Ivy v. Pacific Auto. Ins. Co.

• Citation: 320 P.2d 140,156 Cal.App.2d 652
• Parties: Earl L. IVY, Plaintiff and Appellant, v. PACIFIC AUTOMOBILE INSURANCE COMPANY, Stuart Dodge and Harold H. Cohn, Defendants and Respondents. Civ. 17431.
• Decision Date: 13 January 1958
• Court: California Court of Appeals

Page 140

320 P.2d 140

156 Cal.App.2d 652

Earl L. IVY, Plaintiff and Appellant, v. PACIFIC AUTOMOBILE INSURANCE COMPANY, Stuart Dodge and Harold H. Cohn, Defendants and Respondents.

Civ. 17431.

District Court of Appeal, First District, Division 1, California.

Jan. 13, 1958.

Rehearing Denied Feb. 11, 1958.

Hearing Denied March 12, 1958.

Mullally & Wines, Oakland, William E. Geary, Oakland, of counsel, for appellant.

Boyd & Taylor, San Francisco, for respondents.

PETERS, Presiding Justice.

Plaintiff, Earl L. Lvy, brought this action against the Pacific Automobile Insurance Company, its attorney Harold H. Cohn, and its adjuster, Stuart Dodge, for damages, actual and punitive, and to compel the defendants to satisfy a judgment secured against plaintiff by one James M. Smith. The cause of action for damages was subsequently dismissed. The trial court denied any relief to the plaintiff and he appeals.

The controversy arises out of an automobile accident in which James M. Smith was seriously injured when hit by a truck driven by one Sawatzke. Smith brought an action against Sawatzke, Ivy and others and secured a stipulated $75,000 personal judgment against the defendants, including Ivy. In that action the Pacific Automobile Insurance Company, through its attorney Cohn, undertook the defense of all of the defendants. In the instant case it is the basic contention of Ivy that the personal judgment for $75,000 secured against him by Smith resulted solely from stipulations made by Cohn which were contrary to law and the facts, made without Ivy's knowledge or authority, and which were made in bad faith in order financially to benefit the insurance company.

The facts are as follows: On November 12, 1952, Smith was seriously injured when struck by a delivery truck operated by Sawatzke. Prior to this date Ivy had been engaged in business under the name of Earl L. Ivy, dba Ivy Enterprises. He had ceased operating this business prior to October 21, 1952. In October of 1952 the Pestgo Manufacturing Company was incorporated in California and commenced business. Ivy was one of the three directors, his wife Merle P. Ivy, and Charles Spotts being the other two directors. The appellant Ivy was secretary-treasurer of this corporation.

At the time of the accident to Smith, Pestgo was in the process of buying from one Don C. Wood the East Bay Refinol Company. On the date of the accident Pestgo was in possession of the assets and was operating the East Bay Refinol Company, but the sale was not completed until after the date of the accident. Among the assets of East Bay Refinol Company was the delivery truck that hit Smith. On the date of the accident this truck was registered to Wood and his wife and was not transferred to Ivy until January of 1953. At the time of the accident Sawatzke was on the Pestgo payroll, but in the instant case Ivy testified that he did not know what Sawatzke was doing at the time of the accident, where he was going or where he had been.

Smith filed suit against Sawatzke, East Bay Refinol Company and against several fictitious defendants. Ivy was served in that action individually and also as doing business as Pestgo Manufacturing Company, a corporation.

On the date of the accident there was in full force and effect a policy issued by respondent Pacific Automobile Insurance Company to Don C. Wood insuring Wood for liability up to $50,000 for bodily injury liability to any one person. ¹ Also, on the date of the accident Ivy had a comprehensive policy with a $100,000 limit with the Guarantee Insurance Company, issued in his name dba as Ivy Enterprises.

The policy of respondent Pacific contains this clause, relating to defense and settlement: '* * * the company shall: (a) defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient.'

In defining the term 'insured' the policy contains this clause: 'With respect to the insurance for bodily injury, liability and for property damage liability, the unqualified word 'insured' includes the named insured and also includes any person while using the automobile, and any person or organization legally responsible for the use thereof, provided the actual use of the automobile is by the named insured or with its permission.'

Pursuant to these provisions Pacific, through attorney and respondent Cohn, undertook the complete defense of all of the defendants in the Smith action, including the defense of Ivy personally and of Ivy dba Pestgo Manufacturing Company. Guarantee took no part in the defense of anyone. As defense counsel, Cohn Filed or caused to be filed the following documents:

1. On March 2, 1953, he prepared and verified an answer on behalf of Ivy stating that 'Defendant Earl Ivy admits that Kurt A. Sawatzke was his agent and employee,' and in which he also pleaded the defense of contributory negligence. Cohn admitted that before filing this verified answer he had never met or talked with Ivy, had never asked Ivy whether on not Sawatzke was his agent or employee, and had no written statement to that effect from Ivy.

2. On April 21, 1953, Cohn filed an answer on behalf of Pestgo which was verified by Ivy as secretary-treasurer of the corporation, denying that Sawatzke was an agent of Pestgo, and also alleging contributory negligence.

3. May 8, 1953, Cohn prepared, verified, and filed an answer on behalf of a James Blake, also sued as a fictitious defendant and who was associated with Ivy in Pestgo, denying agency and alleging contributory negligence.

4. On August 10, 1953, Cohn filed a stipulation between him and Smith's attorneys to the effect that the Pestgo answer should serve as the answer of East Bay Refinol Company.

The case came up for trial on May 21, 1954. There was a brief trial substantially limited to the issue of damages. Cohn stipulated that Sawatzke was the agent of Ivy both individually and dba Pestgo, that negligence on the part of Sawatzke was admitted, and that the defense of contributory negligence was waived. He also stipulated that whatever judgment was entered in favor of Smith should run against Ivy personally and as dba Pestgo Manufacturing Company. He practically conceded and made no serious objection to that judgment being in the sum of $75,000. Four days later findings and conclusions in support of such a judgment were filed, and on May 26, 1954, judgment in the amount of $75,000 plus costs was entered against Ivy and against Ivy dba Pestgo. Some six months later, that is on November 22, 1954, Cohn stipulated that the findings be amended nunc pro tunc to include new findings to the effect that Pestgo and East Bay Refinol Company were solely owned enterprises of Ivy and were operated by him under the name of 'Ivy Enterprises.' A court order was entered pursuant to this stipulation. ²

In the trial of the instant case Cohn testified that he did all of these acts without consultation with Ivy, without ever asking him whether or not he was the sole owner of Pestgo and what was the status of Ivy Enterprises. He admitted that he had never asked for or obtained any of the books or records of directors' meetings or any other records to determine whether Pestgo was the alter ego of Ivy. He vaguely stated that the thought that one of Pacific's investigators had 'looked up something about that corporation, but what it was I can't tell you for certain.' He produced no reports of his company relating to this question.

Ivy testified that he was never notified by Cohn that the case of Smith v. Sawatzke had been set for trial or of the trial date and was never told by Cohn that a $75,000 judgment was to be or had been entered against him. He first learned of it from a friend several days after it was entered. He was not told that the $75,000 judgment had been partially satisfied.

This partial satisfaction occurred under the following circumstances: Prior to May 21, 1954, the day set for trial, Cohn and Smith's attorneys had agreed upon a stipulated judgment against Ivy personally for $75,000. It was agreed that Pacific would pay Smith $25,000 in partial satisfaction of the Smith judgment, and that Smith would pursue the other insurance company, Guarantee, to collect the balance. In consideration for this partial satisfaction Smith signed a covenant not to execute on the judgment against any of the defendants or against Pacific to try and collect the balance owing of $50,000. The agreement also provided that Smith would vigorously prosecute to final judgment the proposed action against Guarantee, and that in the event Smith was unsuccessful in that action Pacific would pay Smith an additional $17,500. ³ Formal contracts embodying these agreements were signed by Cohn on behalf of Pacific and by Smith and his attorneys on May 26, 1954.

All of these stipulations and agreements were made without the knowledge or consent of Ivy. He alleged in his complaint, in both causes of action, that because of this outstanding judgment he has been unable to enter into any business transactions, that his credit has been impaired, and that he has suffered worry and mental anguish. He was not permitted to testify on these matters because the trial judge ruled, on his own motion and without objection by respondent's counsel, that the questions were not material for the reason that the first cause of action for damages had been dismissed. The court did, by its own questions and by questions asked by respondent's counsel, elicit information that in 1954 Ivy had been convicted of forgery and 25 years ago had been convicted of two other felonies. None of these crimes was in any way connected with the transactions here involved.

The court found the facts substantially as above set forth and also found that the...