Ramirez v. USAA Casualty Ins. Co.

• Decision Date: 24 September 1991
• Citation: 234 Cal.App.3d 391,285 Cal.Rptr. 757
• Court: California Court of Appeals Court of Appeals
• Parties: Jesus RAMIREZ, Plaintiff and Appellant, v. USAA CASUALTY INSURANCE COMPANY, Defendant and Appellant. Civ. C006895.

Page 757

285 Cal.Rptr. 757

234 Cal.App.3d 391

Jesus RAMIREZ, Plaintiff and Appellant, v. USAA CASUALTY INSURANCE COMPANY, Defendant and Appellant.

Civ. C006895.

Court of Appeal, Third District, California.

Sept. 24, 1991.

Rehearing Denied Oct. 22, 1991.

Review Denied Dec. 12, 1991.

Schaefer, Walker & Demartini, John F. Macgregor, San Rafael, and Daniel U. Smith, Kentfield, for plaintiff and appellant.

Stumbos & Mason, Stephen A. Mason and David Yost, Sacramento, for defendant and appellant.

CARR, Associate Justice.

The critical issue tendered by this appeal is whether an insurer owes a duty to its insureds to disclose within a reasonable time the existence and amount of underinsured insurance coverage which may or may not become operative depending on the adequacy of the available bodily injury liability insurance. If such a duty exists, the specific question on this appeal is whether a factual basis for the breach of that duty has been presented by the respondent herein. We shall find that an insurer owes such a duty and that plaintiff Ramirez on the granting of a new trial was properly given leave to amend to state a cause of action based on such breach.

FACTUAL AND PROCEDURAL BACKGROUND

The facts as disclosed by the original complaint are that Jesus Ramirez (Ramirez), then 16 years of age, was the passenger of Todd Rentsch, who was driving a motorcycle insured by USAA Casualty Insurance Company (USAA). ¹ On November 16, 1985, in Lake County, their vehicle collided with a car alleged to have been negligently driven by James Dean Murr (Murr). Murr had only a $15,000/$30,000 bodily injury liability policy issued by American Excel Corporation. ² Ramirez was severely injured. Rentsch's policy contained underinsured motorist coverage of $100,000. Initially, upon inquiry by Ramirez's attorneys, agents of USAA advised that Rentsch's policy provided no coverage for Ramirez's injuries. On July 17, 1987, however, they told Ramirez about the underinsured motorist provision, and Ramirez filed a claim therefor. On February 1, 1988, USAA denied the claim as untimely as it was not filed within one year of the accident.

On April 22, 1988, Ramirez filed a complaint against USAA, and Gene Riggs Company and Cleo Nielsen (collectively, Riggs). The complaint alleged five causes of action based on these facts. The first was for bad faith, including tortious denial of the existence of insurance coverage. The other causes of action were for intentional and negligent misrepresentation, suppression of facts, and breach of fiduciary duty. Each was based on the failure by USAA to inform Ramirez about the existence of potential coverage for his injuries under the Rentsch policy.

USAA answered with a general denial, and raised the affirmative defenses of failure to state a cause of action and comparative fault on Ramirez's part.

USAA cross-complained for equitable indemnity against Ramirez and Peter Windrem and David Herrick, Ramirez's attorneys. The cross-complaint was stricken, and the court denied USAA leave to amend it.

USAA then moved for summary judgment or summary adjudication of issues. The trial court treated the motion as one for judgment on the pleadings and granted the motion. The parties stipulated that the action against Riggs would be stayed pending any appeal of the ruling on USAA's motion.

The order and judgment of dismissal was filed on April 11, 1989.

In the judgment of dismissal the trial court ruled that the underinsured motorist coverage did not apply until the bodily injury liability policies of the vehicles causing the accident had been exhausted. ³ The court also ruled the suit on the policy was not untimely, as no cause of action on the policy could accrue until the action establishing liability under the other policies had been concluded. The court granted judgment on the pleadings because "The complaint does not state a cause of action for bad faith or fraud since duties under the underinsured coverage do not arise until the conditions noted above occur."

On May 8, 1989, Ramirez filed a motion denominated a motion for a new trial or to vacate the judgment. Attached to the motion was a proposed amended complaint. The court granted "reconsideration," modified the prior order to permit leave to amend and ordered the amended complaint filed. ⁴

The new trial was granted by an order denominated "Order of Modification of Prior Order of Dismissal," which recited "The Court's prior ruling [summary judgment deemed a motion for judgment on the pleadings, granted without leave to amend] was based upon the Court's interpretation of the underinsured motorist statute as not providing coverage until the conditions listed in Insurance Code § 11580.2(p)(3) have occurred and the statute of limitations not running from the date of the accident as to underinsured motorists. [p] The Court reaffirms this interpretation. The decision to not grant leave to amend was based upon the theory that until coverage arises it is not bad faith for an insurer to deny coverage or withhold information as to this coverage. Upon reconsideration, the Court agrees with plaintiff that bad faith could occur prior to the coverage's effectiveness as argued by plaintiff--the decision as to how to deal with 'all insured motor vehicles causing the injury' as required by statute is affected by nondisclosure of coverage. Reconsideration granted as to the proper application of the law. The prior ruling is modified to grant leave to amend. The proposed first amended complaint is ordered filed; ten days to respond." ⁵

USAA appealed from the order granting a new trial. Ramirez cross-appealed from the original order granting judgment on the pleadings. ⁶

Ramirez filed suit against Murr and Rentsch in Lake County on June 4, 1987. After the filing of this suit, on July 17, 1987, as noted, USAA told Ramirez about the underinsured coverage, but when he filed a claim it was denied as untimely. ⁷ At oral argument the parties stipulated to the following facts: (1) Murr settled the Lake County case (# 23025) for the policy limits of $15,000, (2) Ramirez's damages for his injuries exceed $100,000 and (3) Ramirez was not negligent.

DISCUSSION

I. Standard of review.

USAA appeals from the order granting a new trial. A new trial may be granted for "Error in law, occurring at the trial and excepted to by the party making the application." (Code Civ.Proc., § 657, subd. (7).) The trial court had no discretion to grant a new trial unless its original ruling, as a matter of law, was erroneous. (8 Witkin, op. cit. supra, Attack on Judgment in Trial Court, § 133, p. 536.)

A judgment on the pleadings is governed by the standards governing a judgment following a successful demurrer. (6 Witkin, op. cit. supra, Proceedings Without Trial, § 263, p. 565.) A general demurrer admits the truth of all material facts alleged in the complaint. If there is a reasonable possibility the defect can be cured the plaintiffs should be given leave to amend. (Concerned Citizens of Costa Mesa, Inc. v. 32nd Dist. Agricultural Assn. (1986) 42 Cal.3d 929, 936, 231 Cal.Rptr. 748, 727 P.2d 1029. See Minsky v. City of Los Angeles (1974) 11 Cal.3d 113, 118, 113 Cal.Rptr. 102, 520 P.2d 726; Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496, 86 Cal.Rptr. 88, 468 P.2d 216.) If there can be no liability as a matter of law the pleader should be given no leave to amend. (Lawrence v. Bank of America (1985) 163 Cal.App.3d 431, 436-437, 209 Cal.Rptr. 541.) As we shall determine, the factual basis for causes of action based on the failure, negligent or intentional, to disclose the underinsured insurance coverage existed. To resolve the appeal we must determine if the court's original grant of judgment on the pleadings without leave to amend was erroneous. We shall find the trial court's original order was erroneous at least insofar as it denied leave to amend and the new trial with leave to amend was properly granted.

II. An insurer owes a duty to disclose to its insured under a policy within a reasonable time after an accident the existence and amount of any underinsured insurance coverage.

We are here concerned with the duty of an insurer to an insured under the policy. Ramirez was a passenger on the insured motorcycle at the time of the accident and was therefore an insured under the USAA underinsured policy provisions pursuant to Insurance Code section 11580.2, subdivision (b) which provides in pertinent part that the term " 'insured' means the named insured and ... any other person while in or upon ... an insured motor vehicle...." Under the underinsured motorist coverage, it is not necessary that an insured be a party to the insurance contract at issue. As stated in Cancino v. Farmers Ins. Group (1978) 80 Cal.App.3d 335 at pages 338-339, 145 Cal.Rptr. 503: "The duty of an insurer to deal in good faith is an aspect 'of the relationship between the defendant insurer and its insured.' [Citation.] Though an insurance contract is indispensable to the existence of such relationship and the insurer must by definition be a party, insureds often are not. This circumstance, however, does not alter the fact that the coverage is provided for their benefit and does not exempt the insurer from the obligations imposed by the public policy of this state protecting insureds from 'unfair ... practices in the business of insurance.' [Citation.]"

The statutory scheme which frames the dispute herein is found in Insurance Code section 11580.2, which defines the parameters of uninsured motorist coverage. ⁸ Subdivisions (a) through (m) discuss uninsured motor vehicle coverage. Subdivision (i) provides a one-year period for commencement of acts prerequisite to recovery on the policy. ⁹ Subdivision (p) applies "only when bodily injury ... is caused by an underinsured motor vehicle," and its provisions prevail over the rest of the statute. (Subd. (p); Campbell v. State Farm Mut. Auto. Ins. Co. (1989) 209...