Denham v. Farmers Ins. Co., No. H004032

CourtCalifornia Court of Appeals
Writing for the CourtELIA; AGLIANO, P.J., and COTTLE
Citation213 Cal.App.3d 1061,262 Cal.Rptr. 146
PartiesAldene DENHAM, et al., Plaintiffs and Appellants, v. FARMERS INSURANCE COMPANY, Defendant and Respondent.
Decision Date31 August 1989
Docket NumberNo. H004032

Page 146

262 Cal.Rptr. 146
213 Cal.App.3d 1061
Aldene DENHAM, et al., Plaintiffs and Appellants,
v.
FARMERS INSURANCE COMPANY, Defendant and Respondent.
No. H004032.
Court of Appeal, Sixth District, California.
Aug. 31, 1989.

[213 Cal.App.3d 1063] John McBride, Wylie, McBride, Jesinger & Sure, San Jose, for plaintiffs and appellants Aldene Denham, et al.

David N. Poll, Collins & Zapala, San Jose, for defendant and respondent, Farmers Ins. Co.

Page 147

ELIA, Associate Justice.

Appellants Aldene and Scott Denham filed suit against respondent Farmers Insurance Company (Farmers) alleging a third party bad faith claim under California Insurance Code section 790.03 and a first party bad faith claim pursuant to Nevada law. Farmers' demurrer to the complaint was sustained without leave to amend. We affirm the sustaining of the demurrer as to the third party bad faith claim but reverse with regard to the first party claim.

FACTS AND PROCEDURAL BACKGROUND

In July 1982, Aldene Denham was seriously injured when her car was struck by a car driven by Jerome Beetow. The accident occurred in Douglas [213 Cal.App.3d 1064] County, Nevada. The Denhams, residents of California, filed suit against Beetow, a resident of Nevada, in federal district court in Nevada.

Beetow was insured by Farmers under a policy issued in Nevada. Prior to entry of judgment, the Denhams demanded $50,000 from Farmers to settle their claim against Beetow. Farmers refused to settle.

In February 1985, judgment was entered for Aldene Denham for $151,761.00 with punitive damages of $15,671.00 and for Scott Denham for loss of consortium in the sum of $5,000.00. This amount was in excess of the liability limits of the Farmers policy.

In April 1987, appellants executed upon the judgment against Beetow. Appellants' complaint states that "the United States Marshall Service sold, transferred and conveyed" to appellants "all right, title and interest in and to all of the intangible claims for relief owned by Jerome Beetow" against Farmers.

Appellants then filed suit in California asserting both third party and first party bad faith claims against Farmers. Farmers' demurrer to appellants' complaint was sustained without leave to amend. The Denhams appeal.

A demurrer tests whether the facts of a complaint are sufficient to state a cause of action against the defendant. (B & P Development Corp. v. City of Saratoga (1986) 185 Cal.App.3d 949, 952, 230 Cal.Rptr. 192.) In reviewing the sustaining of a demurrer, all material facts pleaded are taken as true. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58; B & P Development Corp., supra, 185 Cal.App.3d at p. 953, 230 Cal.Rptr. 192.) The trial court's ruling will be reversed if, based on the complaint, any legal theory can be stated against the defendant or if the defect can be reasonably cured by an amendment. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

DISCUSSION

I. The Third Party Bad Faith Claim

The first issue is whether appellants' complaint states a third party bad faith cause of action against Farmers. To resolve this issue we must choose between California and Nevada law. For the reasons expressed below, we conclude that Nevada law controls.

[213 Cal.App.3d 1065] Choice of law questions in California are determined by the "governmental interest analysis." (Offshore Rental Co. v. Continental Oil Co. (1978) 22 Cal.3d 157, 161, 148 Cal.Rptr. 867, 583 P.2d 721; Zimmerman v. Allstate Ins. Co. (1986) 179 Cal.App.3d 840, 844, 224 Cal.Rptr. 917.) This requires that the forum court "search to find the proper law to apply based upon the interests of the litigants and the involved states." (Reich v. Purcell (1967) 67 Cal.2d 551, 553, 63 Cal.Rptr. 31, 432 P.2d 727.) The first step of the analysis is to examine the laws of the states involved. (Id. at p. 553, 63 Cal.Rptr. 31, 432 P.2d 727; Offshore Rental Co. v. Continental Oil Co., supra, 22 Cal.3d at p. 161, 148 Cal.Rptr. 867, 583 P.2d 721.)

California permits third party bad faith claims under certain limited circumstances. In Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, the California Supreme Court held that section 790.03 of the California Insurance Code created a private cause of action against insurers who commit the

Page 148

unfair practices described in that section. More recently, in Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58, the Supreme Court overruled Royal Globe and decided that section 790.03 did not create a private right of action. However, Moradi does not apply to actions filed before the date of that opinion if the insured's liability has been conclusively determined. (Id. at pp. 292, 306, 250 Cal.Rptr. 116, 758 P.2d 58.) Appellants' claim survives Moradi because it was filed in 1987 and Beetow's liability was conclusively determined in the federal district court trial. Accordingly, appellants' Royal Globe claim states a cause of action under California law.

Nevada, by contrast, does not recognize third party bad faith claims. Although no Nevada cases have considered this precise issue, several federal cases have addressed the question. In Tweet v. Webster (D.Nev.1985) 614 F.Supp. 1190, the court concluded: "[W]e do not find any facts or evidence presented by plaintiffs to persuade us that a Nevada court would grant a third party claimant a cause of action directly against an insurer for bad faith refusal to settle a reasonably clear claim, based on statute, implied contract, or common law tort, under Nevada law as it stands today." (Id. at p. 1195.) Tweet has been approved in Santacruz v. United Pacific Ins. Co. (D.Nev.1986) 650 F.Supp. 32, 34 and Hunt v. State Farm Mut. Auto. Ins. Co. (D.Nev.1987) 655 F.Supp. 284, 287.

As demonstrated above, California permits appellants' third party bad faith claim while Nevada does not. Even though the laws of the two states differ on this issue, a "true conflict" is not necessarily presented. A "true conflict" arises only if both states have an interest in [213 Cal.App.3d 1066] having their law applied. (Hurtado v. Superior Court (1974) 11 Cal.3d 574, 580, 114 Cal.Rptr. 106, 522 P.2d 666.) "Only if each of the states involved has a 'legitimate but conflicting interest in applying its own law' will we be confronted with a 'true' conflicts case." (Offshore Rental Co. v. Continental Oil Co., supra, 22 Cal.3d at p. 163, 148 Cal.Rptr. 867, 583 P.2d 721, citing Bernhard v. Harrah's Club (1976) 16 Cal.3d 313, 319, 128 Cal.Rptr. 215, 546 P.2d 719.)

California's interest in permitting Royal Globe claims was examined in Zimmerman v. Allstate Ins. Co., supra, 179 Cal.App.3d at p. 845, 224 Cal.Rptr. 917. That court concluded California had an interest in regulating the practices of insurers within California and an interest in affording redress to California residents damaged by unfair insurer practices. (Id. at p. 846, 224 Cal.Rptr. 917.) In this case, California's interest in regulating insurers within California is irrelevant because Farmers' refusal to settle occurred in Nevada. "California has no legitimate interest in the possible deterrent effect of its third party cause of action on conduct in [Nevada]." (Id. at p. 846, 224 Cal.Rptr. 917.) However, appellants are residents of California. California therefore has an interest in protecting them from the unfair practices of insurers.

Nevada's interest in applying its law is twofold. First, Nevada has an interest in regulating insurers within Nevada and in protecting Nevada insureds. This is because Nevada has acknowledged the insurer's duty to act in good faith and deal fairly with its insured. (United States Fidelity & Guaranty Co. v. Peterson (1975) 91 Nev. 617, 540 P.2d 1070.) However, Nevada has not extended protection against bad faith practices to third party claimants. (Tweet v. Webster, supra, 614 F.Supp. 1190.) Thus, Nevada also has an interest in protecting its defendant insurers as well as its insureds since Nevada insureds would ultimately bear the cost of extending the insurer's liability to third persons. (See e.g. Zimmerman v. Allstate Ins. Co., supra, 179 Cal.App.3d at p. 846, 224 Cal.Rptr. 917.)

We conclude that both California and Nevada have an interest in applying their laws. As a result, a "true conflict" is presented. Once a true conflict is identified, the "comparative impairment" approach is used to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state. (Bernhard v. Harrah's Club,

Page 149

supra, 16 Cal.3d at p. 320, 128 Cal.Rptr. 215, 546 P.2d 719.)

One factor considered under the comparative impairment approach is whether the policy underlying each state's law "is one that was much more strongly held in the past than it is now, ..." (Von Mehren & Trautman, The Law of Multistate Problems (1965) p. 377; see also Offshore [213 Cal.App.3d 1067] Rental Co. v. Continental Oil Co., supra, 22 Cal.3d at p. 165, 148 Cal.Rptr. 867, 583 P.2d 721.) In this case, Royal Globe Ins. Co. v. Superior Court, supra, 23 Cal.3d at pp. 888-889, 153 Cal.Rptr. 842, 592 P.2d 329 was overruled in Moradi-Shalal v. Fireman's Fund Ins. Companies, supra, 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58. Thus, California's interest in applying its law is clearly not as strong as it would be had Royal Globe not been overruled.

Another factor is that the injury occurred in Nevada. "[A]lthough the law of the place of the wrong is not necessarily the applicable law for all tort actions [citation omitted], the situs of the injury remains a relevant consideration." (Offshore Rental Co. v....

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18 practice notes
  • Continental Cas. Co. v. Fibreboard Corp., No. C 90 1452 TEH.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California
    • 13 Febrero 1991
    ...to its citizens while also protecting businesses operating in its state from excessive damages. See also, Denham v. Farmers Ins. Co., 213 Cal. App.3d 1061, 1066, 262 Cal.Rptr. 146, 148 (1989) ("California has no legitimate interest in the possible deterrent effect of its third party cause o......
  • Stanley v. Novartis Pharm. Corp., Case No. CV 11–03191–JGB (OPx).
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • 2 Abril 2014
    ...state's interest would be more impaired if its policy were subordinated to the policy of the other state.” Denham v. Farmers Ins. Co., 213 Cal.App.3d 1061, 1066, 262 Cal.Rptr. 146 (1989). In undertaking the comparative impairment analysis, the court “must determine ‘the relative commitment ......
  • Stanley v. Novartis Pharm. Corp., Case No. CV 11–03191–JGB OPx.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • 2 Abril 2014
    ...state's interest would be more impaired if its policy were subordinated to the policy of the other state.” Denham v. Farmers Ins. Co., 213 Cal.App.3d 1061, 1066, 262 Cal.Rptr. 146 (1989). In undertaking the comparative impairment analysis, the court “must determine ‘the relative commitment ......
  • Kearney v. Salomon Smith Barney, Inc., No. A101477
    • United States
    • California Court of Appeals
    • 1 Abril 2004
    ...(Tucci v. Club Mediterranee (2001) 89 Cal.App.4th 180, 189, 107 Cal.Rptr.2d 401; see also Denham v. Farmers Ins. Co. (1989) 213 Cal.App.3d 1061, 1065-1067, 262 Cal.Rptr. 146, and Smith, supra, 38 Hastings L.J. at pp. 1047-1048.) The application of the "governmental interest test" is clearly......
  • Request a trial to view additional results
18 cases
  • Continental Cas. Co. v. Fibreboard Corp., No. C 90 1452 TEH.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California
    • 13 Febrero 1991
    ...to its citizens while also protecting businesses operating in its state from excessive damages. See also, Denham v. Farmers Ins. Co., 213 Cal. App.3d 1061, 1066, 262 Cal.Rptr. 146, 148 (1989) ("California has no legitimate interest in the possible deterrent effect of its third party cause o......
  • Stanley v. Novartis Pharm. Corp., Case No. CV 11–03191–JGB (OPx).
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • 2 Abril 2014
    ...state's interest would be more impaired if its policy were subordinated to the policy of the other state.” Denham v. Farmers Ins. Co., 213 Cal.App.3d 1061, 1066, 262 Cal.Rptr. 146 (1989). In undertaking the comparative impairment analysis, the court “must determine ‘the relative commitment ......
  • Stanley v. Novartis Pharm. Corp., Case No. CV 11–03191–JGB OPx.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Central District of California
    • 2 Abril 2014
    ...state's interest would be more impaired if its policy were subordinated to the policy of the other state.” Denham v. Farmers Ins. Co., 213 Cal.App.3d 1061, 1066, 262 Cal.Rptr. 146 (1989). In undertaking the comparative impairment analysis, the court “must determine ‘the relative commitment ......
  • Kearney v. Salomon Smith Barney, Inc., No. A101477
    • United States
    • California Court of Appeals
    • 1 Abril 2004
    ...(Tucci v. Club Mediterranee (2001) 89 Cal.App.4th 180, 189, 107 Cal.Rptr.2d 401; see also Denham v. Farmers Ins. Co. (1989) 213 Cal.App.3d 1061, 1065-1067, 262 Cal.Rptr. 146, and Smith, supra, 38 Hastings L.J. at pp. 1047-1048.) The application of the "governmental interest test" is clearly......
  • Request a trial to view additional results

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