A. F. Arnold & Co. v. Pacific Professional Ins., Inc.

Decision Date12 September 1972
Citation27 Cal.App.3d 710,104 Cal.Rptr. 96
CourtCalifornia Court of Appeals Court of Appeals
PartiesA. F. ARNOLD & CO., LTD., a corporation, Plaintiff and Appellant, v. PACIFIC PROFESSIONAL INSURANCE, INC., a corporation, and Signal Insurance Company, a corporation, Defendants and Respondents. Civ. 39343.

Luckhan, Fenton & Lieber, and Fred C. Fenton, Los Angeles, for plaintiff and appellant.

Jones & Wilson, and James T. Hudson, Los Angeles, for defendant and respondent Pacific Professional Insurance, Inc.

Paul, Hastings, Janofsky & Walker, Oliver F. Green, Jr., and Geoffrey L. Thomas, Los Angeles, for defendant and respondent Signal Insurance Co.

COLE *, Associate Justice.

Plaintiff corporation appeals from a judgment entered against it after demurrers to its first amended complaint were sustained without leave to amend.

Reference is hereafter to plaintiff's first amended complaint. Plaintiff alleged that it conducted a business as a surplus line broker and general agent; that since 1962 it had obtained for the Stacker Foundation, doing business as Bon-Air Hospital, liability, comprehensive hospital, and malpractice insurance; that it had spent much time, money and effort in developing, servicing and maintaining the account; that its insurance business is such that its policyholders, including Stacker, regularly renew their policies; that plaintiff has a vested interest in said renewal, insofar as by contract plaintiff receives a renewal commission from the renewal premium, and that the business relationship established between it and the Stacker Foundation 'would ordinarily have continued unless so interfered with by defendants.'

Concerning defendants, plaintiff alleged that Pacific Professional Insurance, Inc. (Pacific) and Signal Insurance Company (Signal) are each corporations; that Pacific was managing underwriter and agent for Signal; that defendants quoted a price for insurance coverage for Stacker to plaintiff and agreed to write policies showing plaintiff as broker of record and then subsequently refused to do so; that thereupon, plaintiff obtained a letter from Realty Insurance Associates (not a party herein), insurers and agents for Stacker, denominated as a 'broker-of-record' letter, authorizing plaintiff to write liability and malpractice insurance for Stacker, and that eight days later it obtained a second such letter authorizing plaintiff to act as exclusive broker-of-record, for Stacker. 1

Plaintiff then alleges that on a date 11 days after the second letter, defendants, through Realty Insurance Associates, bound their coverage for liability, comprehensive hospital and malpractice policies for Realty Insurance Associates covering the Bon-Air Hospital and subsequently issued their policies. The complaint then alleges that defendants refused 'to honor' the broker-of-record letters and to pay plaintiff the commissions on the policies even though defendants knew of said letters prior to the date that defendants bound their coverage for the insurance. Plaintiff's conclusion is that defendants have intentionally and wrongfully interfered with plaintiff's business relationship and deprived it of premiums.

Defendant's argument, accepted by the trial court and repeated here, is that plaintiff did not allege any Facts to show that defendants used improper methods in securing insurance coverage. In this connection, Signal argues that its refusal to deal with plaintiff was not tortious and that plaintiff did not allege any facts showing that anything done by Signal was the proximate cause of damage to plaintiff. Finally, Signal states that a competitive privilege is available unless illegal and improper conduct is involved. Pacific makes much the same argument--that its alleged interference with plaintiff's business relationship with Stacker simply amounted to Pacific's 'refusal to do business with plaintiff and that only conclusions are alleged.' Pacific also argues that as a competitor it did not use improper means but simply competed properly with plaintiff.

The argument of defendants that plaintiff fails to allege facts showing any wrongful conduct on defendants' part is inextricably bound up with defendants' claim that as competitors they were justified in their conduct by reason of their business situation vis-a-vis plaintiff.

In its opening brief, plaintiff argued, among other things, that defendants were not competitors. In its reply brief, plaintiff grudgingly conceded that Pacific 'could perhaps be classed as a competitor' but that Signal is not such. It is clear, however, that the actions of each defendant were undertaken in the context of a business situation where for their own business purposes defendants did something which caused harm to plaintiff in its business. It is also clear that defendants acted for economic gain. Therefore, defendants are in a position where justification may be a defense to this action. (See Prosser, Torts (4th ed.) pp. 953--954.)

We must decide, however, whether it is a defense which can be considered on demurrer. Herron v. State Farm Mutual Ins. Co., 56 Cal.2d 202, 14 Cal.Rptr. 294, 363 P.2d 310, involved the tort of intentional interference with an existing contractual relationship. The court stated (pp. 206--207, 14 Cal.Rptr. p. 296, 363 P.2d p. 312): 'Whether an intentional interference by a third party is justifiable depends upon a balancing of the importance, social and private, of the objective advanced by the interference against the importance of the interest interfered with, considering all circumstances including the nature of the actor's conduct and the relationship between the parties. (Citations.) Justification is an affirmative defense and may not be considered as supporting the trial court's action in sustaining a demurrer unless it appears on the face of the complaint. (Citations.) . . .' For a holding of this court to the same effect see Greenberg v. Hollywood Turf Club, 7 Cal.App.3d 968, 974, 86 Cal.Rptr. 885.

Is this principle equally applicable to a claim of interference with prospective economic advantage such as the right to pursue a lawful business? We hold, for reasons to be expressed, that while defendant's culpable Intent is an element of the cause of action to be pleaded and proved by plaintiff, defendant's Justification is an affirmative defense in the tort of interference with prospective economic advantage just as it is in the tort of interference with an existing contractual relationship. 2

A few preliminary remarks as to the nature of the tort of interference with prospective economic relationship put into perspective our conclusions on this subject. The tort in general parallels the more established cause of action dealing with interference with existing contracts. 3

The tort is a developing one. 'The wrong consists of intentional and improper methods of diverting or taking business from another which are not within the privilege of fair competition. The test is admittedly vague, and the applications are difficult to classify, but the law is developing at a rapid rate.' (2 Witkin, Summary of Cal. Law, pp. 1332--1333.)

Opinions discussing the tort of interference with prospective economic advantage often insert into their descriptions the word 'unjustified.' Thus, in Speegle v. Board of Fire Underwriters, 29 Cal.2d 34, 39, 172 P.2d 867, the court stated that 'unjustified' interference is actionable. See also: Shida v. Japan Food Corp., 251 Cal.App.2d 864, 866, 60 Cal.Rptr. 43, 44: 'It is well established that unjustified interference with advantageous business relationship is actionable even though no breach of contract is involved.' Diodes, Inc. v. Franzen, 260 Cal.App.2d 244, 255, 67 Cal.Rptr. 19, 25: 'As a general principle, one who unjustifiably interferes with an advantageous business relationship to another's damage may be held liable therefor.' Masoni v. Board of Trade of San Francisco, 119 Cal.App.2d 738, 741, 260 P.2d 205, 207: 'Actionable interference of this kind is not limited to inducing breach of an existing contract or other wrongful conduct but comprises also unjustifiably inducing a third person not to enter into or continue a business relation with another.'

If we read such statements to mean that lack of justification is an element of the cause of action, then of course, a plaintiff would have to plead and prove that negative. Such a reading would ignore the established principle that when an Existing contractual relationship is involved, justification for interfering with it is an affirmative defense. (Herron v. State Farm Mutual Ins. Co., Supra, 56 Cal.2d 202, 14 Cal.Rptr. 294, 363 P.2d 310; Greenberg v. Hollywood Turf Club, Supra, 7 Cal.App.3d 968, 86 Cal.Rptr. 885; Freed v. Manchester Service, Inc., 165 Cal.App.2d 186, 190, 331 P.2d 689; Culcal Stylco, Inc. v. Vornado, Inc., 26 Cal.App.3d 879, 103 Cal.Rptr. 419.) To treat lack of justification as an element of the tort when it is a Prospective advantage that is involved would create an additional and unwarranted difference between the two torts.

We are talking, however, about an intentional tort. 4 We believe that it is precisely at the point where the intentional nature of the defendant's conduct relates to his justification for so acting that a distinction must be drawn. The one significant difference between the two torts is that when it is a prospective advantage that has been interfered with the law recognizes more extensive privileges to interfere for the sake of Bona fide 5 competition. (Shida v. Japan Food Corp., Supra, 251 Cal.App.2d p. 866, 60 Cal.Rptr. 43; Greenberg v. Hollywood Turf Club, Supra; Imperial Ice Company v. Rossier, 18 Cal.2d 33, 36, 112 P.2d 631.) This difference arises from the fact that the interest interfered with, being only Prospective, weighs less on the scale than does an Existing interest. Consequently, conduct claimed to constitute justification by way of competition can itself...

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