Austero v. National Cas. Co.

• Decision Date: 18 August 1978
• Citation: 84 Cal.App.3d 1,148 Cal.Rptr. 653
• Parties: Julius S. AUSTERO, Plaintiff and Respondent, v. NATIONAL CASUALTY COMPANY OF DETROIT, MICHIGAN, Defendant and Appellant. Civ. 17929.
• Court: California Court of Appeals Court of Appeals

Page 653

148 Cal.Rptr. 653

84 Cal.App.3d 1

Julius S. AUSTERO, Plaintiff and Respondent, v. NATIONAL CASUALTY COMPANY OF DETROIT, MICHIGAN, Defendant and Appellant.

Civ. 17929.

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

Aug. 18, 1978.

Rehearing Denied Sept. 7, 1978.

Hearing Denied Nov. 22, 1978.

Cummins, White & Breidenbach, Los Angeles, W. F. Rylaarsdam, Pasadena, and James R. Robie, Los Angeles, for defendant and appellant

Herbert Hafif, Newport Beach, Stephen Odgers, Claremont, and Wayne Austero, Newport Beach, for plaintiff and respondent.

OPINION

McDANIEL, Associate Justice.

The action in the trial court was for breach of contract, declaratory relief, emotional distress, so-called bad faith, and for fraud brought by an insured in a first party case against his own disability insurance carrier (the Company). Trial was had before a jury. The jury returned a verdict in favor of plaintiff in the amount of $67,200 compensatory and $336,000 exemplary damages. By later stipulation of counsel, $2,800 in interest was added to the award. The Company now appeals from the judgment entered on the verdict.

THE POLICY PROVISIONS

In 1957, plaintiff as a member of a group developed from the roster of the Orange County Bar Association subscribed for disability coverage under a policy written by the Company. In 1969, a new policy was issued, which provided in pertinent part:

"SECTION II

"TOTAL DISABILITY. If 'such sickness' shall wholly and continuously disable and prevent the Member from performing any and every duty pertaining to his occupation or profession, the Company will pay the Monthly Sickness Indemnity, as written in this Certificate of Insurance issued to the Member, for the period, commencing with the first (1st) day of hospital confinement or with the eighth (8th) day of such disability, whichever shall occur first, the Member shall be so disabled and under the regular care and personal attendance of a legally qualified physician or surgeon, other than himself, but not to exceed twenty-four (24) consecutive months as the result of any one sickness."

"SECTION XI

"STANDARD PROVISIONS. (7) Affirmative proof of loss on which claim may be based must be furnished to the Company not later than ninety days after the date of such loss."

In January 1973, a third policy was issued which provided in pertinent part:

"PART II. MONTHLY SICKNESS BENEFIT

"TOTAL DISABILITY. If, 'such sickness' shall wholly and continuously disable and prevent the Insured from performing any and every duty pertaining to his profession or occupation, the Company will pay periodically the Monthly Sickness Benefit as stated in the certificate Schedule for the period, beginning on the day benefits for sickness commence as stated in the certificate Schedule, the Insured shall be so disabled and under the regular care and personal attendance of a legally qualified physician or surgeon, other than himself, but not to exceed twenty-four (24) consecutive months as the result of any one period of sickness."

"PART IV. WAIVER OF PREMIUM.

"After six (6) continuous and consecutive months of total disability for which the Monthly Accident Benefit is payable under Part I, or the Monthly Sickness Benefit is payable under Part II, during which period the Insured's insurance under the policy has been maintained in force, the Company will waive the payment of any premium becoming due during any further continuous period of such total disability for which either such monthly benefit is payable, and the Insured's insurance under the policy will remain in force during the renewal period or periods for which premium has been waived, subject to all the provisions and conditions of the policy, except as to premium payment."

"PART IX. POLICY PROVISIONS.

"PROOFS OF LOSS: Written proof of loss must be furnished to the Company within ninety (90) days after the termination of the period for which the Company is liable. Failure to furnish such proof within the time required shall not invalidate nor reduce any claim if it was not reasonably possible to give proof within such time, provided such proof is furnished as soon as reasonably possible and in no event, except in the absence of legal capacity of the Insured, later than one (1) year from the time proof is otherwise required."

THE DISABILITY HISTORY

Plaintiff entered private law practice in 1955, and, until 1971, maintained a successful and prosperous practice. ¹ In 1971, plaintiff's son, Wayne, passed the California State Bar Examination and became an associate in his father's firm. During 1971, according to the later statements of both Wayne and Mrs. Austero, plaintiff's work load dropped markedly, and from 1971 to 1974, the practice was maintained largely by Wayne. In September 1971, plaintiff saw his family physician, Dr. MacLachlan. He complained of sinus trouble and memory loss. The doctor observed that during the previous four months plaintiff had experienced loss of memory and occasional incidents where his mind would go blank. Plaintiff's firm ended the year 1971 with a gross income of $85,313 and a net income of $24,221. His activities for the year comprised in part: 258 hearings as compared with 284 in 1970 (or 21.5 per month), 578 client appointments, as compared with 640 in 1970 (or 48.2 per month), and 16 depositions, as compared with 11 in 1970 (or 1.3 per month). ²

In 1972, plaintiff maintained daily office hours of 9 a.m. to 5 p.m. However, his secretary later stated that he spends much of his time "putter(ing) (a) round . . . empty(ing) trash, do(ing) janitorial work and would very seldom talk to clients. She herself handled most of the clients . . . or when Wayne was there he would do so." When plaintiff took depositions, he usually had the questions prepared in advance on paper and would simply read them. He also made court appearances, but did so largely at arraignments and default divorces where extensive attorney participation is not required. Wayne testified at trial that during 1972 his father drafted no pleadings or briefs and performed no legal research. He further testified that most of the work he did himself. Both Wayne and plaintiff's secretary agreed that plaintiff conducted his last contested trial in March of 1972.

At trial, the Company introduced evidence indicating that beside making court appearances for arraignments and default divorces, plaintiff also represented clients at order to show cause hearings, negotiated pleas in criminal cases and appeared at sentencing hearings. During the year 1972, plaintiff appeared at a total of 251 hearings (or an average of 20.9 per month), had 689 scheduled office appointments (or 57.3 per month) and took, 16 depositions. The firm grossed $80,972 in 1972 and netted $28,951.

In May of 1972, plaintiff was referred to Dr. Berle I. Barth, a neurologist, by Dr. Samuel J. Camerata. Plaintiff complained to Dr. Barth of "impaired memory . . . difficulty in spelling, inability to remember what he . . . read, misplacing objects, increased irritability, all of which (had) been present for six to twelve months, and (were) increasing in frequency and severity." Other than these symptoms, plaintiff denied having any medical problems other than phlebitis of his left leg. After concluding a full neurological examination, Dr. Barth composed the following note:

"A detailed neurologic examination today, and that is 15 May 1972, reveals an obese man, fat, who does not know typical landmark law cases, which any practicing attorney should remember. He is not up to date on current events, has great difficulty with calculations in his head, particularly with subtraction of serial sevens, making several typical organic mistakes. His interpretation of proverbs is fairly concrete. His digit span forwards is four numbers, and he consistently makes mistakes with more than four numbers. His judgment is significantly impaired. (P ) On examination of his cranial nerves, one through twelve, they're intact. His blood pressure is 170 over 100 in both arms, sitting. He has no head, eye or neck bruises, murmurs. (P ) He is slightly unsteady on his feet, and has some difficulty with tandem walking, walking a line. His strength and tone are normal. Heel to knee to shin testing is normal. Finger to nose testing is well-done. Deep tendon reflexes are one plus and symmetrical, except for two plus knee ex. No Babinski signs and no fullness is present, detail sensory testing is normal, and it was my clinical impression at that time that the patient was suffering from encephalopathy, cause undetermined, possibly pre-senile dementia."

Dr. Barth also performed an electroencephalogram which indicated "slowing, consistent with generalized brain disturbance." He further ordered a series of psychological tests to be performed "to determine (plaintiff's) intellectual functions." ³ He informed plaintiff that, in his opinion, plaintiff was "seriously intellectually impaired" and should be hospitalized, however, plaintiff declined to be hospitalized.

At trial, Dr. Barth testified that the disease plaintiff suffered from was progressively disabling that one afflicted with it could continue to function for a period of time, and that a man in plaintiff's condition, as of May 1972 would experience "some diminution of his abilities." He further testified that the onset of pre-senile dementia could not accurately be pinpointed. He stated his conclusion that in the spring of 1972, plaintiff "had difficulty reading, spelling, adding and subtracting. He had poor judgment, and he didn't know some of the basic things that I learned in first semester law school. Something that every attorney knows, or should know, or have some idea about." He opined that a man in plaintiff's condition would not be capable of reading and interpreting cases and drawing principles of law from them.

On July 13, 1972, Dr. Stanley van den Noort examined plaintiff who complained of a...