Miller v. National American Life Ins. Co.

• Decision Date: 14 January 1976
• Citation: 54 Cal.App.3d 331,126 Cal.Rptr. 731
• Court: California Court of Appeals Court of Appeals
• Parties: William C. MILLER, Plaintiff-Respondent and Appellant, v. NATIONAL AMERICAN LIFE INS. CO. OF CALIFORNIA, Defendant-Appellant and Respondent. Civ. 35575.

Page 731

126 Cal.Rptr. 731

54 Cal.App.3d 331

William C. MILLER, Plaintiff-Respondent and Appellant, v. NATIONAL AMERICAN LIFE INS. CO. OF CALIFORNIA, Defendant-Appellant and Respondent.

Civ. 35575.

Court of Appeal, First District, Division 4, California.

Jan. 14, 1976.

Carroll, Burdick & McDonough, John K. Stewart, Franklin Silver, San Francisco, for defendant, appellant and cross-respondent.

Garry, Dreyfus, McTernan, Brotsky, Herndon & Pesonen, Inc., David E. Pesonen, San Francisco, for plaintiff, respondent and cross-appellant.

CALDECOTT, Presiding Justice.

Plaintiff, respondent and cross-appellant William C. Miller (hereinafter respondent) commenced this action against defendant, appellant and cross-respondent National American Life Insurance Company of California (hereinafter appellant) in the Superior Court of the City and County of San Francisco. The complaint set forth two causes of action: breach of a contract of disability insurance, and fraud in inducing respondent to enter the contract. The complaint sought compensatory and punitive damages.

Following a jury trial judgment was entered in favor of respondent for $9,203.34 general damages and $125,000 punitive damages. Appellant moved for judgment notwithstanding the verdict and a new trial. The court denied the motion for judgment notwithstanding the verdict, but conditionally granted the motion for new trial on the issue of punitive damages unless respondent would remit $85,000 of the punitive damage award. Respondent filed the remittitur, which stated that 'said waiver, which is unconditional for the purpose of entry of judgment, shall be without prejudice to plaintiff's raising all legal issues growing out of the trial and post-trial proceedings herein in any appeal that may be taken from the judgment.' Appellant appealed from the judgment and the order denying the motion for judgment notwithstanding the verdict. Respondent filed a notice of cross-appeal 'from the order conditionally granting defendant's motion for a new trial.'

Although appellant's notice of appeal purports to be from the entire judgment, appellant has limited its appeal to the issues of fraud and punitive damages, ¹ and respondent has cross-appealed as to the reduction of punitive damages.

I

Appellant contends that the evidence is insufficient to support the verdict of fraud and the award of punitive damages. Respondent pleaded (and instructions were given upon) two causes of action: breach of contract, and fraud in the inducement of the contract. The complaint sought both compensatory and punitive damages.

The applicable statute governing punitive damages is Civil Code section 3294: 'In an action for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice, express or implied, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.' Punitive damages are not available in an action based solely upon breach of a contractual obligation, even where the breach is intentional, wilfull, or in bad faith. (Crogan v. Metz, 47 Cal.2d 398, 405, 303 P.2d 1029; Freedman v. Rector, 37 Cal.2d 16, 21--22, 230 P.2d 629.) However, if the action is also in tort, 'exemplary damages may be recovered upon a proper showing of malice, fraud or oppression even though the tort incidentally involves a breach of contract.' (Schroeder v. Auto Driveaway Co., 11 Cal.3d 908, 921, 114 Cal.Rptr. 622, 631, 523 P.2d 662, 671; Fletcher v. Western National Life Ins. Co., 10 Cal.App.3d 376, 400, 89 Cal.Rptr. 78.)

Respondent's claim of fraud, though incident to the contract, is in tort, and will support a punitive damage award upon proper proof. (Kuchta v. Allied Builders Corp., 21 Cal.App.3d 541, 549, 98 Cal.Rptr. 588; Wetherbee v. United Insurance Co. of America, 265 Cal.App.2d 921, 928--929, 71 Cal.Rptr. 764.) Indeed, insofar as the words 'oppression, fraud, or malice' in Civil Code section 3294 are in the disjunctive, proof of the cause of action for fraud is itself an adequate basis for awarding punitive damages. (Oakes v. McCarthy Co., 267 Cal.App.2d 231, 263, 73 Cal.Rptr. 127.) The court below correctly instructed that, in order to award punitive damages, the jury would have to first find for respondent on the fraud cause of action; a finding for respondent on the breach of contract cause alone would only support compensatory damages. ²

Appellant has attacked the sufficiency of the evidence to sustain the jury's finding of fraud, which is implicit in its award of punitive damages. ³ Appellant contends that the evidence is insufficient in two regards: the element of misrepresentation, and the element of intent to defraud at the time representations were made.

The principles governing appellate review of the sufficiency of evidence to support the verdict have been stated as follows: '(1) all conflicts must be resolved for the respondent and all legitimate and reasonable inferences indulged in to uphold the verdict where possible; (2) the appellate court's power begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the jury's conclusion; and (3) when two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court.' (Estate of Gelonese, 36 Cal.App.3d 854, 861, 111 Cal.Rptr. 833, 837.)

The court instructed the jury that two representations by appellant were alleged by respondent: '(a) that it would pay plaintiff's monthly mortgage payments in the event that plaintiff was totally disabled from performing his occupation as a painter said payments to be made for a period up to a maximum of twelve months, and (b) that defendant would pay plaintiff's monthly mortgage payments in the event that the plaintiff was totally disabled from performing an occupation or employment for which he was reasonably qualified by reason of his station in life, his education, training, and experience for an additional period up to a maximum of 48 months.'

Appellant asserts that these representations, admittedly contained only in the insurance policy and not in any communications to the respondent prior to his entering into the contract, are insufficient as a matter of law. Without citation of authority, appellant asserts that representations in the contract itself will not support a finding of fraud; rather, he claims that specific false communications distinct from and prior to the agreement are required.

The contention is without merit. It is well settled that a 'promise made with no intention of performing is actionable fraud where the other party relies upon it as an inducement to enter into an agreement.' (Brockway v. Heilman, 250 Cal.App.2d 807, 811, 58 Cal.Rptr. 772, 775.) Although the two cases most closely analogous to the instant situation involved representations in addition to those in the contract itself (Wetherbee v. United Insurance Co. of America, supra; Sharp v. Automobile Club of So. Cal., 225 Cal.App.2d 648, 37 Cal.Rptr. 585), in one the court also found fraud in the fact that the insurance company never intended to fulfill the term of its policies. (Wetherbee, supra, 265 Cal.App.2d at p. 932, 71 Cal.Rptr. 764.) While the inducement may be more blatant where, as in Wetherbee, the insurance company misrepresents its intentions in a separate letter intended to dissuade an insured from terminating his coverage, it is no less apparent where, as here, it is found in the very contractual promises that constitute the consideration for which the insured enters the agreement and exchanges his premium payments. (Cf. Glesenkamp v. Nationwide Mutual Insurance Co., D.C., 344 F.Supp. 517, 518--519.) ⁴

Appellant's second contention is that there was no evidence that it intended not to honor its contractual promises at the time the agreement was entered. 'The law is established in California that, since direct proof of fraudulent intent is often an impossibility, because the real intent of the parties and the facts of a fraudulent transaction are peculiarly in the knowledge of those sought to be charged with fraud, proof indicative of fraud may come by inference from circumstances surrounding the transaction, the relationship, and interest of the parties.' (Taylor v. Osborne-Fitzpatrick Fin. Co., 57 Cal.App.2d 656, 661, 135 P.2d 598, 600; Santoro v. Carbone, 22 Cal.App.3d 721, 727--728, 99 Cal.Rptr. 488.) Subsequent conduct of an insurer in processing a claim any support an inference of prior intent not to fulfill its representations. (Wetherbee, supra, 265 Cal.App.2d at p. 932, 71 Cal.Rptr. 764.)

In the instant case there was sufficient evidence concerning appellant's conduct to support such an inference. The policy involved was one of the two most commonly used by appellant. The doctor's certificate on the claim form read: 'How long was or will patient be continuously disabled (unable to work)? From 19 through 19 .' Claims examiners were instructed that it was company policy to read the word 'through' in its claims forms as 'to,' indicating termination of disability, even though there were no instructions on the form to so indicate to the attending physician. ⁵ Benefits were terminated automatically in this fashion, without inquiry as to the doctor's intended meaning.

Moreover, appellant relied on its own interpretation of the physician's subsequent statement, again without communicating with the doctor in spite of its own admitted uncertainty (evidenced by the testimony and actions of the claims examiner, who was forced to seek assistance from his superior). The wording of the questions, the policy of interpretation without warning or guidance to the attending physician, and the failure to consult the doctor as to an acknowledged uncertainty all lend support to the inference of an intent...