Doctors' Co. v. Superior Court

• Decision Date: 17 July 1989
• Docket Number: S003588,Nos. S003148,s. S003148
• Court: California Supreme Court
• Parties: , 775 P.2d 508, 58 USLW 2078 The DOCTORS' COMPANY et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent; Jose Antonio VALENCIA, Real Party in Interest.

Page 183

260 Cal.Rptr. 183

49 Cal.3d 39, 775 P.2d 508, 58 USLW 2078

The DOCTORS' COMPANY et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent;

Jose Antonio VALENCIA, Real Party in Interest.

Nos. S003148, S003588.

Supreme Court of California,

In Bank.

July 17, 1989.

H. Gilbert Jones, Bonne, Jones, Bridges, Mueller & O'Keefe, Los Angeles, and Alan G. Martin, Greines, Martin, Stein & Richland, Beverly Hills, for The Doctors' Co.

Elliot L. Bien, Bronson, Bronson & McKinnon, San Francisco, for Rigg, Dean & Mower.

Bruce G. Fagel, Beverly Hills, for Valencia.

KAUFMAN, Justice.

The question presented is whether an insurer, its attorney retained to assist in the defense of an insured against a third party claim, and an expert witness, also retained by the insurer for that purpose, can be held liable for damages to the claimant for a conspiracy to violate Insurance Code section 790.03, subdivision (h)(5) ( § 790.03(h)(5)), which makes it an unfair practice under certain circumstances for an insurer to refrain from attempting to effectuate a prompt and fair settlement of a claim after liability has become reasonably clear. ¹ A petition for a writ of mandate, directing the respondent superior court to sustain a demurrer to a complaint's allegations of such a conspiracy, was summarily denied by the Court of Appeal with a citation to Wolfrich Corp. v. United Services Automobile Assn. (1983) 149 Cal.App.3d 1206, 197 Cal.Rptr. 446. We granted review and shall conclude that the conspiracy claim is barred by this court's decision in Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576, 108 Cal.Rptr. 480, 510 P.2d 1032, and that Wolfrich must be disapproved insofar as it holds otherwise.

The complaint, filed by real party in interest Jose Antonio Valencia (hereafter plaintiff), alleges two causes of action. Though the first cause of action is not challenged here, it is essentially incorporated into, and lays the foundation for, the disputed conspiracy claim of the second cause of action.

The first cause of action is directed against The Doctors' Company and The Doctors' Management Company (collectively insurer). It alleges substantially as follows: The insurer issued a policy covering the liability of M.F. Osman, M.D., for acts of medical malpractice in connection with plaintiff's birth, complained of in a prior action brought by plaintiff against Dr. Osman and others. Plaintiff offered to settle with Osman for the policy limits of $500,000. The insurer intentionally withheld from its "designated expert," Keith Russell, M.D., the deposition of Dr. Osman which revealed the latter's negligence. Without the deposition and without any records prepared by Osman, Russell rendered an opinion that Osman was not negligent, thus giving the insurer a plausible excuse for refusing plaintiff's settlement offer. After that refusal, the action against Osman was tried before a jury, which returned a verdict of $2 million on which judgment was entered and has become final. The insurer's conduct is alleged to have violated its statutory duty to attempt settlement, imposed by section 790.03(h)(5) (fn. 1, ante).

The second cause of action is directed not only against the insurer, but also against Dr. Russell (the insurer's expert) and against a law firm, Rigg, Dean & Mower, and certain of the firm's partners (firm and partners being hereafter referred to as the attorneys). After incorporating all the allegations of the first cause of action by reference, the second cause of action alleges substantially as follows: The insurer hired the attorneys to represent Dr. Osman, who was also represented by separate personal counsel. Despite the demands by Osman and his personal counsel that the insurer settle the case for the policy limit of $500,000 the insurer and its attorneys refused to do so. Defendants, i.e., the insurer, the attorneys, and Dr. Russell, "entered into an agreement, scheme and plan to deprive [plaintiff] of the benefits" of section 790.03(h)(5), "which would have been provided by a prompt, fair and equitable settlement." The insurer "conspired with" the attorneys "to locate a local doctor who would agree to only partially review the facts and records and subsequent depositions surrounding the birth of [plaintiff] who [sic] would then give a false medical opinion which provided [insurer] and [attorneys] a plausible sounding excuse to deny [plaintiff's] request for a prompt, fair and equitable settlement of his claims." Dr. Russell "conspired with" the insurer and the attorneys and agreed with them not to review Dr. Osman's deposition before giving his own opinion under oath at his own deposition.

The insurer, the attorneys, and Dr. Russell all filed general demurrers to the complaint. The demurrers were overruled. ² The demurring defendants then petitioned the Court of Appeal for a writ of mandate to compel the trial court to sustain their demurrers. The Court of Appeal summarily denied issuance of the writ, and both the insurer and the attorneys sought review by this court. We granted review, consolidated the petition of the attorneys (S003588) with that of the insurer (S003148), and issued alternative writs requiring a showing of cause why the trial court should not be ordered to sustain petitioners' demurrers to the second cause of action without leave to amend. ³ We also stayed trial of the underlying action pending completion of this writ proceeding.

Plaintiff's complaint is based on this court's holding in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, that a plaintiff who has obtained judgment on a tort claim against an insured defendant may sue the insurer for violating section 790.03(h)(5), which specifies failure to attempt settlements of claims as an unfair practice in the business of insurance as set forth in footnote 1, ante. In Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 305, 250 Cal.Rptr. 116, 758 P.2d 58, that holding was overruled prospectively, thus permitting actions filed before the finality of Moradi-Shalal, such as the one before us, to continue in reliance on Royal Globe.

The duty to refrain from violating section 790.03(h)(5) is imposed only on "persons engaged in the business of insurance" ( § 790.01). (See also § 790.02.) There is no allegation in the complaint that either the attorneys or Dr. Russell are or were engaged in the insurance business, and plaintiff does not so contend. Accordingly, those defendants, unlike the insurer, are not bound by section 790.03(h)(5). The gravamen of the complaint against those defendants is that they and the insurer conspired to "deprive [plaintiff] of the benefits of [section 790.03] and to deny [plaintiff] any sums of money for [his] injuries which would have been provided by a prompt, fair and equitable settlement." Because the complaint does not purport to rely on any duty to settle claims other than that imposed by section 790.03(h)(5) on insurers and persons in the insurance business, the issue before us is whether the insurer, the attorneys and Dr. Russell can be held liable for a conspiracy to violate a duty peculiar to the insurer.

"A civil conspiracy however atrocious, does not per se give rise to a cause of action unless a civil wrong has been committed resulting in damage. [Citations]." (Unruh v. Truck Insurance Exchange (1972) 7 Cal.3d 616, 631, 102 Cal.Rptr. 815, 498 P.2d 1063.) "The elements of an action for civil conspiracy are the formation and operation of the conspiracy and damage resulting to plaintiff from an act or acts done in furtherance of the common design.... In such an action the major significance of the conspiracy lies in the fact that it renders each participant in the wrongful act responsible as a joint tortfeasor for all damages ensuing from the wrong, irrespective of whether or not he was a direct actor and regardless of the degree of his activity. [Citations.]" (Mox Incorporated v. Woods (1927) 202 Cal. 675, 677-678, 262 P. 302; accord Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 784, 157 Cal.Rptr. 392, 598 P.2d 45.)

A cause of action for civil conspiracy may not arise, however, if the alleged conspirator, though a participant in the agreement underlying the injury, was not personally bound by the duty violated by the wrongdoing and was acting only as the agent or employee of the party who did have that duty. Thus, in Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032, the plaintiff alleged that his insurers and their adjusters and attorneys had conspired to deny him benefits for an insured fire loss and in furtherance of the conspiracy had (1) encouraged criminal charges by falsely implying to an official investigator and at a preliminary hearing that the plaintiff had a motive to commit arson, (2) used the plaintiff's failure to appear for examination under oath before the insurers' representative (see §§ 2070, 2071) as a pretext for denying liability under the policies even though they knew the plaintiff would not appear during the pendency of the criminal charges, and (3) refused to accept the plaintiff's offer to appear for examination after the charges were dropped. We held that these allegations stated a cause of action against the defendant insurers for breach of their implied covenant of good faith and fair dealing by refusing, without proper cause, to compensate the plaintiff for a fire loss covered by their insurance policies. (9 Cal.3d at pp. 570-575, 108 Cal.Rptr. 480, 510 P.2d 1032.)

We further held, however, that the insurers' adjusters and attorneys were not liable for the alleged conspiracy. We first pointed out that the "plaintiff [Gruenberg] contends that these non-insurer defendants breached only the duty of good faith and fair dealing; therefore, we need not consider the possibility that they may have committed another tort in their respective capacities as...