Colonial Life & Accident Ins. Co. v. Superior Court

Decision Date01 July 1982
Citation31 Cal.3d 785,183 Cal.Rptr. 810,647 P.2d 86
CourtCalifornia Supreme Court
Parties, 647 P.2d 86 COLONIAL LIFE & ACCIDENT INSURANCE COMPANY, Petitioner, v. The SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; Louise PERRY, as Administratrix, etc., Real Party in Interest. L.A. 31551.

Adams, Duque & Hazeltine, James L. Nolan and Kimberly W. Shaller, Cosgrove, Cramer, Rindge & Barnum and L. P. McElhaney, Los Angeles, for petitioner.

No appearance for respondent.

Darryl Leemon, Los Angeles, for real party in interest.

KAUS, Justice.


Colonial Life & Accident Insurance Company (Colonial) petitions for a writ of mandate to bar real party in interest (plaintiff) Louise Perry from discovering the names, addresses, and records of certain Colonial claimants or, in the alternative, to place certain restrictions on plaintiff's use of the material discovered. We must reject Colonial's arguments and therefore deny the petition.

This proceeding arose from an action brought against Colonial and its claims adjusters, Equifax Inc. and J. T. Sharkey, for violation of Insurance Code section 790.03, subdivision (h), breach of contract, and breach of the duty of fair dealing and good faith. 1 Plaintiff, administratrix of the estate of Luella Burton, seeks general and punitive damages based on defendants' conduct in attempting to settle a claim made by Burton under an accident policy issued by Colonial.

The events giving rise to Burton's claim may be summarized briefly. Burton, a teacher, was attending a PTA meeting when a student allegedly stepped on her big toe. Within two weeks, she was hospitalized for progressive infectious gangrene; her foot, and eventually her entire leg, were amputated. Burton contacted Colonial on her release from the hospital.

Contending that the amputation was not covered by Burton's policy, Colonial, through Equifax and Equifax's employee, Sharkey, allegedly offered Burton $1,500 as full settlement of her claim, contingent upon her surrender of the policy. Burton refused the offer, demanding the maximum applicable benefit under the policy: $10,000. Burton died on October 22, 1980, without receiving any benefits.

A complaint was filed by plaintiff on March 13, 1981. Four months later, she served Equifax with a request to inspect and copy all documents pertaining to cases handled by Sharkey while employed by Equifax. 2 Equifax refused to supply this information, basing its objection on Insurance Information and Privacy Protection Act (Ins.Code, § 791.01 et seq.), "overbreadth" and relevancy considerations. 3 On a motion to compel discovery, the trial court ordered Equifax to produce the names and addresses of all persons whose claims for benefits under Colonial's policies were assigned Sharkey for settlement--about 35 in all--and approved a letter to be sent by plaintiff's counsel to these individuals requesting that they consent to the release of their records by Equifax. 4 The court expressly prohibited the parties and counsel from initiating any contact with nonparty insurance claimants pending their response to the letter. 5 No restraint was placed on any party regarding claimants who responded to the letter.

On November 9, 1981, the trial court issued an additional protective order preventing plaintiff's counsel from disclosing to any other person the names, addresses or records of nonparty claimants or from "making use thereof except for preparation for trial and trial in this action." The order was requested and prepared by counsel for Equifax.

Shortly after the November 9, 1981, protective order was issued, Colonial filed a motion to "clarify" the order. The suggested "clarifications" would have barred plaintiff's counsel from "communicating, directly or indirectly with ... other claimants, except for a letter seeking consent from such other claimants to disclosure of Equifax records in a form previously approved by the Court." Colonial also submitted an alternative clarifying order barring plaintiff's attorney from "seeking employment from ... other claimants ... in any action against" or "encouraging ... other claimants to file any lawsuit" against Colonial, Equifax or Sharkey. At a hearing on November 20, 1981, Colonial argued that these additional restrictions were necessary to prevent plaintiff's attorney from soliciting new clients from those who respond to the letter. The trial judge rejected both "clarifying" orders, expressing doubts about his power to impose such restrictions consistent with the First Amendment and suggesting that the proposed orders would prohibit conduct which would be otherwise permissible under the Rules of Professional Conduct of the State Bar.

Colonial now seeks a writ of mandate explicitly preventing plaintiff's counsel from seeking to represent other claimants against Colonial, Equifax or Sharkey. Colonial also argues for a writ barring all discovery of the names and records of such claimants on the ground, inter alia, that evidence of a "pattern of unfair practices" is irrelevant as a matter of law in private actions against insurers under Insurance Code section 790.03, subdivision (h). To preserve the issue, we issued an alternative writ requiring plaintiff's attorney to return the disputed list of names and addresses, and barring him from any further contact with those named in the list. We now reject Colonial's contentions and, accordingly, dissolve the alternative writ.


Colonial's suggestion that the discovery of other insureds whose claims were negotiated by Sharkey will not yield relevant, admissible evidence, is patently meritless. Under Code of Civil Procedure section 2031, subdivision (a), any party may request another party to produce documents "which are relevant to the subject matter of the action, or are reasonably calculated to discover admissible evidence ...." Production of such documents may be compelled upon a showing of good cause (Code Civ.Proc., § 2034, subd. (a)). 6 As we explained in Pacific Tel. & Tel. Co. v. Superior Court (1970) 2 Cal.3d 161, 173, 84 Cal.Rptr. 718, 465 P.2d 854, "the relevance of the subject matter standard must be reasonably applied; [fn. omitted] in accordance with the liberal policies underlying the discovery procedures, doubts as to relevance should generally be resolved in favor of permitting discovery [fn. omitted; citation omitted] .... An appellate court cannot reverse a trial court's grant of discovery under a 'relevancy' attack unless it concludes that the answers sought by a given line of questioning cannot as a reasonable possibility lead to the discovery of admissible evidence or be helpful in preparation for trial." 7

Insurance Code section 790.03, subdivision (h) prohibits insurers from "knowingly committing or performing with such frequency as to indicate a general business practice" a variety of "unfair claims settlement practices." (Italics added.) Despite the language of the statute, Colonial suggests that in an action by a private litigant under section 790.03, subdivision (h), evidence of a general business practice is irrelevant as a matter of law. This contention is based in part on a passage in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 891, 153 Cal.Rptr. 842, 592 P.2d 329, in which we stated that "to an aggrieved private litigant who can demonstrate that the insurer acted deliberately, the frequency of the insurer's misconduct and its application to others is irrelevant." 8 That statement, however, was made in the context of rejecting an insurance company's claim that a third party claimant may not base an action against an insurer under section 790.03, subdivision (h) on a single instance of unfair conduct, but rather must show a continuing course of conduct. Holding that a single knowing violation was sufficient, we noted: "There would be no rational reason why an insured or a third party claimant injured by an insurer's unfair conduct, knowingly performed, should be required to demonstrate that the insurer had frequently been guilty of the same type of misconduct involving other victims in the past." (Id., at p. 891, 153 Cal.Rptr. 842, 592 P.2d 329; italics added.)

The language of the statute and Royal Globe clearly indicate that a plaintiff may establish a claim by showing either that the acts that harmed him were knowingly committed or were engaged in with such frequency as to indicate a general business practice. While proof of a knowing violation will make plaintiff's job that much easier, in cases where a knowing violation is difficult to establish, knowledge can be proved circumstantially. (See also Evid.Code, § 1101, subd. (b).) Discovery aimed at determining the frequency of alleged unfair settlement practices is therefore likely to produce evidence directly relevant to the action.

Other instances of alleged unfair settlement practices may also be highly relevant to plaintiff's claim for punitive damages. (See, e.g., Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 169 Cal.Rptr. 691, 620 P.2d 141, cert. den. (1980) 445 U.S. 912, 100 S.Ct. 1271, 63 L.Ed.2d 597.) Punitive damages must be based on a showing of "oppression, fraud, or malice." (Civ.Code, § 3294.) To be liable for punitive damages, defendant must act "with the intent to vex, injure, or annoy, or with a conscious disregard of the plaintiff's rights. [Citations.]" (Taylor v. Superior Court (1979) 24 Cal.3d 890, 895, 157 Cal.Rptr. 693, 598 P.2d 854; Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 922, 148 Cal.Rptr. 389, 582 P.2d 980; Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 462, 113 Cal.Rptr. 711, 521 P.2d 1103.) These elements may be proven directly or by implication. (Neal, supra, 21 Cal.3d at p. 923, fn. 6, 148 Cal.Rptr. 389, 582 P.2d 980; Bertero v. National General Corp. (1974) 13 Cal.3d 43, 65-66, 118 Cal.Rptr. 184, 529 P.2d 608.)

Indirect evidence of the elements of punitive damages may be suggested by a pattern of unfair...

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