Royal Globe Ins. Co. v. Superior Court

• Decision Date: 29 March 1979
• Docket Number: S.F. 23843
• Citation: 153 Cal.Rptr. 842,592 P.2d 329,23 Cal.3d 880
• Court: California Supreme Court
• Parties: , 592 P.2d 329 ROYAL GLOBE INSURANCE COMPANY, Petitioner, v. The SUPERIOR COURT OF BUTTE COUNTY, Respondent; Ruth M. KEOPPEL et al., Real Parties in Interest.

Page 842

153 Cal.Rptr. 842

23 Cal.3d 880, 592 P.2d 329

ROYAL GLOBE INSURANCE COMPANY, Petitioner, v. The SUPERIOR COURT OF BUTTE COUNTY, Respondent Ruth M. KEOPPEL et al., Real Parties in Interest.

S.F. 23843.

Supreme Court of California, In Bank.

March 29, 1979.

Rehearing Denied May 17, 1979.

Rust & Armenis, Robert Lea, Jon D. Smock and David C. Rust, Sacramento, for petitioner.

Pettit & Martin, Joseph W. Rogers, Jr., and Susan M. Popik, San Francisco, as amici curiae on behalf of petitioner.

No appearance for respondent.

Minasian, Minasian, Minasian, Spruance & Baber, Oroville, and William H. Baber, III, Chico, for real parties in interest.

Robert E. Cartwright, San Francisco, Edward I. Pollock, Los Angeles, Leroy Hersh, David B. Baum, San Francisco, Stephen I. Zetterberg, Claremont, Robert G. Beloud, Upland, Arne Werchick, San Francisco, William P. Camusi, Los Angeles, Glen T. Bashore, Santa Ana, Ralph Drayton, Sacramento, and Leonard Sacks, Encino, as amici curiae on behalf of real parties in interest.

Angele Khachadour, San Francisco, as amici curiae, upon the request of the Supreme Court.

MOSK, Justice.

Subdivision (h) of section 790.03 of the Insurance Code, a provision of the Unfair Practices Act (Ins.Code, § 790 et seq., hereinafter called the act) provides that insurers are prohibited from engaging in certain unfair claims settlement practices set forth in the section. ¹ The sole issue in this proceeding is whether an individual who is injured by the alleged negligence of an insured may sue the negligent party's insurer for violation of the subdivision.

Ruth M. Keoppel (plaintiff) filed an action for personal injuries incurred as a result of a fall when she slipped at a food market. She joined as defendants Royal Globe Insurance Company (defendant), which had issued a policy of liability insurance to the market, and Robert E. Hunt Company (Hunt), an independent adjusting company which provided adjustment services to Royal Globe and was alleged to be its agent. According to the complaint, defendant violated subdivision (h)(5) of the act in that it had refused "to attempt in good faith to effectuate a prompt, fair, and equitable settlement" of plaintiff's claim although "liability . . . (had) become reasonably clear," and Hunt had advised plaintiff not to obtain the services of an attorney, in violation of subdivision (h)(14). Plaintiff sought damages for physical and emotional distress, as well as punitive damages. ²

Defendant demurred to the complaint and filed a motion for judgment on the pleadings on the grounds that the California Insurance Commissioner (commissioner) has the exclusive power to enforce subdivision (h), that a third party claimant has no standing to bring an action under the subdivision because it was intended by the Legislature only to protect the interests of the insured, and that plaintiff may not sue both the insured and the insurer in the same lawsuit. The trial court overruled the demurrer and denied the motion. Defendant seeks a writ of mandate, directing the trial court to vacate its orders.

We hold that a third party claimant may sue an insurer for violating subdivisions (h)(5) and (h)(14), but that the third party's suit may not be brought until the action between the injured party and the insured is concluded.

The purpose of the act is "to regulate trade practices in the business of insurance . . . by defining . . . such practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined." (§ 790.) Section 790.02 prohibits any person from engaging in any trade practice defined in section 790.03 as "(an) unfair or deceptive (act or) practice in the business of insurance." The commissioner is empowered to investigate the affairs of insurers (§ 790.04), and if he has reason to believe that an insurer is engaged in an unfair or deceptive act or practice defined in section 790.03, he shall, after notice and hearing, issue a cease and desist order. (§ 790.05.) A penalty of $50 may be imposed for violation of such an order, or $500 for a wilful violation, and subsequent violations may result in suspension or revocation of an insurer's license. (§ 790.07.)

The act was adopted in 1959, and was patterned after the National Association of Insurance Commissioners' model legislation. In 1959, neither the model bill nor the California act contained a provision prohibiting unfair claims settlement practices, but in 1972, after the model legislation was amended to include such prohibitions, California enacted Assembly Bill No. 459, adding subdivision (h), patterned after the model act. There were, however, some differences between the California act and the model legislation, to which we will refer Infra.

In considering the issues before us, we determine, first, whether a private litigant may bring an action to impose civil liability for violation of section 790.03 or whether the commissioner has the sole authority to enforce the terms of the section by the issuance of cease and desist orders to prevent future misconduct.

In making this determination, we turn to the language of the act. Section 790.09 provides that a cease and desist order issued by the commissioner under the provisions of the act shall not absolve an insurer from "Civil liability or criminal penalty Under the laws of this State arising out of the methods, acts or practices found unfair or deceptive." (Italics added.) This provision appears to afford to private litigants a cause of action against insurers which commit the unfair acts or practices defined in subdivision (h).

This interpretation of section 790.09 has been adopted in several recent cases. In Greenberg v. Equitable Life Assurance Society (1973) 34 Cal.App.3d 994, 110 Cal.Rptr. 470, the plaintiff brought a class action alleging that the defendant insurer had illegally compelled borrowers to purchase policies of life insurance as a condition of obtaining home loans. It was held that these allegations constituted a cause of action based upon subdivision (c) of section 790.03, which prohibits coercion by an insurer resulting in unreasonable restraint of the business of insurance. In reply to the defendant's assertion that only the commissioner has the right to enforce the section, the court held that section 790.09 "contemplates a private suit to impose civil liability irrespective of governmental action against the insurer for violation of a provision of the Insurance Code. The fair construction is that the person to whom the civil liability runs may enforce it by an appropriate action." (34 Cal.App.3d at p. 1001, 110 Cal.Rptr. at p. 475.)

Greenberg was followed by Shernoff v. Superior Court (1975) 44 Cal.App.3d 406, 118 Cal.Rptr. 680. There, plaintiffs filed a class action for damages against several title insurers, alleging a conspiracy to fix title insurance rates. The defendants asserted that plaintiffs had failed to exhaust their administrative remedies before the commissioner. The court declared that, while the commissioner does not have power under the act to award money damages for past injuries, the courts may award such damages. ³ Defendants claimed, as in Greenberg, that only the commissioner has power to enforce the act; the court rejected this holding, quoting at length from Greenberg. The same principles were applied in Homestead Supplies, Inc. v. Executive Life Insurance Co. (1978) 81 Cal.App.3d 978, 992, 147 Cal.Rptr. 22. These well-reasoned authorities make it clear, therefore, that private litigants may rely upon the proscriptions set forth in the act as a basis for the imposition of civil liability upon an insurer.

Defendant insists that section 790.09 does not provide affirmative authority for the filing of a civil suit based on alleged violations of the act, and contends that the section was merely intended to allow a party to bring a civil action on the basis of authority derived from other provisions of law. It should be noted in this connection that, while the model act states that a person shall not be absolved of liability under any "other" state laws, the California act in section 790.09 eliminates the word "other" and provides that an insurer shall not be absolved from "civil liability . . . under the laws of this State" arising out of the insurer's unfair acts.

Defendant's contention is contrary to the holdings of both Greenberg and Shernoff. Defendant asserts that Greenberg is distinguishable because the complaint there was based upon tie-in sales coerced by an insurer, a practice which is illegal even without the prohibition contained in section 790.03. However, the court determined that the general antitrust prohibitions of the Cartwright Act (Bus. & Prof.Code, § 16700 et seq.) were inapplicable to insurance companies and that only section 790.03 prohibits insurers from engaging in anticompetitive activity. (34 Cal.App.3d at p. 999, fn. 2, 110 Cal.Rptr. 470.) Thus, it expressly recognized that only the act prohibits anticompetitive activity by an insurer, and held that the plaintiff could rely upon the provisions of the act in bringing a private suit for civil damages.

Both defendant and amicus curiae, State Farm Mutual Automobile Insurance Company, argue that the legislative history of the act demonstrates that it was not intended to apply to actions brought by private parties. Defendant relies upon a letter sent to the trial court by Richards D. Barger, who was insurance commissioner at the time subdivision (h) was enacted and actively supported the measure; he is now an attorney in private law practice. The letter declares that the intent of the act was to afford the commissioner certain remedies against insurers and not to grant a cause of action to third party litigants based upon an insurer's violation of the act. ⁴ The writer was not a legislator, and was not acting on...