Corral v. State Farm Mutual Auto. Ins. Co.

• Decision Date: 14 May 1979
• Citation: 92 Cal.App.3d 1004,155 Cal.Rptr. 342
• Court: California Court of Appeals Court of Appeals
• Parties: Luis CORRAL et al., Plaintiffs and Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Respondent. Civ. 3615.

Page 342

155 Cal.Rptr. 342

92 Cal.App.3d 1004

Luis CORRAL et al., Plaintiffs and Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Respondent.

Civ. 3615.

Court of Appeal, Fifth District, California.

May 14, 1979.

Hearing Denied July 27, 1979.

Chain, Younger, Jameson, Lemucchi, Busacca, Williams & Noriega, Timothy J. Lemucchi and David V. Stiles, Bakersfield, for plaintiffs and appellants.

King, Eyherabide, Anspach, Friedman & Robinson, William D. Palmer and Stephen Eyherabide, Bakersfield, for defendant and respondent.

OPINION

GEO. A. BROWN, Presiding Justice.

In this action against State Farm Mutual Automobile Insurance Company (State Farm), based upon an alleged breach of its duty of good faith and fair dealing, the trial court granted State Farm's motion for summary judgment. The insureds, Luis Corral (Luis) and his daughter, Mary Alice Corral (Mary), have appealed.

State Farm's policy of liability insurance issued to Luis contained uninsured motorist coverage and medical payments coverage. The coverage extended to Mary who, at the time of the accident in question, was driving Luis' vehicle with the permission of Luis. The driver of the other car was Wesley Warner. ¹

Being unable to arrive at a settlement for the injuries and medical expenses incurred, Mary, pursuant to the terms of the policy, instituted an arbitration proceeding under the uninsured motorist provision of State Farm's policy. Approximately five years later the claim went to hearing before the arbitrator. Mary proved the facts of the accident and that she suffered personal injuries and incurred medical expenses. The central issue in the proceeding was whether Warner was uninsured. At the hearing Mary sought a stipulation that Warner was uninsured. State Farm refused to stipulate. At the end of the hearing the arbitrator by agreement of the parties continued the case to afford an opportunity to Mary to obtain a stipulation or produce additional evidence on the issue of whether Warner was insured. The stipulation was not forthcoming because State Farm would not agree that Warner was uninsured. Twelve days after the hearing Mary's counsel wrote to the arbitrator stating he would submit the matter for decision based on the evidence produced at the hearing. The arbitrator's decision was in favor of State Farm. ²

Approximately six weeks later, having procured a declaration from Warner that he was uninsured, Mary petitioned the arbitrator to reopen the hearing. The petition was denied on the ground the arbitrator did not have jurisdiction to reopen the proceeding. A subsequent petition to the superior court to vacate the award pursuant to CODE OF CIVIL PROCEDURE SECTION 1286.2^{3 4} was denied on the ground that it was filed in the superior court in excess of the time permitted by law. (See § 1288, fn. 7, Post.) That decision was affirmed by this court in a nonpublished opinion (Mary Alice Corral v. State Farm Mutual Automobile insurance Company, 5 Civil No. 2822, filed March 15, 1977).

In the case at bench Luis and Mary allege that at all times prior to the arbitration hearing State Farm knew and represented that Warner was uninsured; that at the hearing State Farm fraudulently and falsely contended that Warner was not an uninsured motorist, as a result of which fraud the arbitrator decided the matter against Mary; that in so conducting itself State Farm breached its duty "of dealing fairly and in good faith with their policyholders(;)" and that " . . . said conduct on behalf of State Farm constitutes oppressive and fraudulent conduct on the part of State Farm toward plaintiffs and each of them." The complaint also alleges a bad faith failure to pay medical expenses. ⁵

Construing the declarations submitted in support and opposition to the summary judgment motion most favorably to the appellants (Stationers Corp. v. Dun & Bradstreet, Inc. (1965) 62 Cal.2d 412, 417, 42 Cal.Rptr. 449, 398 P.2d 785), appellants show that after the accident in question their attorneys made some preliminary investigation as to the insured status of Warner. Shortly thereafter and some four years before the arbitration hearing Rusty Hargis, Claims Manager for State Farm, after an office conference, contacted Milton Younger, who is one of the attorneys for Mary. In an affidavit Younger described what transpired:

"On October 7, 1970 Rusty Hargis called my office and told me that Hartford had checked out Wesley Warner and found that he was not covered by any policy that they had issued. Hargis also indicated that they had conducted their own investigation and determined that Warner was not insured and that they would treat Mary Corral's claim as an uninsured motorist case.

"After receiving these assurances from Rusty Hargis our office took no further actions to attempt to locate Warner or to determine whether or not he was, in fact, uninsured."

It was also shown that shortly after the accident Warner moved out of the State of California to Colorado and/or Wyoming. Notwithstanding the above referred to assurances, State Farm's attorney at the hearing refused to enter into a stipulation that Warner was in fact insured at the time of the accident because the attorney lacked the authority to do so. State Farm's attorney promised to contact State Farm in order to find out whether he could enter into such a stipulation at a later date. In the event that State Farm would not authorize such a stipulation, State Farm's attorney agreed that the hearing could be continued to permit Mary to present whatever additional information she felt was necessary to establish the uninsured status of Warner. Subsequently, State Farm's attorney informed Mary's counsel that no stipulation would be entered into. Mary's attorney thereafter informed the arbitrator in writing that Mary was satisfied with the evidence she had presented on the issue of the uninsured status of Warner, that she did not wish to present further evidence and that she submitted the matter for decision.

Relying on Rios v. Allstate Ins. Co. (1977) 68 Cal.App.3d 811, 137 Cal.Rptr. 441, State Farm argued in the trial court and reiterates here its position that to permit the bad faith action would subvert the policy underlying the doctrine of finality of judgments. We believe the current suit is not barred by either the principles of res judicata or finality of judgments and to hold otherwise would constitute an unsound and unjustified extension of those doctrines.

A final judgment on the merits which is not void on its face or subject to collateral attack is protected by the doctrine of res judicata after the time for ordinary direct attack has passed. The doctrine of finality of judgments rests upon principles of res judicata (see Jorgensen v. Jorgensen (1948) 32 Cal.2d 13, 18, 193 P.2d 728), and both principles are grounded on the policy that disputes should be put to final rest by a valid final judgment rendered by a court having jurisdiction. (Bernhard v. Bank of America (1942) 19 Cal.2d 807, 810-811, 122 P.2d 892; Lewis v. Superior Court (1978) 77 Cal.App.3d 844, 851, 144 Cal.Rptr. 1.)

It follows that to determine whether plaintiffs' bad faith action is barred by the doctrine of finality of judgments we must look to whether the action is precluded by the principles of res judicata. In the landmark case of Bernhard v. Bank of America, supra, 19 Cal.2d 807, 813, 122 P.2d 892, 895, the Supreme Court laid down the governing principle. There the court said:

"In determining the validity of a plea of res judicata three questions are pertinent: Was the issue decided in the prior adjudication identical with the one presented in the action in question? Was there a final judgment on the merits? Was the party against whom the plea is asserted a party or in privity with a party to the prior adjudication? (citations) . . . ."

(See also Todhunter v. Smith (1934) 219 Cal. 690, 694-695, 28 P.2d 916.)

"The doctrine has 'a double aspect':

"First, in a new action on the Same cause of action, a prior judgment for the defendant is a complete Bar . . . .

"Second, in a new action on a Different cause of action, the former judgment is not a complete merger or bar, but is effective as a Collateral estoppel, i. e., it is conclusive on issues actually litigated between the parties in the former action." (4 Witkin, Cal. Procedure (2d ed. 1971) Judgment, § 148, p. 3293.)

Under the first aspect of the doctrine, a final judgment in favor of a defendant would constitute a bar to any further suit by the plaintiff on the same cause of action. (Olwell v. Hopkins (1946) 28 Cal.2d 147, 152, 168 P.2d 972; 4 Witkin, Cal. Procedure (2d ed. 1971) Judgment, § 192, p. 3332.) A cause of action is based upon the nature of a plaintiff's injury.

" ' . . . The cause of action, as it appears in the complaint when properly pleaded, will therefore always be the Facts from which the plaintiff's primary right and the defendant's corresponding primary duty have arisen, together with the Facts which constitute the defendant's delict or act of wrong.' " (3 Witkin, Cal. Procedure (2d ed. 1971) Pleading, § 22, p. 1707.)

Witkin explains the second aspect of the res judicata doctrine:

"Clearly a former judgment is not a collateral estoppel on Issues which might have been raised but were not ; just as clearly it is a collateral estoppel on issues which were raised, Even though some factual matters or legal arguments which could have been presented were not." (4 Witkin, Cal. Procedure (2d ed. 1971) Judgment, § 201, p. 3339.)

(See also Gorman v. Gorman (1979) 90 Cal.App.3d 454, 464, 153 Cal.Rptr. 479.)

Applying these principles to the facts of this case, we need not discuss the issue of privity ⁶ and whether the arbitration award is to be given the same effect as a final judgment on the merits. ⁷ (Lehto v. Underground Constr. Co. (1977) 69 Cal.App.3d 933, 939, 138 Cal.Rptr. 419 (holding that the doctrines of res judicata and finality...