Martin v. Hartford Acc. & Indem. Co.

• Decision Date: 25 June 1964
• Citation: 228 Cal.App.2d 178,39 Cal.Rptr. 342
• Court: California Court of Appeals Court of Appeals
• Parties: Beryl MARTIN, a Minor, by and through her Guardian ad Litem, Roland L. Martin, Plaintiff and Appellant, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, a corporation, Defendant and Respondent. Civ. 21653.

Page 342

39 Cal.Rptr. 342

228 Cal.App.2d 178

Beryl MARTIN, a Minor, by and through her Guardian ad Litem, Roland L. Martin, Plaintiff and Appellant, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, a corporation, Defendant and Respondent.

Civ. 21653.

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

June 25, 1964.

Hearing Denied Aug. 20, 1964.

Lacey, Holbrook & Meyenberg, Salinas, for appellant.

J. T. Harrington, Salinas, for respondent.

DEVINE, Justice.

Nature of the Case and of the Appeal

The action is for an excess over the stated limit of a public liability insurance policy based on asserted bad faith of the company in refusing to settle. Demurrer to the complaint was sustained with leave to amend. The demurrer is based solely on asserted failure to state facts sufficient to constitute a cause of action. The minute order sustaining demurrer stated 'no cause of action.' Plaintiff did not amend, judgment of dismissal followed, and plaintiff appeals from the judgment.

The Facts

The facts are stated as they appear in the complaint and the exhibits incorporated into it. The allegations are taken as true because of the state of the case, but certain additional assertions contained in appellant's brief are ignored as outside the record.

Plaintiff, a minor, was plaintiff in a personal injury case, which she brought against Ezekiel Belman. Belman's mother's vehicle was insured by respondent up to $10,000, for injury to person. The policy provided insurance for persons living in the mother's household, and Belman lived in the household. Plaintiff obtained a verdict for $25,000. Belman assigned his cause of action, if any he had, to plaintiff, as is common in this type of action.

Further allegations of the complaint, a pleading which must be read as stating Belman's cause, as assigned, are: While Belman was driving the automobile, Beryl Rae Martin was injured in a collision of the vehicle. It is alleged indirectly that she was a guest. She had brought action against Belman in two counts, wilful misconduct and intoxication.

On September 12, 1962, counsel for plaintiff in the personal injury action (who now represents her as assignee) wrote to the attorney who represented Belman on behalf of respondent carrier, and stated that plaintiff was willing to accept the policy limits in complete satisfaction of her claim, and that, considering Belman's deposition and the depositions of two other persons, it was his opinion that refusal to settle for the policy limits would be 'an exercise of bad faith' on the part of defense clients. He received no reply to the letter. He wrote a second letter on November 14, 1962, referring to the earlier letter, and saying that the offer would be withdrawn ten days before the date set for trial, that is, at 5 p.m., January 11, 1963. In this letter, he made further reference to the merits of his client's case, saying that it was his considered opinion that liability was clear-cut and that the verdict would be far in excess of the policy limits. In more detail, he said he realized that the defense was probably relying on certain statements of the minor plaintiff as contained in the police report, but that these were made while she was under the influence of demerol; that the statements were in some respects inaccurate, but were true in reciting that plaintiff had no idea that Belman was drunk when she got in the car. Counsel's letter says that plaintiff did not drink herself and did not see Belman take any drinks. Further, counsel wrote that the judge at pretrial conference had indicated that there would be no defense which could even be argued on the wilful misconduct cause. The conclusion repeats that acceptance must be before ten days prior to trial.

The attorney who represented Belman and the carrier did not reply, but the San Jose claims manager did, on January 11, 1963. He offered to settle for $9,000, in a telephone conversation. Plaintiffs counsel asked him if he knew that the $10,000 offer would expire ten days before the trial (trial had been postponed to January 23). The manager said he did not, but he still was not going to offer more than $9,000.

The complaint alleges that 'at the time said claims manager made said offer he knew full well that the chances of the plaintiff Beryl Rae Martin prevailing in her personal injury action were every great and that if a verdict were rendered in her favor that it would very likely exceed Ten Thousand Dollars ($10,000.00).'

Subsequently, on January 16, 1963, seven days before the personal injury action was to begin, and after plaintiff's offer to settle for $10,000 had expired, defendant Hartford Accident and Indemnity Company offered to settle for the policy limits of $10,000. This offer was refused by the plaintiff in the personal injury action. On the opening day of the personal injury trial, January 23, 1963, counsel for defendant carrier stated to counsel for plaintiff that the offer made by the insurance company to settle for $10,000 was formally withdrawn.

'During the course of [the] personal injury lawsuit,' it was brought to the attention of the carrier that medical specials of plaintiff in that action were in excess of $5,000 and that she was crippled for the rest of her life. It is not stated at just what point of the litigation this became known to the insurance company.

At the trial, Belman testified that he had pleaded guilty to reckless driving. Defense counsel admitted that the accident was caused by intoxication of Belman. The jury unanimously found for plaintiff on both causes of action and awarded her $25,000.

The complaint alleges that defendant carrier at no time advised its insured that the action could be settled for $10,000, and that the first time Belman knew of the offer was subsequent to the $25,000 verdict. The complaint alleges that the company exercised bad faith in refusing to settle for the $10,000 policy limit; that as a result, a cause of action arose in favor of Belman for the full amount of the verdict, less the $10,000 which was paid following the verdict; and that Belman had assigned the cause to plaintiff.

Duties of the Insurance Carrier

In cases of this kind, one must be careful to distinguish the rights of plaintiff as assignee of the insured from those which she had in the personal injury action, and also to distinguish the position of her counsel in the injury case from that which he holds in the present one. Formerly, plaintiff was opposed to both the insured and his carrier; presently, she has all of the rights, and only the rights, of the insured against the carrier which have sprung from the judgment. To use the common expression, she 'stands in [his] shoes.' (Brown v. Guarantee Ins. Co., 155 Cal.App.2d 679, 696, 319 P.2d 69, 66 A.L.R.2d 1202.) What, then, were respondent's duties to Belman? Did it fulfill them? We give the answers separately in respect of various factors which have been recognized in decisions of the courts.

1. Respondent was bound to exercise good faith in considering the insured's interest in the settlement. (Comunale v. Traders & General Ins. Co., 50 Cal.2d 654, 661, 328 P.2d 198, 68 A.L.R.2d 883.) Good faith in each case is a question of fact. (Brown v. Guarantee Ins. Co., supra, 155 Cal.App.2d at p. 689, 319 P.2d 69; Davy v. Public National Ins. Co., 181 Cal.App.2d 387, 400, 5 Cal.Rptr. 488; Ivy v. Pacific Automobile Ins. Co., 156 Cal.App.2d 652, 659, 320 P.2d 140.) It is alleged in the complaint that the company 'exercised bad faith' in refusing to settle for the policy limits. This allegation is essentially one of an ultimate fact, and although it may be doubted that the allegation, standing alone, would state a cause of action, it does give the foundation for all of the other allegations and, in particular, it supplies what may be lacking in detail about facts about which respondent, at the demurrer stage of the litigation, must have more information than does appellant (specifically, as to No. 3, below).

2. It was respondent's duty to give at least as much consideration to the interests of the insured as it gave to its own interests. (Comunale v. Traders & General Ins. Co., supra, 50 Cal.2d at p. 659, 328 P.2d 198; Ivy v. Pacific Automobile Ins. Co., supra, 156 Cal.App.2d at p. 660, 320 P.2d 140.) The allegations of the complaint indicate that the carrier did not do this. At trial, it may develop that the carrier must have known, when it offered $9,000 on the $10,000 policy, that plaintiff's chance for a verdict well in excess of the policy limit was very good. It may appear at trial that the company's representative made the $9,000 offer because, so far as the policy was concerned as distinguished from any responsibility of its insured, the company had not much more to lose. It was expressly informed that plaintiff's offer would soon expire, but the carrier did not ask for any extension. Instead, its representative told counsel for plaintiff that it would pay no more than $9,000. The fact that there is great risk of a verdict substantially higher than the policy limit is an important factor in the matter of good...