Truck Insurance Exchange v. Federal Insurance Company

(Potential Concealment of Voluntary Assumption of Defense of Action Not Barred by Litigation Privilege Such that Primary Insurer Was Entitled to Maintain Action for Fraud Against Umbrella Insurer)

(September 2025) - In the appeal of the last of three separate lawsuits related to contribution for defense costs and indemnity costs, in Truck Ins. Exch. v. Federal Ins. Co., 111 Cal. App. 5th 62 (May 12, 2025) depublished, 2025 Cal. LEXIS 4735 (July 23, 2025), the California Second District Court of Appeal reversed the trial court's decision finding that Truck Insurance Exchange ("Truck") was not entitled to reimbursement from Federal Insurance Company ("Federal") in connection with the defense of 30,000 underlying lawsuits against Moldex-Metric, Inc ("Moldex") related to the manufacture of defective air respirators and masks that failed to protect plaintiffs from inhaling silica, asbestos, and mixed dust, leading to bodily injury (the "lawsuits"), based on the argument that Federal had concealed its decision to voluntarily pay defense costs in connection with the lawsuits. Although the Truck decision has been depublished, it provides insight into the Court of Appeal's assessment of the litigation privilege.

The parties' dispute relates to the exhaustion of Moldex's primary insurance in 2003. After such exhaustion, Moldex's umbrella insurers, Federal and First State Insurance Company ("First State") agreed to defend Moldex. Subsequently, Moldex found that it was insured under a primary policy issued by Truck. Thereafter, Federal and First State sought contribution from Truck for defense costs in connection with the lawsuits. Federal filed an action for contribution against Truck for reimbursement of defense costs incurred by Federal based on the argument that, absent exhaustion of the Truck policy limits, Federal was not obligated to pay for the defense of the lawsuits.

Thereafter, the trial court entered judgment against Truck, awarding Federal approximately $6 million in defense costs and $98,213 in indemnity costs, plus interest on both amounts. Truck appealed the trial court's entry judgment. While the appeal was pending, Truck entered into a settlement agreement with Federal and First State, wherein it agreed to pay Federal the total amount of $4,858,700 for defense and indemnity costs. The parties released each other from any and all claims that could have been asserted in the action. The settlement agreement included an exception for any rights that Truck had for contribution for defense and indemnity costs after it had exhausted it policy limits.

Subsequently, Truck filed a second action against Federal and First State for declaratory relief arguing that it exhausted its primary limits on July 24, 2013 and seeking reimbursement or contribution of defense costs and indemnity paid in excess of it policy limits after July 24, 2013. After another round of litigation, the Court of Appeal found that Truck's policy had exhausted as of July 24, 2013 and that Truck had no further duty to defend and indemnify Moldex for the lawsuits.

Following remand of the appeal, Federal filed a motion for summary adjudication, arguing that Truck was not entitled to reimbursement of defense costs paid after July 24, 2013 because no duty to defend exists under the Federal policy. Rather, Federal revealed that it made a business decision to exercise its rights to associate in the defense pursuant to section 4(a) of the umbrella policy. Section 4(a) states:

Section 4(a) entitled "DEFENSE PROVISIONS" provides: "The Company [Federal] shall not be called upon to assume charge of the investigation, settlement or defense of any claim made, or suit brought, or proceeding instituted against the insured [Moldex], but shall have the right and be given the opportunity to be associated in the defense and trial of any such claims, suits or proceedings relative to any occurrence which, in the opinion of the Company, may create liability on part of the Company under the terms of this policy. If the Company avails itself of such right and opportunity the Company shall do so at its own expense." (Italics added.)

As such, Federal reasoned that because it opted to pay with no duty to defend, it could not be held liable to contribute to post-contribution defense fees. The trial court agreed with Federal and granted its motion. As such, the trial court found that that Federal had no duty to defend the claims for which Truck seeks recovery of defense costs. The trial court reasoned that since section 4(a) expressly states that there is no duty to defend under the policy, Truck could not recover any defense costs from Federal.

Truck appealed the trial court's decision. In that regard, on November 14, 2022, the Court of Appeal rejected Truck's assertion that it did not waive, but instead expressly reserved, it right to recoup from First State and Federal defense fees and indemnity costs that Truck incurred after the parties entered into a settlement agreement.

On July 30, 2019, Truck filed the instant action arguing that Federal had misrepresented that it was obligated to defend the lawsuits, when in fact, it was a voluntary business decision made in 2003 to participate in the defense of the lawsuits. According to Truck, if it had known that Federal's action was voluntary, it would not have entered into a settlement reimbursing Federal in the amount of $4,858,700 in defense costs. Truck also argued that Federal concealed the voluntary nature of its decision to defend the lawsuits. As result of Federal's conduct, Truck sought rescission of the settlement agreement because it was not entered into in good faith and was obtained via extrinsic fraud, i.e. misrepresenting that it was obligated to defend the lawsuits and concealing that it was acting as a volunteer in defending such lawsuits. Truck requested damages in the amount of the settlement it paid Federal, punitive damages and reasonable attorneys' fees. Federal ultimately responded to Truck's lawsuit alleging affirmative defenses that it did not act as a volunteer in contributing to the defense of the lawsuits, Truck's claims are barred by the litigation privilege and Truck did not reasonably rely any alleged misrepresentation by Federal.

After a court trial, the trial court issued a decision in favor of Federal and judgment was entered in its favor. The trial court reasoned that the evidence did not support Truck's fraud claims or alternatively, the litigation privilege barred such claims.

In reversing the trial court's decision, the Court of Appeal characterized Truck's appeal as follows:

Truck contends we should reverse the judgment and remand for a new trial on Truck's claim for fraudulent concealment. Truck argues the trial court failed to address its claim for fraud under the concealment theory and considered only misrepresentation. We agree with Truck.

The Court of Appeal described the litigation privilege as follows:

Civil Code section 47 provides an absolute privilege for communications made in any legislative, judicial or other official proceeding authorized by law, or in the initiation or course of any other proceeding authorized by law. (Id., subd. (b).) Thus, Truck cannot succeed if the litigation privilege precludes a finding of liability on its claim for fraudulent concealment.

The principal purpose of the litigation privilege is to afford litigants and witnesses the utmost freedom of access to the courts without fear of harassment in subsequent derivative actions. (Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1241 [63 Cal. Rptr. 3d 398, 163 P.3d 89].) "The usual formulation is that the privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action." (Silberg v. Anderson (1990) 50 Cal.3d 205, 212 [266 Cal. Rptr. 638, 786 P.2d 365].) The privilege is "not limited to statements made during a trial or other proceedings, but may extend to steps taken prior thereto, or afterwards." (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1057 [39 Cal. Rptr. 3d 516, 128 P.3d 713].)

The Court of Appeal also described the types of fraud claims alleged by Truck against Federal (intrinsic misrepresentation and extrinsic fraud-concealment):

"Fraud is extrinsic where the defrauded party was deprived of the opportunity to present his or her claim or defense to the court, that is, where he or she was kept in ignorance or in some other manner, other than from his or her own conduct, fraudulently prevented from fully participating in the proceeding." (In re Marriage of Stevenot (1984) 154 Cal.App.3d 1051, 1068 [202 Cal. Rptr. 116].) In contrast, fraud is "intrinsic if a party has been given notice of the action and has not been prevented from participating therein, that is, if he or she had the opportunity to present his or her case and to protect himself or herself from any mistake or fraud of his or her adversary, but unreasonably neglected to do so." (Id. at p. 1069, italics added.)

Thereafter, the Court of Appeal found that the trial court had not considered Truck's fraudulent concealment claim. The Court of Appeal described Federal's arguments as follows:

First, Federal argues it did not act as a "volunteer" in reimbursing Moldex's defense fees. Second, Federal argues any alleged fraud is intrinsic in nature and thus subject to the litigation privilege (per Civ. Code, § 47, subd. (b)). Federal contends the trial court made findings to that effect and that substantial evidence supports said findings. We address the two points.

The Court of Appeal rejected Federal's argument that it did not act as volunteer in defending the lawsuits. In addition, the Court of Appeal found that the litigation privileged did not bar Truck's extrinsic fraudulent concealment claim. The Court of Appeal reasoned as follows:

Federal argues "substantial evidence support[s] the trial court's determination that any alleged fraud on the part of Federal was intrinsic in nature and therefore subject to the absolute litigation privilege." Truck, on the other hand, argues that we independently determine whether the litigation privilege applies to Federal's fraudulent concealment claim.

. . .

Federal is correct in asserting that the trial court's findings of fact pertaining to the existence of extrinsic fraud are reviewed for substantial evidence. (Kramer v. Traditional Escrow, Inc. (2020) 56 Cal.App.5th 13, 28 [270 Cal. Rptr. 3d 101].) It is also true that our overall standard of review of the trial court's application of those findings is an abuse of discretion. (Ibid.) However, Federal is mistaken in qualifying the trial court's extrinsic fraud finding to "any alleged fraud on the part of Federal." That's because the trial court's decision expressly did not consider Truck's fraudulent concealment claim as pleaded and argued, and only considered Truck's fraudulent misrepresentation claim: "Truck, in its operative SAC, alleges that Federal committed fraud by making representations directly to Truck that it knew to be false and that it intended Truck should rely on." Thus, we independently address the question of whether the litigation privilege applies to Truck's fraudulent concealment claim.

. . .

To avoid the conclusive effect of the litigation privilege, Truck argues Federal's fraud was extrinsic to Federal's reimbursement suit (i.e., case No. 1) because it deprived Truck from fully participating in the proceedings and the resulting settlement agreement by concealing the voluntary nature of Federal's decision to defend Moldex.

Federal argues the fraud at issue is intrinsic and therefore subject to the litigation privilege. We find the issue turns on whether Truck "had the opportunity to present [its] case and to protect [itself] from any mistake or fraud of [its] adversary, but unreasonably neglected to do so." (In re Marriage of Stevenot, supra, 154 Cal.App.3d at p. 1069, italics added.)

. . .

We find Truck did not "unreasonably neglect[]" to "protect [itself] from any ... fraud of [its] adversary" (In re Marriage of Stevenot, supra, 154 Cal.App.3d at p. 1069, italics added), especially given there was no written record or mention whatsoever of Federal's "business decision" in its entire claim file for Moldex and during the deposition of Townsend. This, coupled with the wording of Federal's complaint and motion for summary judgment (not to mention the trial court's own ruling made June 3, 2011 on the motion for summary judgment) in case No. 1, all supported the premise that Federal contributed to Moldex's defense out of a duty to do so that required reimbursement from Truck because of the discovery of Truck's primary policy. This leads us to conclude that Truck did not "unreasonably neglect" to protect itself against the alleged fraudulent concealment by Federal, rendering it extrinsic.

Given the foregoing, we independently find Truck's claim of fraudulent concealment not barred by the litigation privilege. We reverse the judgment on that cause of action and remand the matter to the trial court to hold a new trial to consider Truck's fraudulent concealment claim, as well as any other derivative causes of action that the trial court may have to reconsider in light of this reversal.