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Third Eye Blind, Inc. v. Near North Entertainment Ins...., 127 Cal.App.4th 1311...

26 Cal.Rptr.3d 452, 05 Cal. Daily Op. Serv. 2739, 2005 Daily Journal D.A.R. 3686

KeyCite Yellow Flag - Negative Treatment West Headnotes (15)


Distinguished by Levin v. Ligon, Cal.App. 1 Dist., June 30, 2006  
127 Cal.App.4th 1311
[1] Appeal and Error
Court of Appeal, First District, Division 3, California.
Judgment on the pleadings
THIRD EYE BLIND, INC., et 30 Appeal and Error
al., Plaintiffs and Appellants, 30XVI Review
30XVI(F) Presumptions and Burdens on
v.
Review
NEAR NORTH ENTERTAINMENT 30XVI(F)2 Particular Matters and Rulings
INSURANCE SERVICES, LLC, et 30k3892 Pleading
al., Defendants and Respondents. 30k3897 Judgment on the pleadings
(Formerly 30k916(1))
No. A102803. The Court of Appeal must accept as true the
| allegations in the complaint, on an appeal
March 29, 2005. from a judgment entered on the pleadings.
|
Rehearing Denied April 19, 2005. Cases that cite this headnote
|
Review Denied July 13, 2005. * [2] Pleading
Insufficient Cause of Action or Defense
Synopsis
302 Pleading
Background: Insured members of musical band, who
302XVI Motions
had settled suit by fired band member after insurer
302k342 Judgment on Pleadings
denied coverage, brought action against their insurer 302k345 Insufficient Cause of Action or
for coverage and also brought negligence claims against Defense
their business manager and insurance broker for failing 302k345(1) In general
to advise about policy exemptions and failing to obtain A defendant is entitled to judgment on the
additional coverage. When insureds' motion for summary pleadings if the plaintiff's complaint does not
adjudication of coverage issue was granted, manager state a cause of action.
and broker moved for judgment on the pleadings as to
negligence claims. The Superior Court, San Francisco 2 Cases that cite this headnote
County, No. 405692, Ronald E. Quidachay, J., granted
motion, and insureds appealed. [3] Pleading
Well pleaded facts, admission of
Pleading
Holdings: The Court of Appeal, McGuiness, P.J., held Matters considered
that: 302 Pleading
302XVI Motions
[1] trial court's finding that insurer covered underlying 302k342 Judgment on Pleadings
lawsuit did not negate insureds' negligence claims, and 302k350 Application and Proceedings Thereon
302k350(3) Hearing, Determination, and Relief
[2] attorney fees insureds expended in pursuing coverage 302k350(5) Well pleaded facts, admission of
could be recovered as damages. 302 Pleading
302XVI Motions
302k342 Judgment on Pleadings
Reversed. 302k350 Application and Proceedings Thereon
302k350(3) Hearing, Determination, and Relief
302k350(8) Matters considered

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Third Eye Blind, Inc. v. Near North Entertainment Ins...., 127 Cal.App.4th 1311...
26 Cal.Rptr.3d 452, 05 Cal. Daily Op. Serv. 2739, 2005 Daily Journal D.A.R. 3686

In considering whether a defendant is entitled On review of a judgment on the pleadings,


to judgment on the pleadings, courts look only the appellate court accepts as true all material
to the face of the pleading under attack; all facts alleged in the complaint.
facts alleged in the complaint are admitted
for purposes of the motion, and the court 2 Cases that cite this headnote
determines whether those facts constitute a
cause of action. [7] Insurance
Negligence in general
2 Cases that cite this headnote
Insurance
Failure to procure coverage
[4] Pleading
Insurance
Matters considered
Negligence
302 Pleading
217 Insurance
302XVI Motions
217XI Agents and Agency
302k342 Judgment on Pleadings
217XI(D) Agents for Applicants or Insureds
302k350 Application and Proceedings Thereon
217k1668 Duties and Liabilities to Insureds or
302k350(3) Hearing, Determination, and Relief
Others
302k350(8) Matters considered
217k1670 Negligence in general
In considering whether a defendant is entitled
217 Insurance
to judgment on the pleadings, the court may 217XI Agents and Agency
consider matters subject to judicial notice. 217XI(D) Agents for Applicants or Insureds
217k1668 Duties and Liabilities to Insureds or
Cases that cite this headnote
Others
217k1671 Failure to procure coverage
[5] Appeal and Error 217 Insurance
Judgment on the pleadings 217XII Procurement of Insurance by Persons
Other Than Agents
30 Appeal and Error
217k1703 Negligence
30XVI Review
Trial court's finding that liability insurer
30XVI(D) Scope and Extent of Review
covered underlying lawsuit against insured
30XVI(D)4 Pleading
30k3289 Judgment on the pleadings
musical band members did not negate, for
(Formerly 30k893(1)) purposes of judgment on pleadings, insureds'
Review of a judgment on the pleadings negligence claims, which accompanied their
requires the appellate court to determine, de claim of coverage against insurer, against their
novo and as a matter of law, whether the business manager and insurance broker for
complaint states a cause of action. failing to advise about policy exemptions and
failing to obtain additional coverage; whether
4 Cases that cite this headnote manager and broker failed to give competent
advice on insurance matters was independent
question that did not depend on whether
[6] Appeal and Error
insurer was justified in denying coverage, as
Judgment on the pleadings
insureds alleged negligence of manager and
30 Appeal and Error
broker was proximate cause of costly coverage
30XVI Review
dispute with insurer.
30XVI(F) Presumptions and Burdens on
Review
See 2 Witkin, Summary of Cal. Law (9th
30XVI(F)2 Particular Matters and Rulings
ed. 1987) Agency and Employment, § 288;
30k3892 Pleading
Croskey et al., Cal. Practice Guide: Insurance
30k3897 Judgment on the pleadings
Litigation (The Rutter Group 2004) ¶ 2:61
(Formerly 30k916(1))

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Third Eye Blind, Inc. v. Near North Entertainment Ins...., 127 Cal.App.4th 1311...
26 Cal.Rptr.3d 452, 05 Cal. Daily Op. Serv. 2739, 2005 Daily Journal D.A.R. 3686

et seq. (CAINSL Ch. 6-A); Cal. Jur. 3d, Disjunctive and alternative allegations
Insurance Companies, § 189 et seq. Pleading
Consistency or repugnancy
4 Cases that cite this headnote
302 Pleading
302I Form and Allegations in General
[8] Negligence 302k20 Disjunctive and alternative allegations
Possibility of multiple causes 302 Pleading
Torts 302I Form and Allegations in General
302k21 Consistency or repugnancy
Proximate cause
A party may plead in the alternative and may
272 Negligence
make inconsistent allegations.
272XIII Proximate Cause
272k420 Concurrent Causes 2 Cases that cite this headnote
272k422 Possibility of multiple causes
379 Torts
379I In General [11] Insurance
379k119 Proximate cause In general; standard
(Formerly 379k15)
Insurance
It is not essential to a recovery of damages Termination of duty; withdrawal
that a defendant's wrongful act be the sole
217 Insurance
and only cause of the injury; it is sufficient if
217XXIII Duty to Defend
it be a proximate cause which in the natural
217k2912 Determination of Duty
course of events produced, either by itself or 217k2913 In general; standard
in conjunction with other causes, the damage. 217 Insurance
217XXIII Duty to Defend
4 Cases that cite this headnote
217k2930 Termination of duty; withdrawal
While an insured may obtain an early
[9] Insurance summary adjudication of the insurer's defense
Particular matters concluded obligation, the insurer is entitled to seek a
217 Insurance contrary ruling at any time it acquires the
217XXXI Civil Practice and Procedure requisite evidence to conclusively eliminate
217k3555 Conclusiveness and Effect of Prior any potential for coverage.
Adjudication
217k3557 Particular matters concluded 2 Cases that cite this headnote
Summary adjudication that liability insurer
had duty to defend underlying lawsuit against [12] Compromise and Settlement
insureds did not have collateral estoppel effect Conclusiveness
so as to preclude insureds' accompanying
89 Compromise and Settlement
claims against their business manager and 89I In General
broker for negligent failure to provide 89k14 Operation and Effect
competent advice on insurance, even if claims 89k17 Conclusiveness
against manager and broker depended on 89k17(1) In general
finding there was no coverage; order granting A settlement which avoids trial generally does
summary adjudication was not necessarily a not constitute actually litigating any issues
final ruling, and insureds and insurer settled and thus prevents application of collateral
their case before trial. estoppel.

6 Cases that cite this headnote Cases that cite this headnote

[10] Pleading [13] Insurance

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Third Eye Blind, Inc. v. Near North Entertainment Ins...., 127 Cal.App.4th 1311...
26 Cal.Rptr.3d 452, 05 Cal. Daily Op. Serv. 2739, 2005 Daily Journal D.A.R. 3686

Costs and Attorney Fees


217 Insurance
217XXXI Civil Practice and Procedure
Attorneys and Law Firms
217k3584 Costs and Attorney Fees
217k3585 In general **454 Farella, Braun & Martel LLP, Dennis M. Cusack,
Attorney fees insureds expended in litigation Sandra A. Kearney, Heather A. Steiner, San Francisco,
to pursue insurance coverage for underlying for Plaintiffs and Appellants.
lawsuit could be recovered as damages
in insureds' action against their business Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP, Linda
manager and broker for alleged negligence E. Klamm, Walter Schneider, Yvette C. Green, San
in advising insureds on appropriate insurance Francisco, for Defendant and Respondent Near North
policies that would have avoided coverage Entertainment Insurance Services, LLC.
litigation.
Andrews & Kurth L.L.P., Ralph W. Tarr, Los Angeles,
5 Cases that cite this headnote for Defendant and Respondent Provident Financial
Management.

[14] Damages Opinion


Litigation between person injured and
wrongdoer McGUINESS, P.J.
115 Damages
*1314 When an insured sues its insurer for coverage and
115III Grounds and Subjects of Compensatory
Damages also brings negligence claims against its business manager
115III(D) Expenses of Litigation and insurance broker for failing to advise about a policy
115k70 Attorney Fees, Costs, and Expenses of exemption and failing to obtain additional coverage, are
Litigation the negligence claims barred as a matter of law if the
115k72 Litigation between person injured and court rules in the insured's favor on the coverage claim? In
wrongdoer this case, after the trial court concluded on a motion for
Attorney fees incurred through instituting or summary adjudication that an insurer breached its duty to
defending an action as a direct result of the defend appellants, respondents filed motions for judgment
tort of another are recoverable damages. on the pleadings arguing this ruling negated appellants'
negligence claims against them as a matter of law. The
7 Cases that cite this headnote trial court agreed and granted the motions without leave
to amend, and appellants dispute this ruling on appeal.
[15] Costs **455 We conclude the judgment must be reversed
American rule; necessity of contractual because the prior order did not negate an element of
or statutory authorization or grounds in the causes of action alleged against respondents. We also
equity conclude attorneys fees appellants incurred in pursuing
102 Costs coverage are a recoverable item of damages in their claims
102VIII Attorney Fees against respondents.
102k194.16 American rule; necessity of
contractual or statutory authorization or
grounds in equity
*1315 BACKGROUND
Attorneys fees incurred through instituting or
defending an action as a direct result of the [1] Appellants are members and associated corporate
tort are distinguished from “attorney's fees entities of the musical performance group Third Eye
qua attorney's fees,” such as those the plaintiff
Blind. 1 During the relevant time period, appellants'
incurs in suing the tortfeasor defendant.
business manager, respondent Provident Financial
10 Cases that cite this headnote Management (Provident), was responsible for, among
other things, assessing the band's insurance needs,

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Third Eye Blind, Inc. v. Near North Entertainment Ins...., 127 Cal.App.4th 1311...
26 Cal.Rptr.3d 452, 05 Cal. Daily Op. Serv. 2739, 2005 Daily Journal D.A.R. 3686

facilitating insurance planning and obtaining appropriate Shortly after it was filed, appellants tendered the Cadogan
insurance policies. Appellants also retained an insurance complaint to NAS for defense and indemnity. NAS denied
broker, respondent Near North Entertainment Insurance the claim a month later, asserting the FELE in appellants'
Services, LLC (Near North), a company they selected policy excluded coverage for the Cadogan complaint's
based on its claimed expertise in the field of entertainment Lanham Act claims and claims alleging a violation of
insurance and risk management. Cadogan's right of publicity. Although appellants **456
sought reconsideration based on case law holding the
Respondents obtained a commercial general liability FELE's language ambiguous, NAS continued to refuse
(CGL) insurance policy for appellants from North coverage. Appellants therefore proceeded to defend the
American Specialty Insurance Company (NAS) covering Cadogan suit on their own and ultimately settled the case.
the period of January 31, 1999 to January 31, Appellants estimate the amount of settlement proceeds
2000. Provident paid premiums on the policy and paid, combined with attorney fees and costs they incurred,
was responsible for obtaining renewals. Despite their exceeds $3 million.
responsibilities and expertise, however, neither Provident
nor Near North advised appellants that the NAS policy On March 15, 2002, appellants filed the instant action
excluded coverage for some liability under a Field of against NAS and respondents Provident and Near North.
Entertainment Limitation Endorsement (FELE). The The complaint alleged NAS had breached its policy
FELE in appellants' policy excludes coverage for personal obligations by unreasonably refusing to defend and
injury or advertising injury arising out of the “Field indemnify appellants in the Cadogan case. In addition to
of Entertainment Business.” Specifically, coverage is breach of contract and declaratory relief claims against
excluded for claims of: (1) invasion, infringement or NAS, the complaint alleged causes of action against
interference of the right to privacy or publicity; (2) respondents for negligence, breach of implied contract and
copyright or trademark infringement; (3) defamation, declaratory relief. Appellants alleged that, despite their
except for claims arising out of a public appearance claimed expertise in the field of entertainment industry
unrelated to the band's professional entertainment work; insurance and despite the duties they owed appellants,
(4) plagiarism, piracy or unfair competition regarding respondents failed to advise or notify them that the NAS
unauthorized use of others' ideas or works; and (5) policy contained an FELE, such that an additional errors
breach of contract regarding the band's professional and omissions insurance policy would be necessary to
entertainment work. guarantee full coverage. Appellants further alleged they
would have obtained an errors and omissions policy if
In January 2000, Third Eye Blind fired one of its they had been so advised. The complaint sought general
band members, Kevin Cadogan. Cadogan immediately damages from respondents, including “all covered defense
threatened to sue the band, claiming any further costs” appellants had incurred.
performances it gave under the name Third Eye Blind
would violate Cadogan's rights under the Lanham Act. (15 In the summer of 2002, appellants and NAS filed
U.S.C. § 1125(a).) Cadogan ultimately filed suit against cross-motions for summary judgment and summary
appellants, and others, in June 2000. In addition to adjudication regarding NAS's duty to defend the Cadogan
several other claims against individual band members, suit. After two hearings, the court (Hon. A. James
the complaint in Cadogan v. Third Eye Blind, et al. Robertson, II) concluded Cadogan's claims against
alleged appellants had misappropriated Cadogan's right appellants were potentially covered under the CGL policy
of publicity by making unauthorized use of his name, and NAS therefore had a duty to defend appellants in
likeness and goodwill and had violated the Lanham the Cadogan lawsuit. In granting appellants' motion for
Act by creating public confusion regarding Cadogan's summary adjudication against NAS, the court also ruled
affiliation with the band and his role in *1316 creating the FELE was ambiguous as applied to the allegations
or sponsoring the band's music. Cadogan also claimed and claims set forth in the Cadogan complaint. This court
appellants' continued use of the name Third Eye Blind summarily denied NAS's petition for writ of mandate
constituted trademark infringement under the Lanham on November 7, 2002, and the trial court denied a
Act. motion for reconsideration of the order on December
20, 2002. During this time, counsel for NAS advised

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Third Eye Blind, Inc. v. Near North Entertainment Ins...., 127 Cal.App.4th 1311...
26 Cal.Rptr.3d 452, 05 Cal. Daily Op. Serv. 2739, 2005 Daily Journal D.A.R. 3686

appellants' attorney that NAS believed the trial court's 86 Cal.Rptr.2d 592.) On appeal, “Review of a judgment
rulings were erroneous and NAS planned to appeal any on the pleadings requires the appellate court to determine,
final judgment. Appellants and NAS participated in two de novo and as a matter of law, whether the complaint
mediation sessions in January 2003 and ultimately reached states a cause of action. [Citation.] For purposes of this
a settlement. review, we accept as true all material facts alleged in
the complaint. [Citation.]” (Ott v. Alfa–Laval Agri, Inc.,
*1317 On February 28, 2003, Provident filed a motion supra, 31 Cal.App.4th at p. 1448, 37 Cal.Rptr.2d 790.)
for judgment on the pleadings, arguing the complaint
did not state a cause of action against it in light of
the court's recent summary judgment and summary *1318 I. Complaint Alleged Claims Against Respondents
adjudication orders. Characterizing these orders as a Independent of Coverage
judicial determination that NAS owed appellants a duty [7] Appellants argue the trial court erred in granting
to defend the Cadogan lawsuit, Provident asserted it judgment on the pleadings because they alleged
could not be held liable on the complaint's claims for independent causes of action against respondents and
breach of implied contract, negligence and declaratory the court's prior ruling regarding NAS's duty to
relief because “these claims were alleged as alternative defend did not resolve or negate any element of these
causes of action, and predicated on a finding that the NAS claims. Respondents, of course, disagree. They contend
policy did not cover [appellants'] underlying claim.” A appellants' claims against them are “precluded” by the
week later, Near North filed a motion for judgment on NAS ruling because these claims were “predicated” on
the pleadings reciting the same arguments. Both motions a finding that the CGL policy did not provide coverage
requested judicial notice of the court's orders granting for the Cadogan lawsuit. We conclude there are several
appellants' motion for summary adjudication and denying problems with this argument and the judgment in favor of
NAS's motion for summary judgment. After a hearing, respondents must be reversed.
the trial court (Hon. Ronald Evans Quidachay) granted
the requests for judicial notice and granted the motions First, respondents distort the nature of the claims
for judgment on the pleadings without leave to amend. against them when they rely on language taken out
The order explained appellants' causes of action against of context from the complaint to argue these claims
Provident and Near North no longer stated claims for were predicated on an absence of coverage under the
relief because they were “predicated” on a claim that the CGL policy. In support of their argument, respondents
NAS policy was insufficient to provide coverage **457 quote the following paragraph from the introductory
in the Cadogan lawsuit, yet the court had found in prior section of the complaint (emphasizing the opening clause):
“Alternatively, if this Court determines that NAS has
orders that the policy was sufficient. Accordingly, the trial
court also denied appellants' claim for attorney fees. This no obligation to provide defense or indemnity for the
Cadogan suit, Plaintiffs seek compensatory damages
appeal followed from the judgment. 2
against Provident and/or Near North Entertainment
arising out of their failure to obtain adequate and
reasonable insurance coverage, and in particular, an
DISCUSSION errors and omissions policy.” However, read in context,
the complaint alleges claims against respondents that are
[2] [3] [4] [5] [6] In the trial court, “ ‘A defendant not premised on any conclusions as to the sufficiency of
is entitled to judgment on the pleadings if the plaintiff's the CGL policy. Indeed, although respondents summarize
complaint does not state a cause of action. In considering its allegations this way, the complaint does not simply
whether a defendant is entitled to judgment on the assert that respondents were negligent because they
pleadings, we look only to the face of the pleading under procured an insufficient policy. Rather, it alleges that,
attack .... All facts alleged in the complaint are admitted despite their superior insurance knowledge and expertise,
for purposes of the motion, and the court determines respondents failed to notify appellants that the policy
whether those facts constitute a cause of action. The contained an FELE—under which coverage for certain
court also may consider matters subject to judicial notice. events might be excluded—and failed to advise them
[Citations.]’ [Citations.]” (Howard Jarvis Taxpayers Assn. that an errors and omissions policy would be necessary
v. City of Riverside (1999) 73 Cal.App.4th 679, 684–685, to cover this potential shortfall. **458 These claims

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Third Eye Blind, Inc. v. Near North Entertainment Ins...., 127 Cal.App.4th 1311...
26 Cal.Rptr.3d 452, 05 Cal. Daily Op. Serv. 2739, 2005 Daily Journal D.A.R. 3686

do not depend on an assumption that the CGL policy Cal.App.3d 374, 377, 90 Cal.Rptr. 822; see also 6 Witkin,
was deficient. The point is that respondents failed to Summary of Cal. Law (9th ed. 1988) Torts, §§ 970, 974,
alert appellants that the FELE would give NAS a viable pp. 360–361, 365.)
basis for refusing coverage under some circumstances
and, consequently, failed to recommend that appellants Division Two of this court recently rejected a similar
purchase errors and omissions insurance to ensure causation argument. In Lombardo v. Huysentruyt (2001)
complete, uncontestable coverage. 91 Cal.App.4th 656, 660, 110 Cal.Rptr.2d 691, an
attorney drafted an amendment to name the appellants
Based on their oversimplified articulation of the claims beneficiaries of a trust. After a probate court found this
against them, respondents proceed to argue that the amendment ineffective, the appellants settled with the
NAS ruling conclusively established *1319 they fulfilled probate estate and then sued the attorney for malpractice.
any duty of care they owed to appellants. 3 In similar (Id. at p. 661–662, 110 Cal.Rptr.2d 691.) However, the
fashion, they contend the prior ruling established NAS trial court concluded no reasonable judge would have
was fully responsible for appellants' losses. Because **459 found the trust amendment ineffective, and thus
respondents did not do something to cause NAS to deny *1320 the probate court's order was a superseding
coverage, they argue their conduct cannot be considered cause of the appellants' alleged damages. (Id. at p. 662–
a proximate cause of any injury to appellants. But 663, 110 Cal.Rptr.2d 691.) On appeal from an entry of
again, these arguments merely knock down straw men nonsuit, the appellate court rejected this reasoning based
while ignoring the actual legal theories alleged in the on hornbook law that “ ‘[a]n independent intervening
complaint. Appellants alleged respondents breached their act is a superseding cause relieving the actor of liability
duty to notify appellants of the existence of the FELE for his negligence only if the intervening act is highly
and to advise them of the need to obtain errors and unusual or extraordinary and hence not reasonably
omissions insurance to protect them from a potential gap foreseeable. [Citation.] ....’ [Citation.]” (Id. at p. 666, 110
in coverage. Whether respondents failed to give competent Cal.Rptr.2d 691.) Because the appellants offered evidence
advice to appellants is an independent question and does to show that a reasonable attorney would have taken steps
not depend on whether NAS was justified in denying before execution of the trust amendment to avoid the
rejection appellants ultimately suffered in probate court,
coverage under the CGL policy. 4
the probate court's order—even if erroneous—was, for
nonsuit purposes, a foreseeable result of the attorney's
[8] Likewise, while it is true the complaint does not
negligence. (Id. at pp. 666–669, 110 Cal.Rptr.2d 691.)
allege respondents actively caused NAS to deny coverage,
Likewise, here, appellants have alleged that, as a result
respondents fail to recognize that this is not the only
of respondents' negligent failure to advise them about the
way in which their breach of duty could cause appellants'
FELE and the need for errors and omissions insurance,
losses. Appellants allege that if respondents had advised
they suffered the foreseeable harm of having to defend a
them about the FELE they would have obtained an
lawsuit without adequate insurance coverage. Although
errors and omissions policy to cover any potentially
NAS may have been wrong to deny coverage of the
excluded claims, such as Cadogan's. Because they did
Cadogan suit, the complaint alleges this was a foreseeable
not have such a policy to provide clear coverage of the
harm that could have been avoided if respondents had
Cadogan suit, appellants were forced to assume their
competently advised appellants.
own defense, incurring attorney fees, costs and indemnity.
The complaint also alleges NAS is responsible for these
Similar allegations of proximate cause have been found
losses, but the two theories are not mutually exclusive,
sufficient to withstand a challenge to the pleadings. In
as respondents argue. Rather, the law recognizes that
Kurtz, Richards, Wilson & Co. v. Insurance Communicators
there may be multiple causes of a plaintiff's injury. “
Marketing Corp. (1993) 12 Cal.App.4th 1249, 1254–1255,
‘It is not essential to a recovery of damages that a
16 Cal.Rptr.2d 259 (Kurtz ), the plaintiff (KRW) hired
defendant's wrongful act be the sole and only cause of
an insurance broker to obtain group insurance for its
the injury; it is sufficient if it be a proximate cause
employees. When KRW later made large claims on its
which in the natural course of events produced, either by
policy due to the serious illness of an employee, the
itself or in conjunction with other causes, the damage.
insurer denied coverage, citing an inaccurate certificate
[Citations.]’ [Citations.]” (McDonald v. Plumb (1970) 12

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Third Eye Blind, Inc. v. Near North Entertainment Ins...., 127 Cal.App.4th 1311...
26 Cal.Rptr.3d 452, 05 Cal. Daily Op. Serv. 2739, 2005 Daily Journal D.A.R. 3686

KRW had submitted through its broker. (Id. at p. the statute of limitations on claims against Brobeck. In
1255, 16 Cal.Rptr.2d 259.) The insurer sued KRW to an analogous argument to the one respondents raise here,
rescind the policy, and KRW filed a cross-complaint Jordache asserted its malpractice claims against Brobeck
against the insurer, for breach of contract and other did not ripen until resolution of the coverage action.
claims, and against the insurance broker and its president (Id. at p. 746–747, 76 Cal.Rptr.2d 749, 958 P.2d 1062.)
for negligence and fraud. (Id. at pp. 1255–1256, 16 Jordache argued, and the Court of Appeal agreed, that
Cal.Rptr.2d 259.) Much like the procedural history in the causal connection between Brobeck's negligent advice
the case before us, the broker defendants successfully and Jordache's damages was not established until the
demurred to the cross-complaint after the trial court trial court issued findings regarding coverage and the late
granted KRW's motion for summary judgment against the notice defense and Jordache settled with the insurer. (Id. at
insurer. (Id. at p. 1256, 16 Cal.Rptr.2d 259.) On appeal, p. 747, 76 Cal.Rptr.2d 749, 958 P.2d 1062.) The Supreme
the broker defendants maintained it was not reasonably Court disagreed, however, based on the nature of the
foreseeable that any false information they may have claims Jordache asserted and the alleged damages. (Id. at
given the insurer would cause the insurer to cancel the p. 743–744, 76 Cal.Rptr.2d 749, 958 P.2d 1062.)
policy and bring suit against KRW. (Id. at p. 1258, 16
Cal.Rptr.2d 259.) As support, they cited KRW's own Similar to the claims appellants assert against respondents
allegations in the cross-complaint that the insurer “used here, Jordache claimed its attorneys' neglect allowed the
the inaccurate information in the application to ‘create insurer to raise an objectively viable defense to coverage.
a pretense’ for cancelling the policy.” (Ibid.) However, (Jordache, supra, 18 Cal.4th at p. 743, 76 Cal.Rptr.2d
the appellate court concluded the demurrer should have 749, 958 P.2d 1062.) The insurer's assertion of this
been overruled because the complaint alleged it was defense caused Jordache to incur costs to litigate its
“entirely foreseeable” the insurer would seek to rescind coverage claims and also reduced those claims' settlement
the policy on this basis, even if the attempted rescission value. In addition, as a result of the attorneys' alleged
was not ultimately successful. (Id. at pp. 1258–1259, 16 neglect, Jordache incurred costs in providing its own
Cal.Rptr.2d 259.) In an observation that seems equally apt defense in the third party action for several years. (Id.
in the present case, *1321 the Kurtz court noted: “KRW's at pp. 743–744, 76 Cal.Rptr.2d 749, 958 P.2d 1062.)
challenge to the legality of its insurer's actions does not Likewise here, appellants claim respondents' negligence
insulate respondents from liability.” (Id. at p. 1259, 16 caused them to incur costs in defending a third party
Cal.Rptr.2d 259.) action and in litigating coverage with NAS. Although the
trial court here believed a summary judgment ruling on
Although the precise question under review was different, coverage conclusively negated appellants' claims against
much of the Supreme Court's analysis in Jordache respondents, the Supreme Court concluded the same
Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) detrimental effects Jordache had alleged regarding its
18 Cal.4th 739, 76 Cal.Rptr.2d 749, 958 P.2d 1062 attorneys' negligence “were not contingent on the outcome
(Jordache ) also supports our conclusion. In Jordache, the of the coverage action.” (Id. at p. 744, 76 Cal.Rptr.2d
Brobeck firm defended a client in a lawsuit but did not 749, 958 P.2d 1062, italics added.) The court reasoned:
**460 investigate whether there was potential insurance “Ultimately ... Jordache's insurance coverage litigation
coverage for the suit. (Id. at pp. 744–745, 76 Cal.Rptr.2d could not determine the existence or effect of Brobeck's
749, 958 P.2d 1062.) As a result of the attorneys' alleged alleged negligence. As Brobeck notes, the alleged failure
negligence, Jordache provided its own defense for several to advise Jordache on insurance matters was not at issue
years. (Ibid.) In addition, because Jordache delayed in the coverage lawsuits. Thus, the resolution of that
tendering its defense to the insurer, the insurer could *1322 litigation would not determine whether Brobeck
—and ultimately did—raise a “late notice” defense to breached its duty to Jordache. For the same reason, the
coverage. (Id. at pp. 745–746, 76 Cal.Rptr.2d 749, 958 coverage litigation could not determine the consequences
P.2d 1062.) After Jordache settled a coverage lawsuit resulting from Brobeck's alleged breach of duty. The
against the insurer, it sued Brobeck for legal malpractice. coverage litigation's resolution was relevant to Brobeck's
(Id. at p. 746, 76 Cal.Rptr.2d 749, 958 P.2d 1062.) The alleged negligence only insofar as it potentially affected
issue before the Supreme Court in Jordache was when the the amount of damages Jordache might recover from
client suffered “actual injury” for purposes of triggering

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Third Eye Blind, Inc. v. Near North Entertainment Ins...., 127 Cal.App.4th 1311...
26 Cal.Rptr.3d 452, 05 Cal. Daily Op. Serv. 2739, 2005 Daily Journal D.A.R. 3686

Brobeck.” (Id. at p. 753, 76 Cal.Rptr.2d 749, 958 P.2d of plaintiffs' damages, not to the fact of their injury.” (Id.
1062.) at p. 1460, 63 Cal.Rptr.2d 594.)

The same is true here. Nevertheless, respondents argue *1323 Respondents seek to distinguish Jordache by
the finding that NAS had a duty to defend appellants suggesting the attorneys' negligence actually caused
in the Cadogan suit conclusively negates any liability Jordache's coverage litigation, in that the court found
they might have had for procuring the NAS policy with Brobeck's neglect gave the insurer an objectively viable
an FELE attached. While that may be so regarding defense. (See Jordache, supra, 18 Cal.4th at p. 743, 76
this particular theory of liability, the finding did not Cal.Rptr.2d 749, 958 P.2d 1062.) Respondents note the
preclude respondents' potential liability **461 for failing complaint does not allege that anything they did, or failed
to help appellants secure more direct, and certain, to do, decreased appellants' rights under the NAS policy.
coverage through an errors and omissions policy. Indeed, However, once again respondents oversimplify appellants'
the Supreme Court rejected a similar argument—i.e., claims. Just as in Jordache, appellants here allege the
that a favorable finding on the “late notice” issue in respondents' negligence caused them to have to spend
Jordache's coverage litigation would mean any negligence large sums in suing their insurer for coverage. Had they
by Brobeck caused no injury—by observing Brobeck been properly advised about the FELE in the NAS policy,
could still be liable for failing to obtain a more timely and appellants allege they would have obtained errors and
certain insurer-funded defense for the client. (Jordache, omissions insurance. There is no dispute an errors and
supra, 18 Cal.4th at p. 753, 76 Cal.Rptr.2d 749, 958 P.2d omissions policy would have provided clear coverage for
1062.) Thus, “Although the outcome of the coverage the Cadogan suit, thus appellants would have had no need
litigation may have reduced Jordache's damages, that to sue NAS and no need to defend themselves in Cadogan.
action could neither necessarily exonerate Brobeck, nor Since the very purpose of respondents' hiring was to
extinguish Jordache's action against Brobeck for failure ensure appellants had adequate insurance coverage, such
to render timely advice on insurance issues. (Laird [v. coverage litigation was a foreseeable result of their alleged
Blacker (1992) ] 2 Cal.4th [606,] 614, 7 Cal.Rptr.2d 550, negligence in fulfilling this purpose. (See Sindell, supra, 54
828 P.2d 691.)” (Jordache, supra, 18 Cal.4th at p. 753, 76 Cal.App.4th at pp. 1469–1470, 63 Cal.Rptr.2d 594.)
Cal.Rptr.2d 749, 958 P.2d 1062.)
In short, the complaint properly alleges multiple causes
Another analogous case that supports appellants' position of appellants' losses. (See Lombardo v. Huysentruyt, supra,
is Sindell v. Gibson, Dunn & Crutcher (1997) 54 91 Cal.App.4th at pp. 666–669, 110 Cal.Rptr.2d 691.)
Cal.App.4th 1457, 63 Cal.Rptr.2d 594 (Sindell ). The Although the trial court, in ruling on a motion for
plaintiffs in Sindell, intended beneficiaries of their father's summary adjudication, concluded NAS had breached its
estate, filed a malpractice suit alleging the law firm duty because there was a potential for coverage under
that prepared the estate documents negligently failed to **462 appellants' CGL policy, this ruling could not
obtain consent to the distribution from their father's absolve respondents of liability for their own alleged
second wife. (Id. at p. 1460, 63 Cal.Rptr.2d 594.) As negligence in failing to advise appellants about the need
a result, the plaintiffs were embroiled in litigation with for errors and omissions insurance. (See Kurtz, supra,
the second wife concerning distribution of the estate's 12 Cal.App.4th at p. 1259, 16 Cal.Rptr.2d 259.) The
assets. (Ibid.) Writing for Division Three of the Second summary adjudication ruling, and appellants' eventual
District Court of Appeal, Justice Croskey rejected the settlement with NAS, are relevant to the claims against
law firm's argument that the complaint was premature respondents only insofar as they affect the measure of
because the probate litigation had not yet determined damages appellants may recover and whether appellants
whether plaintiffs had suffered any injury. (Id. at pp. properly mitigated their damages. (See Jordache, supra,
1460, 1464–1465, 63 Cal.Rptr.2d 594.) Instead, the court 18 Cal.4th at pp. 744, 753, 76 Cal.Rptr.2d 749, 958
concluded the plaintiffs had already sustained injury “by P.2d 1062; Sindell, supra, 54 Cal.App.4th at p. 1460,
virtue of having to litigate issues which, but for defendants' 63 Cal.Rptr.2d 594.) Because the prior ruling did not
negligence, would have been resolved,” and the outcome negate causation, or any other element of appellants'
of the probate litigation was “relevant only to the amount claims against respondents, the trial court erred in entering
judgment on the pleadings.

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Third Eye Blind, Inc. v. Near North Entertainment Ins...., 127 Cal.App.4th 1311...
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Landeros v. Pankey (1995) 39 Cal.App.4th 1167, 1172,


[9] [10] [11] [12] Finally, even assuming the causes of46 Cal.Rptr.2d 165 [noting “a consent judgment is not
action against respondents could be viewed as alternative usually given preclusive effect in subsequent litigation on
pleadings to primary claims alleged against NAS, such a different cause of action, unless the parties manifest an
that their viability was dependent upon the outcome of intent in the consent judgment to give it such preclusive
the claims against NAS, there are additional reasons why effect”].)
the judgment on the pleadings was not well taken. It is
well established that “a party may plead in the alternative
and may make inconsistent allegations.” (Adams v. Paul II. Attorneys Fees in Pursuing Coverage May Be
(1995) 11 Cal.4th 583, 593, 46 Cal.Rptr.2d 594, 904 P.2d Recovered as Damages
1205; see also Crowley v. Katleman (1994) 8 Cal.4th 666, [13] In granting respondents' motion for judgment on the
690–691, 34 Cal.Rptr.2d 386, 881 P.2d 1083.) However, pleadings, the trial court also denied appellants' claim for
the trial court dismissed appellants' “alternative” claims attorneys fees in pursuing coverage from NAS. This ruling
based on nothing more than its prior order finding NAS was erroneous because appellants are entitled to seek such
had a duty to defend. In this respect, the judgment on fees as an item of damages caused by respondents' alleged
the pleadings was tantamount to a ruling that *1324 negligence.
appellants were collaterally estopped from arguing they
did not enjoy full coverage under the NAS policy for [14] [15] “Under California law, it is a well-established
the Cadogan suit. Although respondents carefully avoid principle that attorney fees incurred through instituting
mentioning the doctrine, their assertions that appellants' or defending an action as a direct result of the tort
claims against them are “precluded” or “barred” by of another are recoverable damages. (Prentice v. North
the NAS order raise concerns typically addressed in the Amer. Title *1325 Guar. Corp. [ (1963) ] 59 Cal.2d
context of res judicata or collateral estoppel. But, just as [618,] 620–621 [30 Cal.Rptr. 821, 381 P.2d 645].)” (Sindell,
the trial court's NAS ruling was not binding on all parties supra, 54 Cal.App.4th at p. 1470, 63 Cal.Rptr.2d 594.)
under the law of the case doctrine—a point Near North Attorneys fees in this context are to be distinguished from
“attorney's fees qua attorney's fees,” such as those the
concedes on appeal 5 —it also could not have a preclusive
plaintiff incurs in suing the tortfeasor defendant. (Brandt
effect on claims appellants alleged against respondents
v. Superior Court (1985) 37 Cal.3d 813, 817, 210 Cal.Rptr.
for their independent breaches of duty. First, the order
211, 693 P.2d 796.) Rather, when a defendant's tortious
granting summary adjudication was not necessarily a final
conduct requires the plaintiff to sue a third party, or
ruling. “While an insured may obtain an early summary
defend a suit brought by a third party, attorney fees the
adjudication of a defense obligation, the insurer is entitled
plaintiff incurs in this third party action “are recoverable
to seek a contrary ruling at any time it acquires the
as damages resulting from a tort in the same way that
requisite evidence to conclusively eliminate any potential
medical fees would be part of the damages in a personal
for coverage.” (Haskel, Inc. v. Superior Court (1995)
injury action.” (Sooy v. Peter (1990) 220 Cal.App.3d
33 Cal.App.4th 963, 977–978, 39 Cal.Rptr.2d 520; see
1305, 1310, 270 Cal.Rptr. 151; see also Brandt v. Superior
also id. at p. 977, 39 Cal.Rptr.2d 520 [referring to “the
Court, supra, 37 Cal.3d at p. 817, 210 Cal.Rptr. 211,
ephemeral nature of an interlocutory adjudication of
693 P.2d 796.) The “tort of another” doctrine has been
the duty to defend in favor of the insured”]; cf. C3
applied to permit recovery of attorneys fees resulting
Entertainment, Inc. v. Arthur J. Gallagher & Co. (2005)
from an insurer's tortious conduct (Brandt v. Superior
125 Cal.App.4th 1022, 1025–1026, 23 Cal.Rptr.3d 258
Court, supra, 37 Cal.3d at pp. 817–819, 210 Cal.Rptr. 211,
[because summary adjudication order finding insurer had
693 P.2d 796), and we see no reason why it should not
a duty to defend was not final, judgment entered in favor
also apply to fees incurred as a result of an insurance
of broker based on this order was premature].) Second,
broker's alleged negligence. (See, e.g., Prentice v. North
the ruling may not have been entitled to collateral estoppel
Amer. Title Guar. Corp., supra, 59 Cal.2d at pp. 620–
effect because the parties settled before trial. “A settlement
621, 30 Cal.Rptr. 821, 381 P.2d 645 [attorneys fees
which avoids trial generally does not constitute actually
in quiet title action recoverable from negligent escrow
litigating any **463 issues and thus prevents application
holder]; Sindell, supra, 54 Cal.App.4th at pp. 1470–1471,
of collateral estoppel. [Citations.]” (Rice v. Crow (2000)
63 Cal.Rptr.2d 594 [attorneys fees recoverable in legal
81 Cal.App.4th 725, 736, 97 Cal.Rptr.2d 110; see also
malpractice context]; but see Lubner v. City of Los Angeles

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(1996) 45 Cal.App.4th 525, 534–535, 53 Cal.Rptr.2d their recovery. The Supreme Court long ago observed: “In
the usual case, the attorney's fees will have been incurred in
24 [attorneys fees not recoverable where defendant's
connection with a prior action; but there is no reason why
conduct was not a tortious act]; Sooy v. Peter, supra,
recovery of such fees should be denied simply because the
220 Cal.App.3d at pp. 1313–1314, 270 Cal.Rptr. 151
two causes (the one against the third person and the one
[attorneys fees not recoverable where defendant attorney
against the party whose breach of duty made it necessary
owed no duty of care to plaintiff].)
for the plaintiff to sue the third person) are tried in the
same court at the same time. [Citation.]” (Prentice v. North
As a result of respondents' allegedly negligent failure to
Amer. Title Guar. Corp., supra, 59 Cal.2d at p. 621, 30
advise appellants about the FELE and the need for errors
Cal.Rptr. 821, 381 P.2d 645.) More recently, the high
and omissions insurance, appellants were required to sue
court stated: “The fact that ... the fees claimed as damages
NAS for coverage. Appellants allege that if they had
are incurred in the very lawsuit in which their recovery is
been competently advised they would have obtained an
sought, does not in itself violate [Code of Civil Procedure]
errors and omissions policy, which would have provided
section 1021's general requirement that parties bear their
more definite coverage for the Cadogan action. Because
own costs of legal representation, though it may make
they had no errors and omissions policy to rely on,
the identification of allowable fees more sophisticated.”
appellants were required to litigate coverage with NAS as
(Brandt v. Superior Court, supra, 37 Cal.3d at p. 818, 210
a direct result of respondents' alleged negligence; thus, the
Cal.Rptr. 211, 693 P.2d 796.) Allowable attorneys fees and
attorneys fees and costs incurred in the coverage litigation
costs here must be limited to only those attributable to
may be recovered as damages if appellants prevail in their
appellants' pursuit of coverage against NAS, and may not
claims against respondents. (See Sindell, **464 supra, 54
include amounts expended litigating their claims against
Cal.App.4th at p. 1471, 63 Cal.Rptr.2d 594.)
respondents. With appropriate instructions, we presume
the trier of fact is capable of making such an allocation.
For reasons already discussed, the fact that NAS's denial
of coverage also caused appellants to incur fees and costs
in the coverage litigation does not absolve respondents
of their own responsibility for damages proximately DISPOSITION
caused by their negligence. (See, e.g., Lombardo v.
Huysentruyt, supra, 91 Cal.App.4th at pp. 666–669, 110 The judgment is reversed. Respondents shall bear costs of
Cal.Rptr.2d 691.) The trier of fact is presumably capable the appeal.
of apportioning responsibility for these losses among NAS
and the respondents. (Cf. Brandt v. Superior Court, supra,
37 Cal.3d at pp. 819–820, 210 Cal.Rptr. 211, 693 P.2d We concur: PARRILLI and POLLAK, JJ.
796 [in a bad faith action, trier of fact must reduce
the attorneys fee award against insurer by any amounts All Citations
attributable to the insured attorney's efforts to obtain an
award in excess of benefits owed under the policy].) Nor 127 Cal.App.4th 1311, 26 Cal.Rptr.3d 452, 05 Cal. Daily
is there a *1326 problem because the attorneys fees were Op. Serv. 2739, 2005 Daily Journal D.A.R. 3686
incurred in the same lawsuit in which appellants now seek

Footnotes
* George, C.J., did not participate therein.
1 Our recitation of facts is based on allegations in the complaint, which we must accept as true in this appeal from a
judgment entered on the pleadings. (Ott v. Alfa–Laval Agri, Inc. (1995) 31 Cal.App.4th 1439, 1448, 37 Cal.Rptr.2d 790.)
2 A separate appeal from the order awarding costs to respondents (A103968) was dismissed upon stipulation of the parties.
3 Respondents also challenge the validity of allegations that they assumed a special duty of care based on their purported
expertise. However, these arguments raise factual questions about the nature of the parties' relationships, and because
they were not the basis of the trial court's ruling they are not properly before us.
4 Respondents' complaint that appellants seek to hold them liable as guarantors for NAS similarly ignores the actual
allegations in the complaint.

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Third Eye Blind, Inc. v. Near North Entertainment Ins...., 127 Cal.App.4th 1311...
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5 Although Near North's motion for judgment on the pleadings asserted the NAS ruling stood as the law of the case, it
acknowledges on appeal that this doctrine refers only to a rule of law announced in an appellate court decision that must
be adhered to in later proceedings. (Kowis v. Howard (1992) 3 Cal.4th 888, 12 Cal.Rptr.2d 728, 838 P.2d 250.)

End of Document © 2019 Thomson Reuters. No claim to original U.S. Government Works.

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