Reichert v. General Ins. Co. of America

• Decision Date: 03 July 1968
• Court: California Supreme Court
• Parties: , 442 P.2d 377 Ronald O. REICHERT, Plaintiff and Appellant, v. GENERAL INSURANCE COMPANY OF AMERICA et al., Defendants and Respondents. L.A. 28767.

Page 321

69 Cal.Rptr. 321

68 Cal.2d 822, 442 P.2d 377

Ronald O. REICHERT, Plaintiff and Appellant, v. GENERAL INSURANCE COMPANY OF AMERICA et al., Defendants and Respondents.

L.A. 28767.

Supreme Court of California,

In Bank.

July 3, 1968.

Louis Most, Beverly Hills, for plaintiff and appellant.

Thelen, Marrin, Johnson & Bridges, San Francisco, King, Eyherabide, Cooney & Owen, Bakersfield, Bolton, Groff & Dunne, Los Angeles, Thornton & Taylor, San Francisco, Gene E. Groff, Los Angeles, Graham G. Campbell, Edward J. Ruff and Evans M. Taylor, San Francisco, for defendants and respondents.

SULLIVAN, Justice.

Plaintiff, Ronald O. Reichert, appeals from a judgment of dismissal entered on an order sustaining defendants' demurrers to plaintiff's second amended complaint without leave to amend. ¹

Plaintiff's original complaint, naming five insurance companies as defendants (see fn. 1, ante) and containing a single cause of action, alleged in substance as follows: That on February 1, 1964, plaintiff purchased from defendant American National Insurance Company (American National) 'The Bakersfield Inn,' a 325-unit motel worth $1,500,000; that said seller took back a first deed of trust to secure $850,000 of the purchase price; that as part of the transaction plaintiff received assignments, presumably from the seller, of four fire insurance policies then in effect and issued respectively by the other four defendant insurance companies, thus providing a combined coverage of $1,375,000; that in order to induce plaintiff to purchase the property and the policies, all five defendants represented to plaintiff that they would indemnify him for any damage or loss arising from fire or explosion to the extent of the policy limits; that said defendants further represented that in the event of a loss they would make payment of plaintiff's claims 'fairly and with promptness and dispatch'; that on February 19, 1964, a fire caused damage in the amount of $424,000 to the motel; that the loss was covered by the policies of the four defendant insurers but said defendants refused to honor plaintiff's claim of loss, thereby causing plaintiff to lose possession of the motel; that the representations made by defendants in connection with the policies were false and fraudulent, were made pursuant to a conspiracy to defraud plaintiff, and were made with the intention of not performing the promises given to plaintiff; and that all five defendants acted in concert with the intent and purpose of causing plaintiff to lose his equity in the motel. Plaintiff prayed for $1,500,000 actual and $5,000,000 punitive damages. Defendants' demurrers were sustained with leave to amend upon the ground, among others, that plaintiff lacked capacity to sue.

Plaintiff's first amended complaint named as defendants only the four insurers, the action having been dismissed as to American National. It contained eight stated causes of action: four common counts (one against each defendant separately) for money had and received and four causes of action (one against each defendant) for fraudulent failure to adjust the fire loss promptly. The first amended complaint contained no allegations as to fraudulent representation or conspiracy. Again defendants' demurrers were sustained with leave to amend.

Plaintiff's second amended complaint here under review contains nine separately stated causes of action. Except for an insignificant addition of language in one instance, the first eight counts are a word-for-word repetition of the first amended complaint which, as we have said, was vulnerable to demurrer. To these the pleader has added a ninth cause of action against all defendants 'for bad faith.'

The first four causes of action are common counts against each defendant separately for money had and received. In each instance, the common count, after reciting the corporate status of the particular defendant, alleges that 'on or about February 1, 1964,' said defendant 'received and collected to the use and benefit of the plaintiff' a specified sum of money. ²

In the next four causes of action, after allegations as to the purchase of the motel, the assignment of the insurance policies and the fire loss, plaintiff in separate counts as to each defendant, alleges in words and substance as follows: That although plaintiff did all things necessary, defendants 'did not take steps to adjust and settle the loss and damage' promptly and without delay and denied plaintiff's claim of indemnity; that 'under the contract of insurance the carrier had the duty and obligation to come forward to the aid of its policyholder for the purpose of settling and adjusting the policyholder's loss fairly, promptly and without delay'; that 'The refusal of the insurance carrier to proceed promptly to adjust and settle plaintiff's loss due to the fire, caused plaintiff to lose possession of the property, and as a result of the failure of the carrier to indemnify plaintiff, plaintiff was adjudicated a bankrupt on July 24, 1964'; that 'the bankruptcy of plaintiff was directly caused by the bad faith conduct on the part of the insurer'; that 'in refusing to come to the aid of its policyholder with promptness and dispatch, the defendant insurance carrier is guilty of oppression and fraud, and the insurance carrier has by its actions wilfully refused to perform its contract'; and that 'as a direct result of the fraud and oppression * * * the plaintiff has been deprived of and caused to lose a property reasonably worth $1,500,000.00, all to his damage in that sum.'

The ninth cause of action against all four defendant companies incorporates by reference the aforesaid allegations of fire, loss and refusal on the part of defendants, and further alleges in words and substance that 'by the terms of the policies,' defendants agreed to indemnify plaintiff for the loss; that 'defendants impliedly promised and offered to settle and adjust any losses in a prompt and fair manner without unnecessary delay'; that contrary to their 'promises and representations,' defendants 'did not offer settlement of the loss, nor did they undertake repair of the damaged portions of the property insured'; and that 'As the direct and proximate result and failure to exercise the highest degree, or an ordinary degree, of good faith, care, skill, or diligence for the protection of plaintiff's rights, which were entrusted by plaintiff to defendants for protection, and of the defendants' breach of their trust obligations, plaintiff has been damaged in the amount of $1,500,000.00, plus interest.'

We observe preliminarily that the allegations of the ninth cause positing an Implied contract to adjust the fire loss do not spell out the basis for plaintiff's loss of the motel as precisely as do the allegations of the preceding causes of action positing Express contracts to adjust the loss. Significant, however, is the fact that in none of the allegations of the various complaints or causes contained therein has plaintiff alleged that the compensatory damages which he seeks are related to anything other than the property which was damaged by the fire. Moreover, the $1,500,000 in alleged compensatory damages is the exact amount that the property is alleged to have been worth. Although the complaint contains allegations of bankruptcy, and that the adjudication thereof was 'caused by the bad faith conduct on the part of the insurer,' the fact of the bankruptcy, or the filing of the petition therein, is in no way alleged to have Caused the $1,500,000 loss to plaintiff. According to the allegations, the bankruptcy is not a Cause of plaintiff's loss, but like the loss is a Result of defendants' alleged bad faith, oppressive and fraudulent conduct in failing to come to plaintiff's aid as defendants were expressly or impliedly obligated to do.

All four defendants filed general and special demurrers asserting, inter alia, that the second amended complaint does not, nor does any of its causes of action, state facts sufficient to constitute a cause of action 'in that no cause of action is stated in the plaintiff.' When the parties appeared to argue the demurrers plaintiff's counsel made an oral motion to disqualify the trial judge under Code of Civil Procedure section 170, subdivision 4. ³ Counsel stated, and the judge acknowledged, that until a date shortly prior to the motel fire and less than one year prior to the commencement of the action, the judge had been associated with the law firm which had represented American National, named as a defendant in the original complaint. (See fn. 1, ante.) The motion to disqualify was denied.

The parties then argued the demurrers, defendants contending as they had on the earlier demurrers that plaintiff had not only failed to allege a cause of action arising out of defendants' conduct but that any cause he might allege had become vested in the trustee in bankruptcy upon plaintiff's adjudication and that he therefore lacked capacity to assert such a cause. The court's order sustaining the demurrers without leave to amend recites that plaintiff has not stated a cause of action for any recoverable element of damages, and that any cause of action stated by plaintiff had passed to the trustee. ⁴

The central question in this case is whether the several causes of action pleaded in the second amended complaint are actually vested in plaintiff himself or in his trustee in backruptcy. To put it another way: Has plaintiff shown that he has the right to assert these claims or has such right passed to the trustee?

Our resolution of the problem turns on the federal statute. Section 70 of the Bankruptcy Act (11 U.S.C.A. § 110) provides in pertinent part as follows: '(a) The trustee of the estate of a bankrupt * * * shall * * * be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under this title * * * to all of the following kinds...