Barney v. Aetna Casualty & Surety Co.

• Decision Date: 23 September 1986
• Citation: 185 Cal.App.3d 966,230 Cal.Rptr. 215
• Court: California Court of Appeals Court of Appeals
• Parties: Frank BARNEY, Executor of the Estate of Ethel Barney, Deceased, Plaintiff and Appellant, v. AETNA CASUALTY & SURETY COMPANY, Defendant and Respondent. B013562.

Page 215

230 Cal.Rptr. 215

185 Cal.App.3d 966

Frank BARNEY, Executor of the Estate of Ethel Barney, Deceased, Plaintiff and Appellant, v. AETNA CASUALTY & SURETY COMPANY, Defendant and Respondent.

B013562.

Court of Appeal, Second District, Division 1, California.

Sept. 23, 1986.

Review Denied Dec. 17, 1986.

A. Tod Hindin, Century City, for plaintiff and appellant.

Haight, Dickson, Brown & Bonesteel, and Gary C. Ottoson, Roy G. Weatherup, Barry Z. Brodsky, and Jose H. Garcia, Santa Monica, for defendant and respondent.

SPENCER, Presiding Justice.

INTRODUCTION

Frank Barney (plaintiff) as executor of the estate of Ethel Barney, deceased, appeals from a judgment of dismissal on the pleadings, granted without leave to amend, in favor of defendant and respondent Aetna Casualty & Surety Company (Aetna). Judgment was granted on the ground the complaint does not state a cause of action against Aetna for either breach of the covenant of good faith and fair dealing or civil conspiracy to commit legal malpractice.

STATEMENT OF FACTS

In May 1972, Aetna issued to Ethel Barney an assigned risk automobile liability policy which provided that Aetna would "pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of: ... injury to or destruction of property, ... arising out of the ownership, maintenance or use of the owned automobile or any non-owned automobile, and the Company shall defend any suit alleging such bodily injury or property damage and seeking damages which are payable under the terms of this policy, ... but the Company may make such investigation and settlement of any claim or suit as it deems expedient."

On September 11, 1972, Ethel Barney was involved in an automobile collision caused by the negligent operation of a vehicle by Emma Yoakum. Ethel Barney was taken by ambulance from the scene of the accident to the hospital. From there, within forty-eight hours after the accident, she notified Aetna of the accident and of her opinion Yoakum was at fault. She also filled out and delivered to Aetna a California Department of Motor Vehicle Form S-R1, indicating negligence of Yoakum was the cause of the collision. On September 14, 1972, Barney retained Milton Phillips as her personal attorney to represent her in her personal injury claim against Yoakum.

On September 22, 1972, Yoakum filed in municipal court a personal injury and property damage action against Barney. The summons and complaint were served on Barney in October 1972 and immediately delivered to Aetna through its agent. On or about October 12, 1972, Barney, through her attorney, again advised Aetna of her injuries and her claim against Yoakum.

On March 7, 1973, Aetna retained insurance defense attorneys Buck & Smith to defend Barney in the Yoakum action. Aetna instructed Buck & Smith to provide a limited defense and to file an answer to the complaint but not a cross-complaint for Barney's injuries. At no time did Aetna or Buck & Smith advise Barney that if she did not file a cross-complaint she would lose her claim against Yoakum.

In May 1973, Aetna, through its managerial employees, entered into a settlement agreement with Yoakum whereby it agreed to pay Yoakum $600. As a condition thereof, Aetna required Yoakum to execute a release and dismissal with prejudice. Aetna effected this settlement agreement without the knowledge or consent of Barney or her attorney and "caused to be filed" the dismissal with prejudice on June 23, 1973. Buck & Smith actually filed the dismissal with prejudice either at the direction of Aetna or pursuant to a common plan to save Aetna costs of litigation.

Neither Barney nor her attorney were notified of the filing of the dismissal with prejudice. On September 11, 1973, Barney filed against Yoakum in superior court. In April 1976, Yoakum moved for summary judgment on the ground the dismissal with prejudice of the Yoakum action operated as a retraxit barring Barney's superior court action. Summary judgment was entered on August 20, 1976.

PROCEDURAL BACKGROUND

On August 3, 1977, Ethel Barney filed her first amended complaint against Aetna and Buck & Smith, alleging breach of the covenant of good faith and fair dealing and civil conspiracy. Ethel Barney died on April 20, 1980, and Frank Barney, as executor of her estate, was substituted in as plaintiff, pursuant to court order. By leave of court, plaintiff filed a first amendment to the first amended complaint, alleging breach of fiduciary duty or legal malpractice against insurance defense counsel.

All parties stipulated to a bifurcation of the trial. The first phase of the trial was to determine liability for the auto collision between Ethel Barney and Emma Yoakum. The damages Barney sustained as a result of the collision were stipulated to be $11,399. The first phase of the bifurcated trial was tried to a jury in February 1983. The jury found by special verdict that Yoakum negligently caused the collision, that Barney was comparatively negligent, and that the apportionment of fault was 80 percent for Yoakum and 20 percent for Barney.

In April 1983, pursuant to a settlement agreement, all causes of action against Buck & Smith were dismissed with prejudice. Prior to the second phase of the trial, Aetna, the only remaining defendant, filed its first motion for judgment on the pleadings on the ground the first amended complaint failed to state causes of action for breach of the covenant of good faith and fair dealing and civil conspiracy. A judgment on the pleadings was granted in favor of Aetna as to the bad faith cause of action and was denied as to the civil conspiracy cause of action. Shortly thereafter, Aetna filed its second motion for judgment on the pleadings as to the civil conspiracy cause of action. The motion was granted without leave to amend, and a judgment of dismissal was entered.

CONTENTIONS

I

Plaintiff contends a cause of action for breach of the implied covenant of good faith and fair dealing owed by an insurer to its insured survives the death of the insured.

II

Plaintiff also contends the trial court erred in granting defendant's motion for judgment on the pleadings, in that the first amended complaint adequately alleges a cause of action for breach of the implied covenant of good faith and fair dealing.

III

Plaintiff additionally contends the trial court erred in granting defendant's motion for judgment on the pleadings, in that the complaint adequately alleges a cause of action for civil conspiracy.

IV

Plaintiff finally contends the trial court abused its discretion in refusing to give leave to amend and cure any defect in the pleadings.

DISCUSSION

I

Plaintiff initially contends a cause of action for breach of the implied covenant of good faith and fair dealing owed by an insurer to its insured survives the death of the insured. We agree.

Although this issue was raised and briefly discussed at the first hearing of defendant Aetna's motion for judgment on the pleadings, the trial court made no finding on this issue, nor does defendant address the issue in its brief on appeal. However, in that the issue is purely one of law presented by undisputed facts, this court may consider it as raised for the first time on appeal. (Hale v. Morgan (1978) 22 Cal.3d 388, 394, 149 Cal.Rptr. 375, 584 P.2d 512.)

Probate Code section 573 provides in pertinent part: "Except as provided in this section no cause of action shall be lost by reason of the death of any person but may be maintained by or against his executor or administrator.... [p ] When a person having a cause of action dies before judgment, the damages recoverable by his executor or administrator are limited to such loss or damage as the decedent sustained or incurred prior to his death, including any penalties or punitive or exemplary damages that the decedent would have been entitled to recover had he lived, and shall not include damages for pain, suffering or disfigurement."

Ethel Barney filed her original complaint against Aetna and Buck & Smith on April 19, 1977. She died on April 20, 1980, and Frank Barney, as executor of her estate, was substituted in as plaintiff, pursuant to court order. Thus, by the express terms of the statute, subject to its damages limitation, the instant action for breach of the covenant of good faith and fair dealing survives Ethel Barney's death.

II

Plaintiff also contends the trial court erred in granting defendant Aetna's motion for judgment on the pleadings, in that the first amended complaint adequately alleges a cause of action for breach of the implied covenant of good faith and fair dealing. We agree.

Preliminarily, we discuss the applicable standard of review. A motion for judgment on the pleadings is tantamount to a general demurrer. (Tiffany v. Sierra Sands Unified School Dist. (1980) 103 Cal.App.3d 218, 224, 162 Cal.Rptr. 669; accord, MacIsaac v. Pozzo (1945) 26 Cal.2d 809, 812, 161 P.2d 449.) Upon appellate review, the standard for a judgment on the pleadings is the same as for a judgment of dismissal following a general demurrer. (Tiffany, supra, 103 Cal.App.3d at p. 225, 162 Cal.Rptr. 669.) Review is limited to the facts alleged in the complaint. Those facts must be accepted as true, and a judgment on the pleadings may be upheld only if the complaint, liberally construed, fails to state a cause of action on any theory. (Wolfrich Corp. v. United Services Automobile Assn. (1983) 149 Cal.App.3d 1206, 1209, 197 Cal.Rptr. 446.)

The law implies in every contract, including policies of insurance, a covenant of good faith and fair dealing. (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818, 169 Cal.Rptr. 691, 620 P.2d 141; Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658, 328 P.2d 198; Betts v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688, 705, 201 Cal.Rptr. 528.) "The precise nature and extent of the duty imposed by such an implied promise will depend on the...