Hand v. Farmers Ins. Exchange, B

CourtCalifornia Court of Appeals
Citation29 Cal.Rptr.2d 258,23 Cal.App.4th 1847
Decision Date11 April 1994
Docket NumberNo. B,B
PartiesDanelle HAND, Plaintiff and Appellant, v. FARMERS INSURANCE EXCHANGE et al., Defendants and Appellants; Robert Mann et al., Objectors and Appellants. 072040.

Robert Mann and Donald W. Cook, for plaintiff and appellant, and in pro. per., for objectors and appellants.

Waldman & Chuang, Craig H. Bell, Aviv L. Tuchman and Thomas V. Perea, Los Angeles, for defendants and appellants.

FUKUTO, Associate Justice.

These are cross-appeals from the judgment in an action against an insurer to recover on a prior automobile liability judgment, under Insurance Code section 11580, subdivision (b)(2), and for damages in tort. 1 The defendant insurers appeal from the judgment on the policy solely on grounds it awarded excessive interest. Plaintiff appeals from the judgment insofar as it determined as without legal merit her causes of action for bad faith and intentional infliction of emotional distress. Plaintiff also asserts error in certain intermediate discovery and sanctions rulings; as to the latter, she is joined as appellant by her attorneys.

The principal, novel issue presented is whether a cause of action in tort for breach of the implied covenant of good faith and fair dealing may lie in favor of a judgment creditor who has become a third party beneficiary of the insurance policy by operation of section 11580, on account of the insurer's bad faith refusal to pay the judgment. In light of Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 132 Cal.Rptr. 424, 553 P.2d 584 (Murphy), we have concluded that such a cause of action may be stated in the limited circumstances presented by this case, involving a "third party claimant" who is also a judgment creditor of the insured, presently entitled to recover her judgment from the insurer "on the policy" (§ 11580). We therefore reverse the judgment insofar as it precluded as a matter of law plaintiff's assertion of this claim. In all other respects, we affirm.

FACTS

On December 3, 1983, plaintiff, Danelle Hand, was injured when the car in which she was riding was rear-ended by one driven by Angela Dubel. Dubel's vehicle was insured by Farmers Insurance Exchange and Truck Insurance Exchange (collectively Farmers), under a policy issued to First Interstate Bank, as trustee for numerous trusts, including the Henry Mudd Trust (the trust). Dubel's vehicle was an asset of the trust, and she was listed as the car's driver on an insurance broker's certificate prepared to identify insured vehicles. The policy provided $500,000 coverage per accident.

According to plaintiff's second amended complaint, beginning in early 1984 various claims personnel of Farmers informed plaintiff's counsel that Dubel was covered under the policy, up to $500,000. In 1984 plaintiff sued Dubel, along with Mudd, the declarant of the trust, in superior court. Farmers allegedly provided for Dubel's defense. In answers to interrogatories countersigned by During the years before trial in 1990, Dubel's several counsel allegedly reiterated these representations, and made settlement offers to plaintiff ranging from $20,000 to $190,000. At a pretrial settlement conference, a Farmers claims adjuster offered $100,000. All of these offers were made on Farmers's behalf.

counsel furnished by Farmers, Dubel stated she was covered by the policy, for $500,000.

Plaintiff's case was tried in mid-1990. The jury awarded her $234,681, against both Dubel and Mudd. 2 The court added to the verdict prejudgment interest under Civil Code section 3291, together with costs.

After the judgment had become final, Farmers refused plaintiff's demand to pay it. Five months after the verdict, Farmers informed plaintiff for the first time that it believed it was obligated on behalf of Dubel only for $15,000, on the theory that she had been only a "permissive user" of the trust vehicle, and as such was entitled to only $15,000 coverage, under Insurance Code section 11580.1.

Plaintiff commenced this action against Farmers in June 1991. She sought first to recover, under section 11580, the amounts owing on the judgment against Dubel and Mudd. In addition, as relevant here, plaintiff asserted two purported tort causes of action. As restated in the second amended complaint, plaintiff's claim for "Bad Faith Deprivation of a Protected Property Interest" alleged that Farmers's denial that its policy covered and obligated it to pay plaintiff's judgment against Dubel in excess of $15,000 was made with knowledge or reckless disregard of its untruth, with knowledge of plaintiff's financial needs, and for the purposes of avoiding Farmers's obligation to plaintiff, depriving her of her property interest in the insurance policy (created by section 11850), and injuring her emotionally, physically, and financially.

Plaintiff further alleged a claim for intentional infliction of emotional distress (IIED), which incorporated the preceding allegations and further alleged Farmers knew that its conduct would interfere with plaintiff's physical and financial rehabilitation and would cause her emotional distress. On both causes of action, plaintiff prayed for general, special, and punitive damages.

The trial court granted plaintiff's motion for summary adjudication of her first cause of action, to recover the entire judgment from Farmers. Contrary to Farmers's assertions, the court held not only that Farmers's coverage of a permissive user was not limited by the policy or Insurance Code section 11580.1, but also that Dubel had been fully covered as a named insured under the policy.

Farmers then moved for summary adjudication that plaintiff's remaining causes of action were without merit. The trial court granted this motion also. Although it had previously overruled a demurrer to the bad faith cause of action (in a prior amended complaint), the court now reversed itself, and ruled that a duty of good faith and fair dealing could not be "grafted onto th[e] relationship" created by section 11580 between a judgment creditor and the insurer. The court further held that the failure to pay or to settle could not form the basis for an IIED claim.

The court thereafter entered judgment awarding plaintiff $398,128.89 on account of her judgment against Dubel and Mudd. This sum included various items of interest. Farmers thereafter paid $346,936.22 of the judgment, reserving certain elements of interest it contested, and appealed from the judgment with respect to them. Plaintiff appealed from the judgment insofar as it disallowed her tort causes of action, and with reference to certain discovery orders. Plaintiff's counsel joined in the appeal as to discovery sanctions assessed against them as well as plaintiff. Farmers has not appealed from the determination that it is fully liable to plaintiff on the policy for the prior judgment.

DISCUSSION
I. THE BAD FAITH CLAIM.

Our review of plaintiff's purported cause of action for bad faith is framed by two preliminary matters.

First, Farmers's motion for summary adjudication essentially was made and decided on the basis that the facts alleged in plaintiff's unverified second amended complaint did not add up to cognizable causes of action. In other words, in this instance the summary adjudication motion "in effect operated as a motion for judgment on the pleadings, a motion which fulfills the office of a general demurrer to test the complaint's sufficiency to state a cause of action." (C.L. Smith Co. v. Roger Ducharme, Inc. (1977) 65 Cal.App.3d 735, 750, 135 Cal.Rptr. 483.) In these circumstances, the same legal issue is before us, to be decided by assuming as true the allegations of the complaint. The general rule that a plaintiff may not rely on his or her pleadings to resist a summary judgment motion (see Cal.Practice Guide: Civil Procedure Before Trial (TRG 1993) §§ 10:199, p. 10-55) does not apply where the motion is based on the legal insufficiency of the plaintiff's claims as alleged. 3 Indeed, because Farmers's motion was not based on a prima facie evidentiary showing of insufficiency, plaintiff had no burden to offer responsive evidence. (See id. at § 10:261, pp. 10-72--10-73.)

Second, although plaintiff's bad faith cause of action was titled as one for "Bad Faith Deprivation of a Protected Property Interest," it is more appropriately appraised as a claim for tortious breach of a duty imposed by the contractual implied covenant of good faith and fair dealing, which is what the common term "bad faith" signifies. (See 5 Witkin, Summary of Cal.Law (9th ed. 1988) Torts, § 656, pp. 745-746 [discussing, inter alia, Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, 89 Cal.Rptr. 78 [Fletcher], from which plaintiff appears to have drawn her label].) Plaintiff has defended her cause of action here by reference to the cases that have expounded this right of action. Our task is to determine whether the facts she has alleged square with the principles and rationales of those decisions.

The covenant of good faith and fair dealing, implied by law in every contract including insurance policies, "imposes on each contracting party the duty to refrain from doing anything which would render performance of the contract impossible by any act of his own, [and] also the duty to do everything that the contract presupposes that he will do to accomplish its purpose." (Harm v. Frasher (1960) 181 Cal.App.2d 405, 417, 5 Cal.Rptr. 367.) "The precise nature and extent of the duty imposed by such an implied promise will depend on the contractual purposes." (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818, 169 Cal.Rptr. 691, 620 P.2d 141 [Egan].)

In the context of the contractual relationship between a liability insurer and its insured, the implied covenant has been held to require the...

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