Gruenberg v. Aetna Ins. Co.

• Citation: 510 P.2d 1032,108 Cal.Rptr. 480,9 Cal.3d 566
• Court: United States State Supreme Court (California)
• Decision Date: 11 June 1973
• Parties: , 510 P.2d 1032 Jerome GRUENBERG, Plaintiff and Appellant, v. AETNA INSURANCE COMPANY et al., Defendants and Respondents. L.A. 30082.

Page 480

108 Cal.Rptr. 480

9 Cal.3d 566, 510 P.2d 1032

Jerome GRUENBERG, Plaintiff and Appellant, v. AETNA INSURANCE COMPANY et al., Defendants and Respondents.

L.A. 30082.

Supreme Court of California,

In Bank.

June 11, 1973.

Rehearing Denied July 18, 1973.

Hirsch, Marcus & Wechsler and Alvin Hirsch, Beverly Hills, for plaintiff and appellant.

Wagner & Scuderi, Robert S. Scuderi, Los Angeles, Robert E. Cartwright, San Francisco, Edward I. Pollock, Theodore A Horn, Los Angeles, Marvin E. Lewis, San Francisco, William H. Lally, Sacramento, Joseph W. Cotchett, San Mateo, Herbert Hafif, Claremont, David Daar, Los Angeles, Leonard Sacks, Pico Rivera, and Sanford M. Gage, P.C., Beverly Hills, as amici curiae on behalf of plaintiff and appellant.

Cummins, White & Breidenbach, James O. White, William F. Rylaarsdam, Anthony E. Shafton, Jarrett & Woodhead, Los Angeles, A. P. G. Steffes, Beverly Hills, Frank W. Woodhead, Chase, Rotchford, Drukker & Bogust, William C. Falkenhainer, Lawrence O. de Coster and David Clark, Los Angeles, for defendants and respondents.

SULLIVAN, Justice.

Plaintiff appeals from a judgment of dismissal entered upon an order sustaining, with leave to amend, defendants' general demurrers to plaintiff's complaint, plaintiff having thereafter declined to amend. ¹

Plaintiff's complaint, containing only one count, alleged in substance the following: On and after April 7, 1969, plaintiff was the owner of a cocktail lounge and restaurant business in Los Angeles known as the Brass Rail. The business premises were insured against fire loss in the aggregate sum of $35,000 by the three defendant insurers, Aetna Insurance Company (Aetna), Yosemite Insurance Company (Yosemite), and American Home Assurance Company (American).

In the early hours of the morning of November 9, 1969, a fire occurred at the Brass Rail. Plaintiff was notified and immediately went to the scene. While there, he became involved in an argument with a member of the arson detail of the Los Angeles Fire Department and was placed under arrest.

On November 10, 1969, defendant insurers, upon being informed of the fire, engaged the services of defendant P. E. Brown and Company (Brown). Carl Busching, a claims adjuster employed by Brown, went to the Brass Rail to investigate the fire and inspect the premises. While he was there, he stated to an arson investigator of the Los Angeles Fire Department that plaintiff had excessive coverage under his fire insurance policies. Eventually the premises were locked and nothing was removed until November 14, 1969, when Busching authorized the removal of the rubble and debris.

About November 13, 1969, plaintiff was charged in a felony complaint with the crimes of arson (Pen.Code, § 448a) and defrauding an insurer (Pen.Code, § 548). A preliminary hearing was set for January 12, 1970.

Defendant insurance companies also retained defendant law firm Cummins, White, Briedenbach & Alphson (Cummins) to represent them in the matter of plaintiff's claim of fire loss. On November 25, 1969, defendant Donald Ricketts, an attorney-employee of Cummins, demanded in writing that plaintiff appear at the offices of said firm on December 12, 1969, to submit to an examination under oath and to produce certain documents. ² On November 26, 1969, plaintiff's attorney responded by letter to Ricketts explaining that he had advised plaintiff not to make any statements concerning the fire loss while criminal charges were pending. The letter also requested that the insurers waive the requirement of an examination until the criminal charges lodged against plaintiff were concluded. Ricketts refused the request and warned that failure to appear for the examination would void coverage under the policies. On December 16, 1969, Ricketts, on behalf of the Cummins law firm, advised plaintiff's attorney in writing that defendant insurers were denying liability under the policies because of plaintiff's failure to submit to an examination under oath and to produce documents.

On January 12, 1970, a preliminary hearing was held on the complaint charging plaintiff with arson and defrauding an insurer. Busching appeared as a witness for the prosecution and restated his belief that plaintiff had excessive fire insurance coverage for his business. The charges were dismissed by the magistrate for lack of probable cause.

On January 26, 1970, plaintiff's attorney advised defendant insurers that plaintiff was now prepared to submit himself for an examination. However, the insurers reaffirmed their position that they were denying liability because of plaintiff's failure to appear.

According to the allegations of the complaint, all defendants other than the insurance company defendants were the agents and employees of the three defendant companies and were acting within the scope of such agency and employment when the acts attributed to them were committed. It was further alleged that 'the defendants and each of them joined together and acted in concert to falsely imply that the plaintiff had a motive to deliberately set fire to and burn down his place of business (and that) (t)he purpose of the defendants in creating such false implication was to establish a grounds (sic) upon which the defendant Insurers could avoid paying the amounts due to plaintiff under the policies of insurance issued by the defendant Insurers.' To carry out their purpose, defendants 'conducted themselves in the following manner': (a) defendant Busching stated to an arson investigator that plaintiff had acquired excessive fire insurance coverage; (b) defendant insurers demanded that plaintiff submit to an examination under oath and to produce certain documents 'in order to enable them to secure further evidence to support the false implication that plaintiff was guilty of arson'; and (c) defendant Busching, appearing as a witness for the People at the preliminary hearing on the felony complaint, reaffirmed his statement made to the arson investigator.

As a 'direct and proximate result of the outrageous conduct and bad faith of the defendants,' plaintiff suffered 'severe economic damage,' 'severe emotional upset and distress,' loss of earnings and various special damages. Plaintiff sought both compensatory and punitive damages.

Defendants filed general demurrers to the complaint which were sustained with leave to amend. ³ Plaintiff elected to stand on his complaint and an order of dismissal was entered. This appeal followed.

We proceed to examine the complaint for its legal sufficiency according to the familiar well settled principles. 'A demurrer admits all material and issuable facts properly pleaded. (Citations.) However, it does not admit contentions, deductions or conclusions of fact or law alleged therein. (Citations.)' (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713, 63 Cal.Rptr. 724, 737, 433 P.2d 732, 745.) 'In determining whether or not the complaint is sufficient, as against the demurrer upon the ground that it does not state facts sufficient to constitute a cause of action, the rule is that if, upon a consideration of all the facts stated, it appears that the plaintiff is entitled to any relief at the hands of the court against the defendants, the complaint will be held good, although the facts may not be clearly stated or may be intermingled with a statement of other facts irrelevant to the cause of action shown, or although the plaintiff may demand relief to which he is not entitled under the facts alleged.' (Matteson v. Wagoner (1905) 147 Cal. 739, 742, 82 P. 436, 438.) In other words, 'plaintiff need only plead facts showing that he may be entitled to some relief (citation).' (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496, 86 Cal.Rptr. 88, 89, 468 P.2d 216, 217.) Furthermore, we are not concerned with plaintiff's possible inability or difficulty in proving the allegations of the complaint. (Id. at p. 496, 86 Cal.Rptr. 88, 468 P.2d 216.) ⁴

Plaintiff contends that he has stated sufficient facts to constitute a cause of action in tort against defendants for breach of an implied duty of good faith and fair dealing. The duty of an insurer to deal fairly and in good faith with its insured is governed by our decisions in Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173, and Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 328 P.2d 198. We explained that this duty, the breach of which sounds in both contract and tort, is imposed because '(t)here is an implied covenant of good faith and fair dealing in every contract (including insurance policies) that neither party will do anything which will injure the right of the other to receive the benefits of the agreement. (Comunale, supra, at p. 658, 328 P.2d at p. 200.) Therefore, 'an insurer . . . who refuses to accept a reasonable settlement within the policy limits in violation of its duty to consider in good faith the interest of the insured in settlement, is liable for the entire judgment against the insured even if it exceeds the policy limits.' (Id. at p. 661, 328 P.2d at p. 202.)

Thus in Comunale and Crisci we made it clear that '(l)iability is imposed (on the insurer) not for a bad faith breach of contract but for failure to meet the duty to accept reasonable settlements, a duty included within the implied covenant of good faith and fair dealing.' (Crisci, supra, 66 Cal.2d at p. 430, 58 Cal.Rptr. at p. 17, 426 P.2d at p. 177.) In those two cases, we considered the duty of the insurer to act in good faith and fairly in handling the claims of third persons against the insured, described as a 'duty to accept reasonable settlements'; in the case before us we consider the duty of an insurer to act in good faith and fairly in handling the claim of an insured, namely a duty not to withhold unreasonably payments due under a policy. These are merely two different aspects of the same duty. That responsibility is not the requirement...