Hightower v. Farmers Ins. Exchange

• Decision Date: 26 September 1995
• Docket Number: No. B077599,B077599
• Citation: 45 Cal.Rptr.2d 348,38 Cal.App.4th 853
• Court: California Court of Appeals Court of Appeals
• Parties: , 95 Cal. Daily Op. Serv. 7538, 95 Daily Journal D.A.R. 12,895 Ruth HIGHTOWER, Alicia Flowers and Coralene Hayes, Plaintiffs and Appellants, v. FARMERS INSURANCE EXCHANGE et al., Defendants and Respondents.

Page 348

45 Cal.Rptr.2d 348

38 Cal.App.4th 853, 95 Cal. Daily Op. Serv. 7538,

95 Daily Journal D.A.R. 12,895

Ruth HIGHTOWER, Alicia Flowers and Coralene Hayes, Plaintiffs and Appellants, v. FARMERS INSURANCE EXCHANGE et al., Defendants and Respondents.

No. B077599.

Court of Appeal, Second District, Division 3, California.

Sept. 26, 1995.

Review Denied Dec. 14, 1995.

Michael J. Piuze and John Keiser, Los Angeles, for plaintiffs and appellants.

Horvitz & Levy, Mitchell C. Tilner and Andrea M. Gauthier, Encino; Carter & Chuang and Aviv L. Tuchman, Los Angeles, for defendants and respondents.

KLEIN, Presiding Justice.

Plaintiffs and appellants Ruth Hightower (Hightower), Alicia Flowers (Flowers) and Coralene Hayes (Hayes) (sometimes collectively referred to as Hightower) appeal a judgment following a grant of judgment on the pleadings in favor of defendant and respondent Farmers Insurance Exchange (Farmers).

The issues presented are whether exhaustion of administrative remedies under the California Automobile Assigned Risk Plan (the CAARP) is a prerequisite to the filing of a bad faith action against an insurer under an uninsured motorist policy, and whether a cause of action may be stated against an insurer for demanding arbitration of a claim for uninsured motorist benefits even where the insurer's liability is clear.

We conclude the CAARP remedy does not apply to every dispute between an insurer and one who is insured under the assigned risk system. The CAARP regulatory scheme extends only to matters governed by the assigned risk law and does not provide a forum for disputes involving the adjustment of claims. Therefore, Hightower was not required to allege an exhaustion of the administrative remedy.

Further, while Insurance Code section 11580.26, subdivision (b), immunizes an insurer from liability for the bare act of requesting arbitration of an uninsured motorist claim, it does not insulate an insurer from liability toward its insured for failing to attempt in good faith to effectuate a prompt and fair settlement of a claim in which liability is reasonably clear, or for other wrongful acts.

For these reasons, the judgment is reversed and the matter is remanded with directions.

FACTUAL AND PROCEDURAL BACKGROUND

In November 1983, Hightower and her daughters, Flowers and Hayes, were involved in a car accident with an uninsured motorist. They made a claim for uninsured motorist benefits under Hightower's insurance policy with Farmers. Said policy had been issued to Hightower and assigned to Farmers through the CAARP. Farmers disputed the claim and the matter was submitted to arbitration. The arbitration concluded in Hightower's favor in February 1987, following which Farmers paid the policy benefits to Hightower.

On September 16, 1988, Hightower filed suit against Farmers. The complaint alleged five causes of action: (1) breach of insurance contract/bad faith refusal to pay benefits; (2) violation of Insurance Code section 790 et seq.; ¹ (3) negligent infliction of emotional distress; (4) intentional infliction of emotional distress; and (5) conspiracy to violate the Insurance Code.

The gravamen of Hightower's action was that Farmers refused her demand on July 19, 1984 to pay the uninsured motorist policy limits of $30,000, even though liability therefor was clear, and delayed paying the benefits due under the policy until "ordered to do so by an arbitrator on February 20, 1987."

In June 1990, the trial court sustained Farmers's demurrers to Hightower's emotional distress and conspiracy claims without leave to amend, leaving extant only the first and second causes of action.

On April 30, 1993, Farmers moved for judgment on the pleadings on the two remaining causes of action, the claims for bad faith refusal to pay benefits and violation of Insurance Code section 790. Farmers based its motion on two separate grounds: Insurance Code section 11580.26 bars the imposition of liability against an insurer for exercising the right to request arbitration of an uninsured motorist claim; and Hightower failed to allege she had exhausted her administrative remedy under the CAARP.

On June 28, 1993 the trial court granted Farmers's motion on the ground Hightower had failed to exhaust her administrative remedy. Hightower appealed the judgment.

CONTENTIONS

Hightower contends the doctrine of exhaustion of administrative remedies does not apply because the administrative scheme found in the CAARP regulations does not provide any remedy for the failure to pay benefits timely.

Farmers avers the judgment must be affirmed due to Hightower's failure to exhaust the administrative remedy and because Insurance Code section 11580.26 bars any cause of action against an insurer for exercising its right to arbitration of an uninsured motorist claim.

DISCUSSION

1. Standard of appellate review.

Because a motion for judgment on the pleadings is the functional equivalent of a general demurrer, the same rules apply. (People v. $20,000 U.S. Currency (1991) 235 Cal.App.3d 682, 691, 286 Cal.Rptr. 746.)

The motion is confined to the face of the pleading under attack, and all facts alleged in the complaint must be accepted as true. (Rangel v. Interinsurance Exchange (1992) 4 Cal.4th 1, 7, 14 Cal.Rptr.2d 783, 842 P.2d 82.) With these principles in mind, we consider whether Hightower's complaint alleged facts sufficient to state a cause of action.

2. Purpose and scope of the CAARP.

The CAARP was created by the Legislature to provide insurance to marginal motorists who, because they were considered bad risks, were otherwise unable to secure such insurance. These persons included violators of traffic laws, persons with minor physical disabilities, youthful and older drivers, and of course, persons with poor driving records. (California State Auto. Assn. Inter-Ins. Bureau v. Garamendi (1992) 6 Cal.App.4th 1409, 1413, 8 Cal.Rptr.2d 366.) To this extent the plan complements the state's financial responsibility laws by providing a limited fund of insurance to compensate persons injured by drivers who otherwise would be uninsurable. (Ibid.)

Insurance Code section 11620 gives the Insurance Commissioner a mandate to design and implement a reasonable plan for the equitable apportionment of assigned risks among insurers. In general, insurers receive their equitable assignments of drivers based upon a ratio or quota, theoretically derived from the percentage of voluntary liability policies they write in the state. After a particular driver is assigned to an insurer pursuant to a " 'reasonable' " plan, the insurer is required to issue a policy to the driver. (California State Auto. Assn. Inter-Ins. Bureau, supra, 6 Cal.App.4th at p. 1413, 8 Cal.Rptr.2d 366.)

The CAARP regulations are set forth in title 10 of the California Code of Regulations, at section 2400 et seq. ² Section 2400 declares The CAARP regulations go on to provide to whom the plan is available (§ 2404), to require California admitted liability insurers to participate (§ 2405) and to specify the amount and type of coverage to be afforded including uninsured motorist protection (§§ 2406 to 2408). Thereafter, there are provisions governing the administration of the plan (§ 2420 et seq.); eligibility requirements for applicants (§ 2430 et seq.); the basis and method of assignment of risks to insurers (§ 2445 et seq.); acceptances and rejections by insurers of assignments (§ 2450 et seq.); assigned risk rates and premiums (§ 2460 et seq.); commissions (§ 2462); policy cancellations (§ 2470 et seq.); expirations and renewals (§ 2480 et seq.); finances and assessments (§ 2490 et seq.); and records, statistics and reports (§ 2492 et seq.)

the purpose and scope of the assigned risk plan is as follows: "(a) To provide a means by which risks of applicants for automobile bodily injury and property damage liability insurance who are eligible for such insurance but are unable to procure it through ordinary methods may be assigned to insurers admitted to transact liability insurance; [p] (b) To make medical payments insurance available, subject to the conditions hereafter stated, to four-wheel vehicles classified and rated as private passenger automobiles; and [p] (c) To establish a procedure for the equitable apportionment of such applicants among all such insurers for insurance of such risks."

The CAARP administrative remedy in issue is found in an obscure regulation, section 2495. That section states in relevant part: "Any applicant, insured or insurer under the [assigned risk] plan who is affected by any act, ruling, decision or order of an insurer, ... and believes such act, ruling, decision or order to be in conflict with or not authorized by the provisions of the plan or by the law, may appear [sic: appeal] in writing in the first instance to the [Governing Committee of the plan], setting forth his grounds for such belief.... The committee shall review all evidence and consider all statements, arguments, and contentions at a hearing upon not less than five days' notice to the parties to the matter, and within 10 days thereafter shall notify such parties of its decision which shall be binding upon all parties subject to appeal to the commissioner. [p] If any party to a matter which has been so appealed to the committee is dissatisfied with the decision of the committee upon such appeal, he may appeal to the commissioner who shall hear the parties, review the matter and render a decision which shall be binding upon all parties." (§ 2495.)

3. Farmers misconstrues the scope of the CAARP remedy.

Seizing upon the language of section 2495 that any insured under the assigned risk plan "who is affected by any act ... of an insurer" and who believes such act violates the provisions of the plan or the law may appeal to the committee (§ 2495), Farmers contends Hightower had an administrative remedy for her claim that Farmers' refusal to pay benefits violated Insurance Code section...