Filed 10/5/21 (unmodified opinion attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
NEDE MGMT., INC., et al., B307470
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. 19STCV05442)
v.
ORDER MODIFYING OPINION
ASPEN AMERICAN INSURANCE
COMPANY et al.,
[No change in the judgment]
Defendants and Respondents.
IT IS ORDERED that the opinion filed in the above-
captioned matter on September 20, 2021, be modified as follows:
1. On page 3, last paragraph, the second sentence
beginning with “They believed . . .” is deleted and
replaced with:
“They believed these various allegations, if proven,
created a conflict of interest between them and Aspen
that required Aspen to provide them independent
counsel pursuant to section 2860.”
2. On page 15, line 7, the sentence beginning with “Fields’
handling of the case . . .” is deleted and replaced with:
“Fields’ handling of the case—and the Darwish family’s
apparent dissatisfaction with it—is beside the point,
unless they can show Fields was serving Aspen and
D&H’s separate and conflicting interests to their
detriment.”
3. On page 15, line 4 of the last paragraph, the following is
added to the beginning of the sentence, so that it now
reads:
“If Fields had entertained such a view, it is part of an
attorney’s honest assessment about the merits of a
case.”
This modification effects no change in the judgment.
____________________________________________________________
STRATTON, Acting P. J. WILEY, J. OHTA, J. *
* Judge of the Los Angeles Superior Court, assigned by the Chief
Justice pursuant to article VI, section 6 of the California Constitution.
2
Filed 9/20/21 (unmodified opinion)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
NEDE MGMT., INC., et al., B307470
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. 19STCV05442)
v.
ASPEN AMERICAN INSURANCE
COMPANY et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of
Los Angeles County. Patricia D. Nieto, Judge. Affirmed as
modified.
Action Legal Team, Michael N. Sofris; Stillman &
Associates and Philip H. Stillman for Plaintiffs and Appellants.
BHC Law Group, David Borovsky; Greines, Martin, Stein
& Richland, Robert A. Olson and Eleanor S. Ruth for Defendants
and Respondents.
_______________________
1
The Darwish family controlled a property in Los Angeles
where a fire occurred, killing one person and injuring others.
The victims sued. The Darwish family’s insurer Aspen American
Insurance Co. (Aspen) and managing underwriter Deans &
Homer (D&H) defended the action, which ultimately settled
without any out-of-pocket payment from the Darwish family.
They nevertheless sued Aspen and D&H in this action, alleging a
single claim for declaratory relief. They sought a declaration that
a conflict of interest existed in the underlying case between them
and Aspen and D&H, so they were entitled to so-called “Cumis”
2
counsel pursuant to Civil Code section 2860 (section 2860).
The trial court sustained a demurrer without leave to
amend and entered judgment for Aspen and D&H, holding no
conflict existed as a matter of law, so the Darwish family failed to
state a claim for declaratory relief. We conclude the demurrer
was the incorrect procedural vehicle to resolve the Darwish
family’s declaratory judgment claim against Aspen and D&H.
However, the Darwish family suffered no prejudice because the
second amended complaint (SAC) did not allege a conflict of
interest entitling them to independent counsel pursuant to
section 2860 as a matter of law. We will therefore modify the
judgment to declare the rights adverse to the Darwish family and
affirm.
1
We use the shorthand “Darwish family” to refer to plaintiffs
Eden, David, and Barbara Darwish, and Eden’s company Nede
Mgmt., Inc. (Nede). We use their first names where necessary for
clarity.
2
San Diego Fed. Credit Union v. Cumis Ins. Society (1984)
162 Cal.App.3d 358, 375 (Cumis).
2
The trial court also granted a motion to strike D&H as a
defendant. That ruling is moot, so we need not address it.
BACKGROUND
We take the facts from the operative SAC, which we
assume are true. (Centex Homes v. St. Paul Fire & Marine Ins.
Co. (2015) 237 Cal.App.4th 23, 26 (Centex Homes I).) We also
assume the numerous attachments to the complaint are true, and
they take precedence over any conflicting allegations in the SAC.
(Brakke v. Economic Concepts, Inc. (2013) 213 Cal.App.4th 761,
767.)
Allegations
On July 4, 2015, a fire occurred on a property covered by
the insurance policy at issue. A squatter died. Two tenants, two
surviving squatters, and the estate of the deceased squatter sued
the Darwish family and their corporate entities, including Nede.
The lawsuit alleged claims for wrongful death, negligence,
premises liability, and conversion (the Hall action).
David and Barbara tendered their defense in the Hall
action to D&H and Aspen. D&H assumed control of the action
and hired attorney Gary Fields as counsel for the Darwish family.
Fields’ representation was subject to two reservations of rights:
Aspen would not pay any judgment exceeding the $1 million
policy limit and would not pay punitive damages.
The Darwish family alleged Fields “failed and refused to
properly defend” them, outlining specific examples of his faulty
representation. They believed his poor representation of them
created a conflict of interest between them and Aspen that
required Aspen to provide them independent counsel pursuant to
section 2860. Specifically, they alleged a conflict of interest arose
from Fields’ coverage and settlement decisions adverse to them;
3
the manner in which Fields defended the action; and Fields’
failure to defend against punitive damages. This alleged conflict
was reflected in Fields’ failure to communicate an initial
settlement demand within policy limits and failure to fully
investigate the case.
Aspen and D&H denied the request for independent
counsel for David and Barbara. In their view, the reservation of
rights limited to damages exceeding policy limits and punitive
damages did not create a conflict of interest that triggered a right
to independent counsel.
Aspen did, however, approve independent counsel for Nede
for a time. Nede was not a named insured, so the approval was
subject to a reservation of rights that Nede was deemed an
insured under the policy in its role as the building’s property
manager. Aspen also denied any obligation to pay damages
arising from any act or omission by Nede in any capacity other
than as property manager.
Nede retained separate counsel. According to the SAC,
Aspen’s counsel interfered with that independent representation
in various ways. Nonetheless, Aspen paid Nede’s counsel’s
invoices, subject to reductions. A little less than a year after
approval, Aspen terminated approval for Nede’s separate counsel
because it had revoked its reservation of rights.
The Hall action eventually settled. Although not expressly
alleged in the SAC, there appears to be no dispute the Darwish
family paid nothing out of pocket for the settlement.
Procedural History
The Darwish family sued Aspen and D&H, alleging a single
claim for declaratory relief seeking a declaration of their rights
pursuant to section 2860. In the operative SAC, they alleged an
4
actual conflict of interest existed between them and insurer-
appointed counsel, so they sought a declaration they were
entitled to independent counsel at Aspen’s expense for the
periods prior to December 2017 and after September 10, 2018.
Aspen and D&H demurred to the SAC. The trial court
sustained the demurrer without leave to amend. The court
viewed the declaratory relief claim as “wholly derivative” of an
unpled substantive claim under section 2860. The substantive
claim failed because Aspen’s reservations of rights for punitive
damages and for claims in excess of policy limits did not trigger
the right to independent counsel under section 2860. The court
also held the allegations that insurer-appointed counsel
improperly litigated the Hall action did not create the type of
conflict of interest triggering section 2860.
As for Nede, Aspen was entitled to withdraw its reservation
of rights, and nothing alleged in the SAC entitled Nede to
independent counsel after that time.
The court also held any fee dispute had to be resolved in
arbitration per section 2860, subdivision (c).
D&H had also filed a motion to strike D&H as a defendant.
After the court sustained the demurrer, it noted the motion to
strike was moot but granted it anyway. It held the SAC did not
sufficiently allege D&H was an insurer, and section 2860 on its
face applies only to insurers.
DISCUSSION
I. Standard of Review
We independently review the sustaining of a demurrer.
(Centex Homes I, supra, 237 Cal.App.4th at p. 28.) We assume
the truth of properly pleaded facts, and we give the complaint a
reasonable interpretation, reading it as a whole. (Ibid.) We
5
review the denial of leave to amend for abuse of discretion,
asking whether there is “a reasonable possibility that the
complaint can be cured by amendment.” (Ibid.)
II. The Demurrer Was Improperly Sustained But the
Darwish Family Suffered No Prejudice
Before turning to section 2860, we address the Darwish
family’s argument that the trial court’s order must be reversed
because the SAC sufficiently alleged a controversy subject to
declaratory relief, “regardless of whether the plaintiff is entitled
to the requested relief.” Citing Ball v. FleetBoston Financial
Corp. (2008) 164 Cal.App.4th 794 (Ball), the trial court disagreed,
viewing the declaratory relief claim as “wholly derivative” of a
substantive claim under section 2860, and “if the underlying
substantive claim fails, the demurrer may properly be sustained.”
As we explain, the trial court’s reasoning sustaining the
demurrer was incorrect, but the error was not prejudicial because
Aspen and D&H were entitled to judgment as a matter of law.
(See Robertson v. Saadat (2020) 48 Cal.App.5th 630, 639 [“We are
not bound by the trial court’s reasoning and may affirm the
judgment if correct on any theory.”].) The proper course is to
modify the judgment to reflect a declaration adverse to the
Darwish family and affirm.
“ ‘ “ ‘The fundamental basis of declaratory relief is the
existence of an actual, present controversy over a proper
subject.’ ” [Citations.] The language of Code of Civil Procedure
section 1060 appears to allow for an extremely broad scope of an
action for declaratory relief: “Any person interested under a
written instrument . . . or under a contract, or who desires a
declaration of his or her rights or duties with respect to another,
or in respect to, in, over or upon property . . . may, in cases of
6
actual controversy relating to the legal rights and duties of the
respective parties, bring an original action . . . for a declaration of
his or her rights and duties in the premises, including a
determination of any question of construction or validity arising
under the instrument or contract.” ’ ” (Linda Vista Village San
Diego Homeowners Assn., Inc. v. Tecolote Investors, LLC (2015)
234 Cal.App.4th 166, 181.)
The Darwish family relies on a line of cases holding that
“ ‘[a] general demurrer is usually not an appropriate method for
testing the merits of a declaratory relief action, because the
plaintiff is entitled to a declaration of rights even if it is adverse
to the plaintiff’s interest.’ ” (Qualified Patients Assn. v. City of
Anaheim (2010) 187 Cal.App.4th 734, 751; see Lockheed Martin
Corp. v. Continental Ins. Co. (2005) 134 Cal.App.4th 187, 221
(Lockheed), disapproved on another ground by State of California
v. Allstate Ins. Co. (2009) 45 Cal.4th 1008, 1036, fn. 11; Ludgate
Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592,
606.)
This rule dates back at least to Maguire v. Hibernia
Savings & Loan Soc. (1944) 23 Cal.2d 719 (Maguire), which held,
“Section 1060 of the Code of Civil Procedure provides that a party
may bring an action for ‘a declaration of his rights and duties in
the premises’ and that the ‘declaration may be either affirmative
or negative in form and effect.’ It contains no suggestion that the
pleader must allege facts entitling him to a favorable
declaration.” (Id. at p. 730; accord, Bennett v. Hibernia Bank
(1956) 47 Cal.2d 540, 549–550 [“It is the general rule that in an
action for declaratory relief the complaint is sufficient if it sets
forth facts showing the existence of an actual controversy relating
to the legal rights and duties of the respective parties under a
7
contract and requests that the rights and duties be adjudged.
(Code Civ. Proc., § 1060.) If these requirements are met, the
court must declare the rights of the parties whether or not the
facts alleged establish that the plaintiff is entitled to a favorable
declaration.”]; Columbia Pictures Corp. v. DeToth (1945) 26
Cal.2d 753, 760.)
Courts have recognized this rule can often lead to a waste
of court and litigant resources when it is clear the plaintiff seeks
a declaration of rights to which he or she is not legally entitled.
It would seem unnecessary to reverse a judgment sustaining a
demurrer simply because an “actual controversy” has been
alleged. (Lockheed, supra, 134 Cal.App.4th at pp. 221–222 [“If
the appellate court’s decision on the merits would necessarily
result in a declaration unfavorable to the plaintiff, reversal would
be an idle act.”].) Although the sustaining of the demurrer might
be technically incorrect, reversing “would merely provoke further
appellate recourse since the record discloses that the trial court
dismissed the case on the merits and the legal issues are clearly
presented by the pleadings.” (Zeitlin v. Arnebergh (1963) 59
Cal.2d 901, 908; see Salsbery v. Ritter (1957) 48 Cal.2d 1, 7 [“Our
decision that controversies are shown to exist, however, does not
resolve them, and we must therefore pass upon the questions of
law that must be decided to reach a final determination of the
case.”].)
Hence, “where a complaint sets forth a good cause of action
for declaratory relief regarding only a disputed question of law,
declarations on the merits unfavorable to a plaintiff have been
upheld although such determinations were made in the form of a
judgment sustaining a demurrer.” (Jefferson Incorporated v. City
of Torrance (1968) 266 Cal.App.2d 300, 303.) “ ‘[W]hile Code of
8
Civil Procedure section 1060 entitles a plaintiff suing pursuant to
its provisions to a declaration of rights and duties even if the
eventual declaration may be adverse [citations], error of the trial
court in refusing to entertain the action is nevertheless not
prejudicial if it is clear from the face of the complaint that the
plaintiff’s position is untenable and that a declaration adverse to
the plaintiff will end the matter.’ ” (Jones v. Daly (1981) 122
Cal.App.3d 500, 511.)
In this circumstance, courts treat the appellate opinion as
“in effect a declaratory judgment. [Citation.] The proper
procedure is to modify the judgment to make that declaration and
affirm the judgment as modified.” (Lockheed, supra, 134
Cal.App.4th at p. 222; see Essick v. City of Los Angeles (1950) 34
Cal.2d 614, 624; Farmers Ins. Exchange v. Zerin (1997) 53
Cal.App.4th 445, 460–461 [“Strictly speaking, a demurrer is not
an appropriate weapon to attack a claim for declaratory relief
inasmuch as the plaintiff is entitled to a declaration of its rights,
even if adverse. [Citation.] However, because no benefit would
be served by reversal and remand to the trial court for entry of a
judgment declaring that Farmers has no right to recovery from
defendant, this opinion shall serve as a declaration of rights and
duties.”].)
The trial court and Aspen and D&H rely on Ball to support
dismissal, which did not acknowledge the Maguire line of
authority. In that case, the Court of Appeal affirmed the denial
of a motion for leave to amend a complaint because the plaintiff
failed to adequately allege a substantive statutory violation.
(Ball, supra, 164 Cal.App.4th at p. 798.) The court held a
declaratory relief claim based on the same statutory claim could
not be adequately alleged because it was “wholly derivative” of
9
the statutory claim. (Id. at p. 800.) For support, the court cited
only Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782,
794 (Ochs). That case did not discuss the Maguire line of cases,
either. In two sentences with no citation of authority, Ochs
simply affirmed the sustaining of a demurrer to declaratory and
injunctive relief claims because they were “wholly derivative” of
other claims for statutory violations the court had found lacking.
(Ibid.)
We need not follow Ball or Ochs, which did not involve a
stand-alone declaratory relief claim as in this case. Instead, we
will apply the rule in Maguire. Here, the Darwish family
adequately alleged an “actual controversy” under the declaratory
relief statute, so the trial court technically should have overruled
the demurrer. But we agree with those cases that treat the error
as non-prejudicial because the SAC fails to allege the kind of
conflict of interest that would have entitled the Darwish family to
independent counsel pursuant to section 2860. This is a question
of law precluding a declaration in their favor, so we will modify
3
the judgment to reflect a declaration adverse to their claim.
“ ‘Generally, an insurer owing a duty to defend an insured,
arising because there exists a potential for liability under the
policy, “has the right to control defense and settlement of the
third party action against its insured, and is . . . a direct
participant in the litigation.” [Citations.] The insurer typically
hires defense counsel who represents the interests of both the
3
Because we conclude the Darwish family is not entitled to
independent counsel as a matter of law, we need not address
Aspen and D&H’s alternate argument that the declaratory relief
claim addresses only past wrongs.
10
insurer and the insured.’ ” (Centex Homes v. St. Paul Fire &
Marine Ins. Co. (2018) 19 Cal.App.5th 789, 797 (Centex Homes
II).)
Pursuant to section 2860, however, “[i]f the provisions of a
policy of insurance impose a duty to defend upon an insurer and a
conflict of interest arises which creates a duty on the part of the
insurer to provide independent counsel to the insured, the
insurer shall provide independent counsel to represent the
insured unless, at the time the insured is informed that a
possible conflict may arise or does exist, the insured expressly
waives, in writing, the right to independent counsel.” (§ 2860,
subd. (a).) “For purposes of this section, a conflict of interest does
not exist as to allegations or facts in the litigation for which the
insurer denies coverage; however, when an insurer reserves its
rights on a given issue and the outcome of that coverage issue can
be controlled by counsel first retained by the insurer for the
defense of the claim, a conflict of interest may exist.” (Id., subd.
(b).)
Often called Cumis counsel, section 2860 creates a right for
an insured to obtain independent counsel at the insurer’s expense
whenever their competing interests create an ethical conflict for
the insurer-appointed counsel. (Centex Homes I, supra, 237
Cal.App.4th at p. 30.) Section 2860, subdivision (b) and case law
make clear that “ ‘not every reservation of rights entitles an
insured to select Cumis counsel.’ [Citation.] Whether
independent counsel is required ‘depends upon the nature of the
coverage issue, as it relates to the issues in the underlying case.’
[Citation.] ‘There must . . . be evidence that “the outcome of [the]
coverage issue can be controlled by counsel first retained by the
insurer for the defense of the [underlying] claim.” ’ [Citation.] ‘
11
“It is only when the basis for the reservation of rights is such as
to cause assertion of factual or legal theories which undermine or
are contrary to the positions to be asserted in the liability case
that a conflict of interest sufficient to require independent
counsel, to be chosen by the insured, will arise.” ’ [Citation.]
“California law is settled that ‘there is no entitlement to
independent counsel where the coverage issue is “ ‘independent
of, or extrinsic to, the issues in the underlying action [citations].’ ”
[Citation.] Stated otherwise, “where the reservation of rights is
based on coverage disputes which have nothing to do with the
issues being litigated in the underlying action, there is no conflict
of interest requiring independent counsel.” ’ [Citation.]
“ ‘A mere possibility of an unspecified conflict does not
required independent counsel. The conflict must be significant,
not merely theoretical, actual, not merely potential.’ [Citation.]
A case by case analysis is required: ‘The potential for conflict
requires a careful analysis of the parties’ respective interests to
determine whether they can be reconciled (such as by a defense
based on total nonliability) or whether an actual conflict of
interest precludes insurer-appointed defense counsel from
presenting a quality defense for the insured.’ ” (Centex Homes II,
supra, 19 Cal.App.5th at pp. 797–798.)
Aspen’s reservation of rights for punitive damages and
damages beyond policy limits did not create a conflict of interest
triggering section 2860. “ ‘[T]he mere fact the insurer disputes
coverage does not entitle the insured to Cumis counsel; nor does
the fact the complaint seeks punitive damages or damages in
excess of policy limits. ( . . . § 2860, subd. (b); [citations].) The
insurer owes no duty to provide independent counsel in these
situations because the Cumis rule is not based on insurance law
12
but on the ethical duty of an attorney to avoid representing
conflicting interests.’ ” (James 3 Corp. v. Truck Ins. Exchange
(2001) 91 Cal.App.4th 1093, 1101 (James 3); see Golden Eagle
Ins. Co. v. Foremost Ins. Co. (1993) 20 Cal.App.4th 1372, 1394
(Golden Eagle).)
That leaves the Darwish family’s allegations that Fields
“failed and refused to properly defend” them in various ways in
the Hall action. They misunderstand the nature of the right to
independent counsel under section 2860. The conflicts of interest
contemplated by section 2860 do not include an insured’s mere
dissatisfaction with the performance of insurer-appointed
counsel. That is because “an insurer has the right to control the
defense it provides to its insured provided there is no conflict of
interest.” (James 3, supra, 91 Cal.App.4th at pp. 1105–1106.)
The right to control the defense would be gutted if the insured
could create a conflict of interest merely by complaining about
how insurer-appointed counsel is handling the case.
Cumis and section 2860 are concerned with an attorney’s
dual representation of the insurer and insured when their
interests conflict. “ ‘In the usual tripartite relationship existing
between insurer, insured and counsel, there is a single, common
interest shared among them. Dual representation by counsel is
beneficial since the shared goal of minimizing or eliminating
liability to a third party is the same.’ ” (Gafcon, Inc. v. Ponsor &
Associates (2002) 98 Cal.App.4th 1388, 1419–1420 (Gafcon).)
However, “an attorney having such dual agency status is subject
to the rule that a ‘ “[c]onflict of interest between jointly
represented clients occurs whenever their common lawyer’s
representation of the one is rendered less effective by reason of
his representation of the other.” ’ ” (Id. at p. 1420.)
13
Hence, the Cumis rule and section 2860 spring from “the
ethical duty of an attorney to avoid representing conflicting
interests. As the court stated in the Cumis opinion: ‘We conclude
the Canons of Ethics impose upon lawyers hired by the insurer
an obligation to explain to the insured and the insurer the full
implications of joint representation in situations where the
insurer has reserved its rights to deny coverage. If the insured
does not give an informed consent to continued representation,
counsel must cease to represent both. Moreover, in the absence
of such consent, where there are divergent interests of the
insured and the insurer brought about by the insurer’s
reservation of rights based on possible noncoverage under the
insurance policy, the insurer must pay the reasonable cost for
hiring independent counsel by the insured. . . . Disregarding the
common interests of both insured and insurer in finding total
nonliability in the third party action, the remaining interests of
the two diverge to such an extent as to create an actual, ethical
conflict of interest warranting payment for the insureds’
independent counsel.’ [Citation.] This holding was based on a
long line of attorney-client conflict of interest cases as well as the
American Bar Association Code of Professional Responsibility.
[Citations.]” (Golden Eagle, supra, 20 Cal.App.4th at pp. 1394–
1395.)
The Darwish family has not alleged that Fields was thrust
into any ethical conflict of interest in his representation of them
and Aspen and D&H. They alleged no dispute over coverage.
Aspen and D&H did not reserve any rights related to coverage
beyond an excess-limits damage award and punitive damages,
which did not create an ethical conflict for Fields. The Darwish
family points to nothing suggesting their interests diverged from
14
Aspen’s and D&H’s interests, forcing Fields to represent one to
the detriment of the other. All parties were aligned in defending
the Hall action to minimize or avoid liability. In other words,
Fields “had no incentive to attach liability to appellant.”
(Blanchard v. State Farm Fire & Casualty Co. (1991) 2
Cal.App.4th 345, 350.) Fields’ handling of the case—and the
Darwish family’s dissatisfaction with it—is beside the point,
unless perhaps his poor performance shows he was serving Aspen
and D&H’s separate and conflicting interests to their detriment.
But the SAC contains no allegations that any such conflict
existed that might have encouraged Fields to perform poorly in
order to serve Aspen’s rights over the Darwish family’s rights.
True, the circumstances giving rise to a conflict of interest
are not limited to section 2860. (Gafcon, supra, 98 Cal.App.4th at
p. 1421.) The Darwish family invokes the situation “where an
attorney who represents the interests of both the insurer and the
insured finds that his or her ‘representation of the one is
rendered less effective by reason of his [or her] representation of
the other.’ ” (James 3, supra, 91 Cal.App.4th at p. 1101.) They
point to three examples.
First, they cite the “unremitting hostility” of D&H and
Fields toward the Darwish family, exemplified by the belief that
the Darwish family would be bad witnesses who could not be
believed. This is not a conflict of interest. It is part of an
attorney’s honest assessment about the merits of a case. It
serves both the insurer and the insured. For the insurer, it can
inform the decision whether to litigate or settle. For the insured,
it might avoid a much higher damages award if a jury dislikes
the insured’s testimony or finds them not credible. By assessing
how a jury might react to testimony from the Darwish family,
15
Fields was serving his clients’ aligned interests in avoiding
liability.
Next, the Darwish family cites the rejection of a policy-limit
settlement demand at the start of the Hall action without
consulting them. They focus on the fact that they might have
been exposed to damages exceeding policy limits or punitive
damages. But Aspen and D&H were simply exercising the right
to control the defense. The policy gave Aspen and D&H
discretion to investigate and settle claims as they “decide is
appropriate.” “ ‘Under a policy provision giving an insurance
company discretion to settle as it sees fit, the insurer is “entitled
to control settlement negotiations without interference from the
insured.” ’ ” (Hurvitz v. St. Paul Fire & Marine Ins. Co. (2003)
109 Cal.App.4th 918, 931.)
According to a letter attached to the complaint, Fields told
Barbara and David he believed the policy limits demand was
“clearly premature.” In responding to the demand, Fields
chronicled in detail all of the outstanding issues. We need not
list them here. Suffice it to say, they were all aimed at defending
the Darwish family and Aspen and D&H equally.
Finally, the Darwish family alleges insurer-appointed
counsel advised Nede’s Cumis counsel during later settlement
discussions that the Darwish family needed independent counsel
because the latest settlement demand exceeded policy limits.
This guidance was sound. Aspen and D&H could not settle the
case beyond the policy limits without permission from the
Darwish family or providing them independent counsel if the
Darwish family was expected to pay for the excess amount. One
of the circumstances requiring independent counsel is “where the
insurer pursues settlement in excess of policy limits without the
16
insured’s consent and leaving the insured exposed to claims by
third parties.” (James 3, supra, 91 Cal.App.4th at p. 1101; see
Golden Eagle, supra, 20 Cal.App.4th at p. 1396 [“clear conflict of
interest” existed when insureds refused to consent to settlement
exceeding policy limits].) The SAC does not allege Aspen pursued
a settlement beyond policy limits or even considered accepting
this latest demand. At best, there was a “ ‘mere possibility of an
unspecified conflict,’ ” which does not require independent
counsel. (Centex Homes II, supra, 19 Cal.App.5th at p. 798.)
The SAC has alleged no divergence between the Darwish
family’s interests and Aspen and D&H’s interests in the Hall
action. The Darwish family may not have liked or agreed with
Fields’ litigation decisions, but they have alleged no circumstance
that prevented Fields from serving both their interests and
Aspen’s interests. Absent some coverage dispute or reservation
of rights that created a risk that Fields will serve Aspen’s
interest to their detriment, independent counsel was not
warranted.
III. The Trial Court Properly Denied Leave to Amend
As we have explained, sustaining the demurrer was the
incorrect procedure to dispose of the SAC. Because the Darwish
family is subject to an adverse judgment on the merits, rather
than simply dismissal, it is questionable whether they have the
right to amend. In any case, they did not address the trial court’s
denial of leave to amend in their briefs on appeal. They have
failed to show the trial court abused its discretion in denying
leave to amend. (Centex Homes I, supra, 237 Cal.App.4th at
p. 32.)
17
IV. The Motion to Strike D&H Is Moot
The Darwish family challenges the trial court’s grant of
D&H’s motion to strike it from the SAC. Because we modify the
judgment in Aspen and D&H’s favor, that ruling is moot.
We need not address it.
DISPOSITION
The judgment is modified to declare (1) no conflict of
interest existed entitling the Darwish family to independent
counsel pursuant to section 2860 in the Hall action prior to
December 2017 and after September 10, 2018; and (2) Aspen and
D&H had no obligation to pay the Darwish family’s reasonable
attorney’s fees incurred in the Hall action during that time.
The judgment is affirmed as modified. Aspen and D&H are
entitled to costs on appeal.
OHTA, J. *
I Concur:
STRATTON, Acting P. J.
* Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
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WILEY, J., Concurring in the result.
I write to attack the notion there is something improper
about resolving a suit for declaratory judgment on demurrer.
There is not. So long as the parties agree the declaratory
judgment complaint serviceably states the facts, a demurrer is
the speedy and efficient way to resolve an “actual controversy.”
(Code Civ. Proc., § 1060.) Appellate courts should praise, not
disparage, this procedure.
If the declaratory judgment complaint alleges facts the
defendant thinks are incorrect or incomplete, then a demurrer is
not the right way to go, for the demurrer procedure requires the
court to accept the factual pleading as it stands. (Cf. Qualified
Patients Assn. v. City of Anaheim (2010) 187 Cal.App.4th 734,
756 [“on the few facts known” about the situation, the court
“cannot say” what the right answer is] (Qualified).) For material
factual disputes, we need a fact finder: a jury or bench trial.
In declaratory judgment cases, dispute over the facts may
be common. (Cf. Jefferson, Inc. v. City of Torrance (1968) 266
Cal.App.2d 300, 302 [the defense is rarely satisfied with the
complaint’s statements of the facts].) Whether that is true does
not matter here, where there is no factual dispute. What divided
the parties was a pure and ripe question of law: whether Civil
Code section 2860 entitled the Darwish family to independent
counsel. The trial court, and now the Court of Appeal, have
declared the answer to this legal question. A demurrer thus was
the right way to go.
The demurrer procedure in this case was appropriate and
sensible. Of the procedural alternatives, the demurrer was the
fastest way to resolve the only issue in this case. Other
1
alternatives—summary judgment or full trial—would have been
slower. They would have cost more resources but yielded no more
benefit. Nothing in the text of sections 1060 or 1061 of the Code
of Civil Procedure favors this irrationality.
The authority for the appropriate and sensible demurrer
approach is the memorable 1963 case of Zeitlin v. Arnebergh
(1963) 59 Cal.2d 901 (Zeitlin). There the renowned Los Angeles
bookseller Jacob Zeitlin sued Los Angeles City Attorney Roger
Arnebergh about Arnebergh’s efforts to suppress Henry Miller’s
then-controversial Tropic of Cancer. Zeitlin appended the book to
his complaint for declaratory judgment. Zeitlin wanted a judicial
declaration that Tropic of Cancer was not criminally obscene so
he could sell copies without fear of prosecution. Defendant and
prosecutor Arnebergh answered the complaint and said he
believed the book was criminally obscene and he intended to
prosecute anyone arrested for its sale. (Id. at pp. 903–905.)
Both sides in Zeitlin agreed on the facts: the words in
Tropic of Cancer. The sole question was whether those words
were obscene within the meaning of the Penal Code. That
question was strictly legal. (Zeitlin, supra, 59 Cal.2d. at pp. 908–
911.)
Zeitlin validated using a demurrer to decide the merits of a
declaratory judgment action. Arnebergh had filed a general
demurrer to Zeitlin’s complaint. The trial court sustained the
demurrer because the trial court read the book and ruled, on the
merits, it was obscene. (Zeitlin, supra, 59 Cal.2d. at p. 905.) For
a unanimous Supreme Court, Justice Tobriner held the demurrer
procedure was right but the substance of the ruling was wrong:
Tropic of Cancer was not criminally obscene. (See id. at pp. 908–
923.)
2
After Zeitlin, it is legally wrong to say the demurrer
procedure is an inappropriate method for testing the merits of a
declaratory relief action. Some more recent authorities thus err.
(E.g., Qualified, supra, 187 Cal.App.4th at p. 751; Lockheed
Martin Corp. v. Continental Ins. Co. (2005) 134 Cal.App.4th 187,
221, disapproved on another ground by State of California v.
Allstate Ins. Co. (2009) 45 Cal.4th 1008, 1036, fn. 11; 5 Witkin,
Cal. Procedure (5th ed. 2008 & 2020 supp.) Pleading, § 877.)
This means there is no reason to accuse a thoughtful trial
court like this one of error of any kind.
The 1944 decision in Maguire v. Hibernia Savings & Loan
Society (1944) 23 Cal.2d 719 (Maguire) did not erect a general
ban on demurring to declaratory judgment complaints. In
Maguire, the trial court refused to do what the trial court here
laudably did: analyze the merits of an “actual controversy” and
answer a question that divided the litigants. (See id. at p. 723
[rather than engage the merits, the Maguire trial court avoided
the merits by saying declaratory relief was neither necessary nor
proper].)
Zeitlin cited Maguire and repeated its holding: “a plaintiff
is entitled to a declaration of his rights, whether the declaration
be favorable or adverse . . . .” (Zeitlin, supra, 59 Cal.2d. at p.
908.) Zeitlin then explained what the trial court’s proper
demurrer ruling should have been: Tropic of Cancer was not
criminally obscene. (See id. at p. 922 [“Such an art-form must be
distinguished from that which is designed to excite or attract
pruriency; [Tropic of Cancer] surely does not constitute hard-core
pornography.”].)
This trial court did as Zeitlin commanded. The plaintiffs in
this case were entitled to a declaration of their rights. The trial
3
court gave them that declaration—on demurrer. Unlike the trial
court in Maguire, the trial court here rendered a declaration on
the merits. Then it signed the judgment. As a practical matter,
that was a declaratory judgment, for the judgment embodied the
preceding statement of decision that was its rationale. (See
Maguire, supra, 23 Cal.2d at p. 729 [“where the plaintiff is not
entitled to a favorable declaration, the court should render a
judgment embodying such determination and should not merely
dismiss the action”].)
It might be a good practice for a trial court, after ruling on
a decisive demurrer in a declaratory judgment action, to cut and
paste the court’s substantive legal analysis into the judgment
itself, rather than leaving that substance in a separate minute
order or a statement of decision. (See Essick v. City of Los
Angeles (1950) 34 Cal.2d 614, 624–625.) Then the “judgment”
literally would “declare” the rights and duties of the parties;
voilà: the demurrer would produce a “declaratory judgment” in
name and in fact. (Cf. Guinn v. County of San Bernardino (2010)
184 Cal.App.4th 941, 951 [“Although the statement of decision
makes it clear that the court denied the petition on its merits, the
judgment does not.”].)
But here no party made this request. The court already
had given the parties all they evidently needed.
4
In sum, defendants that accept the pleaded facts should, as
these defendants did, demur to declaratory judgment complaints
that properly allege actual controversies. Trial courts should, as
this one did, take up the actual controversies on demurrer and
give the parties what they want and deserve: an authoritative
answer to a legal question that divides them. This will serve the
parties, the public, and the cause of justice.
WILEY, J.
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