Appellant insureds challenged a summary judgment from the Superior Court of Sonoma County (California), which ruled that appellee insurer had no liability on the insureds’ claims for breach of contract and breach of the covenant of good faith and fair dealing.

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Overview

After being served with a complaint relating to a business they owned, the insureds tendered the defense to their general liability insurer. The insurer responded that its coverage counsel was reviewing the matter, that it recommended the insureds retain their own counsel pending a coverage determination, and that it would reimburse the insureds for their reasonable defense costs if it had an obligation to assume the defense. The policy contained a provision stating that the insurer was not obligated to reimburse the insureds for expenses voluntarily assumed by them. The insureds, who were attorneys, spent several days researching and evaluating the suit against them. The insurer accepted the defense, settled the case, and paid all attorney fees owed to counsel. The court held that the insureds could not recover the cost of their time working on the case because they did not incur legal fees in so doing. The measure of damages for any breach of the contractual duty to defend was the amount of fees actually expended by the insureds, not the value of their time or services. Absent economic loss, the insureds could not recover emotional distress damages on their bad faith claim.

Outcome

The court affirmed the summary judgment for the insurer.