Certified for Partial Pub. 12/8/97
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
STATE OF CALIFORNIA
CHARLES I. FEURZEIG et al., D026069
Plaintiffs and Appellants,
v. (Super. Ct. No. 678610)
INSURANCE COMPANY OF THE WEST,
Defendant and Respondent.
Appeal from a judgment of the Superior Court of San Diego
County, Robert J. O'Neill, Judge. Reversed in part and affirmed
Charles I. Feurzeig (Feurzeig) was named as a cross-
defendant in a third party lawsuit, and demanded that respondent
Insurance Company of the West (ICW) defend and indemnify him
under an insurance policy issued to PVCC, Inc. (PVCC). ICW
refused and, after Feurzeig settled the third party lawsuit,
Feurzeig and PVCC (together appellants) filed this action against
ICW. The trial court concluded ICW owed no duty to defend or
indemnify Feurzeig because it found the cross-complaint against
Feurzeig did not allege a claim covered or potentially covered by
ICW's policy. The trial court also granted summary adjudication
in favor of ICW on appellants' claim for punitive damages.
Appellants timely filed this appeal.
A. The Policy
PVCC was in the business of acquiring, developing and
managing commercial and multifamily residential properties.
Feurzeig was an officer and director of PVCC.
In May 1991 PVCC purchased an ICW insurance policy which
provided general liability coverage. Although the policy and
attached endorsements consist of nearly 160 pages, the provisions
relevant to this appeal are the (1) "Named Insured" endorsement,
(2) "Limitation-Designated Premises" and "Schedule of Premises"
endorsements, and (3) "Commercial General Liability" and "General
Liability Schedule" endorsements.
1. The Named Insured Endorsement. The policy provided that
five entities, including PVCC, were named insureds. PVCC was a
corporation and the policy covered Feurzeig as an officer and
director of PVCC for liability incurred in those capacities on
behalf of PVCC.
2. The Limitation-Designated Premises and Schedule of
Premises Endorsements. The Limitation-Designated Premises
endorsement limited the general liability coverage by providing:
"This insurance applies only to 'bodily injury',
'property damage', 'personal injury', 'advertising
injury', and medical expenses arising out of 
the ownership, maintenance or use of the premises
shown in the schedule and operations necessary or
incidental to those premises. . . ."
The Schedule of Premises endorsement described the several
premises to which the insurance applied. PVCC's offices were in
one of the described premises.
3. The Commercial General Liability and General Liability
Schedule Endorsements. The Commercial General Liability
endorsement provided coverage for advertising injury, including
injury from slander.
The General Liability Schedule endorsement contained several
columns. One column, labeled "Description of Hazards," contained
the statement "Buildings or Premises - Bank or Office -
Mercantile or Manufacturing (Lessor's Risk Only) Including
Products and/or Completed Operations," and thereafter listed each
of the insured premises. A second column, labeled "Code No.,"
listed 61211 for each of the insured premises.
B. The Third Party Lawsuit
During the spring of 1991, PVCC became the manager of four
troubled real estate properties (the Trevi properties), which
previously had been managed by Messers. Shakespeare and
Sarkisian. As part of PVCC's efforts to salvage the Trevi
properties, Feurzeig had numerous conversations at the PVCC
offices with lenders, vendors, subcontractors and investors.
These conversations formed the basis for the third party lawsuit.
In the fall of 1991, Shakespeare and Sarkisian, in a pending
lawsuit against them involving the Trevi properties, filed a
cross-complaint against Feurzeig and others alleging Feurzeig
slandered Shakespeare and Sarkisian during Feurzeig's
conversations with the lenders, vendors, subcontractors and
investors. None of the Trevi properties were listed in the
Schedule of Premises endorsement to the ICW policy.
C. ICW Rejects Feurzeig's Tender
In October 1991 Feurzeig provided ICW with a copy of the
cross-complaint and demanded that ICW defend and indemnify him
under the policy. In November 1991 ICW rejected the tender
because neither PVCC nor any of the other named insureds was
named as a cross-defendant in Shakespeare and Sarkisian's cross-
complaint. In October 1992 Feurzeig settled the third party
In June 1993 Feurzeig renewed his demand that ICW honor its
defense and indemnity obligations, and asserted that the third
party claims arose out of Feurzeig's actions as an officer of
PVCC, a named insured under the policy. In August 1993 ICW again
D. The Current Lawsuit
In 1994 appellants filed the current lawsuit against ICW
alleging contract and tort claims based on ICW's refusal to
defend against or indemnify for the third party claims. In
pretrial proceedings the trial court bifurcated trial of the duty
to indemnify issues from all remaining issues. The trial court
also granted ICW's motion for summary adjudication on appellants'
claim for punitive damages.
In the ensuing trial the court concluded there was no
potential for coverage under ICW's policy because the "Lessor's
Risk Only" language limited coverage to PVCC's liability as a
lessor of the described premises. Accordingly, the court granted
a nonsuit in favor of ICW on the duty to indemnify. The court
also reversed an earlier ruling on the duty to defend issue by
granting ICW's motion for reconsideration and thereafter granting
ICW's motion for judgment on the pleadings in ICW's favor on the
duty to defend issue.
THE COVERAGE ISSUE
A. The Controlling Issues Are Whether the Designated Premises
and Lessor's Risk Only Limitations Clearly Exclude Coverage for
the Slander Alleged by Shakespeare and Sarkisian
It is undisputed that slander liability is covered by the
ICW policy and that some or all of the alleged slander took place
during the policy period. It is also undisputed that Feurzeig is
covered by the ICW policy for slanderous statements made while
acting in his capacity as an officer of PVCC. The issue is
whether the policy otherwise excludes coverage for the
Shakespeare and Sarkisian claims.
ICW argues the policy was intended to and did limit the
liabilities for which coverage was provided because an
endorsement stated the policy covered "Lessor's Risk Only" for
the described premises, and Feurzeig's slander was not uttered in
connection with PVCC's capacity as lessor of the described
premises. It follows, ICW argues, there was neither coverage nor
a potential for coverage and therefore no indemnity or defense
obligation for the Shakespeare and Sarkisian claims.
B. General Principles of Interpretation
Our Supreme Court has described the general principles which
guide us in interpreting the ICW policy:
"While insurance contracts have special features,
they are still contracts to which the ordinary
rules of contractual interpretation apply.
[Citation.] The fundamental goal of contractual
interpretation is to give effect to the mutual
intention of the parties. (Civ. Code, § 1636.)
If contractual language is clear and explicit, it
governs. (Civ. Code, § 1638.) On the other hand,
'[i]f the terms of a promise are in any respect
ambiguous or uncertain, it must be interpreted in
the sense in which the promisor believed, at the
time of making it, that the promisee understood
it.' (Id., § 1649; [citation].) This rule, as
applied to a promise of coverage in an insurance
policy, protects not the subjective beliefs of the
insurer but, rather, 'the objectively reasonable
expectations of the insured.' [Citation.] Only
if this rule does not resolve the ambiguity do we
then resolve it against the insurer. [Citation.]
[¶] In summary, a court that is faced with an
argument for coverage based on assertedly
ambiguous policy language must first attempt to
determine whether coverage is consistent with the
insured's objectively reasonable expectations. In
so doing, the court must interpret the language in
context, with regard to its intended function in
the policy. [Citation.] This is because
'language in a contract must be construed in the
context of that instrument as a whole, and in the
circumstances of that case, and cannot be found to
be ambiguous in the abstract.' [Citation.]"
(Bank of the West v. Superior Court (1992) 2
Cal.4th 1254, 1264-1265, quoting Producers Dairy
Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d
903, 916, fn. 7, italics added by Bank of the
We are thus required first to attempt to determine the
parties' mutual intention solely from the words used in the
C. The Policy Language Does Not Exclude Coverage for the Torts
Alleged by Shakespeare and Sarkisian
ICW argues the facially broad coverage afforded for slander
was limited by the "Designated Premises" and "Lessor's Risk Only"
clauses of the policy. When an insurer wishes to limit coverage
the limitation "must be conspicuous, plain and clear." (Crane v.
State Farm Fire & Cas. Co. (1971) 5 Cal.3d 112, 115.) A
limitation is conspicuous when it is positioned and printed in a
form which adequately attracts the reader's attention to the
limitation. (Shepard v. CalFarm Life Ins. Co. (1992) 5
Cal.App.4th 1067, 1080.) Moreover, "[c]onspicuous placement of
exclusionary language is only one of two rigid drafting rules
required of insurers to exclude or limit coverage. The language
itself must be plain and clear." (Jauregui v. Mid-Century Ins.
Co. (1991) 1 Cal.App.4th 1544, 1550.) To be plain and clear the
limitation should be precise and understandable. (Travelers Ins.
Co. v. Lesher (1986) 187 Cal.App.3d 169, 184, disapproved on
other grounds in Buss v. Superior Court (1997) 16 Cal.4th 35, 52,
ICW urges the term "Lessor's Risk Only" was a limitation
which was "conspicuous, plain and clear" because appellants were
sophisticated and understood the import of the Lessor's Risk Only
limitation. In construing a policy, the courts may consider
whether the insured was a sophisticated buyer of insurance
represented by a professional broker (Advanced Micro Devices,
Inc. v. Great American Surplus Lines Ins. Co. (1988) 199
Cal.App.3d 791, 801) and whether the parties intended to accord a
technical meaning to terms used in a policy (AIU Ins. Co. v.
Superior Court (1990) 51 Cal.3d 807, 822). PVCC was represented
by a professional broker, Mr. Harpe, in negotiating the ICW
policy, and PVCC was a sophisticated buyer of insurance.1
However, what the parties understood by the Lessor's Risk
Only designation under the "Hazards" column of the endorsement is
at best ambiguous. The policy itself provides no aid because it
does not define the phrase or mention it elsewhere in the policy.
We are not aware of any judicial decisions construing the meaning
of the Lessor's Risk Only phrase. Based solely on the face of
the policy, ICW provided PVCC with coverage for a hazard
1 Mr. Houck, the PVCC officer negotiating the insurance
coverage and dealing with Harpe on deciding which coverages PVCC
sought, was a licensed insurance broker.
(slander) arising from the use of the premises, and the Lessor's
Risk Only phrase at best creates ambiguity whether the "use of
the premises" means "any use" or only "leasing activity use."
Under traditional rules of construction, we construe any
ambiguity created by this language against the insurer and in
favor of coverage. (AIU Ins. Co. v. Superior Court, supra, 51
Cal.3d at p. 822.)
ICW argues, however, the insured is charged with his agent's
understanding of the policy and Harpe's testimony admitted the
Lessor's Risk Only phrase was intended and understood to mean the
policy provided coverage only for liability incurred by PVCC as a
lessor for the described premises. Even assuming appellants were
bound by Harpe's understanding, ICW's reliance on Harpe's
testimony is misplaced.2 Harpe testified he and Houck understood
2 ICW cites Farm Air Flying Service v. Southeastern Aviation
Ins. Services, Inc. (1988) 206 Cal.App.3d 637 as holding that
when a policy is ambiguous the insured is bound by his agent's
understanding of the policy. However, the passage from Farm Air
on which ICW relies is dictum because the Farm Air court held the
exclusion in that case unambiguously eliminated coverage for the
claim. (Id. at p. 640.) Although the Farm Air court thereafter
mentioned that the agent also understood the exclusion to
eliminate coverage and that his knowledge is imputed to his
principal (id. at p. 641), this discussion was dictum because the
court had already determined the exclusion unambiguously applied.
We question whether an agent's subjective interpretation of
policy language is admissible. (Winet v. Price (1992) 4
Cal.App.4th 1159, 1166, fn. 3 [subjective understanding of
contractual language not competent parol evidence].) Indeed, the
admissibility of an insurance agent's interpretation of a policy
appears inconsistent with the general interpretive rule that
policy language is ordinarily given the construction accorded by
a lay person rather than the construction accorded by an
that the policy was intended to cover only liabilities arising
from the use of the described premises. Harpe explained that
Lessor's Risk Only was a general description of the class of risk
being insured against, that the "rating code" (61211) assigned to
the endorsement is derived from an industry manual used to
identify the class of risk the policy is designed to cover and
corresponds to the Lessor's Risk Only class of hazards, and that
the ICW policy correctly reflected the limited scope of coverage
However, Harpe's testimony does not establish that the
policy provided no coverage for Feurzeig's slander. The only
clear limitation on coverage is the Limitation-Designated
Premises endorsement. That endorsement limits general liability
coverage to those claims "arising out of  the ownership,
maintenance or use of the premises shown in the schedule and 
operations necessary or incidental to those premises. . . ."
The claims here were connected with PVCC's "use of" or
"operations . . . incidental to" the described premises because
PVCC used a portion of the described premises to conduct its
general business operations, and some of the alleged slanders
occurred in connection with Feurzeig's "use of" those premises to
conduct PVCC's business. The court in State Farm Mut. Auto. Ins.
insurance expert. (AIU Ins. Co. v. Superior Court, supra, 51
Cal.3d at p. 822; Crane v. State Farm Fire & Cas. Co., supra, 5
Cal.3d at p. 115.)
Co. v. Partridge (1973) 10 Cal.3d 94, interpreting the "use of"
language in an insurance policy, explained:
"Past California cases have established beyond
contention that this language of 'arising out of
the use,' when utilized in a coverage or insuring
clause of an insurance policy, has broad and
comprehensive application, and affords coverage
for injuries bearing almost any causal relation
with the [specified instrumentality]. As the
Court of Appeal observed in St. Paul Fire & Marine
Ins. Co. v. Hartford Acc. & Indem. Co. (1966) 244
Cal.App.2d 826, 831: 'When employed in a public
liability policy without restriction, words such
as "use" or "using" have comprehensive scope.
[Citations.]'" (State Farm Mut. Auto. Ins. Co. v.
Partridge, supra, at p. 100, original italics.)
Although Harpe agreed that PVCC sought and the policy was
intended to provide limited coverage, he did not testify that
Feurzeig's slander was outside the scope of the limited
3 Harpe testified there was a designated premises limitation
from which policy limitations flowed, but he could not recall any
discussions about the uses to which these premises could be put,
and he was aware that a use of one of the designated premises was
for PVCC's offices. Harpe explained the Designated Premises and
Lessor's Risk Only endorsements were to be read together with the
other provisions of the policy to determine the coverages
afforded. When asked whether the slander coverage would be
"limited to Lessor's Risk Designated Premises Exposures," Harpe
responded: "If that's what the policy indicated, that's what it
would be limited to." In short, Harpe's trial testimony confirms
that all parties intended to obtain limited coverage, but it does
not support ICW's claim that slander occurring at the designated
premises was outside the scope of this limited coverage. ICW
also cites Harpe's declaration, submitted in an earlier summary
judgment motion, stating he "agreed" with ICW underwriter
Pringle's interpretation that the Lessor's Risk Only language
limited the scope of coverage the policy afforded to liabilities
arising from the insured's capacity as owner or lessor. However,
ICW cites nothing to suggest Pringle's testimony was in evidence,
Moreover, we must construe the Lessor's Risk Only and 61211
language in its context and in keeping with its purpose for
inclusion in the policy, because:
"In determining whether coverage is consistent
with the objectively reasonable expectations of an
insured, 'the court must interpret the language in
context, with regard to its intended function in
the policy. [Citation.] This is because
"language in a contract must be construed in the
context of that instrument as a whole, and in the
circumstances of that case, and cannot be found to
be ambiguous in the abstract."' [Citations.]"
(Farmers Ins. Exchange v. Knopp (1996) 50
Cal.App.4th 1415, 1422 [quoting Bank of the West
v. Superior Court, supra, 2 Cal.4th at p. 1265,
The extrinsic evidence demonstrated that use of the Lessor's
Risk Only and 61211 language had a limited function: to establish
a premium and not to form a limitation on coverage beyond the
requirement that the covered conduct occur in connection with use
of the described premises. Harpe explained that a rating class
is a guideline employed by the insurance industry to develop a
group of similar-type risks for purposes of determining an
appropriate premium. Lessor's Risk Only is a rating class, and
61211 is the code number used in the insurance industry to
designate the Lessor's Risk Only rating class. The industry
publications confirm that the purpose of this classification is
or that she was qualified to render the opinion given.
Furthermore, ICW does not cite authority holding that an opinion
on the "industry understanding" is admissible when it includes
ambiguous language. (See American Star Ins. Co. v. Insurance Co.
of the West (1991) 232 Cal.App.3d 1320, 1330-1332 [policy
to permit lower premiums to be charged to insureds who, having
leased some or all of their described premises, are exposed to
less risk of loss than if they occupied the entire premises.4
Although this rating class reflects industry recognition that
insureds who lease the bulk of their premises to third parties
have reduced levels of exposure which justifies reduced premiums,
nothing suggests that selection of the rating classification
limits the covered liability to their status as lessors on
coverage otherwise afforded by the policy.5
interpreted according to lay interpretation and not according to
how an insurance expert would read it].)
4 One publication, describing the use of the Lessor's Risk
Only rating classification, explains:
"When an organization owns a building and leases a
substantial amount of that building to other businesses, the
organization's liability exposures arising from that premises are
reduced because the tenants will carry liability insurance for
their portions of the building [and may have "hold harmless"
clauses indemnifying the landlord] . . . .
"In recognition of the reduced exposures associated with
these actions, a substantial rate credit is available to insureds
who occupy less than 90 percent of an owned building. The
portion of the premises occupied by the insured is classified and
rated according to the insured's business operations. The
remainder of the premises is classified in one of two
classification codes: [Code 61211 or 61213, which] [¶] . . .
carry a much lower rate than the regular 'buildings or premises'
codes." (Gibson & McLendon, Commercial Liability Insurance
(International Risk Management Institute, Inc. 1987) "CGL
Classification and Ratings Tips," p. VIII.E.2.)
5 The few courts which have evaluated the effect of a
"ratings" endorsement to a policy have agreed that, absent
express language declaring that the ratings endorsement was
intended to limit coverage, the endorsement would not be
construed as an additional limitation on coverage. (See Murry v.
Bankers Fire & Marine Insurance Company (La. 1967) 198 So.2d 532,
534-535; Tufts University v. Commercial Union Ins. (Mass. 1993)
616 N.E.2d 68.)
Thus, the plain words of the ICW policy cover claims against
PVCC for slander provided the slander has the requisite nexus
with PVCC's use of the described premises. If ICW wished to
exclude coverage for PVCC's non-lessor related liabilities, it
should not have included PVCC's corporate offices as an insured
described premises. We conclude the Lessor's Risk Only language
does not create a limitation on coverage. Because there was a
potential for coverage under the ICW policy for slander claims
against Feurzeig, ICW owed a duty to defend Feurzeig as an
officer or director of PVCC under the policy against the third
party claims, and it was error for the court to grant judgment on
the pleadings in favor of ICW on the duty to defend issue.
The trial court granted ICW's motion for judgment on the
pleadings and motion for nonsuit based on the erroneous
conclusion that there was no potential for the third party
lawsuit to assert a covered claim because the Lessor's Risk Only
language limited coverage to PVCC's liability as a lessor of the
described premises. It is necessary to reverse the judgment
because we conclude the Lessor's Risk Only language did not limit
coverage and there was a potential for coverage if Feurzeig's
slanders were uttered as an officer or director of PVCC and arose
from PVCC's use of the described premises. Although this
potentiality gave rise to a duty to defend Feurzeig, we express
no opinion whether on remand ICW can defeat Feurzieg's indemnity
claim either by overcoming the presumptions arising from
Feurzeig's settlement of the lawsuit (see Pruyn v. Agricultural
Ins. Co. (1995) 36 Cal.App.4th 500, 527-528) or by establishing
an applicable affirmative defense.
THE PUNITIVE DAMAGE ISSUE
Prior to trial ICW moved for and obtained summary
adjudication that Feurzeig was not entitled to punitive damages.
(Code Civ. Proc. § 437c, subd. (f)(1).) Appellants claim this
ruling was error.
A. Applicable Standards
Although we have concluded ICW owed Feurzeig a defense, and
may owe Feurzeig indemnity, the award of punitive damages
requires proof that the insurer violated its duty of good faith
and fair dealing and acted with malice, oppression or fraud.
(See Travelers Ins. Co. v. Lesher, supra, 187 Cal.App.3d at pp.
200-202; Patrick v. Maryland Casualty Co. (1990) 217 Cal.App.3d
1566, 1575-1576.) "In order to establish that an insurer's
conduct has gone sufficiently beyond mere bad faith to warrant a
punitive award, it must be shown by clear and convincing evidence
that the insurer has acted maliciously, oppressively or
fraudulently." (Mock v. Michigan Millers Mutual Ins. Co. (1992)
4 Cal.App.4th 306, 328, original italics.)
The trial court granted summary adjudication because ICW's
evidence showed it did not act with malice, oppression or fraud
and appellants' evidence did not "rise to the level of clear and
convincing evidence of malice, fraud or oppression by [ICW]."
Our review of that ruling is de novo. (Scolinos v. Kolts (1995)
37 Cal.App.4th 635, 638-639.)
When "clear and convincing" evidence is the standard of
proof to which the plaintiff will be held at trial, the
evaluation of the plaintiff's opposition to a motion for summary
judgment must assess whether the plaintiff possesses facts which
if believed will satisfy that higher burden of proof. (Reader's
Digest Assn. v. Superior Court (1984) 37 Cal.3d 244, 252 [summary
judgment affirmed because trier of fact could not find clear and
convincing evidence of malice]; Live Oak Publishing Co. v.
Cohagan (1991) 234 Cal.App.3d 1277, 1288 [same]; Rowe v. Superior
Court (1993) 15 Cal.App.4th 1711, 1724 [when summary judgment
motion is made on claim where plaintiff has substantive burden of
proof by "clear and convincing" evidence, his opposing evidence
and inferences reasonably drawn therefrom must meet higher
standard of proof to avoid summary judgment].)
The requirement that a plaintiff produce "clear and
convincing" evidence has been adopted in evaluating claims for
punitive damages. In Looney v. Superior Court (1993) 16
Cal.App.4th 521, the court concluded the proper standard for
evaluating whether to permit a plaintiff to amend his pleading to
assert a punitive damage claim is whether the evidentiary showing
in support of the motion would as a matter of law suffice to
satisfy the "clear and convincing evidence" standard. (Id. at
pp. 539-540.) In Stewart v. Truck Ins. Exchange (1993) 17
Cal.App.4th 468, the court evaluated whether a nonsuit was proper
on a punitive damage claim. It explained:
"Since January 1, 1988, a claim for punitive
damages has required evidence which establishes by
'clear and convincing evidence' that the defendant
has been 'guilty of oppression, fraud, or malice.'
If a plaintiff is to recover on such a claim, it
will be necessary that the evidence presented meet
this higher evidentiary standard. As the United
States Supreme Court put it, in the context of
ruling on a motion for summary judgment, 'the
judge must view the evidence presented through the
prism of the substantive [clear and convincing]
evidentiary burden . . . . [¶] Our holding that
the clear-and-convincing standard of proof should
be taken into account in ruling on summary
judgment motions does not denigrate the role of
the jury.' (Anderson v. Liberty Lobby, Inc.
(1986) 477 U.S. 242, 254-255 . . . .) [¶] We see
no reason why this standard should not apply here.
If Stewart was ever going to prevail on his
punitive damage claim he could only do so by the
presentation of clear and convincing evidence that
Truck had by its conduct, demonstrated malice.
Thus, the trial court properly viewed the evidence
presented by Stewart with that higher burden in
mind. In our review of the trial court's order
granting the nonsuit, we can do no differently."
(Stewart, supra, at pp. 481-482, fns. omitted,
We are convinced these standards also apply when a defendant
seeks summary adjudication that a plaintiff's claim for punitive
damages lacks merit: the plaintiff's opposition must contain
evidence sufficient as a matter of law to satisfy his burden of
producing clear and convincing evidence of malice, oppression or
B. The Evidence
Appellants cite numerous types of "misconduct" by ICW to
support their claim for punitive damages. We examine each
evidentiary showing to determine whether, if believed, it would
singly or in combination provide clear and convincing evidence of
malice, oppression or fraud.
1. Failure to Investigate. Appellants claim ICW failed to
investigate Feurzeig's claim before it denied coverage.7
However, the evidence shows ICW did investigate before it denied
coverage. Feurzeig's attorney, Mr. Teel, made demand on all
insurers for a defense. When ICW received the request Mr. Davis,
a senior claims agent for ICW, contacted Teel, reviewed the
cross-complaint and found potential personal injury coverage
within the policy. However, after re-reviewing coverage, ICW
determined the only named cross-defendants were Feurzeig, who was
6 The federal courts are in accord. (See Raynor v.
Richardson-Merrell, Inc. (D.D.C. 1986) 643 F.Supp. 238, 245
[summary judgment on punitive damage claim granted where evidence
did not "rise to the 'clear and convincing' standard"].)
7 Appellants also claim ICW "lied" to Feurzeig in a letter,
written 18 months after the initial denial of coverage, in which
ICW stated it had "thoroughly" investigated the coverage issue
before originally rejecting the claim. We conclude ICW did
investigate before it rejected coverage. ICW's subsequent
statement is not false merely because appellants disagree the
not insured in his individual capacity, and various other non-
insured entities. Davis discussed the matter with his
supervisor, Mr. Coune, and concluded there was no need further to
evaluate the substantive coverage aspects because nothing in the
cross-complaint suggested any ICW insured was involved in the
action. Davis phoned Teel to inform him of ICW's determination,
and Teel "did not seem surprised or in disagreement." Davis also
examined the balance of the pleadings filed in the case and found
nothing to change his opinion. Davis informed Teel in writing of
the basis for ICW's action, and specifically advised Teel: "[I]f
you have any information to suggest that [ICW] is in fact the
carrier of record for any of the defendants or cross-defendants
in this matter, I invite you to contact me."
The evidence Feurzeig cites in support of his claim of
failure to investigate showed only that ICW conducted no
"outside" investigation. Feurzeig apparently contends that
examination of outside sources would have disclosed Feurzeig
acted in an insured capacity as an officer of PVCC in his
dealings with the Trevi properties. However, the duty to defend
arises only if there is a potential for a covered claim. The
determination must be made based on facts known to the insurer
from the complaint and from any extraneous information available
to it at the time it makes its coverage decision. (Gunderson v.
investigation qualified for the descriptive adjective of
Fire Ins. Exchange (1995) 37 Cal.App.4th 1106, 1114.) There is
no suggestion here that ICW rejected the tender with knowledge of
the critical information that Feurzeig might have been acting on
behalf of PVCC in making the slanderous statements. Moreover,
ICW did seek information from the sources most likely both to
have information and to be motivated to produce it: Feurzeig and
his attorneys. While ICW might well have taken different routes
to determine whether Feurzeig might have been acting on behalf of
PVCC in making the slanderous statements, its choice to take the
most direct route to such information is not clear and convincing
evidence that its denial of coverage based on the information
then available was malicious, oppressive or fraudulent.
2. Disregarded Advice From Coverage Counsel. Appellants
cite two letters to ICW from attorney Rubino to support their
argument that Rubino, acting as ICW's "coverage counsel," advised
ICW it owed defense and indemnity obligations to Feurzeig, and
that ICW ignored Rubino's advice. However, Rubino was neither
ICW's coverage counsel nor a specialist in coverage issues.
Moreover, Rubino's statements predicting the trial court would
find ICW had a duty to defend and indemnify were made in a
different context and for different purposes.8 Rubino explained
8 Rubino was hired to defend ICW against a cross-complaint
filed by another insurer, Transamerica, which sought contribution
from ICW for Transamerica's costs of defending and indemnifying
PVCC. A few weeks after hiring Rubino, ICW received a settlement
demand from Transamerica. Rubino's role was to preliminarily
that his prediction on how the trial court would rule was based
solely on how the trial court had ruled on other insurers'
motions rather than on analysis of the policy, and his focus was
not to evaluate ICW's substantive position on coverage but
instead was to evaluate whether a "cost of defense" settlement
offer would be prudent. ICW did not "disregard the advice of its
coverage counsel," but instead solicited the advice of Rubino on
whether to settle the contribution lawsuit by Transamerica.9
3. Disregard of Court Opinions. Appellants assert courts
previously had found that other insurers with policies containing
provisions identical to those contained in ICW's policy owed
defense and indemnity obligations to Feurzeig, and that ICW
ignored those rulings. However, the only "evidence" cited to
support this assertion are Rubino's letters explaining that other
insurers had sought to escape coverage by arguing that Feurzeig
had not acted as an officer of PVCC in making the slander or that
slanders made before the policy inception were excluded from
coverage, and the trial court had rejected these efforts.
assess the potential for exposure and the costs to defend that
action in order to compare the settlement offer with the costs of
9 Appellants also claim ICW deliberately took a "low profile"
approach in order to avoid its obligations to appellants.
However, the evidence appellants cite consists of Rubino's
statements that ICW should maintain a "low profile" in the
Transamerica action "to discourage other [insurers] from looking
toward ICW for substantial contributions to the payments they
have already made to Feurzeig." The "low profile" language was
not directed at avoiding claims Feurzeig might make.
However, nothing suggests the other policies were identical to
ICW's policy, because ICW's policy provided coverage subject to a
significant limitation (the designated premises limitation) and
there is no evidence the other insurers had similar policy
limitations. The evidence does not support appellants' claim
that ICW ignored the trial court's prior rulings on the
obligations owed under identical policies.
4. ICW "Procrastinated" in Responding to Feurzeig.
Appellants claim ICW procrastinated in responding to Feurzeig's
demands for a defense and for indemnity. Feurzeig made three
demands on ICW. The first demand, received by ICW sometime in
early October 1991, was answered by phone and thereafter by a
November 12, 1991 letter. The second demand, apparently sent to
ICW around August 7, 1992, was answered by an August 18, 1992
letter. The final demand, received by ICW on June 29, 1993, was
answered by an August 3, 1993 letter. ICW did not unduly delay
in responding to Feurzeig's demands.10
10 The "evidence" on which appellants rely for this contention
is a handwritten note from ICW senior claims specialist Heap to
her supervisor, Mr. Coune, in which Heap stated she had received
the 1993 demand letter. The 1993 letter informed ICW, apparently
for the first time, that Feurzeig was an officer and director of
a named insured and had made the alleged slanderous statements in
that capacity. Heap's cover note to Coune stated: "I have been
procrastinating as I'm not sure what to do." The note suggested
that they discuss the subject in coverage committee. Fewer than
three weeks later, Heap responded to Feurzeig's attorneys
reiterating that ICW's original position was unchanged, but that
"in light of your allegation that Mr. Feurzeig was acting in his
capacity as an officer and director of the original named
5. Ignored Internal Audit. Appellants argue an ICW
internal audit found its claims-handling procedures deficient,
and ICW ignored the audit's results and subsequently made no
changes in company procedures, thereby demonstrating an
institutionalized disregard for its insureds' interests.
Although the audit may have revealed that many ICW claims
department employees were negligent or inept in claims handling,
negligence or ineptness alone does not warrant a punitive damage
award.11 (See Patrick v. Maryland Casualty Co. (1990) 217
Cal.App.3d 1566, 1576; Tomaselli v. Transamerica Ins. Co. (1994)
25 Cal.App.4th 1269, 1288.)
More importantly, we are unaware of any authority holding
that negligence by other adjusters on other claims permits
insured, I would be more than happy to take you up on your offer
of providing additional facts and circumstances so that I can
make an informed decision on your renewed request" for coverage.
While Heap may have been uncertain of what course to take, a few
weeks' delay to evaluate new allegations and formulate a response
is not malicious, oppressive or fraudulent procrastination.
11 The cases on which appellants rely sustained punitive awards
when the insurer intentionally adopted policies or practices in
claims handling which it knew would harm insureds. (See, e.g.,
Moore v. American United Life Ins. Co. (1984) 150 Cal.App.3d 610,
637 [insurer had a practice "firmly grounded in established
company policy" of intentionally supplying physicians with the
wrong definition of total disability]; Downey Savings & Loan
Assn. v. Ohio Casualty Ins. Co. (1987) 189 Cal.App.3d 1072, 1098-
1099 [insurer was guilty of company-wide misconduct by
instructing its claims adjusters to focus on ways to defeat
claims]; Hughes v. Blue Cross of Northern California (1989) 215
Cal.App.3d 832, 847 [insurer's objectionable claims handling
practices were rooted in intentional company practice of using a
standard for "medical necessity" which was unduly restrictive and
not in conformity with community standards].)
punitive damages when there was no evidence the criticized claims
practices adversely affected the handling of the plaintiff's
claim. Feurzeig's claim was rejected based on a "no coverage"
determination by Davis after consultation with Coune, and again
by Heap after consultation with Coune. Although the audit gave
"below average" ratings to other ICW adjusters in the categories
of "coverage analysis" and "investigation," Davis received high
ratings in both areas. Moreover, although the audit did not
review Feurzeig's file, it noted that managers occasionally
became involved in files directed to them because of coverage
concerns (as occurred here) and the auditors agreed that "when
. . . Mr. Coune . . . [was] involved we found excellent comments
and discussion." The audit results do not provide clear and
convincing evidence that company deficiencies caused Feurzeig's
claim to be mishandled.
6. Use of 'Hardball' Litigation Tactics. Appellants cite
White v. Western Title Ins. Co. (1985) 40 Cal.3d 870 as holding
an insurer can be subject to punitive damages if in the insured's
bad faith action the insurer is too zealous in defending itself.
Appellants argue that ICW's failure to respond to appellants'
discovery and its propounding of burdensome discovery requests to
appellants permit an award of punitive damages.12 The courts
12 Appellants also cite Moore v. American United Life Ins. Co.,
supra, 150 Cal.App.3d 610 for the proposition that punitive
damages may be awarded when an insurer raises a specious defense
have long refused to award a plaintiff damages merely because the
defendant vigorously attempted to defend himself against a
lawsuit. (Bertero v. National Gen. Corp. (1974) 13 Cal.3d 43,
52-53 [no tort of "malicious defense"]; Coleman v. Gulf Ins.
Group (1986) 41 Cal.3d 782, 794, fn. 9.) Although White
permitted use of a post-complaint settlement offer to show bad
faith, it did not hold that any and all litigation tactics were
relevant to bad faith, and several courts have concluded White
should be limited to its narrow holding. (Nies v. National Auto.
& Casualty Ins. Co. (1988) 199 Cal.App.3d 1192, 1202; California
Physicians' Service v. Superior Court (1992) 9 Cal.App.4th 1321,
1326-1330 [matters qualifying for absolute privilege under Civil
Code section 47, subdivision (b) cannot be used to allege ongoing
insurer bad faith].) We are convinced existing measures,
including protective orders and requests for sanctions, are
adequate to protect an insured from onerous litigation conduct
in the insured's "bad faith lawsuit," and that ICW's Lessor's
Risk Only argument was a specious defense. Neither aspect of
this claim has merit. Moore upheld punitive damages because the
insurer adopted a definition of "total disability" and denied
claims based on its more restrictive definition knowing that its
definition did not comply with applicable law and knowing that
its insured would not be likely to discover the insurer's
definition was overly restrictive. (Id. at pp. 637-640.) Moore
did not purport to permit punitive damages to punish a litigant
for contentions raised during litigation. Second, Moore
evaluated an insurer whose policy interpretation was so contrary
to established law as to be entirely specious. Although we have
rejected ICW's interpretation of the Lessor's Risk Only language
as a substantive matter, ICW's argument is not so wholly without
merit to be specious.
without the specter of punitive damages chilling the insurer's
right effectively to defend itself.13
13 Although our conclusion makes it unnecessary to evaluate
whether ICW's conduct was onerous, we note the record contains no
evidence that appellants sought or obtained a protective order,
much less that appellants sought or obtained sanctions for ICW's
conduct. Although the record does contain evidence appellants
sought and obtained an order to compel responses to appellants'
discovery, the record also contains evidence (1) the discovery
referee characterized appellants' discovery practices as
"aggressive" and (2) ICW's discovery was not so onerous as to
preclude ICW from successfully obtaining an order compelling
appellants to respond to that discovery.
The evidence on which appellants rely does not establish
clearly or convincingly malice, oppression or fraud.
Accordingly, we conclude the trial court properly granted summary
adjudication in favor of ICW on appellants' claim for punitive
The order granting summary adjudication in favor of ICW on
appellants' claim for punitive damages is affirmed. The judgment
is otherwise reversed and remanded for further proceedings
consistent with this opinion. All parties shall bear their own
costs on appeal.
WORK, Acting P.J.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
STATE OF CALIFORNIA
CHARLES I. FEURZEIG et al., D026069
Plaintiffs and Appellants,
v. (Super. Ct. No. 678610)
INSURANCE COMPANY OF THE WEST, ORDER CERTIFYING OPINION
FOR PARTIAL PUBLICATION
Defendant and Respondent. AND DENYING REQUEST FOR
The opinion filed November 12, 1997, is ordered certified
for publication with the exception of part III.
The attorneys of record are:
Foley, Lardner, Weissburg & Aronson, C. Darryl Cordero and
Shana T. Torem for Plaintiffs and Appellants.
Alan H. Lazar for Defendant and Respondent.
The petition for rehearing is denied.
WORK, Acting P.J.
Copies to: All parties