Taylor v. California State Auto. Assn. Inter-Ins. Bureau

• Decision Date: 17 September 1987
• Citation: 240 Cal.Rptr. 107,194 Cal.App.3d 1214
• Court: California Court of Appeals Court of Appeals
• Parties: Polly TAYLOR, Plaintiff and Appellant, v. CALIFORNIA STATE AUTOMOBILE ASSOCIATION, Inter-Insurance Bureau et al., Defendants and Respondents. A035493.

Page 107

240 Cal.Rptr. 107

194 Cal.App.3d 1214

Polly TAYLOR, Plaintiff and Appellant, v. CALIFORNIA STATE AUTOMOBILE ASSOCIATION, Inter-Insurance Bureau et al., Defendants and Respondents.

A035493.

Court of Appeal, First District, Division 2, California.

Sept. 17, 1987.

As Modified Oct. 5, 1987.

Carole S. Cullum, Cullum & Akulian, San Francisco, for plaintiff and appellant.

Randolph S. Hicks, David W. Wessel, Coddington, Hicks & Danforth and Coddington & Winters, Menlo Park, for defendants and respondents.

BENSON, Associate Justice.

Plaintiff Polly Taylor (Taylor) appeals from a summary judgment granted in favor of defendant California State Automobile Association (CSAA). The amended complaint charged CSAA with violation of section 790.03, subdivision (h)(5) ¹ of the Unfair Practices Act contained in Insurance Code sections 790 through 790.10. ² An additional cause of action for intentional or negligent infliction of emotional distress was also pleaded. We affirm the judgment.

Taylor's first amended complaint alleges she was walking across 18th Street at Guerrero Street in San Francisco when an automobile operated negligently by an individual, insured by CSAA, collided with her and that as a result of the accident she incurred special damages of $9,768.57. She also alleges CSAA was "aware of facts demonstrating the insureds['] clear liability as early as spring 1982." The complaint recites she made a policy limit demand of $25,000 in April of 1982 which CSAA countered with an offer of $13,000, later raised to $15,000. One and one-half business days before the trial date, CSAA offered $20,000 and finally agreed on the policy limit of $25,000.

CSAA eventually moved for summary judgment contending, in essence, there had been no final determination of its insured's liability in the underlying personal injury lawsuit, a necessary element in maintaining an action for violation of section 790.03, subdivision (h)(5), and as a matter of law its conduct was not "outrageous," a necessary element in maintaining the emotional distress cause of action.

In support of its motion, CSAA offered as evidence a copy of the release of all claims signed by Taylor. Paragraph 3 of the release provides: "[t]he undersigned [Taylor] understands the liability for said accident is disputed by the parties herein released and this release is a compromise and shall not be construed as an admission of liability." Taylor filed no evidence in opposition to the motion for summary judgment.

The trial court granted the motion on the grounds "(1) there is no triable issue of material fact as to whether there was a final determination or admission of the liability of [CSAA's] insured, and (2) there is no triable issue of material fact as to whether [CSAA's] conduct towards plaintiff was extreme and outrageous."

In the trial court and in this appeal Taylor argues she has met the requirements set forth in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 884, 153 Cal.Rptr. 842, 592 P.2d 329. She contends she has shown the underlying action has been concluded and she need not show predetermination of the insureds' liability as a condition to maintaining this action. CSAA does not dispute that Taylor has sufficiently shown a "conclusion" of the underlying action against its insureds. The trial court had before it evidence of settlement of the underlying action and execution of a release of the insureds which authorized dismissal of the action with prejudice. (Afuso v. United States Fid. & Guar. Co. (1985) 169 Cal.App.3d 859, 863, 215 Cal.Rptr. 490.) The issue presented is whether a predetermination of an insured's liability in the underlying action is a necessary element of a cause of action under subdivision 790.03, subdivision (h)(5). This district has not ruled on the precise issue. ³ This issue is presently being considered by our Supreme Court. ⁴

Taylor argues she need only show that CSAA failed to attempt to settle her claim after liability of the insured became "reasonably clear." She quotes from section 790.03, subdivision (h)(5) which provides: "Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear." She reads this section to mean that it is the breach of the insurer's duty to settle rather than the determination of the insured's liability in the underlying action which gives rise to the third party claimant's cause of action.

She points out that five weeks after the decision in Royal Globe was published, the Legislature refused to pass Senate Bill No. 483 which would have overruled the Court's holding. Senate Bill No. 483, however, would have overruled the holding which established a cause of action by a third party claimant against the insurer. The proposed legislation did not mention the elements of such a cause of action.

Subdivision (h) was added to section 790.03 in 1972 and amended in 1975 to add paragraphs 14 and 15. (Stats.1972, ch. 725, § 1, p. 1314; Stats.1975, ch. 790, § 1, p. 1812.) Section 790.03 defines "unfair and deceptive acts or practices in the business of insurance." Subdivision (h) lists 15 acts which constitute "unfair claims settlement practices." The section does not set forth any conditions precedent to bringing an action under the section. We, therefore, turn to cases interpreting the statute.

Taylor asserts neither policy considerations nor the holding in Royal Globe require a determination of the insured's liability as a prerequisite to maintaining an action under section 790.03, subdivision (h). Royal Globe held 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." (Royal Globe Ins. Co. v. Superior Court, supra, 23 Cal.3d at p. 884, 153 Cal.Rptr. 842, 592 P.2d 329.) The Court's reason for its ruling that the insured and the insurer could not be sued in the same action was that section 1155 of the Evidence Code makes evidence of insurance inadmissible in the action to prove negligence or wrongdoing and a joint trial would violate the letter and the spirit of the section. The Court went on to state that "unless the trial against the insurer is postponed until the liability of the insured is first determined, the defense of the insured may be seriously hampered by discovery initiated by the injured claimant against the insurer. In addition, damages suffered by the injured party ... may best be determined after the conclusion of an action by the third party claimant against the insured." (Id. at pp. 891-892, 153 Cal.Rptr. 842, 592 P.2d 329.) Nowhere in the opinion did the Court define what it meant by the term "concluded." As we previously observed, CSAA does not dispute that the underlying action was concluded.

In reaching its determination that "there is no triable issue of material fact as to whether there was a final determination or admission of liability of [CSAA's] insureds" the trial court relied on the holdings in Nationwide Ins. Co. v. Superior Court (1982) 128 Cal.App.3d 711, 180 Cal.Rptr. 464, Williams v. Transport Indemnity Co. (1984) 157 Cal.App.3d 953, 203 Cal.Rptr. 868, and Heninger v. Foremost Ins. Co. (1985) 175 Cal.App.3d 830, 221 Cal.Rptr. 303. Appellant attacks these cases.

In Nationwide, the injured claimant sued the insured. Trial resulted in a jury verdict in favor of the plaintiff. While an appeal by the insured was pending in that action, the third party claimant sued the insurer for violation of various subdivisions of section 790.03. In the action by the third party claimant against the insurer, the court of appeal issued a peremptory writ of mandate directing the trial court to sustain the insurer's demurrer, grant its motion for judgment on the pleadings and dismiss the action. The court interpreted Royal Globe to require a "judgment establishing the liability of the insured" as a condition to maintaining an action against the insurer. (Nationwide Ins. Co. v. Superior Court, supra, 128 Cal.App.3d at p. 714, 180 Cal.Rptr. 464, emphasis added.) This decision was based on language of Royal Globe which required not only that the action by the third party claimant against the insured be concluded, but that " 'the liability of the insured is first determined.' " (Ibid.)

In Williams, the injured claimant died without bringing an action against the insured and his estate also failed to bring such an action. The claimant's wife brought an action against the insurer in her individual capacity and as representative of the estate. The court affirmed the granting of summary judgment in favor of the insurer, citing Nationwide, on the grounds Royal Globe requires conclusion of the underlying action and a predetermination of the insured's liability. The court cited the reason that damages are best determined after conclusion of the action against the insured. Claimant's wife argued the concerns motivating the holding in Royal Globe that the underlying action must be concluded, were not present in her case since the statute of limitations barred any action against the insured. She asserted the issue in the action was whether the insurer failed to promptly attempt settlement at the time liability became reasonably clear and not whether the insured was liable for the injuries to her husband. The court rejected this argument on the basis that an insurance contract is in essence an indemnity contract so that there can be no claim against the insurer until the insured's liability is in fact established. The court stated: "[t]herefore, however well isolated facts may seem to indicate a time when liability had become reasonably clear to the insurer, if the insured had no liability in actual fact, the insurer can have breached no duty to settle a third party claim." (Williams v. Transport Indemnity Co., supra, 157 Cal.App.3d...