Merlo v. Standard Life & Acc. Ins. Co.

• Decision Date: 11 June 1976
• Citation: 59 Cal.App.3d 5,130 Cal.Rptr. 416
• Court: California Court of Appeals Court of Appeals
• Parties: Frank C. MERLO, Incompetent, by Lois E. Merlo, his guardian ad litem, Plaintiff and Respondent, v. STANDARD LIFE AND ACCIDENT INSURANCE COMPANY OF CALIFORNIA, a corporation, Defendant and Appellant. Civ. 13895.

Page 416

130 Cal.Rptr. 416

59 Cal.App.3d 5

Frank C. MERLO, Incompetent, by Lois E. Merlo, his guardian ad litem, Plaintiff and Respondent, v. STANDARD LIFE AND ACCIDENT INSURANCE COMPANY OF CALIFORNIA, a corporation, Defendant and Appellant.

Civ. 13895.

Court of Appeal, Fourth District, Division 2, California.

June 11, 1976.

Hearing Denied Aug. 12, 1976.

Edward L. Lascher, Ventura, for defendant and appellant

Hews & Munoz, Inc. and Arthur N. Hews, Santa Ana, for plaintiff and respondent.

OPINION

KAUFMAN, Associate Justice.

Defendant Standard Life and Accident Insurance Company of California (hereinafter 'Standard') appeals from a judgment based on jury verdicts in favor of plaintiff for compensatory damages of $267,294.52 and punitive damages of $500,000.

Pertinent Facts

Plaintiff, an incompetent, is the father of nine children. In 1962 he purchased a home for $16,000. In 1967, to secure mortgage payments in the event he should become disabled, plaintiff purchased an insurance policy, issued by another company but assumed by Standard, providing for monthly payments of $130.63 should plaintiff become totally disabled. Payments were to continue so long as plaintiff was totally disabled until the mortgage on plaintiff's home was paid or until plaintiff attained his 63rd birthday or until 300 monthly payments had been made, whichever occurred first.

Plaintiff was an ironworker and welder. Apparently as a result of inhaling fumes on his job, plaintiff became ill. His ailment was subsequently diagnosed by several physicians as aluminum poisoning. Plaintiff continued working until May 24, 1967. Since that date he has not worked at any occupation. Indeed, the aluminum poisoning led to such extensive physical and nervous deterioration that he has been rendered incompetent.

Standard first learned of plaintiff's condition on August 25, 1967, when one Jerry Paine, a claims representative of defendant, received a claim form submitted by plaintiff. It would serve no useful purpose to detail the respective conduct of plaintiff and defendant and the correspondence between them. Suffice it to say that Standard, acting through Mr. Paine, was recalcitrant in making the monthly payments to which plaintiff was entitled by virtue of his total disablement, and the evidence was sufficient to support the jury's implied finding that Standard had breached its covenant of fair dealing and good faith with plaintiff. Grudgingly and intermittently Standard did eventually pay most of what was owing from May 29, 1967, through October of 1969. No further payments were made. Standard took the position that, while plaintiff might not be able to return to his normal occupation, he could engage in some useful employment.

As a result of Standard's refusal to make payments pursuant to the disability insurance policy, plaintiffs home was sold in foreclosure proceedings on December 10, 1970, for $17,030. Its market value was at that time $24,500. There was evidence that plaintiff was worried about the letters of default sent him by the mortgage company, that shortly after the notice of sale had been posted on his home, plaintiff was sobbing, miserable and depressed, and that he thought himself a failure because he could not '. . . even keep a roof over (his) kids' head (sic).'

At the time of the notice of sale, plaintiff's wife had to take a job for the first time in her married life. When the marshal came to evict the family from their home it was necessary to store their possessions and divide the children among the relatives. The family eventually moved into a two-bedroom home where the boys were forced to sleep in the garage, which was unheated, and the girls shared one bedroom. There was no yard and no place for the children to play.

Plaintiff's complaint consisted of two counts: the first for declaratory relief under the disability insurance policy; the second for fraudulent misrepresentation. At the time of trial plaintiff stated to the court that defendant had conceded its liability under the policy to that date and that therefore plaintiff would not pursue the first count. Counsel stated that plaintiff intended to go to the jury on two theories: breach of the implied covenant of good faith and fair dealing and intentional infliction of emotional distress. The jury instructions reflect only the former. The jury returned a verdict in favor of plaintiff against Standard in the amount of $267,294.52 compensatory damages and $500,000 punitive damages. Standard's net worth was shown to be $1,607,721.01. Standard's motion for new trial made on the ground, among others, that the damages were excessive was denied by the trial court.

Contentions and Discussion

Liability

Standard concedes, as it must, that there is substantial evidence to support its liability for tortious breach of the covenant of good faith and fair dealing under the principles laid down in Fletcher v. Western National Life Ins. Co., 10 Cal.App.3d 376, 89 Cal.Rptr. 78, Gruenberg v. Aetna Ins. Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032, and Silberg v. California Life Ins. Co., 11 Cal.3d 452, 113 Cal.Rptr. 711, 521 P.2d 1103. It contends, however, that certain jury instructions were improper and that, therefore, the entire judgment should be reversed and the case remanded for a new trial. Although we agree with Standard's contentions as to several instructions, we do not agree that outright reversal is thereby mandated.

Having been advised that a verdict against Standard could rest on a finding that 'the defendant did not act in good faith' and that 'when the insuror (sic) unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability,' the jury was told: 'In every insurance contract there is an implied covenant of good faith and fair dealing.' Standard concedes that this was a correct statement of the law but contends that it has no bearing on any issue in this litigation. We do not agree. The sole theory upon which the case went to the jury was that Standard had tortiously breached the implied-in-law covenant of good faith and fair dealing. Obviously, if a tortious breach of a covenant of good faith and fair dealing is the gravamen of the plaintiff's claim, it is not improper for the court to instruct that such a duty exists.

Standard contends that the instructions insufficiently define or describe the conduct that will constitute a breach of the duty of good faith and fair dealing. As previously noted, the jury was told: 'When the insuror (sic) unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability.' This instruction was rendered at the request of plaintiff. At the request of Standard the court also instructed: 'In determining whether the plaintiff is entitled to consequential damage as described in these instructions, you should determine whether or not the insurance company or the individuals acted in good faith, (sic) one test is to ask yourself whether an ordinary and prudent insurance company or individual desiring to treat its policyholders fairly and reasonably, would have acted as they did.' In combination these instructions come pretty close to the mark. Perhaps it would have been slightly more informative also to instruct that when an insurer refuses to pay the claim of its insured without a reasonable belief that it has a legitimate defense to the payment of such claim, such conduct constitutes a breach of the covenant of good faith and fair dealing. But Standard did not request such an instruction. The only instruction requested by Standard on this point is that quoted above, and that instruction was given. If Standard was not satisfied with the instruction on this point, it was incumbent upon it to request more complete, appropriate instructions of its own. (Downing v. Barrett Mobile Home Transport, Inc., 38 Cal.App.3d 519; 523, 113 Cal.Rptr. 277; 4 Witkin, Cal.Procedure (2d ed.) p. 3013 and cases there cited.) 'In a civil case, each of the parties must propose complete and comprehensive instructions in accordance with his theory of the litigation; if the parties do not do so, the court has no duty to instruct on its own motion.' (Downing v. Barrett Mobile Home Transport, Inc., supra, 38 Cal.App.3d at p. 523, 113 Cal.Rptr. at p. 280 and cases there cited.)

We do agree that inasmuch as no ambiguous provision of the insurance policy was at issue in the case, it was improper to instruct: 'Doubts as to the meaning of terms used in an insurance policy must be resolved against the insuror (sic), and any exception to the performance of the basic underlying obligation must be stated clearly so as to apprise the insured of its effect.' The standard instruction to the effect that all instructions are not necessarily applicable (BAJI 15.22 (5th ed.)) was given, however, and we cannot conclude the instruction erroneously given was prejudicial.

Standard also complains of the instruction: 'Under the terms of the policy, Standard Accident, as a matter of law, was obligated to commence payments as of Frank Merlo's first day off work.' The argument is that payments necessarily had to await the filing and processing of plaintiff's claim. The instruction did not inform the jury that payments should have commenced On plaintiff's first day off work but, rather, 'as of' that day. Thus, a reasonable interpretation of the instruction is that, although the payment would actually come to plaintiff at a later date, the benefits should be computed as of his first day off work. A reviewing court '. . . will adopt the construction of an instruction which will support rather than defeat the judgment if it is reasonably susceptible to such interpretation.' (Rupp v. Summerfield, 161 Cal.App.2d 657, 667, 326, P.2d 912, 918.) 'We should and must assume that the jury is constituted of reasonable men and women, and that they construed the instructions as would reasonable men and...