Samson v. Transamerica Ins. Co.

• Decision Date: 23 November 1981
• Docket Number: S.F. 24279
• Citation: 30 Cal.3d 220,636 P.2d 32,178 Cal.Rptr. 343
• Court: California Supreme Court
• Parties: , 636 P.2d 32 Abe L. SAMSON, a Minor, etc., et al., Plaintiffs, Cross-defendants and Respondents, v. TRANSAMERICA INSURANCE COMPANY, Defendant, Cross-complainant and Appellant; Dale Eugene Vagle, et al., Cross-defendants and Respondents.

Page 343

178 Cal.Rptr. 343

30 Cal.3d 220, 636 P.2d 32

Abe L. SAMSON, a Minor, etc., et al., Plaintiffs, Cross-defendants and Respondents, v. TRANSAMERICA INSURANCE COMPANY, Defendant, Cross-complainant and Appellant Dale Eugene Vagle, et al., Cross-defendants and Respondents.

S.F. 24279.

Supreme Court of California.

Nov. 23, 1981.

Memering & DeMers, Louis A. DeMers and Claudia J. Robinson, Sacramento, for defendant, cross-complainant and appellant.

David P. Weaver, Jr., San Francisco, and Jay R. Mayhall, Oakland, for plaintiffs, cross-defendants and respondents and for cross-defendants and respondents.

Leonard Sacks, Northridge, Harvey R. Levine, San Diego, Edward I. Pollock, Los Angeles, Robert E. Cartwright, San Francisco, William M. Shernoff, Stephen I. Zetterberg, Claremont, Arne Werchick, San Francisco, Ian Herzog, Los Angeles, Glen T. Bashore, North Fork, Wylie A. Aitken, Santa Ana, and Victoria J. DeGoff, Berkley, as amicus curiae on behalf of plaintiffs, cross-defendants and respondents.

BIRD, Chief Justice.

The Public Utilities Commission (P.U.C.) requires that all licensed highway carriers obtain liability insurance and, as proof that such insurance meets P.U.C. requirements, attach an endorsement prepared by the P.U.C. to their insurance policies. In this case, the first issue concerns whether the endorsement extends coverage to all vehicles used in the conduct of a highway carrier's business, including vehicles that are not used to transport property. Second, the court must decide whether this insurance company is bound to pay the entire judgment entered against its insured in an action to which it was not a party, because it refused to defend its insured and rejected a settlement offer.

I.

This case involves an appeal from summary judgments granted by the trial court. (Code Civ.Proc., § 437c.) The following facts were established by the affidavits, declarations, admissions and depositions filed before the trial court.

On November 17, 1974, Dale Vagle was driving his pickup truck on the wrong side of the road and collided head-on with a car containing the Samson family. Milagrosa Samson was killed and her husband and two children seriously injured. Vagle later pleaded guilty to a charge of vehicular manslaughter arising out of this accident.

Vagle's pickup truck was insured for $100,000 by State Farm Mutual Automobile Insurance Company (State Farm). He also owned a 1963 International tractor truck with two attachable trailers, and was licensed by the P.U.C. as a "radial highway common carrier," ¹ which authorized him to transport property for compensation. The tractor truck and trailers were insured by appellant, Transamerica Insurance Company (Transamerica), for $300,000.

Transamerica's insurance policy contained a standard endorsement prepared by the P.U.C. which stated that the policy would cover any final judgment against the insured for bodily injury or property damage "resulting from the operation, maintenance, or use of motor vehicles for which a ... permit is required or has been issued to the insured by the (P.U.C.), regardless of whether such motor vehicles are specifically described in the policy or not." ² The endorsement also indicated that it was issued to "assure compliance" with P.U.C. General Order No. 100-Series. General Order No. 100-H, in effect at the time of the accident, required each permit holder to deposit with the P.U.C. evidence of insurance protection "covering each vehicle used or to be used in conducting the service performed by each such highway carrier ...." ³

Vagle was on a personal errand at the time of the accident. However, the pickup truck had commercial license plates and was used regularly in Vagle's trucking business. He carried spare parts for the tractor truck in the pickup, as well as equipment and "wide load" signs. The pickup was used to fetch parts and equipment, to look for work, and to locate routes for transporting wide loads such as mobile homes.

On December 18, 1974, the surviving members of the Samson family filed suit against Vagle, claiming damages for their own injuries and for the wrongful death of Milagrosa. State Farm assigned Attorney Stephen Gay to the case and advised Vagle to obtain a personal lawyer also since his liability was likely to exceed the State Farm policy limit of $100,000.

On April 28, 1975, Gay sent Transamerica a copy of admissions filed in the Samson v. Vagle action in which Vagle admitted using the pickup truck regularly in his trucking business. In a cover letter, Gay explained that the Samsons were attempting to show that this business use of the pickup truck brought it within the coverage of the Transamerica policy on the tractor truck. Transamerica received this letter on April 30, 1975.

On March 6, 1975, the Samsons' attorney, David Weaver, contacted Joseph Hebert. Hebert, a Transamerica insurance agent, sold Vagle the insurance policy on his tractor truck. Weaver informed Hebert of the accident and the lawsuit against Vagle. Hebert told Weaver that the Transamerica policy did not cover the pickup truck and refused Weaver's request for a copy of the policy. At Hebert's suggestion, Weaver contacted a Transamerica branch casualty manager, but his request for a copy of the policy was again denied.

On approximately March 17, 1975, Vagle telephoned Hebert to arrange to cancel the Transamerica policy on his tractor truck. He went to Hebert's office a few days later with his wife to return his copy of the policy. Hebert told them that he had been contacted by the Samsons' attorney, Weaver. Hebert said that the pickup truck was not covered by the Transamerica policy and that any contention that it was so covered was "ridiculous."

During the following six months, Transamerica employees exchanged a series of internal office memos and forms concerning the Vagle accident and the Samsons' lawsuit. On May 2, 1975, Robert Lakata, a Transamerica claims representative, sent his superior, Damon Burley, a memo in which he recounted the details of the accident, including the fact that Vagle had been drunk and on the wrong side of the road and that one person had been killed and three others seriously injured. Lakata stated that the plaintiffs' attorney was trying to demonstrate Transamerica coverage, but it was his conclusion that it could not be done.

On June 24, Hebert submitted a preliminary claim form, describing the accident as a "head-on collision." In August, Transamerica opened a file on the claim and established a reserve account for it.

On August 13, 1975, Lakata sent a memo to another Transamerica employee describing a conversation with Gay, Vagle's State Farm attorney. Once again he noted that the Samsons were trying to show coverage under the Transamerica policy. In that memo, Lakata indicated that Gay had told him that the Samsons' attorney valued the case at $250,000. ⁴ Lakata concluded by suggesting that the case be referred to the Transamerica legal department so that research could be done on the issue of Transamerica's possible liability.

On August 21, 1975, Transamerica's western zone liability manager sent a memo to Burley, Lakata's supervisor. In it he said, "Suggest we keep out of this and have no conversation with anyone. If the Plaintiffs(') attorney makes some move to get at our policy by some sort of action at law I can't visualize now let's cross the bridge then and not now when we can only speculate." He reiterated the view that the Transamerica policy did not cover Vagle's pickup truck.

Meanwhile, on June 23, 1975, in exchange for State Farm's payment of its $100,000 policy limit, the Samsons signed a "covenant not to execute" against Vagle. Vagle agreed to cooperate in a trial of the action against him and to assign to the Samsons any rights against other insurers, including Transamerica. Transamerica was not informed of this agreement.

In September of 1975, Lakata again suggested to Burley that the matter be referred to the legal department, after two Transamerica underwriters were subpoenaed to produce Transamerica's file on the policy.

The personal injury action, Samson v. Vagle, was tried on the short cause calendar on August 14, 1975. Vagle presented no defense and did not cross-examine witnesses. He did not contest liability or damages. The attorneys for the Samsons and for Vagle told the trial judge that the only other interested party, Transamerica, had been informed of the pendency of the litigation.

The Samsons introduced evidence of Vagle's vehicular manslaughter conviction and Mr. Samson described the injuries he sustained and those of his children. An expert testified as to the value of the loss of the services of Mrs. Samson. The trial court awarded the survivors $350,000 in damages for wrongful death, $110,000 in personal injury damages to Mr. Samson, $175,000 to his daughter, and $90,000 to his son. The total award was $725,000.

Three months after the entry of the judgment in the Samson v. Vagle suit, the Samsons' attorney sent Transamerica a copy of the judgment and offered to "compromise" the $625,000 claim against Vagle (the $725,000 judgment minus $100,000 paid by State Farm) for $300,000, the limit of Vagle's policy with Transamerica. Transamerica did not respond.

On January 9, 1976, Vagle assigned his cause of action against Transamerica to the Samsons. On the same day, the Samsons filed suit against Transamerica, seeking the policy limit of $300,000 and an excess judgment of $325,000 for a bad faith refusal to settle.

Vagle joined the Samsons' suit as a plaintiff, claiming damages for emotional distress and attorney fees caused by Transamerica's refusal to settle the claim against him. Transamerica cross-complained against the Samsons, Vagle, the Samsons' attorney, State Farm, and State Farm's attorneys, claiming collusion and bad faith. Demurrers filed by State Farm and its attorneys were sustained by the trial court and the action...