Parry v. 20th Century Ins. Co.

• Decision Date: 25 February 1988
• Docket Number: No. B026886,B026886
• Citation: 244 Cal.Rptr. 367,198 Cal.App.3d 1207
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 198 Cal.App.3d 1207 198 Cal.App.3d 1207 Kimberly PARRY, Plaintiff and Appellant, v. 20TH CENTURY INSURANCE COMPANY, Defendant and Respondent.

Page 367

244 Cal.Rptr. 367

Previously published at 198 Cal.App.3d 1207

198 Cal.App.3d 1207

Kimberly PARRY, Plaintiff and Appellant, v. 20TH CENTURY INSURANCE COMPANY, Defendant and Respondent.

No. B026886.

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

Feb. 25, 1988.

As Modified March 18, 1988.

Review Granted May 2, 1988.

Gil Todd Siegel, Beverly Hills, for plaintiff and appellant.

Demler, Armstrong & Rowland and Michaela O'Brien and James G. Boedecker, Long Beach, for defendant and respondent.

CROSKEY, Associate Justice.

Plaintiff and appellant Kimberly Parry ("Parry") appeals from the summary judgment entered in favor of defendant and respondent 20th Century Insurance Company ("20th Century") in a statutory bad faith action. ¹ (Ins. Code, § 790.03, subd. (h).) ²

FACTS AND PROCEDURAL BACKGROUND

The facts essential to a determination of this appeal are not in dispute. On December 17, 1986, 20th Century filed a motion for summary judgment in which it made a showing as to the following matters which were not contested by Parry:

1. That on April 19, 1983, Parry was involved in a automobile accident with a vehicle driven by Staci Parker ("Parker") who was insured by 20th Century;

2. That on February 15, 1984, Parry filed an action against Parker to recover damages for the injuries which she allegedly suffered in the accident;

3. That on July 11, 1984, Parry agreed to accept in full settlement of her lawsuit against Parker the sum of $100,000 which 20th Century agreed to and did in fact pay;

4. That in exchange for such payment Parry executed a "Release of All Claims ", printed on a form submitted by 20th Century, which contained the following language: "It is further understood and agreed that this settlement is the compromise of a doubtful and disputed claim, and that the payment is not to be construed as an admission of liability on the part of Staci Parker ... by whom liability is expressly denied " (Emphasis added.) ³ ;

5. That as a result of such settlement there was no judicial determination of the liability of Parker for the accident involving Parry, nor was there any admission by Parker that she was in any way liable for the accident. No such determination was ever made and Parry's action against Parker was dismissed with prejudice on July 18, 1984 in accordance with the settlement;

6. That Parry concedes that 20th Century did not commit fraud in its handling of the underlying claim, but rather that the claim against 20th Century is based upon alleged violations of section 790.03, subdivision (h). ⁴

Based upon such record of undisputed facts, the trial court granted 20th Century's motion for summary judgment on March 10, 1987. ⁵ Parry prosecutes this appeal.

ISSUE PRESENTED

The specific issue presented by Parry's appeal is whether or not a third party claimant may prosecute an action under section 790.03, subdivision (h), against an insurer after the claimant's action for damages against the insured has been settled and concluded by (1) the payment of an agreed consideration to the claimant, (2) the execution by the claimant of a release which recites that liability was in dispute and is not admitted and (3) a dismissal without a judgment or other determination of the insured's liability. We conclude that a claimant may not, as a matter of law, prosecute the action under such circumstances and therefore affirm the judgment.

DISCUSSION

This issue arises from, but is not expressly resolved by, the Supreme Court's opinion in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329. In that case, it was established that a third party claimant, injured by the negligence of an insured, may sue an insurer for violating section 790.03, subdivision (h). However, the Court imposed the limitation "that the third party's suit may not be brought until the action between the injured party and the insured is concluded." ( Id. at p. 884, 153 Cal.Rptr. 842, 592 P.2d 329.) The Court stated: "[P]laintiff may not sue both the insurer and the insured in the same lawsuit. Section 1155 of the Evidence Code provides that evidence of insurance is inadmissible to prove negligence or wrongdoing. The obvious purpose of the provision is to prevent the prejudicial use of evidence of liability insurance in an action against an insured. [Citations.] A joint trial against the insured for negligence and against the insurer for violations of its duties under subdivision (h) would obviously violate both the letter and spirit of the section.

"Moreover, unless the trial against the insurer is postponed until the liability of the insured is first determined, the defense of the insured may be seriously hampered by discovery initiated by the injured claimant against the insurer. In addition, damages suffered by the injured party as a result of the insurer's violation of subdivisions (h)(5) and (h)(14) may best be determined after the conclusion of the action by the third party claimant against the insured." (Royal Globe Ins. Co. v. Superior Court, supra, 23 Cal.3d at pp. 891-892, 153 Cal.Rptr. 842, 592 P.2d 329, fn. omitted, emphasis supplied.)

A number of appellate courts have struggled with the question of the extent to which the prior determination of the insured's liability is a necessary prerequisite for a statutory bad faith action against an insurer. The issue has been discussed primarily in the Royal Globe terms of the need for the conclusion of the underlying action by the third party claimant against the insured and to what extent, if at all, such conclusion either includes, or must be accompanied by, the predetermination of the insured's liability. ⁶

In Nationwide Ins. Co. v. Superior Court (1982) 128 Cal.App.3d 711, 180 Cal.Rptr. 464, the injured claimant sued the insured. A trial resulted in a jury verdict in favor of the claimant. While an appeal by the insured was pending in that action, the claimant sued the insurer for violating provisions of section 790.03, subdivision (h). The appellate court issued a peremptory writ of mandate directing the trial court to sustain the insurer's demurrer, grant its motion for judgment on the pleadings and dismiss the action. The court interpreted Royal Globe to require a "judgment establishing the liability of the insured" as a condition to instituting an action against the insurer. (Id. at p. 714, 180 Cal.Rptr. 464.) ⁷

In Williams v. Transport Indemnity Co. (1984) 157 Cal.App.3d 953, 203 Cal.Rptr. 868, the widow of a decedent involved in an accident with the insured brought a bad faith action against the insurer. The decedent had never initiated any legal action to establish the liability of the insured, nor did his estate. The appellate court affirmed the granting of summary judgment in favor of the insurer, citing Nationwide.

The widow in Williams argued that the concerns motivating the holding in Royal Globe that the underlying action must be concluded were not present in her case since the statute of limitations barred any action against the insured. She asserted that the issue was whether the insurer failed promptly to attempt settlement at the time liability became reasonably clear and not whether the insured was liable for the injuries to her husband. The court disagreed. In addition, it also rejected her claim that settlement is an admission of liability so as to satisfy the Royal Globe criteria: "Plaintiff intimates that defendants' prompt settlement of the decedent's property damage claim may be deemed an admission of the insured's liability, but as noted, ante, a settlement does not act as an admission of liability with respect to any other claim arising from the same incident. ( Rodriguez v. Fireman's Fund Ins. Companies, Inc., supra, 142 Cal.App.3d 46, 55, 190 Cal.Rptr. 705.) Hence, the record contains no admission of the insured's liability. Absent such an admission or a legal determination of liability, the liability of the insured remains in issue and the concerns addressed by Royal Globe Ins. Co. v. Superior Court, supra, 23 Cal.3d 880 [153 Cal.Rptr. 842, 592 P.2d 329] retain vitality...." ( Williams v. Transport Indemnity Co., supra, 157 Cal.App.3d at p. 960, 203 Cal.Rptr. 868.)

In Sych v. Insurance Co. of North America (1985) 173 Cal.App.3d 321, 220 Cal.Rptr. 692, trial of the underlying action resulted in a judgment for the insured which was affirmed on appeal. The third party then brought an action against the insurer alleging violations of various provisions of section 790.03, subdivision (h), but focusing primarily on a violation of subdivision (h)(5). Affirming the dismissal of the action by the trial court after it sustained the insurer's demurrer without leave to amend, the appeals court stated: "Since, appellant's complaint admits that a jury had determined Doctor Innes was not liable for appellant's injury, it lacks an essential element of a prima facie case for violation of section 790.03, subdivision (h)(5), and fails to state facts sufficient to constitute a cause of action. [Citation.]" (Id. at pp. 327-328, 220 Cal.Rptr. 692.)

In Heninger v. Foremost Ins. Co., supra, 175 Cal.App.3d 830, 221 Cal.Rptr. 303, a mobile home park resident's trailer and contents were damaged by one of the park's trees. The resident presented a claim to the park's insurer. The claim was settled for a sum that the resident alleged was less than to which he was entitled. The resident signed a release of all claims striking out all references to the insurer. No action was filed against the insured park owner. The resident later filed a complaint against the insurer; a demurrer to the complaint was sustained and the action dismissed. The appeals court affirmed the dismissal on grounds that there had been no final determination of the insured's liability.

In Taylor v. California State Auto. Assn. (1987) 194 Cal.App.3d 1214, 240 Cal.Rptr. 107, a pedestrian injured in an automobile accident brought an action...