California Court of Appeal, Bartel v. Chicago Title Insurance Co., Docket No. H052083

Punitive Damages

 

Clear and Convincing Standard

 

Insurance Law

 

California Law

 

 

 

“In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.” (Civ. Code, §3294, subd. (a).) A plaintiff is never entitled to punitive damages as a matter of right. (Uzyel v. Kadisha (2010) 188 Cal.App.4th 866, 923.) Rather, “a claim for punitive damages requires ‘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.’” (Food Pro, supra,169 Cal.App.4th at p.994; see Civ. Code, §3294, subd. (a).) In the context of failure to properly administer an insurance claim, punitive damages are ordinarily “based on ‘malice’ or ‘oppression,’ rather than on the third possible ground for the award, ‘fraud.’ Both ‘malice’ and ‘oppression’ are defined in Civil Code section 3294 as involving ‘despicable conduct,’ which in the case of malice ‘is carried on by the defendant with a willful and conscious disregard of the rights or safety of others,’ and as to oppression is ‘conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.’” (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1286–1287 (Tomaselli).) We review de novo whether the undisputed facts underlying Chicago Title’s claim handling in this case satisfy the requirements of Civil Code section 3294, subdivision (a).  (See Ghirardo, supra, 8 Cal.4th at p.801.)

 

 

(…) Furthermore, we have determined that the manner in which Chicago Title repeatedly rejected tender in the face of a clear duty to defend amounted to bad faith. Nevertheless, we are not persuaded that Chicago Title’s bad faith refusal to defend Bartel under the policy until partway through Composti III rises to the level of malice or oppression within the meaning of Civil Code section 3294.

 

 

The heightened legal standard for imposing punitive damages guides our determination. “Under the clear and convincing standard, the evidence must be ‘“‘“so clear as to leave no substantial doubt”’”’ and ‘“‘“sufficiently strong to command the unhesitating assent of every reasonable mind.”’’”’” (Butte Fire Cases (2018) 24 Cal.App.5th 1150, 1158.) This stringent standard must be accompanied by evidence of “‘malice,’” defined as “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights ...of others” (Civ. Code, §3294, subd. (c)(1)), or “‘oppression,’” defined as “despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights” (id., subd. (c)(2)). “‘Despicable conduct’ is conduct that is ‘“so vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by ordinary decent people.”’ ” (Butte Fire Cases, at p.1159.)

 

 

 

(California Court of Appeal, Bartel v. Chicago Title Insurance Co., May 30, 2025, Docket No. H052083, Certified for Publication)

 

 

California Court of Appeal, Bartel v. Chicago Title Insurance Co., Docket No. H052083

Statute of Limitations

 

Equitable Tolling

 

Insurance Law

 

Duty to Defend

 

California Law

 

 

 

(…) Chicago Title contends the trial court erred in applying equitable tolling to reject its statute of limitations defense and deciding Bartel’s title insurance action was timely. Bartel counters that the interim judgment properly rejected Chicago Title’s statute of limitations defense and applied equitable tolling consistent with the California Supreme Court’s decision in Lambert, 53 Cal.3d 1072, and with the primary right doctrine. Bartel asserts in the alternative that, even assuming equitable tolling paused upon the dismissals of Composti I and Composti II, it resumed when Bartel timely reasserted tender of defense based on Composti III.

 

 

(Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191(Aryeh).) “A plaintiff must bring a claim within the limitations period after accrual of the cause of action.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806; see Code Civ. Proc., § 312.) A cause of action typically “accrues at ‘the time when the cause of action is complete with all of its elements.’” (Fox, at p. 806.) “Actions on title insurance policies are subject to a two-year statute of limitation. (Code Civ. Proc., § 339, subd. (1).)” (Lee v. Fidelity National Title Ins. Co. (2010) 188 Cal.App.4th 583, 599.) Accrual of a cause of action upon a contract or policy of title insurance does not occur “until the discovery of the loss or damage suffered by the aggrieved party thereunder.” (Code Civ. Proc., §339, subd. (1).) Certain equitable exceptions “may alter the rules governing either the initial accrual of a claim, the subsequent running of the limitations period, or both.” (Aryeh, supra, 55 Cal.4th at p.1192.) These exceptions exist “to align the actual application of the limitations defense more closely with the policy goals animating it.”  (Ibid.) Equitable tolling, applied by the trial court here, “may suspend or extend the statute of limitations when a plaintiff has reasonably and in good faith chosen to pursue one among several remedies and the statute of limitations’ notice function has been served.” (Ibid.)

 

In Lambert, our Supreme Court examined whether a cause of action under a title insurance policy alleging a failure to defend accrues when the insurer refuses to defend or when the underlying action is terminated by final judgment. (Lambert, supra, 53 Cal.3d at p.1074.) After considering the statutory language and policies underlying the duty to defend, the court concluded that “although the statutory period commences upon the refusal to defend, it is equitably tolled until the underlying action is terminated by final judgment.” (Id. at p.1077.) While resolution of the statute of limitations is normally a question for the trier of fact, the application of the statute of limitations on undisputed facts is a purely legal question that we review de novo. (Aryeh, supra, 55 Cal.4th at p.1191; see Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1112.)

 

 

We agree with the parties that Lambert guides our resolution of the application of the statute of limitations here. In that decision, our Supreme Court explained, “The duty to defend in a title insurance case is governed by the same principles which govern the duty to defend under general liability policies. The duty commences upon tender of the defense, and continues until the underlying lawsuit is concluded.”  (Lambert, supra, 53 Cal.3d at p.1077.) In rejecting a prior appellate decision that had held that the statute of limitations begins to run upon the rejection of tender, the court stated that such a rule “would allow expiration of the statute of limitations on a lawsuit to vindicate the duty to defend even before the duty itself expires. This grim result is untenable. The insured must be allowed the option of waiting until the duty to defend has expired before filing suit to vindicate that duty.” (Ibid.) The Supreme Court held that the statute of limitations begins to run “upon accrual, which in this case occurs upon the refusal to defend.” (Lambert, supra, 53 Cal.3d at p.1078.) It further decided that the statute of limitation should be equitably tolled between accrual and a final judgment. It reasoned, “the duty to defend is a continuing duty. It is equitable and consistent with the legislative intent to toll the limitations period in which this duty continues from the date of accrual of a cause of action to final judgment.” (Id. at p.1079.)

 

 

The Supreme Court emphasized that its decision was grounded in equitable principles: “It is harsh to require an insured—often a private homeowner—to defend the underlying action, at the homeowner’s own expense, and simultaneously to prosecute—again at the homeowner’s own expense—a separate action against the title company for failure to defend. ‘The unexpected burden of defending an action may itself make it impractical to immediately bear the additional cost and hardship of prosecuting a collateral action against an insurer.’” (Lambert, supra, 53 Cal.3d at p.1078.) The court reasoned that this rule would not prejudice the insurer. “By tendering defense of a third party action to an insurer, the insured will have put the insurer on notice that it may be required under the policy to defend the action. Thus, the insured [sic] will be aware that it must take the steps necessary to prepare and preserve a defense to an action by its insured.” (Id. at p. 1079.) Moreover, an insured has the option of bringing suit against the insurer prior to the entry of final judgment in the underlying litigation. Nothing “prohibits the insured from commencing an action once the insurer has refused a tender of defense. We merely conclude that the insured is not required to do so.” (Id. at p.1080.)

 

 

Applying the principles articulated in Lambert to the facts here, we decide that Bartel’s title insurance action against Chicago Title was timely. Composti filed Composti I, which asserted a right-of-way easement benefiting Composti’s parcel over Bartel’s parcel, on May 25, 2010. Bartel tendered defense to Chicago Title in Composti I on March 18, 2011, triggering Chicago Title’s duty to defend. (See Buss v. Superior Court (1997) 16 Cal.4th 35, 46 (Buss) [stating the duty to defend “arises as soon as tender is made”].)

 

 

On July 27, 2011, Chicago Title declined (in connection with Composti II) to accept tender. Bartel’s claim against Chicago Title therefore accrued on July 27, 2011. Under the principles articulated in Lambert, the claim was equitably tolled until October 16, 2012, the date on which Composti II was dismissed without prejudice. Beginning on that date, Bartel had two years—that is, until October 16, 2014—to bring a claim against Chicago Title for violation of its duty to defend in Composti I and Composti II.

 

 

We reject Bartel’s contention that equitable tolling continues after a dismissal without prejudice. The duty to defend is bound to the pendency of the underlying action and terminates upon its conclusion. Once dismissed, there is no pending action on that claim, regardless of whether a future action arises. (See Abatti v. Imperial Irrigation Dist. (2012) 205 Cal.App.4th 650, 666 [“Claims that have been dismissed, whether with or without prejudice, are not ‘pending.’”].) (Fn. 10).

 

 

On September 5, 2014 (over one month before the running of the statute of limitations from the dismissal of Composti II), Bartel again tendered defense to Chicago Title. Under the Supreme Court’s analysis in Lambert, this tender of defense triggered Chicago Title’s duty to defend.  (See Lambert, supra, 53 Cal.3d at p.1077 [“The duty commences upon tender of the defense, and continues until the underlying lawsuit is concluded.”].) We decide that, on these facts, Bartel’s tender of the defense equitably tolled the statute of limitations for bringing suit against Chicago Title as of the date of the tender.  

 

 

 

(California Court of Appeal, Bartel v. Chicago Title Insurance Co., May 30, 2025, Docket No. H052083, Certified for Publication)

 

 

 

 

 

California Court of Appeal, Bartel v. Chicago Title Insurance Co., Docket No. H052083

Prejudgment Interest

 

California Law

 

 

 

Prejudgment interest “‘provides just compensation to the injured party for loss of use of the award during the prejudgment period—in other words, to make the plaintiff whole as of the date of the injury.’” (Hewlett-Packard Co. v. Oracle Corp. (2021) 65 Cal.App.5th 506, 574 (Hewlett-Packard).) Code of Civil Procedure section 3287, subdivision (b), applicable here, “governs cases involving unliquidated contract claims and grants the court discretion to award prejudgment interest from a date no earlier than the filing of the action.” (Hewlett-Packard, at p. 574.) We review the court’s ruling on prejudgment interest under the statute for abuse of discretion. (Ibid.) An abuse of discretion occurs when the court’s ruling “is ‘so irrational or arbitrary that no reasonable person could agree with it.’” (Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 773.) Conversely, we will uphold a court’s exercise of discretion “‘if it is based on a “reasoned judgment” and complies with the “legal principles and policies appropriate to the particular matter at issue.”’” (Hewlett-Packard, at pp. 574–575, quoting Bullis v. Security Pac. Nat. Bank (1978) 21 Cal.3d 801, 815.)

 

 

An award of prejudgment interest on an unliquidated contractual claim is discretionary under Code of Civil Procedure section 3287, subdivision (b), including identifying the date from which interest runs, so long as the date does not precede the filing of the action. (Hewlett-Packard, supra, 65 Cal.App.5th at p. 574; North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 829.) Absent any evidence or indication in the record that the court failed to properly exercise its discretion, considered inappropriate factors in making its determination, or exceeded the bounds of reasonable judgment, we conclude the trial court did not abuse its discretion in awarding prejudgment interest.

 

 

 

 

(California Court of Appeal, Bartel v. Chicago Title Insurance Co., May 30, 2025, Docket No. H052083, Certified for Publication)

 

California Court of Appeal, Bartel v. Chicago Title Insurance Co., Docket No. H052083

Insurance Law

 

Duty to Defend

 

California Law

 

 

 

Bartel’s title insurance policy, obtained from Chicago Title in 1998, states in relevant part as to coverage: “Subject to the exclusions from coverage, the exceptions from coverage contained in schedule B and the conditions and stipulations ...[Chicago Title] insures, as of [the policy date] against loss or damage...sustained or incurred by the insured by reason of: 1. Title to the estate or interest described in schedule A being vested other than as stated therein; 2. Any defect in or lien or encumbrance on the title.”

 

 

Regarding the defense and prosecution of actions, the policy states:  “Upon written request by an insured and subject to the options contained in ...these conditions and stipulations, [Chicago Title] at its own cost and without unreasonable delay, shall provide for the defense of such insured in litigation in which any third party asserts a claim adverse to the title or interest as insured.” In the event of any litigation, the policy provides that Chicago Title “shall have no liability for loss or damage until there has been a final determination by a court of competent jurisdiction, and disposition of all appeals therefrom, adverse to the title...as insured.” As to the exceptions from coverage, the policy states: “This policy does not insure against loss or damage ...which arise by reason of” certain matters specified in parts I and II of schedule B, including “3. Easements, liens or encumbrances, or claims thereof, which are not shown by the public records”; and “5. A road maintenance agreement, including the terms, covenants, provisions and assessments, as contained in the agreement entered into by and between: Mary Swafford, et al. Recorded: September 2, 1970 in Book 2039, Page 369, Official Records of Santa Cruz County Instrument No. 23843” (followed by a list of recorded amendments to the road maintenance agreement).

 

 

“The duty to defend is guided by several well-established principles.” (Hartford Casualty Ins. Co. v. Swift Distribution, Inc. (2014) 59 Cal.4th 277, 287 (Hartford).) “An insurer owes a broad duty to defend against claims that create a potential for indemnity under the insurance policy.  (Gray [, supra,] 65 Cal.2d 263, 277–278.) An insurer must defend against a suit even ‘“where the evidence suggests, but does not conclusively establish, that the loss is not covered.”’ (Montrose [, supra,] 6 Cal.4th 287, 299.)” (Ibid.) “Any doubt as to whether the facts give rise to a duty to defend is resolved in the insured’s favor.” (Horace Mann, supra, 4 Cal.4th at p.1081.) “The insurer has a duty to defend the insured as to the claims that are at least potentially covered.” (Buss, supra, 16 Cal.4th at p.49.) “The determination whether the insurer owes a duty to defend usually is made in the first instance by comparing the allegations of the complaint with the terms of the policy. Facts extrinsic to the complaint also give rise to a duty to defend when they reveal a possibility that the claim may be covered by the policy.” (Horace Mann, at p.1078; accord Hartford, at p.287.) “This includes all facts, both disputed and undisputed, that the insurer knows or ‘“becomes aware of”’ from any source [citation] ‘if not “at the inception of the third party lawsuit,” then “at the time of tender.”’ ” (Hartford, at p.287.)

 

 

The California Supreme Court has recognized that its opinion in “Gray made clear that facts known to the insurer and extrinsic to the third party complaint can generate a duty to defend, even though the face of the complaint does not reflect a potential for liability under the policy. [Citation.] This is so because current pleading rules liberally allow amendment; the third party plaintiff cannot be the arbiter of coverage.”  (Montrose, supra, 6 Cal.4th at p. 296.) Stated differently, “‘That the precise causes of action pled by the third party complaint may fall outside policy coverage does not excuse the duty to defend where, under the facts alleged, reasonably inferable, or otherwise known, the complaint could fairly be amended to state a covered liability.’ [Citation.]  Thus, ‘if any facts stated or fairly inferable in the complaint, or otherwise known or discovered by the insurer, suggest a claim potentially covered by the policy, the insurer’s duty to defend arises and is not extinguished until the insurer negates all facts suggesting potential coverage.’” (Hartford, supra, 59 Cal.4th at p. 287.) To determine whether the insurer owed the insured a duty to defend, the reviewing court examines the insurance policy at issue. (Hameid v. National Fire Ins. of Hartford (2003) 31 Cal.4th 16, 21 (Hameid).) “Insurance policy interpretation is a question of law.” (Ibid.; accord, Hartford, supra, 59 Cal.4th at p. 288.)  Appellate courts “apply an independent standard of review to decisions interpreting, constructing, and applying insurance policies to determine the scope of actual or potential coverage.” (Food Pro Internat., Inc. v. Farmers Ins. Exchange (2008) 169 Cal.App.4th 976, 984–985 (Food Pro); see also Atlantic Mutual Ins. Co. v. J. Lamb, Inc. (2002) 100 Cal.App.4th 1017, 1031.)

 

 

(…) See Howard v. American National Fire Ins. Co. (2010) 187 Cal.App.4th 498, 520 (Howard) [“‘If coverage depends on an unresolved dispute over a factual question, the very existence of that dispute would establish a possibility of coverage and thus a duty to defend.’”].)

 

 

(…) As our Supreme Court has repeatedly emphasized, “the duty to defend is broader than the duty to indemnify; an insurer may owe a duty to defend its insured in an action in which no damages ultimately are awarded.” (Horace Mann, supra, 4 Cal.4th at p.1081; Buss, supra, 16 Cal.4th at p.46.)

 

 

(…) While it may be true that Chicago Title was not required to speculate about unpleaded theories of easement, it was obligated to investigate whether the extrinsic facts known to it at tender raised a possibility of liability within the scope of the policy’s coverage. “The carrier must defend a suit which potentially seeks damages within the coverage of the policy” (Gray, supra, 65 Cal.2d at p.275) and “cannot construct a formal fortress of the third party’s pleadings and retreat behind its walls. The pleadings are malleable, changeable and amendable.” (Id. at p.276.)

 

 

(…) General rule that a liability ‘“insurer who has had an opportunity to defend [the underlying action brought against its insured] is bound by the judgment against its insured as to all issues which were litigated in the action,”’” provided the insurer had proper notice of the pendency of that action. (Pruyn v. Agricultural Ins. Co. (1995) 36 Cal.App.4th 500, 515 (Pruyn); see Hogan v. Midland National Ins. Co. (1970) 3 Cal.3d 553, 564.)

 

 

(…) In Foster-Gardner, the California Supreme Court confirmed the distinction between insurance policy terminology pertaining to a “‘suit’” (referring to “actual court proceedings initiated by the filing of a complaint”) (id. at p. 878) and a “‘“claim”’” (referring to “any number of things” that “‘may ultimately ripen into a suit’”) (id. at p.879). The court held that due to these differences, a precomplaint notice to an insured party regarding its responsibility for environmental pollution remediation does not trigger the insurer’s duty to defend a “‘suit.’” (Id. at p. 880.)

 

 

(…) These cases reinforce the proposition that an insurer who wrongfully refuses to provide its insured with a defense will be bound by the outcome based on the insured’s good faith efforts to resolve the matter. (See Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 660 [“An insurer who denies coverage does so at its own risk, and, although its position may not have been entirely groundless, if the denial is found to be wrongful it is liable for the full amount which will compensate the insured for all the detriment caused by the insurer’s breach of the express and implied obligations of the contract.”].)

 

 

(…) Bartel maintains that he was not required to renew tender after Chicago Title wrongfully refused to defend him in the first two underlying actions. The cases cited by Bartel for this point are factually distinguishable in that they involve a single underlying action, in which the insurer denied coverage, and the insured was “thereby relieved of his obligation to notify the insurance company of the progress of the action against him.” (Samson, supra, 30 Cal.3d at p. 238.) The cases cited by Bartel that absolve an insured of the need to renotify the insurer after the wrongful denial of a tender for defense do not address circumstances in which the alleged liability for the insured’s attorney fees and expenses extends to preparations for a separate action from that in which the insurer had notice. (See, e.g., Samson, at pp. 238–239; Stalberg, supra, 230 Cal.App.3d at p. 1233 [holding that when insurer refused plaintiffs’ tender of their appeal in the underlying action, it “gave up the right to control the litigation and could not insist that plaintiffs use” a specific law firm to cover the attorney’s fees on appeal]; Moe, supra, 21 Cal.App.3d at p. 302 [declining to enforce notice clause in insurance contract absent a showing of prejudice to the insurer due to the delayed notice and where insurer was aware of the pending claim].)

 

 

 

(California Court of Appeal, Bartel v. Chicago Title Insurance Co., May 30, 2025, Docket No. H052083, Certified for Publication)

 

 

California Court of Appeal, Bartel v. Chicago Title Insurance Co., Docket No. H052083

Insurance Law

 

Coverage

 

Genuine Dispute Doctrine

 

Third Party Duty to Defend

 

Bad Faith

 

California Law

 

 

 

(…)

 

(Chateau Chamberay, supra, 90 Cal.App.4th at p. 346; see Century Surety Co. v. Polisso (2006) 139 Cal.App.4th 922, 949 [genuine dispute doctrine “holds that an insurer does not act in bad faith when it mistakenly withholds policy benefits, if the mistake is reasonable or is based on a legitimate dispute as to the insurer’s liability”].) Numerous state and federal decisions have recognized the genuine dispute doctrine is not compatible with the principles that govern third party duty to defend cases, in which the possibility of coverage triggers the duty. (See, e.g., Mt. Hawley, supra, 215 Cal.App.4th at p.1424; Howard, supra,187 Cal.App.4th at p. 530; Harbison v. American Motorists Ins. Co. (E.D. Cal. 2009) 636 F.Supp.2d 1030, 1040.)

 

 

 

(California Court of Appeal, Bartel v. Chicago Title Insurance Co., May 30, 2025, Docket No. H052083, Certified for Publication)

 

California Court of Appeal, Bartel v. Chicago Title Insurance Co., Docket No. H052083

Insurance Law

 

Bad Faith Claim

 

Breach of the Implied Covenant of Good Faith and Fair Dealing

 

Range of Possible Damages

 

Availability of Tort Remedies

 

Recovery of Attorney Fees in This Context—Often Called Brandt Fees

 

Emotional Distress

 

Declaratory Relief

 

California Law

 

 

 

“The law implies in every contract, including insurance policies, a covenant of good faith and fair dealing.” (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 720.) “‘The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement’s benefits.’” (Ibid.; see Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818 (Egan).) In other words, it “ ‘imposes upon each party the obligation to do everything that the contract presupposes they will do to accomplish its purpose.’” (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 345 (Chateau Chamberay).) “An insurer is said to act in ‘bad faith’ when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured.”  (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1071.) In this context, “the term ‘bad faith’ is used as “a shorthand reference to a claimed breach by the insurer of the covenant of good faith and fair dealing.” (Bosetti v. United States Life Ins. Co. in City of New York (2009) 175 Cal.App.4th 1208, 1235.) “An insurer’s tortious ‘breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself.’” (Howard, supra,187 Cal.App.4th at p. 528.) That is, “an insurer’s responsibility to act fairly and in good faith in handling an insured’s claim ‘is not the requirement mandated by the terms of the policy itself—to defend, settle, or pay. It is the obligation ...under which the insurer must act fairly and in good faith in discharging its contractual responsibilities.’” (California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 15, quoting Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573–574.)“ In simple terms, an insurer’s tortious bad faith conduct is conduct that is unreasonable.” (Howard, at p. 529.)

Reasonableness is an objective standard (Bosetti, at p.1237) and must be evaluated as of the time of the insurer’s decisions and actions, not “in the light of subsequent events that may provide evidence of the insurer’s errors.” (Chateau Chamberay, at p.347.)

 

 

“Ordinarily, reasonableness is a factual issue to be decided by a jury.”  (Fadeeff v. State Farm General Ins. Co. (2020) 50 Cal.App.5th 94, 102.)  However, the reasonableness of an insurer’s conduct “can be decided as a matter ‘of law where the evidence is undisputed and only one reasonable inference can be drawn from the evidence.’” (Ghazarian v. Magellan Health, Inc. (2020) 53 Cal.App.5th 171, 186–187; accord Chateau Chamberay, supra, 90 Cal.App.4th at pp.346, 350; Mt. Hawley Ins. Co. v. Lopez (2013) 215 Cal.App.4th 1385, 1424 (Mt. Hawley).)

 

 

The relevant facts related to Bartel’s tender requests and Chicago Title’s investigation and denials of tender are neither in dispute nor susceptible to competing reasonable inferences. We therefore review the trial court’s determination on Bartel’s bad faith claim de novo, and we do not defer to the trial court’s determination that Chicago Title did not act in bad faith. Regarding the legal principles governing Bartel’s claim for damages in relation to Chicago Title’s alleged breach of the implied covenant of good faith and fair dealing, a finding of bad faith exposes the insurer to a broad range of possible damages. (See Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 400 [“The availability of tort remedies in the limited context of an insurer’s breach of the covenant [of good faith and fair dealing] advances the social policy of safeguarding an insured in an inferior bargaining position who contracts for calamity protection, not commercial advantage”].) Such damages include any damages, including attorney fees, that are the proximate result of the insurer’s breach of the implied covenant of good faith and fair dealing. (Brandt v. Superior Court (1985) 37 Cal.3d 813, 817(Brandt); see Civ. Code, § 3333.) The recovery of attorney fees in this context—often called Brandt fees—is an exception to the generally applicable rule that parties to a lawsuit must ordinarily pay their own fees. (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 806 (Cassim).) “If an insurer fails to act fairly and in good faith when discharging its responsibilities concerning an insurance contract, such breach may result in tort liability for proximately caused damages. Those damages can include the insured’s cost to hire an attorney to vindicate the insured’s legal rights under the insurance policy. ‘When an insurer’s tortious conduct reasonably compels the insured to retain an attorney to obtain the benefits due under a policy, it follows that the insurer should be liable in a tort action for that expense. The attorney’s fees are an economic loss—damages—proximately caused by the tort. [Citation.] These fees must be distinguished from recovery of attorney’s fees qua attorney’s fees, such as those attributable to the bringing of the bad faith action itself.’ ” (Ibid., quoting Brandt, supra, 37 Cal.3d at p. 817.) Stated differently, because the “entitlement to attorney fees as compensatory damages is premised on an insured’s need to hire an attorney to vindicate his or her contractual rights under an insurance policy” (Cassim, supra, 33 Cal.4th at p. 807), our high court has “placed a critical limitation on the amount of fees recoverable. ‘The fees recoverable, . . ., may not exceed the amount attributable to the attorney’s efforts to obtain the rejected payment due on the insurance contract. Fees attributable to obtaining any portion of the plaintiff’s award which exceeds the amount due under the policy are not recoverable.’ ” (Ibid., italics omitted.) To the extent the claimed legal fees for both the contract and tort recoveries are intertwined, the plaintiff bears “the burden of demonstrating how the fees for legal work attributable to both the contract and the tort recoveries should be apportioned.” (Cassim, supra, 33 Cal.4th at p. 813.) Further, “to the extent some overlap in legal work occurs, the trial court should exercise its discretion to apportion the fees” (id. at p. 811) to ensure that the Brandt fee award reflects only those fees attributable to the attorney’s efforts to recover under the breach of the insurance contract. (Id. at p. 813.) Similarly, while noneconomic damages such as for emotional distress are available, those damages must flow from the initial breach of the implied covenant and resulting economic loss. (Gourley v. State Farm Mut. Auto. Ins. Co. (1991) 53 Cal.3d 121, 128–129; see also Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1215 (Major).) 

Whether a party is entitled to a particular measure of damages is a question of law. (Atkins v. City of Los Angeles (2017) 8 Cal.App.5th 696, 738).

 

 

(…) As our Supreme Court has stated in connection with the duty to defend, “an insurer must defend against a suit even ‘“where the evidence suggests, but does not conclusively establish, that the loss is not covered.”’” (Hartford, supra, 59 Cal.4th at p. 287.) Any doubt must be resolved in favor of the insured (ibid.), such that the insurer is excused from defending against a third party claim “only when ‘“the third party complaint can by no conceivable theory raise a single issue which could bring it within the policy coverage.”’”(Id. at p. 288, italics added; see also Montrose, supra, 6 Cal.4th at p. 300, italics omitted [stating, to prevail in an action seeking declaratory relief on the issue of the duty to defend “the insured need only show that the underlying claim may fall within policy coverage; the insurer must prove it cannot”].)

 

 

The implied covenant in this context did not require Chicago Title to divine the outcome or speculate as to unpleaded legal theories. Rather, in the face of a claim against the property based on ambiguous maps and road designations, Chicago Title had an implied promise to take reasonable steps to fulfill the expectations of its insured and provide a defense to the claim arising from circumstances conceivably within the scope of the policy. (See Lambert, supra, 53 Cal.3d at p.1081 [“The contract of insurance is unique in that the purchaser seeks not commercial advantage, but rather peace of mind and security in the event of unforeseen calamity.”].)

 

 

 

(California Court of Appeal, Bartel v. Chicago Title Insurance Co., May 30, 2025, Docket No. H052083, Certified for Publication)

 

U.S. Court of Appeals for the Fourth Circuit, Towers Watson & Co. v. National Union Fire Insurance Co., Docket No. 24-1302

Insurance Policy

 

Interpretation

 

Virginia Law

 

 

 

Virginia law still governs our interpretation of the Policy. See Towers Watson & Co., 67 F.4th at 653. Under Virginia law, “an insurance policy is a contract, and, as in the case of any other contract, the words used are given their ordinary and customary meaning when they are susceptible of such construction.” Hill v. State Farm Mut. Auto. Ins. Co., 375 S.E.2d 727, 729 (Va. 1989). If policy language is ambiguous, i.e., susceptible of two or more reasonable meanings, then “any doubt concerning the meaning of the policy language” must be “resolved against the insurer.” Id. at 730; Erie Ins. Exch. v. EPC MD 15, LLC, 822 S.E.2d 351, 355 (Va.  2019). This contra proferentum rule applies with particular force when construing policy exclusions, as the insurer bears the burden of proving that an exclusion applies. See TravCo Ins. Co. v. Ward, 736 S.E.2d 321, 325 (Va. 2012) (“Language in a policy purporting to exclude certain events from coverage will be construed most strongly against the insurer.” (quoting PBM Nutritionals, LLC v. Lexington Ins. Co., 724 S.E.2d 707, 713 (Va. 2012))).

 

 

That said, the Supreme Court of Virginia has “cautioned” courts to “resist” the “temptation” to “give up quickly on the search for a plain meaning by resorting to the truism that a great many words—viewed in isolation—have alternative, and sometimes quite different, dictionary meanings.” Erie Ins. Exch., 822 S.E.2d at 355. Otherwise, “the contra proferentem thumb-on-the-scale would apply to nearly every interpretation of nearly every insurance policy.” Id. Policy language is therefore ambiguous only where the “competing interpretations . . . are ‘equally possible’ given the text and context of the disputed provision.” Id. at 356 (quoting Appalachian Reg’l Healthcare v. Cunningham, 806 S.E.2d 380, 386 n.10 (Va. 2017)). In other words, the mere fact that the parties disagree on the meaning of the terms of a provision does not necessarily render those terms ambiguous. TM Delmarva Power, L.L.C. v. NCP of Va., L.L.C., 557 S.E.2d 199, 200 (Va. 2002).

 

 

 

(U.S. Court of Appeals for the Fourth Circuit, May 28, 2025, Towers Watson & Co. v. National Union Fire Insurance Co., Docket No. 24-1302, Published)

 

 

U.S. Court of Appeals for the Fourth Circuit, Towers Watson & Co. v. National Union Fire Insurance Co., Docket No. 24-1302

D&O Liability Policy

 

Merger

 

Shareholders’ Class Action

 

Merger Consideration

 

Insurance Policy’s « Bump-Up Exclusion »

 

Common Fund Doctrine

 

Equity

 

Virginia Law

 

 

 

 

This case returns to us following vacatur and remand to the district court.  On remand, the district court held that the “bump-up exclusion” in the relevant directors and officers (“D&O”) liability insurance policies “unambiguously applied” to Towers Watson & Co.’s settlement with its shareholders. Towers Watson & Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., No. 1:20-cv-810, 2024 WL 993871, at *9 (E.D. Va. Mar. 6, 2024). As a result, it found that Towers Watson was not entitled to indemnity coverage under those policies and granted National Union Fire Insurance Co. of Pittsburgh, Pa.’s (“National Union”) motion for summary judgment to that effect.

 

 

National Union is the primary insurer. There are also several excess insurers, but their policies “follow form” to the primary policy, “meaning that they incorporate the same terms.” Towers Watson & Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 67 F.4th 648, 650 (4th Cir. 2023). The district court’s conclusion thus applies with equal force to all the policies. (Fn. 1).

 

 

National Union provided defense coverage for the claims against Towers Watson. What is at issue here is indemnification coverage. When we refer to coverage herein, it means indemnification coverage under the various policies. (Fn. 2).

 

 

A D&O policy, also called a management liability policy, provides coverage to “officers and directors of a corporation for claims asserted against them for wrongful acts, errors, omissions, or breaches of duty, and also. . . provides indirect coverage to the corporation for reimbursement of any monies expended to indemnify the officers and directors.” 9A Steven Plitt et al., Couch on Insurance § 131:30 n.3 (3d ed. 2024). (Fn. 4).

 

 

The term “Organization” includes the “Named Entity,” which is defined as “Towers Watson & Co.” J.A. 1401, 1427. An “Insured Person” includes any “Executive” or “Employee” of Towers Watson. J.A. 1426. A “Securities Claim” includes “Claims” alleging the violation of a “federal, state, local or foreign regulation, rule or statute regulating securities” brought against Towers Watson related to a securities interest in Towers Watson, as well as a “Derivative Suit.” J.A. 1430. A “Claim” is defined to include “a civil. . . proceeding for monetary, non-monetary or injunctive relief which is commenced by . . . service of a complaint or similar pleading.” J.A. 1422. (Fn. 5).

 

 

 

We agree with the district court that the policies’ bump-up exclusion precludes coverage for the parties’ settlement, including the portion that ultimately went toward attorneys’ fees. We therefore affirm the district court’s decision in full.

 

 

The Policy provides coverage for the “Loss of any Organization . . . arising from any Securities Claim made against such Organization for any Wrongful Act of such Organization,” and the “Loss of an Organization that arises from any Claim . . . made against any Insured Person . . . for any Wrongful Act of such Insured Person.” J.A. 1406.5 “Loss” is a defined term that includes “damages, settlements, judgments,” and defense costs. J.A. 1426. The Policy also includes what is commonly termed a “bump-up” exclusion, which generally bars coverage for losses stemming from judgments or settlements reached in connection with claims that seek an increase—or “bump up”—in the consideration paid for a security. Towers Watson & Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 67 F.4th 648, 650 (4th Cir. 2023). The bump-up exclusion in the Policy provides: In the event of a Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate, Loss with respect to such Claim shall not include any amount of any judgment or settlement representing the amount by which such price or consideration is effectively increased. J.A. 1427.

 

This appeal turns on the proper interpretation of that provision.

 

 

Virginia law still governs our interpretation of the Policy. See Towers Watson & Co., 67 F.4th at 653. Under Virginia law, “an insurance policy is a contract, and, as in the case of any other contract, the words used are given their ordinary and customary meaning when they are susceptible of such construction.” Hill v. State Farm Mut. Auto. Ins. Co., 375 S.E.2d 727, 729 (Va. 1989). If policy language is ambiguous, i.e., susceptible of two or more reasonable meanings, then “any doubt concerning the meaning of the policy language” must be “resolved against the insurer.” Id. at 730; Erie Ins. Exch. v. EPC MD 15, LLC, 822 S.E.2d 351, 355 (Va.  2019). This contra proferentum rule applies with particular force when construing policy exclusions, as the insurer bears the burden of proving that an exclusion applies. See TravCo Ins. Co. v. Ward, 736 S.E.2d 321, 325 (Va. 2012) (“Language in a policy purporting to exclude certain events from coverage will be construed most strongly against the insurer.” (quoting PBM Nutritionals, LLC v. Lexington Ins. Co., 724 S.E.2d 707, 713 (Va. 2012))).

 

 

That said, the Supreme Court of Virginia has “cautioned” courts to “resist” the “temptation” to “give up quickly on the search for a plain meaning by resorting to the truism that a great many words—viewed in isolation—have alternative, and sometimes quite different, dictionary meanings.” Erie Ins. Exch., 822 S.E.2d at 355. Otherwise, “the contra proferentem thumb-on-the-scale would apply to nearly every interpretation of nearly every insurance policy.” Id. Policy language is therefore ambiguous only where the “competing interpretations . . . are ‘equally possible’ given the text and context of the disputed provision.” Id. at 356 (quoting Appalachian Reg’l Healthcare v. Cunningham, 806 S.E.2d 380, 386 n.10 (Va. 2017)). In other words, the mere fact that the parties disagree on the meaning of the terms of a provision does not necessarily render those terms ambiguous. TM Delmarva Power, L.L.C. v. NCP of Va., L.L.C., 557 S.E.2d 199, 200 (Va. 2002).

 

 

In the end, we agree with the district court that the settlements do fall within the Policy’s bump-up exclusion, thus barring indemnity. Our analysis begins with the language of the bump-up exclusion: In the event  of a Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or  substantially all the ownership interest in or assets of an entity is inadequate, Loss with respect to such Claim shall not include any amount of any judgment or settlement representing the amount by which such price or consideration is effectively increased. J.A. 1427. By its terms, this provision establishes two conditions that must be satisfied before the exclusion is triggered. First, there must be a “Claim” alleging that the consideration paid for an acquisition was inadequate. Id. And second, the settlement of such claim must “represent” an “effective increase” in the “price or consideration” shareholders received for that acquisition. Id. Beginning with the first condition, there is no real dispute that the shareholders filed a “Claim” alleging that the consideration paid for Willis’ acquisition of Towers Watson was inadequate. See, e.g., Opening Br. 32–33 (acknowledging that the first element “looks only to the allegations of the complaint,” and that the Court can therefore “take the first condition as a given”); Response Br. 26 (noting that Towers Watson “no longer disputes that both the Virginia and Delaware actions were predicated fundamentally on Towers Watson’s alleged failure to secure adequate consideration for the shares shareholders were forced to relinquish in the transaction”). The first condition is therefore clearly satisfied.

 

 

The second condition presents a more difficult question. In particular, the parties spar over the meaning and import of the terms “represent” and “effectively increase.” J.A. 1427. Since the Policy does not define either term, we look to their dictionary definitions for interpretive guidance. Towers Watson, 67 F.4th at 653–54 (acknowledging Virginia courts’ “established practice of looking to an undefined contractual term’s dictionary definition” to ascertain its “ordinary and accepted meaning” (quoting Lower Chesapeake Assocs. v. Valley Forge Ins. Co., 532 S.E.2d 325, 330 (Va. 2000))). For its part, “represent” is defined as “to constitute or amount to,” or “to symbolize or stand in place of.” Represent, Black’s Law Dictionary (12th ed. 2024); see Represent, Merriam-Webster’s Dictionary (last accessed May 12, 2025) https://www.merriamwebster.com/dictionary/represent [https://perma.cc/CL2H-QF8L] (defining “represent” as “to serve as a sign or symbol of”). And “effectively” is defined as “in effect, virtually,” Effectively, Merriam-Webster’s Dictionary (last accessed May 12, 2025) https://www.merriam-webster.com/dictionary/effectively [https://perma.cc/U9S3-FDLZ], “the real result of a situation,” Effectively, Cambridge English Dictionary (last accessed May 12, 2025) https://dictionary.cambridge.org/us/dictionary/english/effectively [https://perma.cc/73XT-2P2Y], and “having a certain result in reality, though not in theory,” id.

 

 

With these definitions in hand, we have little trouble concluding that the bump-up exclusion’s second condition is satisfied. That’s because the terms “represent” and “effectively increase,” particularly when read together, indicate that we must look to the “real result of the situation,” not the theoretical one. See Effectively, Cambridge English Dictionary, supra (emphasis added); Represent, Black’s Law Dictionary, supra. And if the “real result” of the settlements is that the shareholders receive additional consideration for their relinquished shares, this condition is satisfied. As the district court observed, that’s exactly what happened here. The shareholders, claiming their shares were devalued in the merger process because of Haley’s conflict of interest, sued Towers Watson. Their lawsuit sought to rectify that perceived shortfall. That is, they sought what was effectively an increase (or “bump-up”) in the consideration paid for their shares. The settlements they eventually received constituted—i.e., “represented”—precisely such a bump-up.  J.A. 1427; see, e.g., J.A. 1687 (analysis from the Virginia plaintiffs’ damages expert “estimating damages as the minimum incremental amount that Towers Watson shareholders should have expected to obtain or retain based on a full disclosure of the information that Lead Plaintiff argues should have been disclosed”). Because both requirements are met, the bump-up exclusion applies and Towers Watson is not entitled to indemnification for the settlements.

 

 

Relatedly, interpreting the bump-up exclusion in such a way does not render the Policy coverage illusory. As Insurers note, the exclusion does not impact the Policy’s coverage for the costs of defending against securities claims alleging inadequate consideration. Indeed, Insurers have already paid out millions in covered defense costs here. Moreover, to argue that the exclusion renders the Policy’s coverage illusory is to suggest that all securities claims involve allegations of inadequate consideration in corporate acquisitions. But as Insurers note, most securities claims do not arise out of corporate acquisitions and therefore do not implicate bump-up exclusions.

 

 

Towers Watson raises a second issue regarding the district court’s resolution of the attorneys’ fee question under the common fund doctrine. The district court found that the $17+ million in settlement money that went toward attorneys’ fees fell within the ambit of the bump-up exclusion by way of that doctrine. This finding led the district court to conclude that indemnity was barred for the whole of the settlements reached, not just the portion that “actually reached the shareholders.” Towers Watson & Co., 2024 WL 993871, at *9. We discern no legal error in this conclusion and therefore affirm. The common fund doctrine derives from principles of equity and “allows a court to award ‘a reasonable attorney’s fee’ to ‘a litigant or a lawyer who recovers a common fund for the benefit of persons other than himself or his client . . . from the fund as a whole.’” Brundle ex rel. Constellis Emp. Stock Ownership Plan v. Wilmington Tr., N.A., 919 F.3d 763, 785 (4th Cir. 2019) (quoting Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980)). A common fund recovery thus “places the plaintiffs’ cost of litigation on the recovering beneficiaries of a lawsuit.” Id. at 786.

 

 

The district court invoked this doctrine to conclude that the full $90 million settlement fund—$17,626,730.78 of which ultimately went toward attorneys’ fees— “represents the amount by which consideration was effectively increased.” Towers Watson & Co., 2024 WL 993871, at *9. It did not err in doing so. In short, the district court rightly observed that, “regardless of how the additional consideration was distributed once paid to the beneficiaries, it nevertheless constitutes in toto an increase in the consideration paid for the merger.” Id.

 

 

Secondary sources: Steven Plitt et al., Couch on Insurance § 131:30 n.3 (3d ed. 2024).

 

 

 

(U.S. Court of Appeals for the Fourth Circuit, May 28, 2025, Towers Watson & Co. v. National Union Fire Insurance Co., Docket No. 24-1302, Published)

 

U.S. Court of Appeals for the Fourth Circuit, Towers Watson & Co. v. National Union Fire Insurance Co., Docket No. 24-1302

Excess Insurers

 

To « Follow Form »

 

 

 

National Union is the primary insurer. There are also several excess insurers, but their policies “follow form” to the primary policy, “meaning that they incorporate the same terms.” Towers Watson & Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 67 F.4th 648, 650 (4th Cir. 2023). The district court’s conclusion thus applies with equal force to all the policies. (Fn. 1).

 

 

 

(U.S. Court of Appeals for the Fourth Circuit, May 28, 2025, Towers Watson & Co. v. National Union Fire Insurance Co., Docket No. 24-1302, Published)

 

 

U.S. Supreme Court, Kousisis v. United States, Docket No. 23-909

Wire Fraud and Conspiracy to Commit the Same (18 U. S. C. §§1343, 1349)

 

Fraudulent-Inducement Theory

 

Circuit Split

 

 

 

 

The Government charged Alpha and Kousisis with wire fraud, asserting that they had fraudulently induced PennDOT to award them the painting contracts. See 18 U. S. C. §1343. Under the fraudulent-inducement theory, a defendant commits federal fraud whenever he uses a material misstatement to trick a victim into a contract that requires handing over her money or property—regardless of whether the fraudster, who often provides something in return, seeks to cause the victim net pecuniary loss. We must decide whether this theory is consistent with §1343, which reaches only those schemes that target traditional money or property interests. See Ciminelli v. United States, 598 U. S. 306, 316 (2023). It is, so we affirm.

 

The circuits are divided over the validity of a federal fraud conviction when the defendant did not seek to cause the victim net pecuniary loss. Several circuits, now including the Third, hold that such convictions may stand. See, e.g., id., at 240–244; United States v. Leahy, 464 F. 3d 773, 787–789 (CA7 2006); United States v. Granberry, 908 F. 2d 278, 280 (CA8 1990); United States v. Richter, 796 F. 3d 1173, 1192 (CA10 2015). Others disagree. See, e.g., United States v. Shellef, 507 F. 3d 82, 108–109 (CA2 2007); United States v. Sadlar, 750 F. 3d 585, 590–592 (CA6 2014); United States v. Bruchhausen, 977 F. 2d 464, 467–468 (CA9 1992); United States v. Takhalov, 827 F. 3d 1307, 1312–1314 (CA11 2016); United States v. Guertin, 67 F. 4th 445, 450–452 (CADC 2023). We granted certiorari to resolve the split. 602 U. S. ___ (2024).

 

(…) The money-or-property requirement lies at the heart of this dispute. Although the lower courts once interpreted the phrase “money or property” as something of a catchall, we recently reiterated that the federal fraud statutes reach only “traditional property interests.” Ciminelli, 598 U. S., at 316. Schemes that target the exercise of the Government’s regulatory power, for example, do not count. See Kelly, 590 U. S., at 400; see also Cleveland v. United States, 531 U. S. 12, 23–24 (2000). Nor do schemes that seek to deprive another of “intangible interests unconnected to property.” Ciminelli, 598 U. S., at 315; see also McNally, 483 U. S., at 356. And in all cases, because money or property must be an object of the defendant’s fraud, the traditional property interest at issue “must play more than some bit part in a scheme.” Kelly, 590 U. S., at 402. Obtaining the victim’s money or property must have been the “aim,” not an “incidental byproduct,” of the defendant’s fraud. Id., at 402, 404.

 

 

 

 

(U.S. Supreme Court, May 22, 2025, Kousisis v. United States, Docket No. 23-909, J. Barrett)

U.S. Supreme Court, Kousisis v. United States, Docket No. 23-909

Fraud

 

Rescission of Contract

 

Common Law

 

 

 

When Congress uses a term with origins in the common law, we generally presume that the term “‘brings the old soil with it.’” Sekhar v. United States, 570 U. S. 729, 733 (2013). As petitioners note, we have long interpreted the statutory term “fraud” (and its variations) this way—that is, by reference to its common-law pedigree. See Neder v. United States, 527 U. S. 1, 21–22 (1999); Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U. S. 176, 187 (2016) (“The term ‘fraudulent’ is a paradigmatic example of a statutory term that incorporates the common-law meaning of fraud”).

 

This old-soil principle applies, however, only to the extent that a common-law term has “‘accumulated a settled meaning.’” Neder, 527 U. S., at 21; Kemp v. United States, 596 U. S. 528, 539 (2022). So to show that economic loss is necessary to securing a federal fraud conviction, Alpha and Kousisis must show that such loss was “widely accepted” as a component of common-law fraud. Morissette v. United States, 342 U. S. 246, 263 (1952). They cannot.

 

At common law, “fraud” was a term with expansive reach. Rather than settle on a single form of liability, courts recognized at least three, and the particular elements and remedies turned on the nature of the plaintiff ’s alleged injury. To appreciate how the three forms differed, it may help to consider a variation of the facts here. Imagine that PennDOT discovered petitioners’ scheme soon after Alpha and Kousisis had begun work on the Girard Point and 30th Street projects. In such a circumstance, law and equity provided at least three avenues for relief: PennDOT could (1) seek to rescind the contracts; (2) refer the matter for indictment under the crime of false pretenses; or (3) bring a tort action against the fraudsters for the damages incurred. If PennDOT had wanted to rescind the fraud-infected contracts, most courts would historically have permitted it to do so even without a showing of economic loss. To obtain a rescission, PennDOT would have needed to establish only that it had “received property of a different character or condition than it was promised” (“although of equal value”) or, more relevant here, that the transaction had “proved to be less advantageous than as represented” (“although there was no actual loss”). W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton on Law of Torts §110, p. 766 (5th ed. 1984) (Prosser & Keeton). Put differently, many courts would have awarded the equitable remedy of rescission simply because Alpha and Kousisis had tricked PennDOT into a bargain materially different from the one they had promised. See Hirschman v. Healy, 162 Minn. 328, 331, 202 N. W. 734, 735 (1925) (“It is to be noted that it was not indispensable to prove damages in dollars and cents to have cancellation or rescission of the contract and note for misrepresentations”); Williams v. Kerr, 152 Pa. 560, 565, 25 A. 618, 619 (1893); Spreckels v. Gorrill, 152 Cal. 383, 391, 92 P. 1011, 1015 (1907). To borrow a summary from Black (of Black’s Law Dictionary fame) many “decisions repudiated altogether a rule requiring a showing of actual damage.” 1 H. Black, Rescission of Contracts and Cancellation of Written Instruments §112, p. 314 (1916).

 

 

 

(U.S. Supreme Court, May 22, 2025, Kousisis v. United States, Docket No. 23-909, J. Barrett)