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

• Decision Date: 30 April 1975
• Citation: 47 Cal.App.3d 783,121 Cal.Rptr. 200
• Parties: Elaine CAIN and Bing Woo Jew, Plaintiffs, Cross-Defendants and Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant, Cross-Complainant and Appellant. Civ. 34842.
• Court: California Court of Appeals Court of Appeals

Page 200

121 Cal.Rptr. 200

47 Cal.App.3d 783

Elaine CAIN and Bing Woo Jew, Plaintiffs, Cross-Defendants and Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant, Cross-Complainant and Appellant.

Civ. 34842.

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

April 30, 1975.

Rehearing Denied May 20, 1975.

Hearing Denied June 26, 1975.

Bishop & Barry, Nelson C. Barry, Neil R. Bardack, San Francisco, for plaintiffs, cross-defendants and respondents.

Nagle, Vale, McDowall & Cotter, Vernon V. Vale, San Mateo, for defendant, cross-complainant and appellant.

PRELIMINARY STATEMENT

EMERSON, ^* Associate Justice.

Elaine Cain was injured in a single car collision. The automobile involved in the accident was owned by Bing Woo Jew and insured by State Farm Mutual Automobile Insurance Co. (State Farm); the liability limits of this policy were $25,000.00.

Elaine Cain subsequently filed an action against Bing Woo Jew. Prior to trial settlement offers were put forth by Miss Cain's attorney; these were rejected by State Farm although the offers were within the policy limits. The jury found that Jew had been operating the vehicle at the time of the accident, and returned a verdict in the amount $57,883.00 in favor of Cain. Of this amount $25,000.00 was paid to Cain by State Farm pursuant to the Jew insurance policy.

Jew thereafter executed a written assignment to Cain transferring to her any cause of action he might have against State Farm by virtue of its failure to settle within the policy limits, including the right to sue for the amount of the excess verdict. He reserved to himself however, any cause of action for physical injuries sustained as a result of the failure to settle. Subsequently, Cain and Jew jointly brought the present action against State Farm alleging bad faith breach of contract and seeking compensatory and exemplary damages. The jury returned a verdict in the amount of $32,883.69 (the amount of excess over the policy limit) in favor of Cain, and a verdict in favor of Jew in the amount of $25,000.00 compensatory damages and $115,000.00 punitive damages. Judgment was entered on these verdicts and State Farm appeals.

ADDITIONAL FACTS

Immediately after the accident Jew told investigating police officers that he had been driving the car. Shortly thereafter, upon learning that Cain had been seriously injured and might die, Jew changed his statement and said that Cain had been driving at the time of the accident. He disclosed these facts to his insurer.

State Farm referred the file to counsel and unquestionably investigated the case most thoroughly. State Farm's attorney testified at the trial of this case that he realized that Cain had been seriously injured, and that were liability established her damages would exceed the policy limits of $25,000.00. The attorney also recognized Jew's credibility problem and apprised State Farm as follows: "First of all, our man damaged his credibility by lying at first to the police--assuming it was a lie--telling them that he was the driver . . . it will come out that Woo (Bing Woo Jew) did not change his story until after the officer had found out from the hospital and told Woo that the girl might die and . . . of the possibility that the case would involve a manslaughter charge. It can be argued with some force that as between the two versions that Woo gave the police he had a more compelling reason to lie in the second version . . .." Counsel for State Farm also informed the company that Miss Cain would be ". . . a very good witness in her own behalf . . . (and) that the plaintiff would have the advantage on the all-important issue of witness ability and credibility as opposed to our 39-year-old, married Chinese sailor insured."

Also known to State Farm and its attorneys, arising out of the initial investigation of this accident, were other factors that weighed on the issue of the credibility of its insured. The windshield of the vehicle was broken on the right side generally in front of the passenger's seat, yet Jew sustained no severe head injuries. Cain however After the receipt of Cain's demand to settle the lawsuit for $25,000.00 the ambulance driver was deposed by State Farm. It was his opinion that Jew was the driver of the vehicle at the time of the accident. He stated that Jew was standing outside the vehicle when the ambulance arrived at the scene, that Miss Cain was found on the passenger side of the car, and that it appeared to him that Cain had been thrown into the windshield from a position in the passenger's seat. A second settlement offer was thereafter made by plaintiff Cain. At this point State Farm realized that there was sufficient evidence to support a plaintiff's verdict, and that if there were a plaintiff's verdict, it would be far in excess of Jew's policy limits. Nonetheless, State Farm refused to consider the settlement offers, apparently taking the position that the issue of liability was worth the risk of litigation.

had a depressed skull fracture on the right side of her head which ran in a horizontal fashion. State Farm recognized this as a factor bearing on the issue of credibility.

SUFFICIENCY OF THE EVIDENCE AS TO THE AWARDS OF COMPENSATORY DAMAGES

State Farm urges that the Cain award, and the award to Jew of damages for mental distress, should be reversed on the grounds that there is insufficient evidence to support a finding of bad faith.

Under California law, every liability insurance policy carries an implied covenant obligating the insurer to act in good faith in considering settlement offers. (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 659, 328 P.2d 198.) This obligation requires that the insurer give the offer its intelligent and informed consideration; that the insurer advise the insured of any settlement offers, together with the results of its investigations; and that the insurer give equal consideration to the interests of its insured. A breach of any of these obligations, when coupled with a refusal to settle within the policy limits, renders the insurer liable for the entire amount of a judgment against its insured, including any portion in excess of policy limits. (Davy v. Public National Ins. Co. (1960) 181 Cal.App.2d 387, 394--396, 5 Cal.Rptr. 488.) It is not disputed that State Farm retained experienced counsel, undertook extensive investigation, and informed Jew of all settlement offers. The issue therefore is whether State Farm failed to give equal consideration to the interests of its insured, Bing Jew, in refusing the settlement offers. The test to be applied in making such a determination is '. . . whether a prudent insurer Without policy limits would have accepted the settlement offer.' (Crisci v. Security Ins. Co. (1967)66 Cal.2d 425, 429, 58 Cal.Rptr. 13, 16, 426 P.2d 173, 176 (emphasis added).)

Liability need not be predicated upon a showing of dishonesty, fraud or concealment, although evidence of the latter is obviously relevant to a determination that the insurer failed to give consideration to the insured's interest. Liability is not imposed for a bad faith breach of the contract, but for failure to meet the duty to accept reasonable settlements; thus, liability may exist when the insurer unwarrantedly refuses an offered settlement where the most reasonable manner of disposing of the claim is by accepting the settlement. (Crisci v. Security Ins. Co., Supra, 66 Cal.2d 425, 430, 58 Cal.Rptr. 13, 426 P.2d 173.) '(W)hen 'there is great risk of a recovery beyond the policy limits so that the most reasonable manner of disposing of the claim is a settlement which can be made within those limits, a consideration in good faith of the insured's interest requires the insurer to settle the claim. '"" (Crisci v. Security Ins. Co., Supra, at p. 429, 58 Cal.Rptr. at p. 16, 426 P.2d at p. 176.)

Whether the insurer has acted unreasonably, and hence in bad faith, in rejecting a settlement offer is a question of fact to be determined by the jury. If there is any substantial evidence to support

the jury verdict, it must be sustained on appeal. (Marsango v. Automobile Club of So. Cal. (1969) 1 Cal.App.3d 688, 696, 82 Cal.Rptr. 92.) There is clearly sufficient evidence in the case at bench to sustain the jury's findings. In addition to the facts set forth above, there was testimony from Wilson Young, Jew's attorney, ¹ to the effect that State Farm had indicated to him that it was definitely not interested in settlement; he further testified that he had received no correspondence or other communication from State Farm which led him to believe that State Farm was giving equal consideration to Jew's financial interests. There was also expert testimony to the effect that State Farm failed to give any consideration at all to Jew's interests. It may therefore be concluded that State Farm, through its agents and attorneys, knew of the severity of damages suffered by Cain and of the probability of an excess verdict. The evidence as a whole supports a finding that State Farm acted unreasonably in rejecting the settlement offers and that it failed to give equal consideration to the interests of its insured.

PUNITIVE DAMAGES

Appellant argues that this was not a proper case for an award of punitive damages, that the record did not justify submitting the question of punitive damages to the jury, and that it was therefore error to instruct on punitive damages.

It is established that an insurer owes to its insured an implied-in-law duty of good faith and fair dealing, and that it should do nothing to deprive the insured of the benefits of the policy. Included within this duty in the case of a liability insurance policy is the duty to act reasonably and in good faith to settle claims against the insured by a third person. The violation of that duty sounds in tort, notwithstanding that it may also constitute a breach of contract. (Crisci v. Security Ins. Co., Supra,66 Cal.2d...