleged bad faith conduct both involved a violation of the same primary right and, therefore, both involved only one cause of action.
Comment
California courts adhere to the “primary right” theory, which provides that a “cause of action” is comprised of a primary right of the plaintiff, a corresponding primary duty of the defendant, and a wrongful act by the defendant constituting a breach of that duty. The most important characteristic of a primary right is that it is indivisible, i.e., the violation of a single primary right gives rise to only a single cause of action. A plaintiff seeking recovery for violation of a primary right may utilize multiple theories (e.g., breach of contract and breach of the implied covenant of good faith), but where all theories of recovery arise from the same primary right, the plaintiff cannot “split” the cause of action, and must assert all theories of recovery in one case.