Richardson v. Employers Liab. Assur. Corp.

Decision Date28 April 1972
PartiesWalter C. RICHARDSON and Florence White Richardson, Plaintiffs and Respondents, v. EMPLOYERS LIABILITY ASSURANCE CORPORATION, Ltd., etc., Defendant and Appellant. Civ. 37896.
CourtCalifornia Court of Appeals Court of Appeals

Shield & Smith and Theodore P. Shield, Santa Ana, for defendant and appellant.

Sanford M. Gage, Beverly Hills, for plaintiffs and respondents.

SCHWEITZER, Associate Justice.

Defendant, Employers Liability Assurance Corporation, Ltd., appeals from a judgment for $75,000 and $100,000 in favor of plaintiffs, Walter C. and Florence White Richardson respectively, entered on general jury verdicts. The judgment is based upon the refusal of Employers, insurer, to settle In good faith, without arbitration, the claim of the Richardsons, Employers' insured, for the policy limits of $10,000 apiece under the uninsured motorist provisions of the policy.

Facts

On January 30, 1968 Michael Squalls drove an automobile through a boulevard stop sign at an intersection in Los Angeles and struck a vehicle driven by Carmella Cook. The Cook vehicle was forced into the Richardson car. Richardson car, driven by Walter Richardson, went out of control and struck an adjoining gas station. Both Richardsons sustained very severe injuries and their car was heavily damages.

The accident was reported within a week to Employers by the agent who had sold the Richardsons their insurance policy. In his report the agent stated that Richardson had told him that Squalls had no insurance. An investigation of the accident for Employers was promptly begun. It was completed by March 21, 1968. It indicated that the three-car accident had been caused solely by the negligence of Squalls and that Squalls represented that he was uninsured at the time of the accident. 1 About this time the Richardsons' attorney wrote the local office of Employers and stated that Squalls was uninsured at the time of the accident.

The home office of Employers would not accept these conclusions. It took the position that uninsured motorist claims should be assumed and paid 'only as a last resort,' that further investigation should be made of whether Squalls was insured and of possible liability on the part of either Carmella Cook, who was insured, or of Employers' own insured, Walter Richardson, and that upon the completion of such investigation the Richardson claim should be immediately referred to Employers' local counsel. The further investigation and the reference to counsel were made. Toward the end of April 1968 the local office of Employers reported to the home office that further investigation indicated 'a valid uninsured motorist claim.'

The home office immediately rejected this conclusion under its 'last resort' policy and suggested that the Richardsons' attorney be advised 'that this is not a case of uninsured motorist' and that he should sue Carmella Cook. This advice was given to the attorney by the local office of Employers.

By letter dated May 28 the Richardsons' attorney notified Employers that since Mrs. Richardson's medical expenses exceeded $10,000 and Mr. Richardson's totaled over $3,000, the settlement demand for each was $10,000, and that if this demand was not met by June 12, they would initiate arbitration proceedings under the policy. The settlement demand was refused and the Richardsons' attorney took the claim against Employers to arbitration on June 12. 2

By letter dated July 31 the Richardsons' attorney renewed his demand that Employers pay the policy limits ($10,000 apiece) under the uninsured motorist coverage, threatened litigation if payment was not made, and stated that the settlement offer would remain open only until August 31; the date was later extended to September 23. On August 8 Richardsons' attorney sent Employers a copy of Mrs. Richardson's hospital bill in the amount of $13,616.47.

By memorandum dated September 11 the local office of Employers advised the home office that 'our counsel thinks plaintiff's theory of bad faith may be a good one.'

By letter dated September 17 counsel for Employers advised counsel for the Richardsons that Employers could not accede to the settlement demand because it had no proof that Squalls was uninsured at the time of the accident. Richardsons' attorney furnished Employers with a requisite DMV certificate of noninsurance and on September 27 the local office of Employers recommended to the home office that the claim be settled for the policy limits. The home office rejected this recommendation on the baseless groun that negligence on the part of Cook contributed to the accident.

An arbitration hearing was held on October 7; the Richardsons presented a full and documented case on both liability and damages; Employers presented no evidence. On November 6 the arbitrator awarded the Richardsons the full policy limits. Notwithstanding this fact, the home office was still unwilling to pay the award in full; it authorized the local office 'to make best possible settlement up to $20,000.' The Richardsons' attorney thereupon initiated proceedings to have the award judicially confirmed; a judgment was obtained on January 24, 1969. Employers made full payment of the award on or about February 6, 1969--a little over a year after the accident. 3

The foregoing facts disclose the the Employers' investigation of the circumstances of the accident was essentially completed by the end of March 1968, some two months after the accident.

Employers' local claims supervisor, who supervised the investigation of the claim, testified that his opinion was that a full settlement of the claim ($20,000) was justified. An attorney who specialized in personal injury litigation testified that the Richardsons' case was one 'of clear liability under the uninsured motorist's protection' and that the reasonable settlement value for Mrs. Richardson's injuries was $30,000 to $50,000 and that for Mr. Richardson's injuries was $60,000 to $80,000.

The actual damages occasioned the Richardsons by the failure of Employers to settle their claims without arbitration, without allowance of interest for late payment, amounted to $1,996.93 in increased contingent attorney's fees and their share of the cost of the arbitration proceeding.

The Nature of the Action

] In every insurance policy there is implied by law a covenant of good faith and fair dealing. (See Comunale v. Traders & General Ins. Co.,50 Cal.2d 654, 658, 328 P.2d 198; Fletcher v. Western National Life Ins. Co., 10 Cal.App.3d 376, 401, 89 Cal.Rptr. 78, hg. den.) This implied obligation requires an insurer to deal in good faith and fairly with its insured in handling an insured's claim against it. Here, Employers deliberately, willfully and in bad faith withheld payment of the Richardson claim months after it knew the claim to be completely valid; it forced an arbitration hearing on a claim against which it already knew that it had no defense; even after the award was made, it instructed its local office to attempt 'to make the best possible settlement,' and forced plaintiffs to resort to litigation to have the award judicially confirmed. This conduct toward its own insured was unconscionable, and constituted a tortious breach of contract. (See Comunale, supra, 50 Cal.2d at p. 663, 328 P.2d 198; Crisci v. Security Ins. Co., 66 Cal.2d 425, 432--433, 58 Cal.Rptr. 13, 426 P.2d 173.) The duty violated--that of dealing fairly and in good faith with the other party to a contract of insurance--is a duty imposed by law, not one arising from the terms of the contract itself. In other words, this duty of dealing fairly and in good faith is nonconsensual in origin rather than consensual. Breach of this duty is a tort. (See In re Bongfeldt, 22 Cal.App.3d 465, 468--469, 99 Cal.Rptr. 428; Laczko v. Jules Meyers, Inc.,276 Cal.App.2d 293, 295, 80 Cal.Rptr. 798.)

Jury Instructions

Employers contends that certain instructions misled the jury as to the nature of the action and set forth improper items of damages.

5] 1. Nature of Action. Employers refers to modified BAJI instruction 2.60, numbered by the court as 14, on the burden of proof and to two instructions requested by the Richardsons (plaintiffs' instructions 4 and 6), numbered by the court as 17 and 18. 4 The word 'injuries' appears twice in BAJI 2.60; since this action is not predicated upon personal injuries but on a tortious breach of contract, the reference to injuries was not proper. We note that the instruction was discussed in chambers and that defense counsel confined his objection to the provisions in the instruction relating to good faith. As we have pointed out, good faith was a proper issue and the instruction properly referred thereto. Apparently defense counsel considered the reference to injuries as insisgnificant; we agree and conclude that neither the jury was misled nor the defendant prejudiced by the reference therein to injuries.

Instructions 17 and 18 are based on Crisci, supra, 66 Cal.2d 425, 58 Cal.Rptr. 13, 426 P.2d 173, and Comunale, supra, 50 Cal.2d 654, 328 P.2d 198, and each instruction was objected to by defense counsel on the ground that each applies to third party situations, where an insured is exposed to liability in excess of his policy limits because an insurer violates its implied obligation to act in good faith in protecting its insured. Although we hold that the insurer has an analagous duty in an uninsured motorist case, such as that presented here, we agree with defense counsel that the instructions were inappropriate. However, since the contents thereof contained a correct statement of law in referring generally to the applicable principle of good faith, we conclude that the jury was not misled thereby and that defendant suffered no prejudice as a result.

2. Damages. Pertinent parts of the court's instructions on...

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