Substantial Evidence Showed That Insurer Did Not Agree to Defend, So No Trigger Of Fee Arbitration Rights.
In The Housing Group v. PMA Capital Ins. Co., Case No. A127581 (1st Dist., Div. 3 Mar. 25, 2011) (certified for publication), insurer defendant was sued by plaintiffs for alleged failures and refusals to defend plaintiffs in certain third-party actions arising out of The Views subdivision in Castro Valley, California (probably construction defect actions). Insurer petitioned to compel arbitration of an alleged Cumis fee dispute pursuant to Civil Code section 2860(c), arguing that plaintiffs disputed the fees that insurer was willing to pay Cumis counsel. In response, plaintiffs opposed primarily on the bases that (1) insurer did not offer any evidence showing it ever agreed to defend plaintiffs in the underlying litigation (making only one minor payment to reimburse plaintiffs’ damages arising out of fees after the case settled), (2) the two “reservation of rights” letters did not demonstrate any acceptance of defense tenders, and (3) Cumis counsel had not been actually retained in the underlying litigation in the first instance. The trial court agreed with plaintiffs, denying the petition to compel arbitration and finding that the insurer had not provided a defense. Insurer appealed this adverse decision.
The standard of review for the appeal was an obstacle that insurer could not get around. Because the facts were disputed, the substantial evidence standard applied, with there being proof that insurer never agreed to defend based on conduct which could be described, as best, as “silent” in nature as far as providing a defense. The evidence could have certainly been interpreted, as it was by the lower court, as showing only a future intent to comply with the duty to defend. Also, insurer’s minor payment at the end of the litigation could certainly be interpreted as the equivalent of a defense denial based on its own actual conduct. (Haskel, Inc. v. Superior Court, 33 Cal.App.4th 963, 976 n. 9 (1995).) The failure to provide a defense precluded invocation of the arbitration remedy under section 2860(c).
BLOG UNDERVIEW--The appellate court also distinguished a contrary result reached in Compulink Mgt. Center, Inc. v. St. Paul Fire & Marine Ins. Co., 169 Cal.App.4th 289 (2008) [discussed in our December 18, 20089 post] because, unlike the situation in The Housing Group, the parties in Compulink never disputed the characterization of the insurer’s payment of defense fees as Cumis fees.