Boicourt v. Amex Assurance Co.

• Decision Date: 15 March 2000
• Docket Number: No. G021061.,G021061.
• Citation: 78 Cal.App.4th 1390,93 Cal.Rptr.2d 763
• Court: California Court of Appeals Court of Appeals
• Parties: Levi BOICOURT, Plaintiff and Appellant, v. AMEX ASSURANCE COMPANY, Defendant and Respondent.

93 Cal.Rptr.2d 763

78 Cal.App.4th 1390

Levi BOICOURT, Plaintiff and Appellant, v. AMEX ASSURANCE COMPANY, Defendant and Respondent.

No. G021061.

Court of Appeal, Fourth District, Division 3.

March 15, 2000.

Review Denied June 14, 2000.

Jeffrey C. Metzger, Luguna Hills, and Wylie A. Aitken, Santa Ana, for Plaintiff and Appellant.

Sedgwick, Detert, Moran & Arnold, Donna D. Melby and Jordon E. Harriman, Los Angeles, for Defendant and Respondent.

OPINION

SILLS, P.J.

No less an authority on insurance law than John Alan Appleman declared 40 years ago that a liability insurer "is playing with fire" when it refuses to disclose policy limits. Such a refusal "cuts off the possibility of receiving an offer within the policy limits" by the company's "refusal to open the door to reasonable negotiations." (See Johanek v. Aberle (D.Mont.1961) 27 F.R.D. 272, 280, quoting Appleman, Circumstances Creating Excess Liability, at 315, in the 1960 proceedings of the Insurance Negligence and Compensation Law section of the American Bar Association.)

The present case involves another insurer who, at least allegedly, played with fire in refusing to disclose policy limits. Actually, because California law is quite clear that insurers may not disclose policy limits absent written permission from the insured,¹ the insurer's sin here was a blanket refusal to contact the insured to see if he wanted the policy limits disclosed. But functionally it was the same thing. The insurer's refusal to disclose (or in California, the refusal to give the insured the option of disclosing) policy limits may have foreclosed a possible settlement of the underlying claim within those limits.

A blanket rule against precomplaint disclosure of policy limits creates a conflict of interest between liability insurers and their insureds. First, the insurer saves some money on administrative costs by never having to contact its policyholders to obtain the necessary authorization for disclosure. Second, the insurer gains a tactical advantage vis-à-vis the claimant by forcing the claimant to make any prelitigation offers "in the dark." Because the essence of bad faith in the liability insurance context is the insurer's elevation of its own parochial interests over the insured's at the expense of a policy limits settlement—that is, preferring its own interests over the insured's when there is a conflict of interest between them—we reverse the summary judgment in this case. That judgment was based on the idea that there could be no conflict of interest absent a formal settlement offer.

FACTS

On October 27, 1990, then 15-year-old Levi Boicourt was a passenger riding on the freeway in a 1967 Volkswagen Beetle driven by his 16-year-old friend Michael George Dean Belcher, when another Volkswagen—whose driver allegedly wanted to race—swerved into Belcher's path, causing Belcher's car to overturn. Boicourt suffered catastrophic injuries. Two months later, on December 17, 1990, and prior to filing any litigation against Boicourt's friend (or the friend's father, Michael Howard Belcher), Boicourt's attorney, James J. DiCesare, wrote to the adjusting firm hired by the father's insurer, Amex Assurance Company. DiCesare requested "written confirmation of your insured's applicable policy limits."

On January 22, 1991, a month after the request, an adjuster wrote to DiCesare to state that the company had a "policy not to disclose the amount of the policy limits." DiCesare would later say, in a declaration filed in opposition to a summary judgment motion, that he would have accepted the (subsequently revealed) $100,000 policy limits "on any date up to and including, January 22, 1991, when I was made aware that the policy limits would not be disclosed absent formal litigation."

Four months went by. Then, on May 28, 1991, DiCesare wrote to send the adjuster information about the extent of his client's injuries, confirming the insurer's refusal to disclose the policy limits, and declared that "[b]ut for" the insurer's "actions," the "matter" might "otherwise have been resolved without formal litigation ...." A complaint was filed that very day.

Five months into the litigation—on October 28, 1991—Amex made a settlement limits offer of $100,000, presumably by then having disclosed the limits. That offer was refused.

No settlement demand was ever made by DiCesare or anyone else on behalf of Boicourt during the next three and a half years. The case came to trial in December 1994, resulting in a stipulated judgment of $2,985 million against Belcher the son, and $15,000 against Belcher the father, as owner. Amex paid its policy limit of $100,000. Belcher the son assigned his rights against Amex to Boicourt in return for a contract not to execute on the judgment. In December 1995, Boicourt filed this lawsuit against Amex for bad faith. Amex brought a successful summary judgment motion in October 1996.

DISCUSSION

I

We need not rehash the well-settled rules of bad faith liability for the refusal of a liability insurer to settle a case, if the opportunity arises, within policy limits when it ultimately results in a judgment in excess of the policy limits against the insured. Suffice to say for now that the relevance of disclosure of policy limits to the settlement of an underlying claim cannot be gainsaid.

Early on, our Supreme Court held that insurance policies (and, by extension, the limits set forth in them) were the proper subject of discovery. (Superior Ins. Co. v. Superior Court (1951) 37 Cal.2d 749, 235 P.2d 833.) Among other things the high court noted that "knowledge of low policy limits" could benefit defendants (that is, policyholders) because that knowledge would tend "to discourage a seriously injured plaintiff from holding out for a settlement commensurate with the extent of the injuries." (Id. at p. 755, 235 P.2d 833.)

Along these lines, any number of jurisdictions have stressed the relationship between the disclosure of policy limits and settlement in the context of discovery. (See Johanek, supra, 27 F.R.D. at p. 278 ["Such knowledge, furthermore, would also lead to more purposeful discussions of settlement, and thereby effectuate the dispatch of court business"]; Kunkel v. United Security Ins. Co. of New Jersey (1969) 84 S.D. 116, 168 N.W.2d 723, 731 [despite lack of affirmative duty to disclose, disclosure "has been recognized as relevant to evaluating a case and as an aid in achieving settlements"]; Szarmack v. Welch (1972) 220 Pa.Super. 407, 289 A.2d 149, 153 ["Such knowledge would tend to adjust the plaintiffs settlement objective"]; Mosca v. Pensky (1973) 73 Misc.2d 144, 341 N.Y.S.2d 219, 231 ["The primary rationale in support of discovery is that both counsel and the parties will realistically negotiate their claims, thereby maximizing efforts at settlement"].)

Accordingly, jurisdictions which have considered the disclosure problem in the context of bad faith (as distinct from discovery) have said that bad faith liability may indeed be predicated on a refusal to disclose policy limits. (See Powell v. Prudential Property & Cas. (Fla.App.1991) 584 So.2d 12, 14 ["liability may be predicated on a refusal to disclose policy limits"]; Szarmack, supra, 289 A.2d at p. 153 ["An insurance company would violate its obligation to an insured to act in good faith if it did not reveal the existence of low policy limits when such a revelation would serve to protect the insured from a judgment far above the policy limits"]; Cernocky v. Indemnity Insurance Co. of No. Amer. (1966) 69 Ill.App.2d 196, 216 N.E.2d 198, 205 [refusal to disclose policy limits was among factors indicating bad faith].)

The Powell case from the Florida Court of Appeal closely parallels the one before us, even to the point that the trial court there, as here, ruled as a matter of law (there, in a directed verdict, here in a summary judgment) that the absence of a formal settlement offer absolutely precluded bad faith. In Powell, as in the case before us, there was a request for policy limits by the attorney for a severely injured claimant prior to the instigation of litigation a refusal by the insurer to disclose them prior to litigation, a rejection of the limits after litigation commenced, and the ultimate rendering of an excess verdict against the policyholder. (See Powell, supra, 584 So. 2d at p. 13.)

The Powell court rejected the idea that the "lack of a formal offer to settle" precluded a finding of bad faith, reasoning that the lack of a formal offer to settle was but "one factor to be considered." (Powell v. Prudential Property & Cas., supra, 584 So.2d at p. 14.) Citing another prominent authority in insurance law (14 Couch on Insurance (2d Rev. ed.1982) § 51:11, p. 398), the court noted that liability could indeed be predicated on a "refusal to disclose policy limits." (Powell, supra, 584 So.2d at p. 14.) Hence there was enough evidence to allow the jury to decide the case, and it was error to direct a verdict in favor of the insurer. (Id. at p. 15.)

II

The Powell decision turned on the question of whether there are circumstances in which a liability insurer could be liable for bad faith refusal to settle when the claimant has not actually made a formal settlement offer. It was a negative answer to that question which prompted the trial court to grant the insurer's summary judgment motion, and which forms its primary line of defense in this appeal.

There is dicta in Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 877, 110 Cal. Rptr. 511, which supports the insurer's position here. That is, in Merritt the appellate court opined that bad faith can occur "only" when a formal offer to settle an excess claim within policy limits is made.²

We do not follow the Merritt dicta. We now explain why that dicta is (a) truly dicta, and (b) not persuasive in the context of a refusal to contact the policyholder to obtain permission to disclose the policy limits which has the effect of...