Reichert v. General Ins. Co. of America

• Decision Date: 23 June 1967
• Citation: 59 Cal.Rptr. 724,428 P.2d 860
• Court: California Supreme Court
• Parties: Ronald O. REICHERT, Plaintiff and Appellant, v. GENERAL INSURANCE COMPANY OF AMERICA et al., Defendants and Respondents. L.A.28767.

Page 724

59 Cal.Rptr. 724

428 P.2d 860

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.

June 23, 1967.

Louis Most, Los Angeles, 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, and Graham G. Campbell, San Francisco, for defendants and respondents.

PETERS, Associate Justice.

Plaintiff appeals from a judgment entered after demurrers to his second amended complaint were sustained without leave to amend. Plaintiff also purports to appeal from the trial judge's denial of a motion for the judge to disqualify himself. The judge's order refusing to disqualify himself is not appealable (Cothran v. San Jose Water Works, 89 Cal.App.2d 518, 201 P.2d 85), but his refusal may be reviewed as part of the appeal from the final judgment (Oak Grove School Dist. of Santa Clara County v. City Title Ins. Co., 217 Cal.App.2d 678, 693, 32 Cal.Rptr. 288).

Allegations common to all three of plaintiff's complaints may be summarized as follows: Plaintiff purchased a 325-unit motel worth $1,500,000. As part of the transaction he took assignments of four fire insurance policies with a total coverage of $1,375,000. Concurrently with the assignment, agents for the four fire insurance companies promised plaintiff all the protection he needed against the peril of fire loss. On February 19, 1964, a fire caused $424,000 of damage to the motel, but the insurance companies denied plaintiff's claim for indemnity. In July 1964 some of plaintiff's creditors had him adjudicated an involuntary bankrupt. Bankruptcy was followed by foreclosure of an $850,000 deed of trust on the motel.

The original complaint in this action was filed on December 11, 1964. Named as defendants were the four fire insurance companies and American National Insurance Company, the beneficiary of the deed of trust on the motel. The complaint alleged that although the fire insurance companies had promised to promptly indemnify plaintiff for fire loss, they never intended to carry out their promises. The complaint also alleged that the four fire insurers and American National had conspired to deny plaintiff's claim so that plaintiff would lose his equity in the motel. Plaintiff asked for $1,500,000 actual damages and $5,000,000 punitive damages.

Judge Steele sustained demurrers to this complaint. One of the grounds for sustaining the demurrers was that plaintiff lacked the capacity to sue, for the reason that his causes of action had passed to the trustee in bankruptcy.

Plaintiff's first amended complaint omitted the misrepresentation and conspiracy allegations of the original complaint and did not name American National as a defendant. Instead, plaintiff asserted that the fire insurance companies' refusal to pay was oppressive and fraudulent and caused plaintiff to lose his motel and be adjudicated a bankrupt. Plaintiff sought $1,500,000 for loss of the motel, punitive damages of $5,000,000, and the premiums paid for the policies. He did not claim the $424,000 allegedly owed him for the fire damage to the motel. ¹

Demurrers to that complaint were heard before Judge Borton. He sustained the demurrers because, among other things, he found that plaintiff lacked the capacity to sue.

The second amended complaint is substantially the same as the first amended complaint, except that it asserts in addition that the fire insurance companies were acting in bad faith when they refused to satisfy plaintiff's claims.

On June 14, 1965, plaintiff's attorney appeared before Judge Borton for argument on the demurrers to the second amended complaint. The lawyer made an oral motion to disqualify the judge under Code of Civil Procedure section 170, subdivision 4. ² Counsel alleged, and the judge admitted, that until January 9, 1964, the judge had been associated with the law firm that represented American National Insurance Company, which had been named as a defendant in the original complaint. Judge Borton denied the motion to disqualify.

The parties then argued the demurrers. Plaintiff's lawyer insisted that the plaintiff's causes of action had not vested in the trustee. He said that the second amended complaint was as well drawn as he could make it, and he invited the court to sustain the defendant's demurrers without leave to amend.

The judge sustained the demurrers without leave to amend. The court's order recited that (1) plaintiff had not stated a cause of action for any recoverable element of damages and (2) any cause of action stated by plaintiff had passed to the trustee in bankruptcy.

The point involved in the claimed disqualification of Judge Borton need not be passed upon, because the judgment must be reversed for other reasons. It should be mentioned that section 170, subdivision 5, of the Code of Civil Procedure while making it the duty of a judge who knows of facts disqualifying him to disqualify himself on his own motion, also provides that where the judge does not do so the party claiming disqualification may file with the clerk a written statement setting forth the grounds for the disqualification, and that the judge may file a written answer within five days. When the judge does not act on his own initiative the procedure last above outlined apparently provides the sole method by which a party can disqualify a judge under section 170, subdivision 4. (See People v. Kirk, 98 Cal.App.2d 687, 693, 220 P.2d 976; cf. Bompensiero v. Superior Court, 44 Cal.2d 178, 183, 281 P.2d 250.)

On the merits, we are of the opinion that the complaint states a good cause of action against each insurer for several types of damages, and we are further of the opinion that the right to sue for some of those damages may not have passed to the trustee in bankruptcy.

An insurance policy is, of course, a contract. (Ins.Code, § 22.) For breach of contract the usual measure of damages is all detriment flowing from the breach which the breaching party contemplated or should have contemplated at the time of contracting as likely to result from his failure to perform. (Civ.Code, § 3300; Weaver v. Bank of America, 59 Cal.2d 428, 434, 30 Cal.Rptr. 4, 380 P.2d 644; Ely v. Bottini, 179 Cal.App.2d 287, 294, 3 Cal.Rptr. 756.)

Where the owner of a heavily mortgaged motel or other business property suffers a substantial fire loss, the owner may be placed in financial distress, may be unable to meet his mortgage payments, and may be in jeopardy of losing his property and becoming a bankrupt. A major, if not the main, reason why a businessman purchases fire insurance is to guard against such eventualities if his property is damaged by a fire. Certainly, the property owner who purchases fire insurance may reasonable expect that if a fire occurs, the insurance proceeds will be promptly available to protect him from those eventualities. The business of the fire insurer is to provide such protection. Insurers are, of course, chargeable with knowledge of the basic reasons why fire insurance is purchased, and of the likelihood that an improper delay in payment may result in the very injuries for which the insured sought protection by purchasing the policies.

The question a particular kind of damages is within the reasonable contemplation of the parties is not one which ordinarily can be resolved on demurrer. (Weaver v. Bank of America, supra, 59 Cal.2d 428, 434, 30 Cal.Rptr. 4, 380 P.2d 644.) Certainly this court cannot say, as a matter of law, that at the time of contracting the defendants should not have contemplated that plaintiff would be in very serious financial trouble if a fire destroyed one-third of his motel and the insurers refused to perform their contractual obligations. (Cf. Venturi v. Zurich General A. & L. Co., 14 Cal.App.2d 89, 57 P.2d 1002; Henkel v. Pacific Employers Ins. Co., 140 Cal.App.2d 301, 305-07, 295 P.2d 80)

The insurers' liability is not limited to the amount specified in the policy (Ins.Code, § 2071). (See Crisci v. Security Ins. Co., 66 A.C. 435, 58 Cal.Rptr. 13, 426 P.2d 173; Communale v. Traders & General Ins. Co., 50 Cal.2d654, 328 P.2d 198, 68 A.L.R.2d 883; Venturi v. Zurich General A. & L. Co., supra, 14 Cal.App.2d 89, 57 P.2d 1002.) "The policy limits restrict only the amount the insurer may have to pay in the performance of the contract * * * they do not restrict the damages recoverable by the insured for a breach of contract by the insurer." (Communale, supra, 50 Cal.2d at p. 659, 328 P.2d at p. 201.)

It is clear that plaintiff has alleged sufficient facts to show detriment which, within the meaning of section 3300 of the Civil Code, the breaching party contemplated or should have contemplated at the time of contracting as likely to result from his failure to perform.

The fire insurers urge, however, that the ordinary measure of damages for breach of contract set forth in section 3300 of the Civil Code is not applicable, that the damages recoverable here are set forth in section 3302 of the Civil Code, and that the latter section provides the exclusive measure of damages for breach of an obligation to pay money.

Section 3302 of the Civil Code provides: "The detriment caused by the breach of an obligation to pay money only, is deemed to be the amount due by the terms of the obligation, with interest thereon."

An analogous problem was presented in Royer v. Carter, 37 Cal.2d 544, 550, 233 P.2d 539. Royer held that section 3307 ³ of the Civil Code does not provide the exclusive measure of damages for breach of an agreement to purchase an estate in real property and that a seller can recover not only the excess of the amount due under the contract over the value of the property to him but also additional expenses, such as escrow charges, title charges, and broker's fees,...