Old Republic Insurance Company v. FSR Brokerage5/4/2000
CERTIFIED FOR PUBLICATION
APPEAL from a judgment of the Superior Court of Los Angeles County, Jan A. Pluim, Judge. Reversed with directions and remanded.
Following a bench trial, the trial court concluded that appellant Old Republic Insurance Company (hereafter "Old Republic") had not secured a right of reimbursement against respondent FSR Brokerage, Inc., doing business as Fred Sands Realtors (hereafter "FSR"). Subsequently, a jury found that Old Republic had engaged in bad faith by asserting a claim for fraud against FSR. We reverse the trial court's ruling on Old Republic's right of reimbursement, reverse the judgment on FSR's bad faith claim, and remand for further proceedings. In so ruling, we conclude that a bad faith claim against an insurer for initiating litigation against the insured fails as a matter of law when the insured does not contend that the insurer acted unreasonably in investigating or paying the underlying insurance claim.
FACTUAL BACKGROUND
FSR, a corporation engaged in the real estate brokerage business, bought errors and omissions indemnity policies from Old Republic from 1985 to 1992. The pertinent policies had a $100,000 deductible, and provided that Old Republic would indemnify "the Insured" for losses in excess of the deductible arising from claims "first made against the Insured during the policy period" and reported in accordance with the policies.
The policies defined "Insured" to include FSR, as well as "any partner, officer, director or employee of . . . ." With respect to independent contractors, the policy provided coverage only to "the Insured . . . for loss arising from the acts, errors or omissions of independent contractors in the performance of real estate services for which the Insured is legally liable," and "for the liability of the Insured to indemnify independent contractors for loss where such liability arises out of the rendering or failure to render real estate services by such independent contractors."
In 1986, FSR started its own errors and omissions program to protect FSR's sales agents in the event of lawsuits arising out of real estate transactions.
During the pertinent period, Larry Cannizzaro was an FSR real estate sales agent who also worked as an assistant manager in an FSR office. In July 1987, Gerald Busch filed an action against FSR, Cannizzaro, and several other persons associated with FSR. Busch's complaint alleged that Edward Forgy had listed an investment property on Ellendale Place with FSR, and that Cannizzaro had improperly prevented Busch from purchasing the Ellendale property so that he could buy it himself. In June 1991, Old Republic paid $250,000 to settle the Busch action.
In July 1991, Forgy filed a suit against Cannizzaro and FSR arising from the Ellendale property transaction. Old Republic paid $15,000 to settle this action.
In August 1991, Gold, Marks, Ring & Pepper (Gold, Marks), a law firm, sued Cannizzaro for nonpayment of attorney fees incurred during the Busch action. Old Republic paid $71,369.20 to settle this action.
RELEVANT PROCEDURAL HISTORY
On August 7, 1992, Cannizzaro filed a complaint against Old Republic and FSR, alleging breach of contract, bad faith, and numerous other claims. On September 24, 1992, Old Republic filed a cross-complaint against Cannizzaro and FSR, seeking subrogation and indemnity.
On October 20, 1993, Cannizzaro filed a second amended complaint against Old Republic, FSR, and Chicago Underwriting Group, Inc., (hereafter "CUG") containing claims for breach of contract, bad faith, fraud, intentional infliction of emotional distress, expr
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