Bodenhamer v. Superior Court

• Decision Date: 29 June 1987
• Citation: 192 Cal.App.3d 1472,238 Cal.Rptr. 177
• Court: California Court of Appeals Court of Appeals
• Parties: Ronald & Nada BODENHAMER, Petitioners, v. SUPERIOR COURT, County of Contra Costa, Respondents. ST. PAUL FIRE & MARINE INSURANCE COMPANY, Real Party in Interest. A034608.

Page 177

238 Cal.Rptr. 177

192 Cal.App.3d 1472

Ronald & Nada BODENHAMER, Petitioners, v. SUPERIOR COURT, County of Contra Costa, Respondents ST. PAUL FIRE & MARINE INSURANCE COMPANY, Real Party in Interest.

A034608.

Court of Appeal, First District, Division 4, California.

June 29, 1987.

Review Denied September 17, 1987.

N.A. Misciagna, P.R. Colombatto, Barbara J. Damlos, Misciagna, Schneider & Colombatto, San Francisco, for petitioners.

John B. Hook, Michael L. Boli, Long & Levit, William B. Boone, Guy O. Kornblum, Glen R. Olson, Kornblum, Kelly & Herlihy, San Francisco, for real party in interest.

No appearance for respondents.

ANDERSON, Presiding Justice.

On November 26, 1981, petitioners' jewelry store, Bodenhamer Jewelers, in Danville was burglarized resulting in a substantial loss to petitioners' stock in trade and to pieces of their customers' jewelry. Petitioners filed suit against their insurers, among others, alleging bad faith in handling claims arising from the burglary. St. Paul Fire & Marine Insurance Company, one of the insurers and real party in interest herein, had issued a Special Business Owners Policy providing coverage for business interruption loss and coverage for claims asserted against petitioners by third parties. On February 7, 1986, real party filed a motion for summary adjudication of issues as to both liability and business interruption coverages. The trial court granted the motion to the extent that the court effectively disposed of petitioners' causes of action against real party for breach of the implied covenant of good faith and fair dealing and for violation of Insurance Code section 790.03, subdivision (h). ¹ Petitioners challenge this decision by a timely petition for writ of mandate.

In opposing the motion for summary adjudication of issues, petitioners set forth the following facts regarding real party's handling of their customers' claims: On November 30, 1981, four days after the burglary, the adjuster employed by real party visited Bodenhamer Jewelers. He was informed that items of customer jewelry had been stolen in the burglary and was given a preliminary list of those customers' names. Shortly thereafter the adjuster received phone calls from customers inquiring about their claims. No claims file was set up for the numerous customers' claims arising out of the burglary until March 25, 1982--four months after the burglary. On September 21, 1982, one of the customers brought suit against petitioners and two other lawsuits were filed a short time thereafter. On October 5, 1982, petitioners' attorney wrote to real party informing it that the failure to pay these customers' claims was causing damage to the good will of Bodenhamer Jewelers. On November 23, 1982, real party's attorney wrote to real party informing it that its liability for the customers' jewelry was reasonably clear. Despite this letter, real party on January 11, 1983, wrote to all 23 customers informing them that it was real party's position that its insured was not liable and hence there was no coverage under the St. Paul policy. It was not until March 1983, 15 months after the loss, that the first customers' payment was made. The most recent payment was issued on May 8, 1985, and as yet at least two claims have not been paid.

Petitioners supported the above allegations by declarations and exhibits thereto. In addition, petitioners filed with their opposition, declarations of former customers who stated that they had ill feelings toward Bodenhamer Jewelers because of the delay in handling their claims and, as a result, chose to do business with other jewelers.

In granting summary adjudication of issues involving causes of action for breach of the implied covenant of good faith and fair dealing and for Insurance Code violations, respondent court explained "[p] The nub of Defendant's argument is that no cause of action arises as to these matters unless and until third party claims against Plaintiffs have resulted in a final determination of liability against them. Plaintiffs, on the other hand, assert that Defendant's improper handling of the liability claims gives rise to causes of action apart from any judgment of liability against Plaintiffs. The facts adduced show that while some claims remain outstanding, most of the third party claims have been settled and none have resulted in a judgment or other determination of liability against Plaintiffs." Respondent court went on to explain that the cases of Bogard v. Employers Casualty Co. (1985) 164 Cal.App.3d 602, 210 Cal.Rptr. 578 and Heninger v. Foremost Ins. Co. (1985) 175 Cal.App.3d 830, 221 Cal.Rptr. 303 "prevent plaintiff from asserting causes of action for breach of the implied covenant or breach of the statutory duties absent a determination of liability against plaintiffs by a third party claimant." Because of the holding that the tort action and statutory action would not lie, respondent court also held that punitive damages could not be recovered.

Breach of the Implied Covenant

The tort theory of breach of the implied covenant of good faith and fair dealing in California developed in a series of cases involving insurers' wrongful refusal to settle policy claims. (See Comment by Cohen, "Reconstructing Breach of the Implied Covenant of Good Faith and Fair Dealing as a Tort" (1985) 73 Cal.L.Rev. 1291, 1293-1296.) The series started with the case of Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 328 P.2d 198 where the court stated that "[t]here is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement." (Id., at p. 658, 328 P.2d 198; see also Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 429, 58 Cal.Rptr. 13, 426 P.2d 173; Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 768, 206 Cal.Rptr. 354, 686 P.2d 1158.)

Real party maintains that no cause of action for bad faith in the context of third-party claims exists absent an unreasonable refusal to settle and the possibility of an excess judgment. In other words, the only benefit for which an insured bargains, according to real party, is for indemnity and the only duty of an insurer, other than the duty to defend, is to settle claims for which its insured is liable. Until liability is determined by a settlement admitting liability or a judgment against the insured, the duty is not breached. Although no case has so held, real party cites two federal cases to illustrate its position that "the possibility of excess recovery is the only permissible factor in the insurer's settlement decision." Neither case supports real party's position.

In Zieman Mfg. Co. v. St. Paul Fire & Marine Ins. Co. (9th Cir.1983) 724 F.2d 1343, summary judgment for defendant was granted on a showing that the verdict against the insured was within the policy limits. The fact that there was also a verdict for punitive damages did not in itself establish bad faith in refusing to settle. The court made clear, however, that the insurer had clearly demonstrated that it conscientiously evaluated the claim. There was no evidence of bad faith in handling the claim.

The court in Larraburu Bros., Inc. v. Royal Indem. Co. (9th Cir.1979) 604 F.2d 1208, actually rejected real party's position although it did so in dictum. The insurer in Larraburu had refused to settle within the policy limits but had paid the resulting excess judgment. It contended that paying the full amount of the excess cured any breach of duty, or, alternatively, prevented any breach of its duty from occurring. The court was unwilling "to accept this formulation as a general rule, for to say that a subsequent verdict within policy limits always exonerates an insurer for the consequences of an earlier failure to settle seems to us an unwarranted restriction on the insurer's duty to the insured under California law." (Id., at p. 1214.) The court went on to point out that unreasonable conduct during the handling of the claim can be a proximate cause of injury before the final disposition of the claim as well as after. (Larraburu, supra, at p. 1215; see also ACandS, Inc. v. Aetna Cas. & Sur. Co. (3d Cir.1981) 666 F.2d 819, 823.)

The case of Bogard v. Employers Casualty Co., supra, 164 Cal.App.3d 602, 210 Cal.Rptr. 578, upon which respondent court relied also does not support real party's position. In Bogard, the insureds alleged that their insurance company did not properly investigate a third party claim to determine its true value. The insurer, however, had settled the claim and the court held that the facts were not sufficient to set forth a cause of action for breach of the implied covenant of good faith and fair dealing. Although agreeing that the trial court properly sustained a demurrer, the reviewing court held that it should have given plaintiffs leave to amend their pleading "to show in some other way how they were deprived of their right to receive the benefits of the agreement by Employers' actions and what benefits they did not receive." (Id., at p. 615, 210 Cal.Rptr. 578.)

Here petitioners have made that showing. Their position is not simply that St. Paul failed to evaluate their customers' claims or failed to settle but that St. Paul with knowledge of the validity of the claims and the injury delay could do to petitioners' business, deliberately delayed settlement.

The stress real party places on the fact that its contract was only to indemnify and to defend indicates a misunderstanding, not of their contract, but of a cause of action for breach of the implied covenant of good faith in that contract. "The covenant of good faith and fair dealing imposes obligations on the contracting parties separate and apart from those consensually agreed to; the obligations stemming from the implied covenant of good faith and fair dealing are imposed by law as normative...