Archdale v. American Intern. Spec. Lines

• Decision Date: 22 August 2007
• Docket Number: No. B188432.,B188432.
• Citation: 64 Cal.Rptr.3d 632,154 Cal.App.4th 449
• Court: California Court of Appeals Court of Appeals
• Parties: Cheryl ARCHDALE et al., Plaintiffs and Appellants, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Defendant and Respondent.

64 Cal.Rptr.3d 632

154 Cal.App.4th 449

Cheryl ARCHDALE et al., Plaintiffs and Appellants, v. AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, Defendant and Respondent.

No. B188432.

Court of Appeal, Second District, Division 3.

August 22, 2007.

Girardi & Keese, Thomas V. Girardi and Robert W. Finnerty, Los Angeles, for Plaintiffs and Appellants.

Horvitz & Levy, Peter Abrahams, Daniel J. Gonzalez, Encino; Branson, Brinkop, Griffith & Strong and John R. Campo, Redwood City, for Defendant and Respondent.

CROSKEY, J.

The plaintiffs and appellants Cheryl and Donald Archdale and George Godinez¹ seek reversal of a summary judgment entered in favor of the respondent, American International Specialty Lines Insurance Company (AIS), on plaintiffs' complaint for breach of contract and breach of the implied covenant of good faith and fair dealing.²

The Archdales had sued Godinez and others in the underlying action for damages for personal injuries arising out of a multiple vehicle accident. Godinez and his employer were covered under a liability policy issued by AIS with a coverage limit of $500,000. In this action, the plaintiffs allege that AIS failed to accept multiple reasonable settlement offers that were within AIS's aforesaid policy limit. AIS provided a defense to the underlying action which went to trial and resulted in a judgment in favor of the Archdales and against Godinez and his employer in the sum of $1,269,000.

The complaint in this action was filed on September 12, 2003 and sought recovery in both contract and tort.³ AIS moved for summary judgment, arguing that since the original judgment in the underlying action had been entered on May 3, 1999, the applicable statutes of limitation barred plaintiffs' causes of action. The trial court accepted that argument and granted AIS's motion.

While we agree that Godinez's tort claim is barred by the expiration of the applicable two-year statute of limitations, we will reverse the trial court's rejection of the contract claim asserted by the Archdales. In reaching that result, we hold that (1) where a liability insurer has provided a defense and, prior to the filing of an action by an insured (or assignee), has fully paid out the amount of its policy limit, it may not be liable for the breach of any express policy provision promising such benefits, but nonetheless could be held liable for a breach of the implied covenant of good faith and fair dealing; (2) an insurer's failure to accept a reasonable settlement offer to resolve a third party claim against its insured constitutes a breach of the covenant of good faith and dealing implied in a liability policy; (3) such a breach, if it results in an excess judgment against the insured, will support a claim sounding in contract as well as tort; (4) the amount of the excess judgment is a consequential damage of such a breach within the meaning of Civil Code section 3300 and may be recovered as a matter of contract damages; in such event, the applicable limitations period is four years (Code Civ. Proc, § 337, subd., (1)); (5) while an insured's claim against an insurer arising from a failure to accept a reasonable settlement offer will accrue upon the entry of an excess judgment in the underlying action, the running of the limitations period is tolled until the time for appeal has expired or, if an appeal is taken, until entry of a final judgment and the issuance of a remittitur; and (6) Civil Code section 2313 will not invalidate an insured's retroactive assignment of a claim against his or her insurer if the assignment is made prior to the expiration of the relevant limitation period on that claim.

We conclude that summary judgment was properly granted as to the Archdales' first cause of action for breach of contract, but not as to their second cause of action for breach of the implied covenant of good faith and fair dealing for which they sought a remedy in contract. The trial court, however, correctly held that the tort claim asserted by the plaintiff Godinez was barred by the applicable two-year statute of limitations. We will therefore affirm the judgment in part and reverse in part.

FACTUAL AND PROCEDURAL HISTORY

On June 9, 1994, an accident occurred at 50th Street and Avenue N near Lancaster, California, when an 18-wheel truck owned by Arrow Ready Mix (Arrow Ready) and driven by Godinez, collided with two other vehicles. Cheryl Archdale, driving one of those vehicles, was injured. She and her husband, Donald Archdale, filed a complaint for negligence and loss of consortium against Arrow Ready, Godinez, and other defendants. AIS had issued an insurance policy that provided automobile liability coverage to Arrow Ready⁴ and Godinez in the amount of $500,000 and obligated AIS to defend those insureds in any legal action arising from a claim potentially covered under the policy.

After a trial, the jury found that the negligence of Arrow Ready, Godinez and the Follendores was a cause of injury or damage to the Archdales and allocated 90 percent of the fault for the accident to those defendants.⁵ A judgment was entered on May 3, 1999, in favor of the Archdales in the sum of $1,269,000 and against Arrow Ready, Godinez and the Follendores.

On August 30, 1999, however, the trial court (1) ordered that the judgment entered on May 3, 1999, be vacated, (2) denied the new trial motion filed by Arrow Ready, Godinez, and the Follendores, (3) granted a motion for judgment notwithstanding the verdict as to the Follendores, (4) denied a similar motion by Godinez and Arrow Ready, and (5) made orders taxing certain costs. On October 15, 1999, the trial court entered an "Amended Judgment." It expressly stated that such amended judgment superseded the judgment entered on May 3, 1999. The amended judgment ordered that the Archdales recover $1,269,000 from Godinez and Arrow Ready, together with costs of $23,495, for a total judgment of $1,292,495, plus interest at 10 percent per annum, from May 3,1999, until paid.⁶

An appeal from such judgment was taken and we affirmed it in an unpublished opinion (Archdale v. Stinson, et al, B135694) filed on September 14, 2001. A remittitur was issued on November 27, 2001. Prior to the filing of this action, but after AIS had rejected Archdales' offers to settle the underlying action, AIS had entered into a settlement with another claimant, who was also involved in the multiple vehicle accident that had caused injuries to the. Archdales. Such settlement was for $142,500. This left a balance remaining on AIS's policy limit of $357,500, which amount was paid by AIS to the Archdales on April 23, 2002.

On September 12, 2003, the Archdales, Arrow Ready, and Godinez filed their complaint in this action against AIS for breach of contract and breach of the implied covenant of good faith and fair dealing.⁷ Both causes of action alleged that AIS had wrongfully failed to accept multiple reasonable settlement offers to settle the Archdales' claims in the underlying action. The plaintiffs further alleged that AIS's failure to accept such settlement offers (all but one of which were within AIS's policy limits) resulted in an excess judgment against Godinez and Arrow Ready.

Plaintiffs assert (either in their complaint or in their opposition to. AIS's motion for summary judgment) that several Archdale settlement offers had been submitted prior to the trial of the underlying action and prior to the time that AIS had agreed to settle with another claimant for $142,500 (which, as already noted, effectively reduced the amount of AIS's available coverage to $357,500). The first offer was allegedly made in 1996 in the amount of $500,250 and was rejected by AIS. A second offer was made in June of 1997 at a mandatory settlement conference and was in the sum of $500,000. This offer was allegedly repeated at a December 1998 mandatory settlement conference. AIS failed to accept any of these offers.⁸ Plaintiffs alleged that all such offers were reasonable in that Cheryl Archdale had sustained $182,000 in medical expenses and $24,000 in lost earnings.

Finally, plaintiffs assert that, prior to the date they filed their complaint (i.e., September 12, 2003), Arrow Ready and Godinez had, for valuable consideration, assigned to the Archdales whatever rights they had to pursue certain insurance-related claims under the AIS policy.⁹ On March 21, 2005, however, Arrow Ready voluntarily dismissed the complaint without prejudice, thus dropping out of further participation in this case. As a result, the Archdales and Godinez thereafter remained as the only plaintiffs in this action.

On April 1, 2005, AIS moved for summary judgment, arguing that all three of the plaintiffs' causes of action (see fn. 7, ante) were barred by the applicable statutes of limitations. AIS argued that no claim could be asserted for a breach of contract because AIS had provided a defense to the underlying action and had paid out the full amount of its policy limit prior to the filing of plaintiffs' complaint and thus it had not breached the policy contract; in any event, the four-year limitations period for breach of a written contract (Code Civ. Proc, § 337, subd. (1)) had commenced to run on May 3, 1999, the date of entry of the original judgment in the underlying action, and therefore had expired over four months prior to the date when the plaintiffs filed their complaint (i.e., September 12, 2003).

With respect to the second cause of action alleging a breach of the implied covenant of good faith and fair dealing, AIS advanced the same argument. AIS asserted that, under Code of Civil Procedure section 339, subdivision (1), such an action had to be brought within two years. AIS contended that such period had also necessarily expired long before the plaintiffs' complaint had been filed.

Because the Archdales' right to pursue claims under either the first or the second cause of action of their complaint depended on the viability of the...