Austero v. National Cas. Co.

• Decision Date: 01 October 1976
• Citation: 62 Cal.App.3d 511,133 Cal.Rptr. 107
• Court: California Court of Appeals Court of Appeals
• Parties: Dorothy AUSTERO, Plaintiff and Appellant, v. NATIONAL CASUALTY COMPANY OF DETROIT, MICHIGAN, and H. Gerald Commons, Defendants and Respondents. Civ. 15460.

Page 107

133 Cal.Rptr. 107

62 Cal.App.3d 511

Dorothy AUSTERO, Plaintiff and Appellant, v. NATIONAL CASUALTY COMPANY OF DETROIT, MICHIGAN, and H. Gerald Commons, Defendants and Respondents.

Civ. 15460.

Court of Appeal, Fourth District, Division 2, California.

Oct. 1, 1976.

Hearing Denied Dec. 22, 1976.

Burton, Blodgett & Austero and Wayne J. Austero, Anaheim, for plaintiff and appellant

Cummins, White & Breidenbach, Howard D. Swainston, Los Angeles, and James R. Robie, El Monte, for defendants and respondents.

OPINION

KAUFMAN, Associate Justice.

Dorothy Austero (hereafter 'plaintiff'), the wife of Julius S. Austero, an incompetent, instituted this action as guardian ad litem of her husband and individually on her own behalf seeking compensatory and punitive damages for defendants' refusal to pay to Julius disability benefits allegedly due under policies of disability insurance and for defendants' alleged breach of the implied covenant of good faith and fair dealing arising out of the insurance policies.

The trial court sustained defendants' demurrer with leave to amend to plaintiff's first amended complaint insofar as it attempted to state causes of action in favor of plaintiff in her individual capacity. No further amendment to the complaint having been made, the court entered judgment dismissing the sixth and seventh counts in which plaintiff sought recovery in her individual capacity. The action remains pending on the several counts seeking recovery on behalf of Julius, and Julius is not a party to this appeal.

Notwithstanding the possibility that both plaintiff's complaint and her appellate brief are susceptible to the interpretation that plaintiff attempted to state a cause of action for intentional infliction of emotional distress, at oral argument plaintiff's counsel unequivocably disavowed any attempt to establish liability on that theory. The sole question presented, therefore, is whether the wife of an insured can recover for emotional distress emanating from a bad faith breach of the implied covenant of good faith ahd fair dealing arising from a disability insurance policy. We have concluded that she may not, and, accordingly, we affirm the judgment of the trial court.

Alleged Facts

In summarizing the pertinent facts we bear in mind that in testing the legal sufficiency of a pleading against a general demurrer, all properly pleaded allegations, including those that arise by reasonable inference, are deemed admitted regardless of the possible difficulty of proof at trial. (Alcorn v. Anbro Engineering, Inc., 2 Cal.3d 493, 496, 86 Cal.Rptr. 88, 468 P.2d 216; Saxer v. Philip Morris, Inc., 54 Cal.App.3d 7, 18, 126 Cal.Rptr. 327.)

Plaintiff is the wife of Julius S. Austero who, prior to becoming totally disabled, was an attorney licensed to practice law in California and was actively engaged in the practice of law in Orange County.

Sometime in 1971 Julius became afflicted with a serious disease causing progressive deterioration of his mental processes. By May 5, 1972, his condition had deteriorated to the point that he was totally disabled from practicing law.

On May 5, 1972, Julius was insured by policies of disability insurance issued by defendant National Casualty Company of Detroit (hereafter 'National') pursuant to which National agreed to pay Julius $300 per month for a maximum period of seven years should he, by virtue of illness, become totally disabled. One policy also provided for a $2,000 death benefit. Plaintiff, designated as the insured's wife, was the named beneficiary of the death benefit. Until Julius became disabled he paid all premiums due under the policies with funds which were community property of Julius and plaintiff.

Soon after Julius became totally disabled, notice of claim was submitted to National on his behalf. National was also provided with medical proof that Julius was unable to perform each and every duty pertaining to his profession since May 5, 1972. National, acting through its claims representative, defendant H. Gerald Commons, failed to accept the submitted proofs of disability, and without further investigation or inquiry, unreasonably denied Julius' claim and refused payment thereof, knowing all the while that Julius was then entitled to payment of disability benefits.

When defendants rejected Julius' claim they did so with the intent to vex and annoy plaintiff and knowing that as a result thereof plaintiff would suffer extreme physical and emotional distress and discomfort. As a proximate result of defendants' said conduct, plaintiff did suffer physical and emotional distress and discomfort.

Contentions, Discussion and Disposition

Plaintiff contends that her complaint alleges facts sufficient to entitle her to recover damages for emotional distress she allegedly suffered as the result of defendants' alleged breach of the implied-in-law duty of an insurer to act fairly and in good faith toward its insured. We cannot agree.

It is now established that the unreasonable and bad faith refusal of an insurer to pay the valid claim of its insured gives rise to the insurer's liability in tort not only for the insured's pecuniary loss but also for his consequential emotional distress. (Silberg v. California Life Ins. Co., 11 Cal.3d 452, 460--461, 113 Cal.Rptr. 711, 521 P.2d 1103; Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 573--575, 108 Cal.Rptr. 480, 510 P.2d 1032; Fletcher v. Western National Life Ins. Co., 10 Cal.App.3d 376, 401--402, 89 Cal.Rptr. 78; see also Merlo v. Standard Life & Acc. Ins. Co., 59 Cal.App.3d 5, 16, 130 Cal.Rptr. 416.) The theory upon which liability is predicated is that such conduct constitutes a tortious breach of the implied-in-law duty of good faith and fair dealing arising out of the insurance policy. (Silberg v. California Life Ins. Co., supra; Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at pp. 573--574, 108 Cal.Rptr. 480, 510 P.2d 1032; Fletcher v. Western National Life Ins. Co., supra.) Although an action for bad faith breach of the covenant of good faith and fair dealing sounds in tort, the duty of good faith and fair dealing derives from and exists solely because of the contractual relationship between the parties. (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at pp. 576, 577--578, 108 Cal.Rptr. 480, 510 P.2d 1032; Truestone, Inc. v. Travelers Ins. Co., 55 Cal.App.3d 165, 170, 127 Cal.Rptr. 386.) Thus, one who is not a party to the underlying contract may not be held liable for breach of an implied covenant of good faith and fair dealing for as to him no such implied covenant exists. (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at p. 576, 108 Cal.Rptr. 480, 510 P.2d 1032.)

The foregoing is dispositive of the case so far as defendant H. Gerald Commons is concerned. He was...