Avila v. Travelers Ins. Companies

• Decision Date: 03 December 1979
• Docket Number: No. CV 79-3074-RJK.,CV 79-3074-RJK.
• Citation: 481 F. Supp. 431
• Parties: John AVILA, Plaintiff, v. The TRAVELERS INSURANCE COMPANIES, a corporation, Defendant.
• Court: U.S. District Court — Central District of California

481 F. Supp. 431

John AVILA, Plaintiff, v. The TRAVELERS INSURANCE COMPANIES, a corporation, Defendant.

No. CV 79-3074-RJK.

United States District Court, C. D. California.

December 3, 1979.

Avrum S. Harris, Los Angeles, Cal., for plaintiff.

Breidenbach, Swainston, Yokaitis & Crispo, Francis Breidenbach, Howard D. Swainston, Gregory D. Bistline, Los Angeles, Cal., for defendant.

MEMORANDUM OF DECISION AND ORDER

KELLEHER, District Judge.

The Court has for determination the question of whether one or the other or both of defendant's motions, respectively, for judgment on the pleadings, or, in the alternative for summary judgment should be granted.

The motions are directed against plaintiff's claim for damages by reason of the asserted wrongful manner in which the defendant insurance company processed and settled the plaintiff's wrongful death claim against the defendant's then-assured.

The action is brought pursuant to this Court's diversity jurisdiction, and the substantive law of California is applicable.

The principal issue is whether the rule of law announced in a recent decision by the California Supreme Court should be applied retroactively to the defendant here. The issue raised is one which, in reason, ought properly to be first decided by a state court appellate tribunal. However, the law is clear that this Court cannot, under the doctrine of abstention, reason or otherwise, avoid its obligation to entertain the litigation and resolve the question of California law which is now presented.

A federal court is particularly reluctant to decide a novel question of state law when it is avoidable. In this case, however, it is appropriate to do so. The state law question, though new, is commonplace. To address it here raises no federal constitutional issue (Cf. Railroad Comm'n v. Pullman (1941) 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971), nor any difficult question of extraordinary public import and sensitivity (Cf. Louisiana Power and Light Co. v. Thibodaux (1949) 360 U.S. 25, 79 S.Ct. 1070, 3 L.Ed.2d 1058). A federal court may not shy away from a state law question merely because it is unclear (Meredith v. City of Winter Haven (1943) 320 U.S. 228, 64 S.Ct. 7, 88 L.Ed. 9). We therefore proceed to address it.

On March 29, 1979, the Supreme Court issued its opinion in Royal Globe Insurance Company v. Superior Court, 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, holding that a third party claimant has a private right of action against an alleged tort-feasor's insurance company for the insurance company's violation of the California Insurance Code by not attempting "in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear." The plaintiff in the present case, John Avila, claims that the defendant, The Travelers Insurance Company, delayed settling his claim for more than two years after liability of the Travelers' insured had become reasonably clear, and seeks general and punitive damages for the delay.

The defendant has moved for summary judgment under Rule 56, and for judgment on the pleadings, on various grounds, and both sides submitted affidavits. The Court invited further memoranda on the retrospective effect of Royal Globe, and these were submitted.

Nearly all the pertinent facts occurred before the Royal Globe decision. On June 16, 1976, Mr. Avila's wife was killed when a bulldozer that was grading a roadway median punctured a subsurface gasoline line, causing an explosion and fire. Eight other people also died, many were injured, and much property was damaged.

On June 23, 1976, Mr. Avila filed a wrongful death suit in federal court against the owner of the pipeline (Standard Oil Company of California), the state authority conducting the roadwork (the California Department of Transportation), the general contractor (The Griffith Company), the sub-contractor whose bulldozer struck the pipe-line (C. W. Poss Company), and several other defendants. The subcontractor was insured by The Travelers up to an aggregate of $1,000,000. The federal action was dismissed on grounds not relevant here, and meanwhile essentially the same action had been refiled in the Los Angeles County Superior Court. Approximately 72 other suits involving 130 plaintiffs were also filed on account of the same disaster.

On January 31, 1977 the National Transportation Safety Board released its report on the accident. The report concluded that the cause of the accident was failure to ascertain the exact location of the gasoline line, whose existence was known to all. The responsibility for this omission, in the Board's view, was shared by the pipeline owner, the State Transportation Department, the general contractor, and the subcontractor. Mr. Avila claims that the subcontractor's liability became "reasonably clear" at the time this report was issued.

Efforts to settle followed. There is no real dispute in the affidavits about what occurred. The defendant's attorney asserts that the first specific settlement demand, for $100,000, was not made until July 3, 1978, and on the same day was reduced to $75,000. The $75,000 demand was repeated twice during September and a third time during a settlement conference in December. In April of 1979, the plaintiff at a mandatory settlement conference reduced his demand to $50,000, partly at the urging of Judges Crickard and Nye, the two settlement conference judges. This demand was accepted by the defendants a short time later, and the amount was paid. The $50,000 settlement was apportioned among the defendants in a package that was, and by court order remains, confidential.

The plaintiff's attorney throughout this time, Mr. Friedman, does not dispute any of this in his affidavit, but asserts that during the eighteen months preceding the first settlement demand he had "numerous" oral discussions with one of the attorneys representing The Travelers, who repeatedly told him that The Travelers was not interested in settling, and "you'll have to try your case." He intimates further (albeit by hearsay) that the other defendants were willing to join a settlement pool, but that The Travelers refused to join. He also charges that the same attorney for The Travelers "by a series of maneuvers" succeeded in delaying the deposition of the bulldozer operator until the spring of 1978. He was led to reduce his client's demand to $50,000, he states, because, unknown to the defendants, Mr. Avila had suffered a coronary seizure a short time before trial, and his survival was in doubt. He has since recovered.

The present suit was filed in August of 1979. In it, Mr. Avila seeks recovery from The Travelers on two separate theories: First, that The Travelers violated California Insurance Code § 790.03(h)(3), which proscribes, "failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies"; second, that The Travelers violated California Insurance Code § 790.03(h)(5), which proscribes "not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear." He also pleads fraud, malice, and oppression and intentional infliction of emotional distress, on the same facts.

The Royal Globe Case

Mr. Avila's cause of action would not have been recognized before the Royal Globe case. That case interprets § 790 of the California Insurance Code. Section 790 was enacted in 1959. It enumerates certain practices declared to be unfair or deceptive acts or practices in the business of insurance (§ 790.03), and confers on the insurance commissioner powers to investigate, prosecute, and punish violations of its provisions through cease-and-desist orders and fines (§§ 790.04-790.08).

Subdivision (h) of § 790.03 was added by the legislature in 1972. It lists fifteen specific claims settlement practices. An insurer becomes guilty of improper conduct by "knowingly committing or performing with such frequency as to indicate a general business practice" any of the fifteen. Two of the fifteen practices, (h)(3) and (h)(5), quoted above, are in issue in this case.

The statute also contains a provision, dating from 1959, providing that no enforcement proceeding by the commissioner against any person "shall in any way relieve or absolve such person from any administrative action against the license or certificate of such person, civil liability or criminal penalty under the laws of this State arising out of the methods, acts or practices found unfair or deceptive" (§ 790.09) (emphasis added).

California's Supreme Court, in the Royal Globe decision, held that this "civil liability" language shows the legislature's intent to create a private right of action in favor of injured claimants directly against insurance companies for violation of at least some of the fifteen prohibitions of subdivision (h). Such an action may be brought only after the underlying tort suit is concluded.

The insurance company petitioner in Royal Globe argued that the statute was meant to be enforced exclusively by the insurance commissioner, and that the "civil liability" language was only meant to preserve existing liability. It also argued that the language requiring "frequency" of violations so as to indicate a "general business practice" fortified its argument that enforcement was to be administrative only. It was joined in these unsuccessful arguments by the insurance commissioner, as amicus curiae.

The Subdivision (h)(3) Cause of Action

Before considering the retroactive effect of this decision, we consider one of the other legal issues raised by the defendant. The defendant contends that no cause of action exists in favor of a third-party claimant under subdivision (h)(3) and that Royal Globe did not create one. This portion of the complaint must therefore be dismissed, defendant argues, for failure to state a claim on which relief can...