O'Hanesian, v. State Farm Mut. Auto. Ins.

• Decision Date: 19 December 2006
• Docket Number: No. E038114.,E038114.
• Citation: 145 Cal.App.4th 1305,52 Cal.Rptr.3d 463
• Court: California Court of Appeals Court of Appeals
• Parties: Charles Michael O'HANESIAN, Plaintiff and Appellant, v. STATE FARM MUTUAL AUTOMBILE INSURANCE COMPANY et al., Defendants and Respondents.

52 Cal.Rptr.3d 463

145 Cal.App.4th 1305

Charles Michael O'HANESIAN, Plaintiff and Appellant, v. STATE FARM MUTUAL AUTOMBILE INSURANCE COMPANY et al., Defendants and Respondents.

No. E038114.

Court of Appeal, Fourth District, Division 2.

December 19, 2006.

Law Office of Duncan M. James, Duncan M. James, David M. Kindopp, Donald J. McMullen and Joseph John Turri, Ukiah, for Plaintiff and Appellant.

Crandall, Wade & Lowe, James L. Crandall, Edwin B. Brown, and William F. Zulch, Irvine, for Defendants and Respondents.

OPINION

HOLLENHORST, Acting P.J.

I. INTRODUCTION

Plaintiff and appellant Charles Michael O'Hanesian appeals from an order of dismissal following the trial court's sustaining a demurrer without leave to amend as to plaintiffs complaint against defendants and respondents State Farm Mutual Automobile Insurance Company and State Farm General Insurance for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing. The gravamen of plaintiffs complaint was that even though he obtained judgment in his underlying action against the tortfeasor, defendants unjustifiably refused to pay him the benefits to which he was entitled under the underinsured motorist provisions of the insurance policy defendants issued to him.

On appeal, plaintiff contends the trial court erred in sustaining the demurrer to his complaint without leave to amend. First, plaintiff contends, based on his interpretation of the insurance policy, statutes, and public policy, that defendants are bound by the judgment entered in the underlying action to the extent that the judgment determined liability and the amount of damages plaintiff sustained in the automobile accident. Second, plaintiff contends he was not required to complete arbitration proceedings with defendants before prosecuting a lawsuit against them for breach of contract and bad faith. We find no error, and we affirm.

II. FACTS AND PROCEDURAL BACKGROUND

Because the matter arises after demurrer has been sustained, we must treat all properly pled facts as true. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal. Rptr. 718, 703 P.2d 58.)

The operative pleading is the first amended complaint. Plaintiff alleged that he sustained injuries when his vehicle was rear-ended by a vehicle driven by Curtis Thurlow on November 2, 2001. On October 21, 2002, with defendants' knowledge, plaintiff filed a civil action against Thurlow. Thurlow failed to appear after having been served by publication. Following a prove-up hearing, the trial court entered judgment against Thurlow in the amount of $3,751,000.

Thurlow was insured by Farmers Insurance Company ("Farmers"). Following the entry of judgment against Thurlow, Farmers paid plaintiff the policy limit of $100,000 on Thurlow's policy.

Plaintiff was insured by defendants with underinsured motorist coverage of $100,000 and personal liability umbrella coverage in the amount of $1 million. The umbrella coverage applied to underinsured motorist claims. The insurance policy was attached to and incorporated in the first amended complaint.

The automobile insurance policy provides for payment of underinsured motorist benefits as follows:

"If the damages are caused by an underinsured motor vehicle, the most we pay will be the lesser of:

"a. the difference between the limits of liability of this coverage and the amount paid to the insured by or for any person ... who is or may be held legally liable for the bodily injury; or

"b. the difference between the amount of the insured's damages for bodily injury, and the amount paid to the insured by or for any person ... who is or may be held legally liable for the bodily injury. (Italics omitted.)

The automobile insurance policy further provides:

"We will pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an uninsured motor vehicle [defined in the policy to include an underinsured motor vehicle]. The bodily injury must be caused by accident arising out of the operation, maintenance or use of an uninsured motor vehicle.

"If the damages are caused by an underinsured motor vehicle, there is no coverage until:

"1. The limits of liability of all bodily injury liability bonds and policies that apply have been used up by payment of judgments or settlements to other persons; or

"2. Such limits of liability or remaining part of them have been offered to the insured in writing." (Italics and capitalization omitted.)

The policy provides, with respect to the insured's duties, "The person making claim also shall: [H] (a) [G]ive us all the details about the ... injury, treatment and other information we need to determine the amount payable. [11] (b) [B]e examined by physicians chosen and paid by us as often as we reasonably may require."

After obtaining payment from Farmers, plaintiff provided defendants with a copy of the judgment against Thurlow and demanded that defendants pay plaintiff the maximum benefit available under the underinsured motorist and umbrella coverage. Defendants refused to tender any policy benefits, informed plaintiff they wanted to evaluate the nature and extent of his injuries, and requested him to submit to a medical evaluation.

Plaintiff twice more informed defendants that the judgment against Thurlow conclusively established the nature, extent, and amount of plaintiffs damages, and there was nothing more for defendants to evaluate. Plaintiff again demanded the maximum benefits available under his policy. Each time, defendants again refused to tender payment and again requested plaintiff to submit to an evaluation of the nature and extent of his injuries.

Plaintiff filed a first amended complaint against defendants, asserting causes of action for declaratory relief, breach of the insurance contracts, and breach of the implied covenant of good faith and fair dealing.

Defendants filed a demurrer to the first amended complaint on the grounds it failed to state facts sufficient to constitute a cause of action. (Code Civ. Proc. § 430.10, subd. (e).) Defendants argued they were not bound by the judgment entered against Thurlow in the underlying action. They further argued that plaintiffs action against them was premature because Insurance Code section 11580.2 (hereafter, section 11580.2) required plaintiff to complete arbitration proceedings with them before he could sue them for breach of the insurance contracts or breach of the implied covenant of good faith and fair dealing.

Defendants also moved for the trial court to strike plaintiffs requests for punitive damages and his prayers for emotional distress damages for breach of the insurance contract and for breach of the covenant of good faith and fair dealing.

Plaintiff filed an opposition to the demurrer. Plaintiff argued that defendants were bound by the judgment in the underlying action based on the language of the insurance policy and the controlling statutes. Plaintiff further argued that his action against defendants was not premature. Plaintiff also opposed the motion to strike.

The trial court entered an order sustaining the demurrer without leave to amend and granting the motion to strike. Thereafter, an order was entered dismissing the action, and this appeal ensued.

III. DISCUSSION

Plaintiff contends that defendants are bound by the judgment entered in the underlying action to the extent the judgment determined liability and damages, and neither the language of the policy, statutes, nor public policy required that plaintiff submit his claim to arbitration as a precondition to his lawsuit against defendants. Plaintiff argues the trial court therefore erred in sustaining the demurrer to his complaint without leave to amend.

A. Standard of Review

"When we review a judgment of dismissal following the trial court's sustaining of a demurrer, `"[w]e treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed." [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.' [Citation.]" (Century Surety Co. v. Crosby Insurance, Inc. (2004) 124 Cal.App.4th 116, 121-122, 21 Cal.Rptr.3d 115.)

B. Interpretation of Insurance Policy and Construction of Statutes

Resolution of this case turns on both the interpretation of the insurance policy and the construction of the controlling statutes.

1. Interpretation of Insurance Policy

Settled rules govern the interpretation of an insurance policy. When material facts are undisputed, the interpretation of an insurance policy presents solely a question of law. (Haynes v. Farmers Ins. Exchange (2004) 32 Cal.4th 1198, 1204, 13 Cal.Rptr.3d 68, 89 P.3d 381.) And when an insurance policy is ambiguous, it is generally construed in favor of the insured: "While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. [Citation.] The fundamental goal of contractual interpretation is to give effect to the mutual intention of the parties. [Citation.] If contractual language is clear and explicit, it governs. [Citation.] On the other hand, `[i]f the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the...