California State Auto. Assn. Inter-Ins. Bureau v. Superior Court

Decision Date19 April 1990
Docket NumberINTER-INSURANCE,No. S009171,S009171
Citation788 P.2d 1156,50 Cal.3d 658,268 Cal.Rptr. 284
CourtCalifornia Supreme Court
Parties, 788 P.2d 1156 CALIFORNIA STATE AUTOMOBILE ASSOCIATIONBUREAU, Petitioner, v. The SUPERIOR COURT for the City and County of San Francisco, Respondent; Dorothy COOPER, Real Party in Interest.

Weinberg, Campbell & Stone, Michael T. Stone, Sausalito, Richard R. Ruggieri, Berkeley, Coddington, Hicks & Danforth, Clinton H. Coddington, Randolf S. Hicks, Redwood City, Crosby, Heafey, Roach & May, Peter W. Davis, Kathy M. Banke and Jenny D. Smith, Oakland, for petitioner.

Horvitz & Levy, Ellis J. Horvitz, Peter Abrahams, Encino, Waldman, Bass, Stodel & Graham, Irwin Waldman and George K. Perlee, Los Angeles, amici curiae on behalf of petitioner.

No appearance for respondent.

Freitas, McCarthy, Bettini, MacMahon, Freitas & Keating, David P. Freitas and Albert P. Barsocchini, San Rafael, for real party in interest.

Ian Herzog, Santa Monica, Leonard Sacks, Encino, Harry R. Levine, Douglas DeVries, Sacramento, Bruce Broillet, Los Angeles, Robert Steinberg, Hurley, Grassini & Wrinkle, Roland Wrinkle, North Hollywood, Farella, Braun & Martel and Mary E. McCutcheon, San Francisco, amici curiae on behalf of real party in interest.


LUCAS, Chief Justice.

We seek in this case to resolve a lingering question arising from our decision in Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58 (hereafter Moradi-Shalal ). In Moradi-Shalal, we held, contrary to our earlier decision in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329 (hereafter Royal Globe ), that Insurance Code section 790.03, subdivision (h) (hereafter section 790.03(h)), does not confer on private parties a statutory cause of action against insurance companies for damages for unfair practices. We overruled Royal Globe prospectively only, however: Any then pending actions by private parties seeking relief for alleged violations of section 790.03(h) could proceed. (Moradi-Shalal, supra, 46 Cal.3d at pp. 292, 305, 250 Cal.Rptr. 116, 758 P.2d 58.)

With respect to such surviving Royal Globe actions brought by injured third party claimants, we specified in Moradi-Shalal that "a final judicial determination of the insured's liability [for the third party claimant's injuries] is a condition precedent to a section 790.03 action against the insurer." (46 Cal.3d at p. 313, 250 Cal.Rptr. 116, 758 P.2d 58.) The question now before us is whether a stipulation of the insured's liability signed by the insurer, insured, and third party claimant, and entered as a judgment, satisfies this condition precedent. We hold that a stipulated judgment under these circumstances constitutes a "judicial determination" as required by Moradi-Shalal, enabling a third party claimant to bring a pre-Moradi-Shalal section 790.03(h) action.


Dorothy Cooper, real party in interest, was severely injured in March 1983, when George Smith, who was insured by petitioner California State Automobile Association, allegedly drove his car the wrong way on a one-way street while intoxicated. Real party settled her personal injury action against petitioner's insured in May 1987--some 50 months after the accident. The parties stipulated that the insured admitted liability, that he agreed to pay $175,000 in damages, and that real party reserved her rights against petitioner. This stipulation was signed by attorneys for the insured, real party, and petitioner, and the trial court entered judgment in accordance with its terms. Thereafter, before finality of Moradi-Shalal, real party sued petitioner for damages, alleging it had breached section 790.03(h) in the course of settling her personal injury claim. 1

Soon after Moradi-Shalal was decided, petitioner moved for judgment on the pleadings, asserting the settlement and stipulated judgment in the personal injury action did not satisfy Moradi-Shalal 's requirement of a judicial determination of the insured's liability prior to pursuing a section 790.03(h) claim. The trial court denied the motion. The Court of Appeal granted petitioner a peremptory writ of mandate, directing the trial court to vacate its order denying judgment on the pleadings and to enter a new order granting petitioner's motion. We reverse.


Royal Globe established that a third party claimant injured by an insured may not sue the insurer under section 790.03(h) until after the action between the claimant and the insured has "concluded." (Royal Globe, supra, 23 Cal.3d at p. 884, 153 Cal.Rptr. 842, 592 P.2d 329.) In Moradi-Shalal, we defined Royal Globe 's requirement of a "conclusion" of the action, for purposes of pending third party section 790.03(h) suits. We concluded that a settlement is "an insufficient conclusion of the underlying action: there must be a conclusive judicial determination of the insured's liability before the third party can succeed in an action against the insurer under section 790.03." (Moradi-Shalal, supra, 46 Cal.3d at p. 306, 250 Cal.Rptr. 116, 758 P.2d 58, italics added.)

As we observed in Moradi-Shalal, the requirement of a determination of the insured's liability derives in part from the notion that the underlying liability insurance contract is an indemnity contract. Under an insurance contract, the insurer's obligation is to indemnify the insured to the extent of the insured's liability to the third party. Accordingly, " 'no enforceable claim accrues against the insurer until the insured's liability is in fact established.' " (Moradi-Shalal, supra, 46 Cal.3d at p. 306, 250 Cal.Rptr. 116, 758 P.2d 58, quoting Williams v. Transport Indemnity Co. (1984) 157 Cal.App.3d 953, 960, 203 Cal.Rptr. 868.) In relation to section 790.03(h) claims, this principle of indemnity compelled that "If the insured is not liable for the claimant's injury, the claimant has no right to damages from the insured, and the claimant cannot be permitted to recover for 'unfair conduct' by the insurer in refusing to settle an underlying unmeritorious claim." (46 Cal.3d at p. 308, 250 Cal.Rptr. 116, 758 P.2d 58.)

We precluded postsettlement section 790.03(h) claims in Moradi-Shalal because allowing such suits would (i) require third party claimants to establish the insured's liability within the section 790.03(h) action itself, posing serious practical and policy problems; (ii) deprive the settling parties of a primary advantage of settlement by requiring them to litigate the issue of the insured's liability despite having settled the personal injury claim; (iii) give an unwarranted and unfair advantage to the third party claimant, who could settle, retain the benefits of settlement, and then sue the insurer for additional compensation; and (iv) create a conflict of interest which might cause the insurer to focus excessively on its own potential liability to the third party at the expense of its insured. (46 Cal.3d at pp. 311-312, 250 Cal.Rptr. 116, 758 P.2d 58.) In addition, we noted that protecting insurers from post-settlement exposure to section 790.03(h) claims will encourage settlement of third party actions. (Ibid.) Thus, we concluded, for purposes of a Royal Globe action, "settlement is an insufficient conclusion of the underlying action." (Id., at p. 306, 250 Cal.Rptr. 116, 758 P.2d 58.) As will appear, we reach a different conclusion when the settlement has been incorporated into a stipulated judgment.

In a stipulated judgment, or consent decree, litigants voluntarily terminate a lawsuit by assenting to specified terms, which the court agrees to enforce as a judgment. (See Kramer, Consent Decrees and the Rights of Third Parties (1988) 87 Mich.L.Rev. 321, 325; 2 Cal.Civil Procedure Before Trial (Cont.Ed.Bar 1978) § 34.1, pp. 485-486.) As the high court has recognized stipulated judgments bear the earmarks both of judgments entered after litigation and contracts derived through mutual agreement: "[C]onsent decrees 'have attributes both of contracts and of judicial decrees'; a dual character that has resulted in different treatment for different purposes." (Firefighters v. City of Cleveland (1986) 478 U.S. 501, 519, 106 S.Ct. 3063, 3073, 92 L.Ed.2d 405, italics added.) As in Firefighters, the issue before us is "not whether we can label a consent decree as a 'contract' or a 'judgment,' for we can do both." (Ibid.) Rather we must decide the limited issue whether a stipulated judgment meets the technical requirements of a final judicial determination as intended by Moradi-Shalal.

Code of Civil Procedure section 664.6 (hereafter section 664.6) states, "If parties to pending litigation stipulate ... for settlement of the case, or part thereof, the court upon motion, may enter judgment pursuant to the terms of the settlement." (Italics added.) As this section reveals, a stipulated judgment is indeed a judgment; entry thereof is a judicial act that a court has discretion to perform. Although a court may not add to or make a new stipulation without mutual consent of the parties (Jones v. World Life Research Institute (1976) 60 Cal.App.3d 836, 840, 131 Cal.Rptr. 674), it may reject a stipulation that is contrary to public policy (Mary R. v. B. & R. Corp. (1983) 149 Cal.App.3d 308, 316-317, 196 Cal.Rptr. 871), or one that incorporates an erroneous rule of law (Valdez v. Taylor Auto Co. (1954) 129 Cal.App.2d 810, 819, 278 P.2d 91). "While it is entirely proper for the court to accept stipulations of counsel that appear to have been made advisedly, and after due consideration of the facts, the court cannot surrender its duty to see that the judgment to be entered is a just one, nor is the court to act as a mere puppet in the matter." (City of Los Angeles v. Harper (1935) 8 Cal.App.2d 552, 555, 48 P.2d 75.)

Most importantly, a stipulated judgment may properly be given collateral estoppel effect, at least when the parties manifest an intent...

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