Actual Injury Requirement In California

In Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, the plaintiff retained the law firm of Brobeck, Phleger & Harrison (Brobeck) to defend it in litigation. Brobeck failed to investigate or advise plaintiff as to potential liability insurance coverage for the lawsuit. After Brobeck was replaced, plaintiff's new attorney tendered defense of the third party litigation to plaintiff's insurance company. However, the delay in tendering that defense led to litigation between plaintiff and its insurer which plaintiff ultimately settled for less than the full amount of its claim. (Id. at pp. 744-745.) After plaintiff settled with its insurance company, it sued Brobeck for malpractice. the Jordache trial court ruled that the plaintiff's malpractice claim was barred by the statute of limitations, but the Court of Appeal reversed, finding that the statute was tolled by the actual injury provision until the plaintiff settled with its liability insurance carrier for less than the full amount of its claim. (Id. at pp. 746-747.) The Jordache court concluded that the Court of Appeal erred, and that the plaintiff suffered actual injury more than a year before it filed its malpractice action. In its decision, the Jordache court announced or affirmed the following principles which govern the actual injury inquiry: The "test for actual injury under section 340.6 . . . is whether the plaintiff has sustained any damages compensable in an action other than one for actual fraud, against an attorney for a wrongful act or omission arising in the performance of professional services." (Jordache, supra, 18 Cal.4th at p. 751.) "'The mere breach of a professional duty, causing only nominal damages, speculative harm, or the threat of future harm--not yet realized--does not suffice to create a cause of action for negligence. Hence, until the client suffers appreciable harm as a consequence of the attorney's negligence, the client cannot establish a cause of action for malpractice.' 'The cause of action arises, however, before the client sustains all, or even the greater part, of the damages occasioned by the attorney's negligence. Any appreciable and actual harm flowing from the attorney's negligent conduct establishes a cause of action upon which the client may sue.'" (Id. at p. 750.) Thus, the relevant "inquiry concerns whether 'events have developed to a point where plaintiff is entitled to a legal remedy . . . .'" (Id. at p. 752.) There is no bright line rule for fixing the point of actual injury. (Jordache, supra, 18 Cal.4th at p. 764.) "The particular facts of each case must be examined in light of the wrongful act or omission the plaintiff alleges against the attorney." (Id. at p. 763) Therefore, "determining when actual injury occurred is predominantly a factual inquiry." (Id. at p. 751.) Applying these principles, the Jordache court found that the plaintiff suffered actual injury more than a year before it filed its malpractice claim, when it spent millions of its own dollars defending the original action during the period before it tendered its coverage claim, money that would otherwise have been available for a profit making use. (Jordache, supra, 18 Cal.4th at p. 752.) These damages were "sufficiently manifest, nonspeculative, and mature that plaintiff tried to recover them as damages in its insurance coverage suits." (Ibid.) The court also found that the plaintiff suffered a second type of actual injury prior to the resolution of the insurance action. (Jordache, supra, 18 Cal.4th at pp. 752-753.) Brobeck's alleged error "diminished" plaintiff's insurance coverage rights because the years of delay in tendering defense of the original claim gave the insurer a defense to payment that it would not have had. This diminishment of plaintiff's insurance contract right caused actual damage because plaintiff "necessarily incurred additional litigation costs to meet the defense, and the settlement value of its claims decreased." (Id. at p. 753.) The Jordache court identified several flaws in the analysis which led the Court of Appeal to erroneously conclude that the plaintiff did not suffer actual injury until the insurance coverage action concluded. First, the lower court erred by applying a bright line requirement that "an adjudication or settlement must first confirm a causal nexus between the attorney's error and the asserted injury." (Jordache, supra, 18 Cal.4th at p. 752.) Such a rule ignores that "actual injury refers only to the legally cognizable damage necessary to assert the cause of action." (Ibid.) Thus, while there may be some cases in which actionable injury may occur only when a related action is adjudicated, in other cases actual injury will occur before or independent of the related action, such as when a "collateral suit is a consequence of the alleged malpractice or simply an alternative means of obtaining relief." (Id. at p. 755.) Second, the Court of Appeal mistakenly assumed that the resolution of the insurance action actually did establish a causal nexus between Brobeck's alleged error and the plaintiff's injury. Because "the alleged failure to advise plaintiff on insurance matters was not at issue in the coverage lawsuits. . . . the resolution of that litigation would not determine whether Brobeck breached its duty to plaintiff." (Jordache, supra, 18 Cal.4th at p. 753.) Nor could the outcome of that litigation determine the consequences of Brobeck's error. Thus, the insurance coverage litigation "could not determine the existence or effect of Brobeck's alleged negligence." (Ibid.) Finally, the Court of Appeal erroneously assumed that the plaintiff's damages were speculative until the insurance litigation was resolved. It reasoned that: (1) if the plaintiff had prevailed in that case, Brobeck's omissions would have caused no injury and; (2) if a court found that there was no insurance coverage then Brobeck's alleged failure to tender the defense would have had no effect of the plaintiff's policy rights. (Jordache, supra, 18 Cal.4th at p 753.) However, as the Jordache opinion explained, the injuries the plaintiff suffered as a consequence of Brobeck's error occurred before the insurance action was resolved and would not disappear regardless of the outcome of that case. Thus, the outcome of the insurance litigation might have reduced the plaintiff's damages against Brobeck, but "that action could neither necessarily exonerate Brobeck, nor extinguish plaintiff's action against Brobeck for failure to render timely advice on insurance issues." (Ibid.)