RESERVE INSURANCE COMPANY v. PISCIOTTA (1981)

Until May of 1976 John Pisciotta's boat was insured by United States Fidelity and Guaranty Company (U. S. F. & G.), for bodily injuries resulting from its use, with limits of $300,000 per occurrence. Renewal of the policy was not available. Pisciotta was considering a sale of the boat and did not seek other insurance when the policy lapsed, even though his insurance agent, Ernie C. Busch, sent him an application for it. Busch also had obtained a “Personal Umbrella Supplement” for Pisciotta from CNA Insurance Group (CNA). The U. S. F. & G. policy was listed on the CNA policy which provided that CNA would be liable for any amount in excess of $300,000 and up to $1 million per occurrence.

On Friday, June 25, 1976, Pisciotta's secretary called Busch's office to arrange for another primary boat policy because Pisciotta was taking the boat on a family camping trip. Busch arranged for a watercraft liability policy from Reserve Insurance Company (Reserve), with combined single limits of $100,000; it became effective at 12:01 a. m. on June 25. Tyler Campbell, Mr. Pisciotta's wife's son by a previous marriage, was seriously injured that evening when the boat collided with another operated by one George Brannigan.

Pisciotta, Brannigan, and several others were named defendants in a damage suit brought by Campbell through his mother in September 1976. Reserve employed counsel to defend Pisciotta, then in April 1977 filed this action against him seeking a declaration of nonliability by virtue of a policy clause excluding coverage for injuries to members of the family of the insured residing in the same household. Pisciotta cross-complained for declaratory relief against Reserve, CNA and Busch; he sought indemnification from CNA as to any future judgment in favor of Campbell exceeding $100,000 and indemnification from Busch for the $200,000 gap in coverage allegedly caused by Busch's negligence in his capacity as agent for Reserve and CNA. Busch then cross-complained against Reserve and CNA seeking indemnity, declaratory relief, reformation, and damages, for negligent misrepresentation by their agents.

The trial proceeded in three stages. The issue of Reserve's exclusion clause and coverage was first tried to the court alone. The court determined the word “family” in the exclusion clause to be ambiguous, resolved the ambiguity against Reserve, and found Pisciotta covered for liability to his stepson under the Reserve policy. The question of Busch's negligence was then tried to a jury which found, in special verdicts, that 75 percent of the $200,000 coverage gap was attributable to Busch's negligence and 25 percent to that of Pisciotta. The third stage, CNA's coverage, was then briefed and argued.

Judgment was entered on April 24, 1979. The court held Reserve responsible for Pisciotta's defense in the Campbell suit and ordered Reserve to pay the first $100,000 of any damages awarded therein. Busch was held liable for the next $150,000 and CNA for up to $1 million after the Reserve and Busch payments. Pisciotta was awarded costs against Reserve and $3,400 attorney fees against Busch. Reserve, CNA, and Busch have appealed.

The Reserve Policy

All parties to the appeal argue that we must consider the case in light of Reserve's apparent current insolvency, notice of which was filed in the trial court two months after the judgment. The general rule is that matters occurring after the entry of judgment are not reviewable (see 6 Witkin, Cal. Procedure (2d ed. 1971) Appeal, s 220, p. 4210), and we see no reason here to depart from that rule.

Reserve's alternative claim is that the trial court erred in its construction of the family exclusion clause.¹ In its brief in the trial court, it asserted the rules applicable to automobile insurance policies also govern the policy at issue here. This court recently considered a similar exclusion in an automobile policy in Phelps v. Allstate Ins. Co. (1980) 106 Cal.App.3d 752, 165 Cal.Rptr. 263. We held that where, as here, the class of “insureds” is broadly defined to include resident members of the named insured's family as well as permissive users and the exclusion creates a still broader category which includes resident members of a permissive user's family, the exclusion is fatally overbroad and invalid under the restrictions of the Insurance Code. (Ins.Code, s 11580.1, subd. (c)(5).) Stare decisis compels the same result here. There was no error; the Reserve policy covers Pisciotta for up to $100,000 of liability to Campbell.

The CNA Policy

CNA's Personal Umbrella Supplement required it to pay “all sums which the insured shall be obligated to pay by reason of the liability imposed upon the insured by law as defined by the term ‘ultimate net loss' (the total recovery of an injured person) on account of Personal Injury ” Its obligation was limited however to that portion of such loss which exceeds “the amount recoverable under the underlying insurance as set out in the schedule of the underlying insurance ” As noted, the underlying insurance set forth in the schedule at the time of the accident was the $300,000 U. S. F. & G. policy. A further provision of the contract required the insured to maintain the underlying insurance or replace it with equivalent coverage; and additionally provided that if this is not done, CNA is liable only to the extent it would be if the listed coverage were in fact maintained.

It is abundantly clear from the above that the CNA policy provided coverage only for sums in excess of $300,000 (up to its million dollar limit), and the trial court so found in its formal findings of fact and conclusions of law. In a further paragraph thereof, however, the court inconsistently concluded that CNA was obligated to pay Pisciotta's damages “immediately after payment by Busch of up to $150,000.” The judgment reflects this conclusion. The effect is to make CNA responsible for $50,000 in potential damages to Campbell before the amount reaches the $300,000 level. This is error. The judgment must therefore be modified to eliminate the requirement for payment by CNA of any damages below $300,000.

Busch's Liability

Busch contends there is no substantial evidence to support the jury's finding that he was negligent, that Pisciotta failed to sustain his burden of proof by not presenting expert testimony at the trial, that the layered liability in the judgment is incorrect, and that the award of attorney fees to Pisciotta was improper.

The substantiality of the evidence of Busch's negligence in obtaining only $100,000 coverage appears in his own testimony. He stated that he understood $300,000 of underlying coverage was required by the CNA policy, that he is an expert in insurance brokerage, and that it was his duty to obtain adequate insurance for Pisciotta and inform him of any coverage problems. He also testified he should have informed Pisciotta that he didn't have time to review his file on the 25th, that he was not aware of the coverage gap on that date, and that he had serious doubts when he mailed the application that Pisciotta and his family would be covered properly. This evidence is sufficient to sustain the jury's verdict; it also disposes of Busch's contention that Pisciotta should have presented expert testimony on the standard of care of an insurance broker. If any such evidence was needed (which we do not decide) to assist the jury, it was supplied by Busch himself.

Busch further contends the court erred in layering liability so as to make him fully responsible for the first $150,000 after Reserve pays its policy limits. He contends responsibility for the gap should have been made joint with Pisciotta so that he would be responsible for three-quarters of any award over $100,000, with Pisciotta responsible for one-quarter. Pisciotta concedes the point has “logical merit,” and we agree, but the matter is moot unless the total damage award is above $100,000 and below $300,000. Since counsel informed us at oral argument that the Campbell-Pisciotta suit was settled for a sum in excess of $300,000, the point is indeed moot.

The question of the award of attorney fees against Busch is more complicated. The court found that half the fees incurred by Pisciotta ($6,800) were directly and proximately caused by the negligence of Busch.

The general rule is that in the absence of express agreement or statute, every party to a lawsuit is responsible for his own attorney fees. (Code Civ.Proc., s 1021.) No agreement or statute applies here. There are, however, exceptions to the general rule, one of which arguably applies. Where litigation is itself a consequence of a tort, attorney fees for that litigation are an item of damage occasioned by the tort, hence recoverable. Pisciotta sought his fees here as such an item of damage. (Prentice v. North Amer. Title Guar. Corp. (1963) 59 Cal.2d 618, 30 Cal.Rptr. 821, 381 P.2d 645.)

“In Prentice, an escrow holder's negligence in closing a land sale forced the sellers to bring a quiet title action against third parties. As part of the same suit, the sellers recovered from the negligent escrow holder the attorney's fees they incurred in suing the third parties. But for the award of attorney's fees, the party responsible for the original litigation would have escaped all liability, except for costs In these circumstances, this court upheld the shifting of legal fees.” (Davis v. Air Technical Industries, Inc. (1978) 22 Cal.3d 1, 6-7, 148 Cal.Rptr. 419, 582 P.2d 1010.) Some of the Prentice language appears to sanction a broader application of the exception,² but later decisions of the Supreme Court and of this court have limited its application to cases presenting “exceptional circumstances” (Davis, supra, 22 Cal.3d at p. 7, 148 Cal.Rptr. 419, 582 P.2d 1010; Trails Trucking, Inc. v. Bendix-Westinghouse etc. Air Brake Co. (1973) 32 Cal.App.3d 519, 108 Cal.Rptr. 30), in order to keep the exception from swallowing the rule and its underlying policy. (Davis, supra; Trails, supra, 32 Cal.App.3d at p. 524, 108 Cal.Rptr. 30; see also Comment, Recovery of Attorney Fees from Third Party Tortfeasors (1978) 66 Cal.L.Rev. 94, 102-103.)

Pisciotta argued in the trial court that he should be allowed recovery of a portion of his attorney fees because Busch's negligence precipitated the entire lawsuit. On appeal, he contends recovery is justified as an item of damage either for the Reserve suit against him or for his cross-complaint against CNA, Reserve and Busch. We disagree. When the issue of Busch's negligence was submitted to the jury, it found him not negligent in procuring a policy that contained a family member exclusion; Reserve's suit against Pisciotta was based on that exclusion, and since no negligence of Busch was found, that suit cannot form the basis for the attorney fees as damages under Prentice. On the other hand, Pisciotta was awarded damages directly against Busch for his negligence, in the form of $150,000 of liability on any judgment for Campbell; he was not successful however in obtaining coverage from CNA for the gap between the CNA and the Reserve policies.

Thus no successful third party suit was prosecuted as a result of Busch's tort. These are not circumstances under which the Prentice exception applies, and the award of $3,400 in attorney fees to Pisciotta from Busch was error.

The judgment is modified so as to delete any liability on the part of CNA for less than $300,000 of Campbell's damages and to delete the $3,400 award of attorney fees to Pisciotta. Otherwise the judgment is affirmed.

All parties shall bear their own costs on appeal.

FOOTNOTES

1.  The policy states:“This section (Boat Medical Payments Insurance) does not apply: under Coverage B (Boat Liability Insurance) to bodily injury to the insured or to any member of the family of the insured residing in the same household as the insured.“The unqualified word ‘insured’ includes: (1) with respect to owned property, (a) the named insured and any relative, and (b) any other person, provided the actual use (of the boat) is with the permission of the named insured and such use is within the scope of the permission granted ”

2.  “A person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the reasonably necessary loss of time, attorney's fees, and other expenditures thereby suffered or incurred.” (59 Cal.2d at p. 620, 30 Cal.Rptr. 821, 381 P.2d 645.)

PARAS, Acting Presiding Justice.

REYNOSO and BLEASE, JJ., concur.