Terzian v. California Cas. Indem. Exch.

• Decision Date: 06 November 1974
• Citation: 42 Cal.App.3d 942,117 Cal.Rptr. 284
• Court: California Court of Appeals Court of Appeals
• Parties: Edward J. TERZIAN, Plaintiff and Appellant, v. The CALIFORNIA CASUALTY INDEMNITY EXCHANGE, Defendant and Respondent. Civ. 31692.

Page 284

117 Cal.Rptr. 284

42 Cal.App.3d 942

Edward J. TERZIAN, Plaintiff and Appellant, v. The CALIFORNIA CASUALTY INDEMNITY EXCHANGE, Defendant and Respondent.

Civ. 31692.

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

Nov. 6, 1974.

Rehearing Denied Dec. 6, 1974.

Hearing Denied Jan. 29, 1975.

C. Dan Lange, Roger H. Bernhardt, San Francisco, for plaintiff and appellant.

Partridge, O'Connell & Partridge, Gilbert B. Kirwin, San Francisco, for defendant and respondent.

TAYLOR, Presiding Justice.

This is an appeal by the insured (Terzian) from an adverse judgment in his action against his insurer (California Casualty) after a court trial of a previously undetermined issue after reversal by this court (Division Four) in Terzian v. California Cas. Indem. Exch., 3 Cal.App.3d 90, 83 Cal.Rptr. 255. The contentions are that: 1) the trial court erred in going beyond the record to determine that the insured's action against the uninsured motorist was based on wilful and malicious injury and, therefore, was not dischargeable in bankruptcy; and 2) in any event, the insurer was precluded from relying on the unconsented judgment exclusion to the uninsured motorist coverage by its own prior breach of the insurance agreement. We have concluded that while there is no merit to the first contention, the second is well taken and the judgment in favor of the insurer must be reversed.

The basic pertinent facts, as set forth in the prior opinion (Terzian v. California Cas. Indemn. Exch., 3 Cal.App.3d 90 at 94, 83 Cal.Rptr. 255) and revealed by the record, indicate that in July 1960, the insured was injured in an accident involving an uninsured motorist, Alvarado. The insured took the position that Alvarado was responsible for the accident and on May 9, June 6 and 22, in writing, demanded payment of the full $10,000 policy limit under the uninsured motorist coverage of the policy written by the insurer and arbitration of the amount to be paid. After none of the demands were met, the insured on June 26, 1961, commenced a superior court action against Alvarado for negligence. His attorney reported the status of the Alvarado action to the insured by a letter dated October 5, 1961, and again demanded arbitration pursuant to the policy. After receiving no response, the insured in March 1962 commenced the instant action for breach of contract against the insurer. The insurer's answer acknowledged coverage and alleged, as a special defense, the unconsented judgment exclusion of the policy based on Insurance Code section 11580.2, subdivision (c), subparagraph (3) ¹ against Alvarado. At the first trial of the special defense, the insurer proved that without its knowledge and consent, on March 8, 1963, the insured had stipulated to a judgment for $10,000 against Alvarado. This judgment permanently enjoined the insured from enforcing it except for such rights as the insured may have as a bankruptcy creditor of Alvarado. The trial court found in favor of the insurer on the special defense.

On the prior appeal, this court judicially noticed the bankruptcy proceedings and noted that the lower court had not taken into account the fact that the insured's claim against Alvarado had been listed as a debt in the bankruptcy proceedings and might have been discharged.

The opinion then pointed out that while reversal was required, the full legal effect of Alvarado's discharge in the bankruptcy proceeding depended on the resolution of certain other questions, including whether the uninsured motorist liability for injury to Terzian was for wilful and malicious injuries to the person or property of another and not dischargeable for that reason, pursuant to 11 U.S.C.A. section 35, subdivision (a), paragraph 2. ²

The opinion directed at 98, 83 Cal.Rptr. at 260: 'The unresolved questions should be decided by a trial court, upon conventional evidence and under the general rule that, although the granting of a discharge in bankruptcy is a function of the bankruptcy court, 'the effect of a discharge is properly for the determination of any court in which it is duly pleaded or otherwise submitted for judgment.' (Yellow Creek Logging Corp. v. Dare (1963) 216 Cal.App.2d 50, 55, 30 Cal.Rptr. 629, 631.)'

At the subsequent hearing, the court found that at the time and place of the accident, Alvarado was intoxicated, proceeded at an excessive rate of speed for a substantial distance on the wrong side of a public highway, and made no effort to avoid the accident. The court found that these acts were performed wilfully and maliciously, and proximately resulted in the injuries to the insured. Accordingly, the court concluded that the Alvarado bankruptcy discharge did not release him from liability to the insured and that the Alvarado judgment had been obtained without the knowledge or consent ³ of the insurer and, therefore, came within the unconsented judgment exclusion of the uninsured motorist statute and the policy exclusion based thereon. The court then concluded that the insured had breached the conditions of his contract with the insurer and that the insurer had not breached the agreement and was entitled to rely on the unconsented judgment exclusion of the uninsured motorist coverage.

The insured first contends that the trial court erred in going beyond the record of his action against Alvarado. He maintains that since his complaint and the judgment were based only on negligence, the consent judgment against Alvarado was discharged and, therefore, did not fall within the unconsented judgment exclusion of the uninsured motorist exclusion. Whether a judgment is cancelled by discharge in bankruptcy depends on the nature and character of the liability for which it was recovered. To make this determination in this situation, a court will go behind the judgment, examine the entire record, and may even resort to extrinsic evidence (Larsen v. Beekmann, 276 Cal.App.2d 185, 190--191, 80 Cal.Rptr. 654; cf. Savage v. Van Marle, 39 Cal.App.3d 241, 245--249, 114 Cal.Rptr. 51).

As indicated in Larsen, supra, 276 Cal.App.2d page 190, 80 Cal.Rptr. 654, the first step in the examination of the record is a determination of the legal character of the stipulation for judgment. Whether the court can go behind that stipulation depends on whether the legal effect thereof was to make an otherwise nondischargeable debt dischargeable. Since this was clearly the issue here, the trial court properly went beyond the record of the Alvarado judgment. Further, the trial court's action was in accord with the instruction of this court on the prior appeal (3 Cal.App.3d at 98, 83 Cal.Rptr. 255) to determine the previously unresolved questions 'upon relevant proof.' The trial court had before it the entire record of the prior action. The additional extrinsic evidence consisted of the testimony of the insured that just prior to the accident, Alvarado was heading north in the inside southbound lane of the Bayshore Freeway. The insured, who was going south at about 60--65 miles per hour, saw Alvarado's headlights at a distance of about half a mile and moved into the middle lane to avoid a head-on collision. Despite the presence of a divider strip sufficiently wide to permit him to pull off the road, Alvarado did nothing to avoid the accident. The trial court also admitted, over the objection of the insured, documentary evidence that Alvarado had pled guilty to felony drunk driving (Veh.Code, § 23101). ⁴

Acts such as Alvarado's, done with an utter disregard of the rights and safety of others, constitute 'wilful and malicious injury' within the meaning of the Bankruptcy Act (Wegiel v. Hogan (N.J.Sapp.Div.1953), 28 N.J.Super. 144, 100 A.2d 349; Henderson v. Freshour (1956), 199 Tenn. 539, 287 S.W.2d 929). Accordingly, the trial court properly concluded that Alvarado's liability was not discharged in bankruptcy.

The insured next contends that contrary to the trial court's conclusion, the determination that Alvarado's debt was not discharged in bankruptcy, does not automatically resolve the question presented, but not determined in the prior appeal. The insured argues that we must still determine whether the insurer's refusal to arbitrate or consent to the judgment against Alvarado, constituted a sufficient breach of the insurance agreement to preclude the insurer's reliance on the unconsented judgment exclusion clause of the policy. The insurer maintains that the absence of its breach was determined at the first trial, and is, therefore, not before us. We do not agree. The pertinent portion of the prior opinion of Division Four of this court (3 Cal.App.3d 90, 83 Cal.Rptr. 255) that sets forth the contentions of the parties and the holding of the court, at 95--96, 83 Cal.Rptr. at 258, was as follows: The insured 'relies upon Calhoun v. State Farm Mut. Auto. Ins. Co. (1968) 254 Cal.App.2d 407, 62 Cal.Rptr. 177. In that case, an action by an insured under a similar policy, the appellate court held that the insurer could not invoke the exclusionary clause as a defense if it had itself breached the policy in the first instance (Id., at pp. 411--413, 62 Cal.Rptr. 177); . . . (the insured) argues that Calhoun applies here because . . . (the insurer) initially breached this policy by refusing to arbitrate . . .. (The insurer) contends that Calhoun does not control because the carrier there breached the policy by wrongfully denying coverage to the insured, whereas it (defendant here) did not deny coverage in the present case, did not refuse to arbitrate, and in any event had not breached the policy. Therefore, . . . (the insurer) argues, . . . (the insured's) prosecution of the Alvarado action to judgment gives it . . . a complete defense under the exclusionary clause by reason of the rule established in Travelers Indemn. Co. v. Kowalski (1965) 233 Cal.App.2d 607, 610, 43 Cal.Rptr. 843.

'The trial court, having concluded in . . . (the insurer's) favor on its policy defense, apparently...