Grusd. v. Admiral
Grusd. v. Admiral
02:10:2006
Grusd. v. Admiral
Filed 1/27/06 Grusd v. Admiral Ins. Co. CA2/8
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
RONALD S. GRUSD, M.D. et al.,
Plaintiffs and Appellants,
v.
ADMIRAL INSURANCE COMPANY,
Defendant and Respondent.
B177458
(Los Angeles County
Super. Ct. No. BC307696)
APPEAL from a judgment of the Superior Court for the County of Los Angeles. Conrad R. Aragon, Judge. Reversed.
Thomas & Elliot, Stephen L. Thomas, Jay J. Elliot; Benedon & Serlin, Gerald M. Serlin and Douglas G. Benedon for Plaintiffs and Appellants.
Boornazian, Jensen & Garthe and David J. Garthe for Defendant and Respondent.
____________________________
SUMMARY
A policyholder sued an insurer for breach of contract and bad faith based on the insurer's failure to provide a defense in an underlying third party action for fraud and negligent misrepresentation. The trial court sustained without leave to amend the insurer's demurrer to the complaint on the two grounds. First, it determined that no duty to defend existed because the alleged negligent misrepresentation did not, as a matter of law, trigger the duty to defend. Second, it concluded that in the absence of a duty to defend, no breach of the implied covenant of good faith and fair dealing arose.
We disagree with the trial court's determination regarding the breach of contract claim because the potential for liability created by the negligent misrepresentation claim triggered a duty to defend. However, we agree with its ruling regarding the bad faith claim inasmuch as a genuine dispute existed concerning the insurer's obligations under the policy.
FACTUAL AND PROCEDURAL BACKGROUND
I. Admiral Professional Liability Policy
Appellant Ronald Grusd, M.D., a radiologist, and his professional corporation, appellant Oaks Diagnostics, Inc. (doing business as Advanced Radiology of Beverly Hills) provide radiology services.
From November 1, 1998 to November 1, 1999, appellants were covered by a professional liability insurance policy issued by respondent Admiral Insurance Company in connection with their provision of radiology services. The policy provided coverage for damages appellants became obligated to pay resulting from their negligent acts, errors or omissions in rendering radiology services. The policy further obligated respondent to defend appellants against any suit alleging such damages.
II. Underlying Connecticut General Action
In August 1999, while the professional insurance liability policy was still in effect, Connecticut General Life Insurance Company and other medical insurers initiated a federal court action alleging that various Southern California cosmetic surgery centers engaged in a fraudulent insurance scheme. The action alleged the cosmetic surgery centers performed elective cosmetic surgery on patients whose medical insurance did not cover elective, as opposed to medically necessary procedures. The action further alleged appellants participated in the fraudulent scheme by performing various radiology procedures – including nasal CAT scans, mammograms, and pelvic ultrasounds – on patients referred to them by the cosmetic surgery centers, and then inaccurately interpreted and reported the results of the radiology procedures to the centers. The action alleged that, after the surgical procedures were performed by the cosmetic surgery centers, the centers deceived Connecticut General and other medical insurers into paying claims for the procedures by disguising them as medically necessary rather than elective.
Connecticut General asserted causes of action against appellants for both fraud and negligent representation. The complaint alleged appellants engaged in fraud by making material misrepresentations or omissions in reporting their radiological findings to the cosmetic surgery centers. It further alleged that, if appellants made the material misrepresentations or omissions without their knowledge or without a conscious intent to deceive, they made them negligently and without regard to the truth, falsity or likelihood of deception.
Immediately following their receipt of the complaint, appellants tendered the federal court action to respondent for defense purposes. Because the complaint asserted a cause of action for negligent misrepresentation, appellants maintained respondent was obligated under the policy to provide a defense against the action. After respondent refused to defend them, appellants retained independent counsel to defend them. Following three years of litigation, appellants settled the action with Connecticut General.
III. Subsequent Action Against Admiral.
In December 2003, appellants sued respondent in state court for breach of contract and breach of the covenant of good faith and fair dealing. They claimed respondent's refusal to defend compelled them to settle the federal court action initiated by Connecticut General rather than litigate the matter on its merits.
Respondent demurred to the compliant. It asserted it had no duty to defend appellants in federal court because the gravamen of the Connecticut General action was not negligent misrepresentation. Rather, it was an action for fraud not covered under the policy. Under the particular circumstances of the case, respondent argued negligent misrepresentation was merely a sub-species of fraud and was therefore excluded from coverage under the policy.
The trial court sustained the demurrer without leave to amend. Relying on Miller v. Western General Agency, Inc. (1996) 41 Cal.App.4th 1144 (Miller) and Chatton v. National Union Fire Ins. Co. (1992) 10 Cal.App.4th 846 (Chatton), the court found the alleged negligent misrepresentation was asserted in the context of an underlying action involving a pervasive scheme to defraud medical insurers. As such, the misrepresentation constituted intentional misconduct not covered under appellants' insurance policy by virtue of Insurance Code section 533. Consequently, respondent did not breach the duty to defend required under the policy. Because no duty to defend existed, no breach of the implied covenant of good faith and fair dealing could have occurred. After the demurrer was sustained without leave to amend, appellant's action was dismissed and judgment was entered in favor of respondent. From the judgment of dismissal, appellants timely appealed.
STANDARD OF REVIEW
On an appeal from a judgment of dismissal following the sustaining of a demurer without leave to amend, the complaint is reviewed de novo to determine if sufficient facts allege a cause of action. (Lee v. Los Angeles County Metropolitan Transportation Authority (2003) 107 Cal.App.4th 848, 853 (Lee).) For the purposes of appellate review, all facts properly pleaded in the complaint are deemed true. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) If the facts alleged in the complaint demonstrate an entitlement to relief under any possible legal theory, it is reversible error for a trial court to sustain a demurrer without leave to amend. (Lee, supra, 107 Cal.App.4th at pp. 853-854.)
DISCUSSION
I. Demurrer to breach of contract cause of action was erroneously sustained.
A. Alleged negligence involved professional services that fell within policy provisions.
A policyholder is entitled to a defense under a professional liability policy if an underlying third party action asserts the policyholder's liability for damages potentially covered by the policy. (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295 (Montrose).) The issue is not, as respondent argues, whether the alleged uncovered fraud claims predominate in the underlying action, but whether any potential for liability exists that would be covered under the policy. (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1084 (Horace Mann).) A mere possibility of coverage, therefore, is sufficient to trigger the duty to defend. (Montrose, supra, 4 Cal.4th at pp. 299-300.) Moreover, where some but not all claims are potentially covered, the insurer is obligated to provide a defense against the entire action, including fraud claims where no potential coverage exists under the policy. (Buss v. Superior Court (1997) 16 Cal.4th 35, 48.) If there is any doubt as to whether the allegations establish a duty to defend, it must be resolved in favor of the policyholder. (Montrose, supra, 6 Cal.4th at pp. 299-300.)
The underlying complaint alleged that, in rendering professional radiology services, appellants inaccurately interpreted the results of the radiological procedures performed on patients and reported those inaccurate results to the cosmetic surgery centers. The complaint further alleged, â€
02:10:2006
Filed 1/27/06 Grusd v. Admiral Ins. Co. CA2/8
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
RONALD S. GRUSD, M.D. et al.,
Plaintiffs and Appellants,
v.
ADMIRAL INSURANCE COMPANY,
Defendant and Respondent.
B177458
(Los Angeles County
Super. Ct. No. BC307696)
APPEAL from a judgment of the Superior Court for the County of Los Angeles. Conrad R. Aragon, Judge. Reversed.
Thomas & Elliot, Stephen L. Thomas, Jay J. Elliot; Benedon & Serlin, Gerald M. Serlin and Douglas G. Benedon for Plaintiffs and Appellants.
Boornazian, Jensen & Garthe and David J. Garthe for Defendant and Respondent.
____________________________
SUMMARY
A policyholder sued an insurer for breach of contract and bad faith based on the insurer's failure to provide a defense in an underlying third party action for fraud and negligent misrepresentation. The trial court sustained without leave to amend the insurer's demurrer to the complaint on the two grounds. First, it determined that no duty to defend existed because the alleged negligent misrepresentation did not, as a matter of law, trigger the duty to defend. Second, it concluded that in the absence of a duty to defend, no breach of the implied covenant of good faith and fair dealing arose.
We disagree with the trial court's determination regarding the breach of contract claim because the potential for liability created by the negligent misrepresentation claim triggered a duty to defend. However, we agree with its ruling regarding the bad faith claim inasmuch as a genuine dispute existed concerning the insurer's obligations under the policy.
FACTUAL AND PROCEDURAL BACKGROUND
I. Admiral Professional Liability Policy
Appellant Ronald Grusd, M.D., a radiologist, and his professional corporation, appellant Oaks Diagnostics, Inc. (doing business as Advanced Radiology of Beverly Hills) provide radiology services.
From November 1, 1998 to November 1, 1999, appellants were covered by a professional liability insurance policy issued by respondent Admiral Insurance Company in connection with their provision of radiology services. The policy provided coverage for damages appellants became obligated to pay resulting from their negligent acts, errors or omissions in rendering radiology services. The policy further obligated respondent to defend appellants against any suit alleging such damages.
II. Underlying Connecticut General Action
In August 1999, while the professional insurance liability policy was still in effect, Connecticut General Life Insurance Company and other medical insurers initiated a federal court action alleging that various Southern California cosmetic surgery centers engaged in a fraudulent insurance scheme. The action alleged the cosmetic surgery centers performed elective cosmetic surgery on patients whose medical insurance did not cover elective, as opposed to medically necessary procedures. The action further alleged appellants participated in the fraudulent scheme by performing various radiology procedures – including nasal CAT scans, mammograms, and pelvic ultrasounds – on patients referred to them by the cosmetic surgery centers, and then inaccurately interpreted and reported the results of the radiology procedures to the centers. The action alleged that, after the surgical procedures were performed by the cosmetic surgery centers, the centers deceived Connecticut General and other medical insurers into paying claims for the procedures by disguising them as medically necessary rather than elective.
Connecticut General asserted causes of action against appellants for both fraud and negligent representation. The complaint alleged appellants engaged in fraud by making material misrepresentations or omissions in reporting their radiological findings to the cosmetic surgery centers. It further alleged that, if appellants made the material misrepresentations or omissions without their knowledge or without a conscious intent to deceive, they made them negligently and without regard to the truth, falsity or likelihood of deception.
Immediately following their receipt of the complaint, appellants tendered the federal court action to respondent for defense purposes. Because the complaint asserted a cause of action for negligent misrepresentation, appellants maintained respondent was obligated under the policy to provide a defense against the action. After respondent refused to defend them, appellants retained independent counsel to defend them. Following three years of litigation, appellants settled the action with Connecticut General.
III. Subsequent Action Against Admiral.
In December 2003, appellants sued respondent in state court for breach of contract and breach of the covenant of good faith and fair dealing. They claimed respondent's refusal to defend compelled them to settle the federal court action initiated by Connecticut General rather than litigate the matter on its merits.
Respondent demurred to the compliant. It asserted it had no duty to defend appellants in federal court because the gravamen of the Connecticut General action was not negligent misrepresentation. Rather, it was an action for fraud not covered under the policy. Under the particular circumstances of the case, respondent argued negligent misrepresentation was merely a sub-species of fraud and was therefore excluded from coverage under the policy.
The trial court sustained the demurrer without leave to amend. Relying on Miller v. Western General Agency, Inc. (1996) 41 Cal.App.4th 1144 (Miller) and Chatton v. National Union Fire Ins. Co. (1992) 10 Cal.App.4th 846 (Chatton), the court found the alleged negligent misrepresentation was asserted in the context of an underlying action involving a pervasive scheme to defraud medical insurers. As such, the misrepresentation constituted intentional misconduct not covered under appellants' insurance policy by virtue of Insurance Code section 533. Consequently, respondent did not breach the duty to defend required under the policy. Because no duty to defend existed, no breach of the implied covenant of good faith and fair dealing could have occurred. After the demurrer was sustained without leave to amend, appellant's action was dismissed and judgment was entered in favor of respondent. From the judgment of dismissal, appellants timely appealed.
STANDARD OF REVIEW
On an appeal from a judgment of dismissal following the sustaining of a demurer without leave to amend, the complaint is reviewed de novo to determine if sufficient facts allege a cause of action. (Lee v. Los Angeles County Metropolitan Transportation Authority (2003) 107 Cal.App.4th 848, 853 (Lee).) For the purposes of appellate review, all facts properly pleaded in the complaint are deemed true. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.) If the facts alleged in the complaint demonstrate an entitlement to relief under any possible legal theory, it is reversible error for a trial court to sustain a demurrer without leave to amend. (Lee, supra, 107 Cal.App.4th at pp. 853-854.)
DISCUSSION
I. Demurrer to breach of contract cause of action was erroneously sustained.
A. Alleged negligence involved professional services that fell within policy provisions.
A policyholder is entitled to a defense under a professional liability policy if an underlying third party action asserts the policyholder's liability for damages potentially covered by the policy. (Montrose Chemical Corp. v. Superior Court (1993) 6 Cal.4th 287, 295 (Montrose).) The issue is not, as respondent argues, whether the alleged uncovered fraud claims predominate in the underlying action, but whether any potential for liability exists that would be covered under the policy. (Horace Mann Ins. Co. v. Barbara B. (1993) 4 Cal.4th 1076, 1084 (Horace Mann).) A mere possibility of coverage, therefore, is sufficient to trigger the duty to defend. (Montrose, supra, 4 Cal.4th at pp. 299-300.) Moreover, where some but not all claims are potentially covered, the insurer is obligated to provide a defense against the entire action, including fraud claims where no potential coverage exists under the policy. (Buss v. Superior Court (1997) 16 Cal.4th 35, 48.) If there is any doubt as to whether the allegations establish a duty to defend, it must be resolved in favor of the policyholder. (Montrose, supra, 6 Cal.4th at pp. 299-300.)
The underlying complaint alleged that, in rendering professional radiology services, appellants inaccurately interpreted the results of the radiological procedures performed on patients and reported those inaccurate results to the cosmetic surgery centers. The complaint further alleged, â€
| Description | A civil law decision on Brach of Contract. |
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