Fifth District agrees the Case is “screwed up.”
The story arc of this opinion begins at a low point, and plummets. “What the heck?I?,” begins the Court of Appeal opinion. “At one point, the trial court commented, ‘This is one of the most screwed up cases I’ve ever seen.’ We heartily agree.” Essex Insurance Company v. Richard Heck, M.D., Case No. F058139 (Fifth Dist. July 29, 2010) (certified for publication). Essex Insurance Company provided a defense in a personal injury action to a defendant who was not its named insured, but did not discover its mistake till after judgment was entered following a jury verdict in favor of one Mr. John Dompeling against one “Robert Abraham.”
Mr. Dompeling, a diabetic, hired to move refrigeration units in a restaurant that was being refurbished, stepped on a nail, and sought treatment from his physician, the eponymously named Dr. Heck. After a hospital discharge, the wound worsened, Mr. Dompeling was readmitted to the hospital, and an orthopedic surgeon amputated his leg below the knee. Four months later, a second amputation was required, because an infection had developed on his stump. In January 2004, a jury rendered a verdict in favor of Mr. Dompeling in the amount of $826,762.50, plus costs, against “Robert Abraham.” “Abraham” and the restaurant were alleged to have hired Mr. Dompeling to remove a refrigerator on the premises.
Later in 2004 and 2005, Essex concluded that Robert Lincoln Abraham was the defendant in the personal injury action, but not the insured under its policy. Instead, the insured was Robert Lee Abraham, against whom a default had been entered. Oops. Essex filed a declaratory relief action asserting it had no duty to indemnify Robert Lee Abraham or anyone else in connection with the personal injury action.
After Essex refused to pay the judgment in the personal injury action, Mr. Dompeling sued Essex for bad faith, and the bad faith action was consolidated with the declaratory relief action. Mr. Dompeling then amended his complaint to add a cause of action for fraud and misrepresentation against Essex and its law firm, essentially alleging that they knew the law firm was representing the wrong “Robert Abraham” in order to sandbag Mr. Dompeling, deny coverage, and avoid payment.
In exchange for $700,000 from Essex, Mr. Dompeling released Essex, Robert Lee Abraham and Robert Lincoln Abraham. Three separate lawsuits settled – a personal injury action, a declaratory relief action, and a bad faith action.
In 2007, Essex pursued a subrogation claim against Dr. Heck, claiming that it stood in the shoes of that certain “Robert Abraham.”
Unfortunately for Essex, it settled three lawsuits for $700,000, without allocation. Essex released its named insured, Robert Lee Abraham, but also the other Abraham. “'[T]he settlement agreement did not specify which portion of the $700,000 was paid to settle which claim, what part constituted economic or non-economic damages, who the personal injury judgment was rendered against (either Robert Lee Abraham or Robert Lincoln Abraham), or whether that individual was an insured under the policy. Without such specifications, the agreement left unsettled into whose shoes Essex was stepping, i.e. Robert Lee Abraham or Robert Lincoln Abraham, and what was being paid to compensate each claim.” Not surprisingly, on a summary judgment motion brought by Dr. Heck, Essex lost its subrogation claim against Dr. Heck.
Essex contended on appeal that it could have sorted out this mess by resort to extrinsic evidence of its intent in entering into the settlement agreement. However, Dr. Heck would not have been able to present his own evidence of intent in entering into the settlement agreement, because that would have improperly required disclosing communications that occurred during mediation. And unexpressed subjective intent with respect to the interpretation of a contract is irrelevant. Foiled again.
While acknowledging the absence of case law directly on point, the Court of Appeal also applied the “doctrine of implied waiver”: “Essex’s act of entering into a settlement of the three lawsuits without identifying its insured or apportioning the payment is so inconsistent with an intent to enforce its right to subrogation so as to induce a reasonable belief it had relinquished that right.”
Finally, Essex argued that Dr. Heck made a nominal settlement offer that was not “in good faith”, which Essex obviously did not accept. But Dr. Heck had offered to waive expert fees, Essex did prevail on the summary judgment motion, and it was the burden of Essex to prove an abuse of discretion – which it did not do.
While the Court of Appeal may have agreed with the trial judge’s assessment that, “[t]his is one of the most screwed up cases I’ve ever seen,” the case was not totally FUBARed. Said the Court, “We agree with the trial court that Essex must lie in the bed it made and affirm.”
Justice Gomes authored the 3-0 opinion.