Beck v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 14 January 1976
• Citation: 126 Cal.Rptr. 602,54 Cal.App.3d 347
• Court: California Court of Appeals Court of Appeals
• Parties: Nanci BECK, Plaintiff and Respondent, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Appellant. Civ. 45883.

Page 602

126 Cal.Rptr. 602

54 Cal.App.3d 347

Nanci BECK, Plaintiff and Respondent, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Appellant.

Civ. 45883.

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

Jan. 14, 1976.

Hearing Denied March 10, 1976.

Belcher, Henzie & Biegenzahn by Leo J. Biegenzahn, Uzzell S. Branson, III, Los Angeles, for defendant and appellant

Harvey L. Lerer, Inc. by Harvey L. Lerer and Bob Binder, Los Angeles, for plaintiff and respondent.

FLEMING, Acting Presiding Justice.

Defendant State Farm Mutual Automobile Insurance Company appeals the judgment and order denying its motion for judgment notwithstanding the verdict after the jury assessed $25,000 compensatory damages and $75,000 punitive damages in favor of plaintiff Nanci Beck on a cause of action for breach of an insurer's obligation to act in good faith and deal fairly with its insured.

Beck charged State Farm with unreasonable refusal to negotiate or settle an 'uninsured motorist' claim under her automobile liability insurance policy. State Farm contends the evidence shows it acted in good faith and without malice, that it believed it had a valid defense to Beck's uninsured motorist claim based on her alleged failure to report her hit-and-run accident to the police or Department of Motor Vehicles within 24 hours.

THE POLICY

Pursuant to Insurance Code section 11580.2, Beck's automobile liability insurance policy provides that State Farm will 'pay all sums (up to $15,000) which (Beck) shall be legally entitled to recover as damages from the owner or operator of an uninsured automobile because of bodily injury sustained by (Beck), caused by accident and arising out of the ownership, maintenance or use of such uninsured automobile; provided, . . . determination as to whether (Beck) is legally entitled to recover such damages, and if so the amount thereof, shall be made by agreement between (Beck) and the company or, if they fail to agree, by arbitration.'

The policy defines 'uninsured automobile' as (1) a land motor vehicle without sufficient and effective insurance or (2) a 'hit-and-run automobile.' Hit-and-run automobile 'means a land motor vehicle which causes bodily injury to an insured arising out of physical contact of such vehicle with the insured or with an automobile which the insured is occupying at the time of the accident, provided: (1) there cannot be ascertained the identity of either the operator or owner of such 'hit-and-run automobile'; (2) the insured or someone on his behalf shall have reported the accident within 24 hours to a police or judicial officer or to the Commissioner of Motor In separate policy provisions, State Farm agrees to pay up to $1,000 for reasonable medical expenses incurred by Beck in an automobile accident and to pay for loss to Beck's automobile caused by collision which exceeds the $100 deductible amount.

Vehicles, and shall have filed with the company within 30 days thereafter a statement under oath that the insured or his legal representative has a cause or causes of action arising out of such accident for damages against a person or persons whose identity is unascertainable, and setting forth the facts in support thereof; and (3) at the company's request, the insured or his legal representative makes available for inspection the automobile which the insured was occupying at the time of the accident.'

THE ACCIDENT

Beck testified that at 2:30 p.m. on 28 April 1969 she was stopped in traffic on Santa Monica Blvd. waiting for cars ahead of her to move when another car rear-ended hers. Beck's head snapped back and she passed out momentarily. The driver of the other car came up and asked if she was all right. Beck said she was not. The driver said, 'Well, its lucky I didn't break your car in two because the impact was so violent.' When Beck asked the driver for his name, he said, 'Bob Smith.' The driver then looked at her car, and said, 'There's no damage.' He got in his car and drove off. Beck wrote down his license number with her eyebrow pencil.

THE CLAIM

Beck testified she telephoned the office of her State Farm agent, Frank Ranuzzi, later that day and spoke with a secretary. Beck described the accident and reported that the other car was a 1968 dark blue or black Cadillac convertible. The driver was named Bob Smith, he had black hair and a beard or goatee. His car license number was YNF 894 or 899. Beck reported a stiff neck and damage to the continental kit on her 1956 Thunderbird. The secretary said agent Ranuzzi would telephone Beck that evening.

Beck testified Ranuzzi did not telephone that evening, so she telephoned him the next morning. She told Ranuzzi she had called the Los Angeles Police Department to report the accident and the police advised her to call the Department of Motor Vehicles, which she did, and to call the Sheriff's Office, in whose jurisdiction the accident occurred. Ranuzzi told Beck to come to his office when she felt up to it. He said he would make the report and 'try to run the name down and the driver down.'

Beck testified that the next day, 1 May 1969, she went to Ranuzzi's office and he helped her fill out a claim report. She took some of the forms home and brought them back to his office on 7 May, when she signed the claim report. About a week and a half after the accident she went to the Sheriff's Department and reported the accident. Either on 7 May or the following week Ranuzzi told Beck, 'There seems to be some difficulty. State Farm is not going to pay your policy benefits.' He said he did not know why, and advised Beck to get a lawyer. ¹ Beck's 7 May claim report stated she reported the accident to Ranuzzi on 1 May and had filed an 'SR 21' (DMV accident report).

On 15 May 1969 Beck's attorney Finn ² sent a letter to Ranuzzi stating that Beck had an uninsured motorist claim and offered to discuss settlement. State Farm claims representative Ron Anderson attempted to identify the other driver in order to eliminate Beck's uninsured motorist claim but was unsuccessful.

On 16 June 1969 Anderson referred Beck's case to State Farm claims specialist Mal Mrdjenovich for handling as an uninsured motorist claim. Mrdjenovich reported that Beck told him she called the Hollywood police at 10 a.m. the day after the accident but the police said they could not help because she had an incorrect license number for the other car. Beck also said she telephoned the DMV. On the assumption that the 24-hour police report was a condition precedent to an uninsured motorist claim, Mrdjenovich nevertheless concluded that Beck had a valid claim because she made an effort to report the accident to the police. Mrdjenovich's supervisor Maurice Horstman, and State Farm's attorneys, Spray, Gould & Bowers, concurred in Mrdjenovich's conclusion but Horstman advised him to 'use the question in negotiating a settlement.'

Mrdjenovich continued to handle Beck's claim through December 1969. During that time State Farm learned that Beck sustained added injuries at the hands of one of the doctor's treating her accident injury and she had a malpractice claim pending against the doctor. ³ In treating a nerve injury the doctor punctured her lung; a surgical procedure for her lung left a scar on her chest. Attorney Lerer submitted to State Farm medical bills totalling over $1,000, a claim for $5,000 in lost earnings, and estimates of $1,000 for plastic surgery and $165 for car repairs. Lerer demanded payment of policy limits, $15,000, and requested arbitration of the claim. Mrdjenovich requested authority to offer Beck $10,000 but he never received authority and State Farm never made Beck an offer to settle her claim.

In December 1969 Horstman reviewed Beck's claim and perceived several questions: whether Beck complied with the 24-hour reporting requirement; whether she could prove all the damages she claimed; and whether State Farm could subrogate to Beck's malpractice claim. In view of Lerer's demand for policy limits, Horstman referred the claim to State Farm's attorneys, Spray, Gould & Bowers, 'for handling this arbitration and to protect our interests.'

At trial, Mrdjenovich conceded that under Beck's policy, 'until an investigation is made or somebody makes an effort to identify the owner or operator, nobody knows that it is a hit-and-run car,' and that the insured has no duty ot notify the police before they know the other driver is unidentifiable. Mrdjenovich testified that he knew Beck was not working and was relying on her State Farm insurance to pay her medical bills and that a two-year delay in payment of those bills would vex and oppress her and subject her to economic pressure.

At trial, Horstman conceded that in insurance negotiations a demand for policy limits is an invitation to enter negotiations and that it would be in bad faith to assert a defense known to be invalid. According to Horstman, Beck never demanded separate payment on her property and...