Blough v. State Farm Fire & Cas. Co.

Decision Date19 August 1988
Docket NumberNo. E003250,E003250
Citation250 Cal.Rptr. 735,203 Cal.App.3d 1260
CourtCalifornia Court of Appeals Court of Appeals
PartiesPreviously published at 203 Cal.App.3d 1260 203 Cal.App.3d 1260 Robert BLOUGH, et al., Plaintiffs and Respondents, v. STATE FARM FIRE & CASUALTY COMPANY, et al., Defendants and Appellants.

McDANIEL, Associate Justice.

The appeal here is from an almost $10 million judgment, awarding both compensatory and exemplary damages in favor of two plaintiffs (initial and later joined) and against companion insurance companies, entered in a so-called bad-faith action in which the insurers were found by a jury to have breached both the implied covenant of good faith and fair dealing as well as those duties arising under section 790.03, subdivision (h) of the Insurance Code (unfair claims settlement practices). These derelictions were found to have occurred in connection with the insurers' handling of the personal injury claim of the initial plaintiff here. That claim had been the subject of an earlier third-party action filed against the later plaintiff here who was also the insurers' insured. This insured later assigned his own so-called bad-faith claim to the third-party (traffic-collision victim) but, nevertheless, after the assignment, the insured assignor was permitted to join this action as a plaintiff, seeking his own emotional distress damages, allegedly arising also from the way the third-party claim had been handled by defendant insurers.

Reduced to its essentials, the extrinsic observable behavior of the insurance companies is not in dispute; the alleged bad faith consisted of a delay for only three months in offering the third-party claimant, and initial plaintiff here, the policy limits of $100,000, after having offered $60,000 at the outset of settlement negotiations three months earlier.

After this delay in offering policy limits, which were then refused, the third-party plaintiff and the insured stipulated to a judgment for $1 million in the third-party action. The stipulation was coupled with the third-party plaintiff's covenant not to execute. Thereupon, as above noted, the insured assigned his own bad-faith claim against the insurers to the third-party plaintiff with whom he had just stipulated for judgment. Soon thereafter, the action here was filed, attacking on two salients. In his pleadings, the initial plaintiff asserted the assigned, common-law, bad-faith claim of his former adversary 1 as well as his own, allegedly arising under the Insurance Code, already noted, and as sanctioned by Royal Globe Ins. Co. v. Superior Court, 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, in those instances where the injured party's action against the insured has been "concluded." A little less than two years after the action here was filed, the initial plaintiff was permitted to file a second amended complaint in which his assignor and former adversary in the traffic-collision suit was brought in by way of joinder as a plaintiff. This later-joined plaintiff then succeeded, as did the initial plaintiff, in recovering an aggregate, seven-figure award for both compensatory and exemplary damages.

To particularize, the current action was brought initially by Robert Blough 2 (hereafter plaintiff or third party) against State Farm Fire & Casualty Company and State Farm Mutual Automobile Insurance Company (hereafter collectively, defendant or State Farm).

The initial complaint was in two counts. The first alleged the assigned claim, related to the $1 million stipulated judgment; the second charged violation of defendant's duties arising under the Insurance Code. A Second Amended Complaint was filed about 19 months later. Its purpose was to join Kenneth E. Turner, M.D., the insured, as a plaintiff, and contained the same two counts with little if any change in the charging allegations. The prayer was for "Damages in the amount of $1,000,000.00 (One Million Dollars) which represents the amount of the Stipulated Judgment entered against Kenneth E. Turner and Tonya Turner in favor of Robert Blough as a result of defendants breach of duty of good faith and fair dealing by refusing to accept plaintiff's reasonable settlement demand," plus both exemplary damages and "general damages for mental and emotional distress," together with interest on all damages "in accordance with California Civil Code section 3291 and C.C.P. Section 998."

The jury trial resulted in a verdict awarding the initial plaintiff Blough $2,502,000 in compensatory damages and $5,500,000 in punitive (exemplary) damages. Otherwise, the verdict awarded the later-joined plaintiff Turner (insured) $1,750,000 in compensatory damages and $100,000 in exemplary damages.

Defendant has appealed from the judgment. Because defendant breached no duty owed plaintiff Blough, and because defendant was not exposed to any further claim against it by plaintiff Turner after his assignment to Blough, the judgment will be reversed in its entirety with directions.


About 11 o'clock on a May evening in 1978, Tonya Turner was driving a Cadillac automobile north on Indian Avenue in Palm Springs. When she started to make a left turn into Arenas Road from the second-to-left lane, not realizing that she was on a one-way street, she turned in front of and caused a collision with a Honda motorcycle operated by plaintiff, who was also travelling north in the lane next left of the lane in which Mrs. Turner was driving. Plaintiff, who was 15, and his brother Scott, who was 14 and a passenger on the motorcycle at the time, were thrown to the road by the collision. Plaintiff was hospitalized for about 10 days and was discharged with a diagnosis of head injury and cerebral concussion. (He was not wearing a helmet at the time of the collision.) Scott apparently received only minor injuries.

At the time of the collision, Turner was insured by defendant for a maximum of $100,000 for each person injured. In addition as a result of Turner's lease of the Cadillac from Las Vegas Auto Leasing, he was also covered for an additional $500,000 through a policy issued by American Star Insurance Company. Turner notified defendant of the loss before the end of May 1978, and a claim file was opened by John Harrington (Harrington), one of defendant's divisional claims superintendents. Harrington in turn retained an independent adjusting firm, J. Haggerty, to investigate both the circumstances of the collision and the extent of plaintiff's injuries.

Early in June of 1978, Haggerty filed his first report describing plaintiff's injuries as "multiple lacerations and head injuries" and suggesting that defendant set up a $2,500 reserve to service a possible claim.

Between June 1978 and February 1979 Haggerty made repeated attempts to obtain from plaintiff's counsel a detailed resume of plaintiff's special damages. These efforts were all unavailing, and with no prior communication at all with defendant's claims representatives, plaintiff and his brother Scott, through their mother as guardian ad litem, filed suit against Turner, alleging both personal injuries and property damage.

Finally on April 20, 1979, Harrington received a copy of summons and complaint. Defendant accepted both defense and coverage and, after discharging the adjusting firm, hired Attorney Phil Sharp (Sharp) to defend the Turners.

Thereafter, Sharp obtained copies of plaintiff's medical records, and sent the copies for review to a neuropsychiatrist, Dr. Varga, and to a psychiatrist, Dr. Gericke. Dr. Gericke also examined plaintiff on defendant's behalf. At the examination, according to Dr. Gericke's report to Sharp, plaintiff said that after the collision he had dropped out of the tenth grade in high school because he had had headaches, dizziness, problems with memory, and had been unable to do the work; that he had then obtained a construction job but had had trouble keeping jobs because of his uncontrollable temper; that he had put holes in walls, had fought with his brothers, and had had difficulty in day-to-day living, and that doctors had prescribed Ritalin and Mellaril for him, but that he had not taken those drugs because he had not wanted to become lethargic or addicted to drugs.

Dr. Gericke's report also included a reference to a C.T. scan of plaintiff which had revealed abnormalities compatible with "communicating hydrocephelus" (obstruction to the flow of the fluid circulating through the brain), and an EEG report which had revealed abnormalities compatible with a structural lesion. Dr. Gericke concluded, in his report, that plaintiff had a "post traumatic personality disorder," and that phenothiazine drugs or a trial with Dilantin and phenobarbital "may" improve plaintiff's disposition and make it possible for him to hold a job.

After review of the foregoing reports and of plaintiff's medical records, Sharp sent his evaluation of the case to Harrington. Such evaluation recited in relevant part: "A C.T. head scan done by Dr. Steven Curtis revealed moderate enlargement of the intrahemispheric ventricle system. [p] An EEG ... done two years after the accident was interpreted as being abnormal by Dr. Lapkin. [p] He felt the EEG was compatible with structural lesion ... in the right posterior quadrant of the brain. [p] A psychological examination by Dr. Gerald Deskin in September of 1979 [16 months after the collision] revealed [plaintiff] had a low frustration tolerance and revealed him to be hostile, demanding, confused, and possibly disoriented. [p] Psychiatrist Dr. O.L. Gericke ......

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2 cases
  • LeFevre v. Westberry
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    • Supreme Court of Alabama
    • July 26, 1991
    ...... James LeFEVRE . v. . Lamar WESTBERRY and State Farm Mutual Automobile Insurance Company. . ... Ins. Co. v. Reaves, 292 Ala. 218, 284, 292 So.2d 95, 100 (1974) (quoting Gulf Am. Fire & Cas. Co. v. Gowan, 283 Ala. 480, 483, 218 So.2d ... Blough v. State Farm Fire & Cas. Co., 203 Cal.App.3d ......
  • Blough v. State Farm Fire & Cas. Co.
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    • California Court of Appeals
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    .... Page 747. 252 Cal.Rptr. 747. Robert BLOUGH, et al., Respondents,. v. STATE FARM FIRE & CASUALTY CO., etc., Appellant. No. E003250. Court of Appeal, Fourth District, Division 2, California. Sept. 15, 1988.         Protigal, Hammerton & Allen, Stuart B. Esner, Horvitz, Levy & Amerian, Encino, for State Farm Fire & Cas. Co., etc.         Anderson Parkinson Weinberg & Miller, Indio, De Goff & Sherman, De Goff, ......

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