Coleman v. Republic Indem. Ins. Co. of Cal.

• Decision Date: 31 August 2005
• Docket Number: No. B172638.,B172638.
• Citation: 132 Cal.App.4th 403,33 Cal.Rptr.3d 744
• Court: California Court of Appeals Court of Appeals
• Parties: Philip COLEMAN et al., Plaintiffs and Appellants, v. REPUBLIC INDEMNITY INSURANCE COMPANY OF CALIFORNIA et al., Defendants and Respondents.

33 Cal.Rptr.3d 744

132 Cal.App.4th 403

Philip COLEMAN et al., Plaintiffs and Appellants, v. REPUBLIC INDEMNITY INSURANCE COMPANY OF CALIFORNIA et al., Defendants and Respondents.

No. B172638.

Court of Appeal, Second District, Division 1.

August 31, 2005.

Mathon & Rosensweig, William Rosensweig and Michelle Cooper, Beverly Hills, for Plaintiffs and Appellants.

Gilbert, Kelly, Crowley & Jennett, Barbara J. Mandell and Teresa M. Wilson, Los Angeles, for Defendants and Respondents.

MALLANO, Acting P.J.

In Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58 (Moradi-Shalal), the Supreme Court held that a third party claimant — an individual who is injured by the alleged negligence of an insured party — does not have a private right of action against the insurer for unfair settlement practices. This case presents the question, one of first impression in California, of whether that rule applies where the third party claimant is insured by the same insurer as the other party.

We hold that Moradi-Shalal bars such an action because the coincidental fact that plaintiffs are insured by the same insurer as the other party does not change plaintiffs' position as strangers to the other party's insurance policy and as adversaries to the insurer. Thus, the insurer owes no duty of good faith and fair dealing to plaintiffs in settling their claims against the other party.

We also conclude that where there is no duty of good faith and fair dealing, there is no duty that would give rise to a claim of negligent infliction of emotional distress. Finally, we determine that the insurer's conduct here does not reach the level of outrageousness necessary to support a cause of action for intentional infliction of emotional distress.

I BACKGROUND¹

On September 14, 2001, plaintiffs Philip and Robin Coleman were involved in a traffic accident with Jesus Gonzalez. At the time, the Colemans were insured by Republic Insurance Company of California (Republic) and Gonzalez was insured by Infinity Insurance Company (Infinity). Infinity is the parent company of Republic and controls over 10 percent of the voting securities in Republic. The two companies share management and a common claims processing office.

In March 2002, Infinity paid the Colemans' property damage claim against Gonzalez. On July 18, 2002, Infinity sent a letter to the Colemans informing them that the statute of limitations for their personal injury claim would run on September 14, 2002.

On August 20, 2002, Infinity's adjuster told the Colemans that as long as they submitted their medical records and authorization forms prior to September 14, their claim would be processed and settled regardless of the statute of limitations. They promptly submitted all requested materials to the adjuster. In a phone call on August 26, the adjuster told the Colemans that with all necessary documentation now in hand, Infinity would complete the processing and settlement of their personal injury claim against Gonzalez. He also told them that because "the matter was straightforward," they did not need an attorney to represent them.

The Colemans called the adjuster again in early October 2002 to check on the status of the settlement. He apologized for the delay and told them that the proposed settlement had been sent to Infinity's underwriters for approval. He suggested that the Colemans call him back in about a week. They called back as instructed but had difficulty getting in touch with the adjuster, who did not return their calls. They reached him on October 16, 2002. In that conversation, the adjuster referred the Colemans to his supervisor, who informed them that the statute of limitations had run and that Infinity would not pay their claim. This statement directly contradicted the assurances given by the adjuster on August 20 that their claim would be processed and settled regardless of the statute of limitations. The manner in which their claim was handled caused the Colemans severe emotional distress mental suffering, sleeplessness, and humiliation.

On March 26, 2003, the Colemans filed this action in Los Angeles Superior Court against Gonzalez and his insurer, Infinity, and the Colemans' own insurer, Republic. The complaint alleged a cause of action for negligence against Gonzalez, and causes of action for fraud, intentional infliction of emotional distress, negligent infliction of emotional distress, and breach of the implied covenant of good faith and fair dealing against both Infinity and Republic.

Infinity and Republic demurred. The trial court overruled the demurrers to the negligence cause of action because only Gonzalez was named in that count, but sustained Infinity and Republic's demurrers to the remaining causes of action, with leave to amend, determining that the Colemans had not pleaded facts sufficient to show fraud, extreme and outrageous conduct, severe emotional distress, or unreasonable denial of the claim.

The Colemans filed their first amended complaint, essentially alleging the same facts and including the same causes of action, except the fraud claim, which they did not pursue. The parties stipulated to severing the negligence cause of action against Gonzalez.

Infinity and Republic again demurred. The trial court sustained the demurrer to the first amended complaint, without leave to amend, concluding under Moradi-Shalal that the Colemans could not bring an action for breach of the implied covenant of good faith and fair dealing, negligent infliction of emotional distress, or intentional infliction of emotional distress against the insurers because the Colemans were insured by Republic, not Infinity, they were third party claimants to benefits under Gonzalez's insurance policy and, under Moradi-Shalal, could not bring an action against Gonzalez's insurer for unfair settlement practices. The Colemans appealed.

II DISCUSSION

The standard of review for an order sustaining a demurrer without leave to amend is de novo. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) We exercise our independent judgment as to whether, as a matter of law, the Colemans' first amended complaint states a cause of action. (See ibid.)

The Colemans contend that Infinity and Republic, based on their affiliation, are corporate "alter egos" that should be treated as the same insurer. They rely on Insurance Code section 1215, subdivision (b) for the proposition that because Infinity allegedly owns over 10 percent of the voting securities in Republic, Infinity is presumed to control Republic and therefore the two companies are essentially the same entity.² We assume for the sake of discussion that the Colemans' alter ego analysis is correct and hereafter refer to Infinity and Republic collectively as "the Insurer."

A. Implied Covenant of Good Faith and Fair Dealing

As stated, the issue of whether an insurer owes a duty of good faith and fair dealing to a third party claimant whom it also insures, under an unrelated policy, is one of first impression in California. The Colemans contend that the Insurer owed them such a duty. We disagree.

1. Moradi-Shalal

In Moradi-Shalal, supra, 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58, the California Supreme Court overruled its holding in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329 (Royal Globe) that allowed third party claimants a private right of action against insurers for unfair settlement practices under the Unfair Practices Act (Ins.Code, § 790 et seq.). A third party claimant is "`an individual who is injured by the alleged negligence of an insured' [citation]." (Moradi-Shalal, supra, 46 Cal.3d at p. 294, 250 Cal.Rptr. 116, 758 P.2d 58.) The Moradi-Shalal court concluded that such suits by third party claimants against insurers were undesirable because of the "adverse social and economic consequences" discussed below. (Id. at p. 301, 250 Cal.Rptr. 116, 758 P.2d 58.)

Such an action against insurers "promotes multiple litigation, because [Royal Globe's] holding contemplates, indeed encourages, two lawsuits by the injured claimant: an initial suit against the insured, followed by a second suit against the insurer for bad faith refusal to settle. [Citation.] As a corollary, Royal Globe may tend to encourage unwarranted settlement demands by claimants, and to coerce inflated settlements by insurers seeking to avoid the cost of a second lawsuit and exposure to a bad faith action. [Citations.] [¶] . . . `. . . The public ultimately will be affected by the additional drain on judicial resources. Moreover, the public will indeed suffer from escalating costs of insurance coverage, a certain result of inflated settlement demands and costly litigation.' [Citation.] [¶] Other commentators agree that Royal Globe, and its allowance of a direct action against the insurer, may result in escalating insurance costs to the general public resulting from insurers' increased expenditures to fund coerced settlements, excessive jury awards and increased attorney fees. [Citations.] . . . [¶] [A]nother unfortunate consequence of our holding in Royal Globe that insurers owe a direct duty to third party claimants: It tends to create a serious conflict of interest for the insurer, who must not only protect the interests of its insured, but also must safeguard its own interests from the adverse claims of the third party claimant. This conflict disrupts the settlement process and may disadvantage the insured. [Citations.]" (Moradi-Shalal, supra, 46 Cal.3d at pp. 301-302, 250 Cal.Rptr. 116, 758 P.2d 58.)

The Colemans are "`individual[s] who [were] injured by the alleged negligence of an insured,'" Gonzalez, and therefore are third party claimants. (Moradi-Shalal, supra, 46 Cal.3d at p. 294, 250 Cal.Rptr. 116, 758 P.2d 58.) Nevertheless, they argue that because they are also insured by the Insurer, their case is an exception to the rule in...