Title: Jonathan Neil & Assoc. v. Jones

State: california

Issuer: California Supreme Court

Document:

1
Filed 8/5/04 
 
 
 
IN THE SUPREME COURT OF CALIFORNIA 
 
 
JONATHAN NEIL & ASSOCIATES, INC., 
Plaintiff and Appellant, 
 
 
v. 
FREDDIE JONES, 
Defendant, Cross-complainant and 
Appellant; 
MILDRED JONES et al., 
          Cross-complainants and Appellants. 
CAL-EAGLE INSURANCE COMPANY, 
          Cross-defendant and Appellant; 
JOHNSEY INSURANCE COMPANY, 
          Cross-defendant and Respondent. 
 
 
S107855 
 
Ct.App. 5 F029400/F030300 
 
Fresno County 
Super. Ct. No. 0512318-7 
 
 
In this case, a trucking company participated in the California Automobile 
Assigned Risk Plan (the CAARP), a statutorily created program governed by the 
Insurance Commissioner designed to make automobile liability insurance 
available to those unable to obtain insurance through ordinary methods.  After a 
premium billing dispute with its insurance company, which was hired by the 
CAARP, the trucking company defended a collection action and filed a cross-
complaint against the company alleging that it had retroactively and knowingly 
charged them a substantially higher premium than was actually owed, and was 
 
2
therefore liable for tortious breach of the covenant of good faith and fair dealing 
and for fraud.  A jury found in favor of the trucking company. 
 
We are asked to decide two questions.  The first is whether the trucking 
company was required to exhaust the administrative remedies available to those 
participating in the CAARP before bringing a lawsuit in which the central issue 
was the determination of the proper premium to be charged, a matter governed by 
the CAARP’s and the Insurance Commissioner’s internal regulations.  We 
conclude that exhaustion of remedies was not required but that, as the Court of 
Appeal alternately held, the doctrine of primary jurisdiction required the trial court 
to stay proceedings and refer the premium billing dispute to the Department of 
Insurance (DOI) and the Insurance Commissioner.  Its failure to do so requires 
reversal of the judgment in the trucking company’s favor. 
 
The second question concerns our understanding of when tort damages will 
be available for an insurance company’s breach of the implied covenant of good 
faith and fair dealing.  The remedy for breach of that covenant is generally limited 
to contract damages, but we have recognized an exception to this rule when the 
breach occurs in the context of an insurance company’s failure to properly settle a 
claim against an insured, or to resolve a claim asserted by the insured.  (See Foley 
v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683-684 (Foley).)  The question 
presented by this case is whether an insurance company’s breach of the covenant 
sounds in tort when it retroactively overcharges a premium it knows is not owed.  
The trial court concluded that tort remedies were available but the Court of Appeal 
disagreed and reversed.  We conclude, for reasons explained below, that the Court 
of Appeal is correct.  
 
3
I.  FACTS 
 
The factual underpinnings of this case are lengthy and complex.  For 
purposes of this case the following summary, taken in part from the Court of 
Appeal opinion, will suffice.  Fred and Mildred Jones owned a trucking company, 
known as Jones Trucking (henceforth sometimes referred to collectively as the 
Joneses).  In 1991, after the Joneses’s private insurance company went out of 
business, they applied for and obtained, at their insurance broker’s 
recommendation, an insurance policy through the CAARP.  An understanding of 
this program and one of the rules promulgated by the program is necessary for 
comprehending the facts of this case. 
 
A. 
The CAARP and Rule 23 
 
The CAARP was established under section 11620 of the Insurance Code, 
requiring the Insurance Commissioner to “approve or issue a reasonable plan” to 
provide liability insurance for those “who are in good faith entitled to but are 
unable to procure that insurance through ordinary methods.” In general, the plan 
assigns such insureds to the various companies who write insurance in California 
and regulates the premiums that can be charged to such insureds.  This assigned 
risk insurance is generally issued at the minimal levels required by the financial 
responsibility law.  (See Ins. Code, § 11622.)  The program is administered 
through the so-called CAARP committee, which is advisory to the Insurance 
Commissioner (see id., § 11623, subd. (a)).  The committee “with the approval of 
the commissioner shall appoint a manager to carry out the purposes of this article, 
employ sufficient personnel to provide services necessary to the operation of the 
plan, and contract for the provision of statistical and actuarial services.”  (Ibid.)  
The CAARP committee is, by statute, composed of eight employees of insurance 
companies that write assigned risk policies, four public members, two 
 
4
representatives of insurance agencies, and the Insurance Commissioner or his or 
her designee.  (Ibid.) 
 
There are certain classes of vehicle users whose financial exposure (and 
potential danger to the public) is much greater than is contemplated by the 
ordinary assigned risk placement.  Among these is the class of commercial 
truckers.  In order to accommodate these higher risk vehicle users, the Insurance 
Commissioner in 1978 promulgated (by regulation at Cal. Code Regs., tit. 10, 
§ 2432 et seq.) the Commercial Automobile Insurance Procedure (CAIP).  The 
assigned risk plan for truckers is also administered by the CAARP committee, of 
which there is a separate CAIP subcommittee that handles policy issues arising 
from truckers’ insurance. 
 
CAARP hires two “servicing carriers” (Cal. Code Regs., tit. 10, § 2432, 
subd. (e)), who provide all of the insurance policies issued under the CAIP.  These 
carriers have a contract with the CAARP by which they are paid a percentage of 
the premium as a fee for their services.  They turn all premiums over to CAARP 
and charge all claims to the CAARP, which then distributes the charges among 
automobile liability carriers in California.  Thus, the servicing carriers are not 
typical insurance companies in the sense of a company putting its own assets at 
risk through its underwriting and premium practices.  Instead, risk is borne by the 
insurance industry at large, underwriting and premium practices are specified by 
the CAARP and the DOI, and the servicing carrier is paid a commission for 
implementing and administering the program, based on premiums billed.  Cal-
Eagle Insurance Company (Cal-Eagle) became one of the servicing carriers in 
1991.  
 
The CAARP is run according to rules promulgated by the DOI contained in 
the California Automobile Assigned Risk Plan Manual of Rules and Rates.  (See 
Cal. Code Regs., tit. 10, § 2498.5.)  Of particular relevance is rule 23 of the 
 
5
Manual (rule 23), which governs the premiums assessed to truckers for their use of 
independent truckers, or subhaulers.  In general, insured truckers premiums are 
determined by the number of trucks they own and operate.  But the California 
Public Utilities Commission (PUC), which at the time this controversy arose 
regulated truckers such as the Joneses,1 required these subhaulers to have their 
own PUC certificates of authority and their own liability insurance.  The Joneses 
made extensive use of subhaulers, paying out over half their annual gross receipts 
to them.   
 
The testimony indicated that California was somewhat unique in issuing 
PUC certificates directly to subhaulers, with the attendant requirement that the 
subhauler have its own insurance.  In other states, according to the testimony, only 
the primary trucking company had insurance and the hired carriers were covered 
under that insurance.  In its original form, California’s rule 23 incorporated the 
generic, nationwide rule that did not take into account California’s unique 
situation, but charged truckers as if they were providing primary insurance for 
their subhaulers, according to certain formulae.2 
                                             
 
1 
In 1996, regulatory authority was shifted to the Department of Motor 
Vehicles and the California Highway Patrol (see Veh. Code, § 34600 et seq.). 
2 
Specifically, paragraph C of rule 23, as it existed at the time the Joneses’ 
policy was issued, provided two alternative methods of calculating the premiums 
of subhaulers.  The first alternative was essentially to count each tractor and trailer 
used by any of the insured’s subhaulers as if it were owned by the Joneses  and 
to assess the full-rate premium for each truck.  The second alternative rule of the 
original rule 23 C was that premiums could be charged on a “cost of hire” basis.  
In order to determine the premium on this basis, the servicing carrier was required 
to first determine the average premium for listed tractors and trailers under the 
policy, then multiply that average rate by .0033 to obtain the “cost of hire rate.”  
The servicing carrier was then to determine the insured’s total cost of hiring the 
subhaulers and compute the insurance premium by “multiplying each $100 of the 
total amount estimated for the cost of hire . . . by the cost of hire rate.” Nowhere in 
 
(footnote continued on next page) 
 
6
 
Rule 23 was rewritten by DOI after a two-year period of study and 
consultation with the insurance industry. The revised rule, tailored to the 
California situation, specifically applied to exposure based on a “subhauling 
agreement involving the hauling of goods on behalf of an insured trucker by a 
hired carrier.” 
 
The revised rule recognized that in some circumstances the primary 
trucker’s insurance would be called upon only to provide excess coverage if a 
claim exceeded the limits of liability of the subhauler’s insurance, thereby 
justifying substantially lower premiums.  Thus, the revised rule stated, at 
paragraph C.2.a(2): “The insured trucker may request and the CAIP Servicing 
Carrier shall provide coverage for the hired carrier exposure on an excess basis 
where an insured trucker demonstrates at the time of application or upon renewal 
that all of the following criteria are satisfied and such criteria remain satisfied 
throughout the policy period . . . .”  The five criteria, set forth in the margin,3 
                                                                                                                                                              
 
(footnote continued from previous page) 
 
the rule was the word “subhauler” used; the relevant portion of the rule referred 
only to a “contract involving the hire of trucks, tractors and trailers.” 
3  
These criteria were: “(a) Any hired carrier with whom the insured trucker 
contracts to carry or subhaul must operate under its own California PUC operating 
authority. 
 
“(b) No written lease or oral rental agreement shall exist between the 
insured trucker and the hired carrier; however, a separate, written subhaul 
agreement which complies with California PUC requirements shall be executed 
between the insured trucker and the hired carrier. This subhaul agreement shall 
make the hired carrier’s insurance primary, make the hired carrier responsible for 
all claims and/or liabilities, name the insured trucker as an additional insured on 
the hired carrier’s policy, provide that the hired carrier’s insurer will notify the 
insured trucker if the hired carrier’s policy is canceled, and require minimum 
limits of not less than the applicable California PUC-required minimum limits. 
 
(footnote continued on next page) 
 
7
address both the form and the substance of the relationship between the trucker 
and the subhauler.  The premium applicable if the insured trucker is able to satisfy 
all criteria is only 4 percent of the otherwise applicable premium. 
 
The revised rule also modified the otherwise applicable premium.  
Although the premium was based on the cost of hiring the subhaulers, as had been 
the case under the original rule 23, the base multiplier was reduced from .0033 to 
.0011.  The revised rule required that “the total cost of hiring” would be calculated 
on the basis that each subhauler’s vehicle was hired for a minimum of $60,000 of 
work per year. 
 
As the revised rule was implemented from September of 1992 forward, 
certain problems revealed themselves.  Some of the problems occurred because the 
DOI required the carriers to implement the rule on a retroactive basis if requested 
                                                                                                                                                              
 
(footnote continued from previous page) 
 
 
“(c) The insured trucker shall have on file copies of all subhaul agreements 
for audit by the CAIP Servicing Carrier. 
 
“(d) The insured trucker shall not dispatch or exert any control over the 
means by which the hired carrier fulfills the obligations of the subhaul agreement; 
the hired carrier shall exercise independent control over the equipment operated 
and the drivers or persons operating that equipment. 
 
“(e) The insured trucker shall maintain a separate subhaul register which 
complies with California PUC requirements. This register shall be made available 
for audit and/or review by the CAIP Serving Carrier, the Plan, and/or the 
California Insurance Commissioner. 
 
“(f) The CAIP Servicing Carrier, the California Insurance Commissioner, 
and the Plan shall have access to the insured trucker’s books and records for a 
period of three years after the date of cancellation or non-renewal of the policy to 
audit and determine compliance with the requirements of this section. If upon 
audit it is determined that there has not been compliance with the requirements of 
this section, the premium for the hired carrier exposure will be recomputed in 
accordance with the provisions of paragraph C.2.b. below.” 
 
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by insureds.  Many insureds  including the Joneses  did not have the required 
detailed records readily available to establish their eligibility for the five criteria 
for excess coverage.  Further, smaller truckers like the Joneses did not use any 
particular subhauler for anywhere near $60,000 of work per year. 
 
B. 
The Joneses’ Premium Dispute 
 
The Joneses’ insurance application under the CAARP and CAIP was 
assigned to Cal-Eagle by the assigned risk program office.  They purchased a 
one-year commercial assigned risk liability insurance policy from Cal-Eagle in 
March 1991, when the old rule 23 was still in effect.  Cal-Eagle issued a policy in 
a form required by the DOI.  It charged the Joneses an initial estimated annual 
premium of $14,088, based on the Joneses’ use of their own, specified vehicles in 
the business and their estimate that they would not be hiring subhaulers.  Over the 
term of the policy, Cal-Eagle assessed additional premiums as the Joneses added 
equipment to their fleet.  The total premiums charged and paid during the policy 
year was approximately $20,000.   
 
The Cal-Eagle policy issued to the Joneses permitted it to reassess the 
initial premium based on new information.  As the policy stated:  “The premium 
for this policy is based on information we have received from you or other 
sources.  You agree:  [¶]  a. that if any of this information material to the 
development of the policy premium is incorrect, incomplete or changed, we may 
adjust the premium accordingly during the policy period.  [¶]  b. to cooperate with 
us in determining if this information is correct and complete, and to advise us of 
changes in this information.”  The policy also provide:  “The estimated premium 
for this Coverage Form is based on the exposures you told us you would have 
when this policy began.  We will compute the final premium due when we 
determine your actual exposures.” 
 
9
 
After the policy period expired, Cal-Eagle did an audit of the Joneses to 
make sure all vehicles used in the business had been accounted for in the 
calculation of premiums.  Auditors discovered the Joneses’ extensive use of 
subhaulers, and Cal-Eagle assessed the Joneses, under old rule 23, another 
$111,523 in insurance premiums for the coverage period that had just expired.  
Cal-Eagle reaudited the Joneses under new rule 23 and adjusted the premium to 
$51,294.  
The Joneses believed the retroactive premium charge was in error and that 
the charges for subhaulers should have been on an excess basis under the new rule 
23, as explained above.  After the initial reaudit, but before learning of the 
downward adjustment of the premium, the Joneses sought the help of the DOI.  
They were eventually routed to Elizabeth Mohr, the DOI attorney principally in 
charge of the CAARP.  Mohr sent the Joneses a consumer complaint form, which 
they filled out and returned to the DOI’s consumer services division as directed.  
In response, the Rating Services Bureau of the DOI’s consumer services division 
acknowledged the complaint and wrote to Cal-Eagle asking for an explanation of 
the premium increase.4 
Cal-Eagle replied in a letter to the Joneses, copied to the DOI, that upon 
physical audit, “it was determined that there were additional vehicles to be added,” 
and it had applied the primary insurance rate for these subhaulers because not all 
of revised rule 23’s requirements for an excess rate were met.  The reply further 
advised that Cal-Eagle was “removing several vehicles” and represented that “a 
                                             
 
4  
The Joneses filed a complaint through the DOI’s generic complaint process 
pursuant to Insurance Code section 12921.1.  According to testimony by DOI 
employees, this process was viewed as an alternative to the procedure specifically 
designated for CAARP complaints (see Cal. Code Regs., tit. 10, § 2495), with 
both procedures terminating in an appeal to the Insurance Commissioner. 
 
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copy of the auditor’s report is attached.”  Cal-Eagle informed the DOI of the 
readjustment resulting from the reaudit.  Cal-Eagle did not, however, provide the 
second page of the audit report stating that its auditor had insisted that the “audit 
must be done based on the records available at the time of the audit” and had 
refused the Joneses’ request for “60 days to recreate their records.” 
Based on Cal-Eagle’s response, the DOI wrote the Joneses advising them 
that the premium had been reduced and that “unless you can meet” the guidelines 
in the auditor’s report with which they “must comply” by providing Cal-Eagle 
with the “correct information,” there was “nothing further the department can do 
to cause your premiums to be reduced further.”  The DOI’s response did not 
evidence any awareness of the controversy between the Joneses and Cal-Eagle 
over whether the former would be permitted time to recreate their records to 
establish excess-basis coverage for subhaulers. 
 
Although Cal-Eagle had a general policy to inform its insureds about the 
administrative grievance appeals procedure available through the CAARP (see 
Cal. Code Regs., tit. 10, § 2495), it did not inform the Joneses about the 
availability of such an appeal when they complained to Cal-Eagle about the 
additional premium.  The Joneses did not file an appeal with the CAARP. 
 
The Joneses declined to pay the additional premium.  Cal-Eagle assigned its 
claim to Jonathan Neil & Associates, Inc., a collection agency, which sued the 
Joneses for the balance due on the premium.  The Joneses responded with a cross-
complaint, initially for bad faith and subsequently amended to state a fraud cause 
of action.   
 
Cal-Eagle moved for summary judgment on two bases:  that the Joneses 
failed to state a tort cause of action for breach of the covenant of good faith and 
fair dealing and that they had failed to exhaust their administrative remedies.  The 
 
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trial court denied the motion.  Cal-Eagle petitioned the Court of Appeal for writ 
relief, which the court summarily denied. 
 
The trial was divided into three phases.  Phase I was a trial to the court 
without a jury on certain matters of interpretation of various DOI rules and 
regulations, including the meaning of rule 23 above, as well as other legal 
questions on statutes and policy language.  Phase II was a trial to the jury of the 
complaint and cross-complaint.   The jury found the Joneses owed no additional 
premiums and found Cal-Eagle liable for breach of the implied covenant of good 
faith and fair dealing and for fraud.  It awarded the Joneses $2,027,167 in 
compensatory damages from Cal-Eagle: $409,783 for lost profits, based on the 
Joneses testimony that uncertainty over the $51,294 premium bill caused them to 
close their business; $275,000 each in emotional distress damages to Fred and 
Mildred Jones; and $1,067,384 for attorney fees and costs pursuant to Brandt v. 
Superior Court (1985) 37 Cal.3d 813.  Phase III was a trial to the jury concerning 
the amount of punitive damages to be awarded.  The jury awarded punitive 
damages against Cal-Eagle in the amount of $11,445,714.23.  In posttrial 
proceedings, the trial court conditioned its denial of a new trial motion on 
remittitur of the punitive damages award to $4,350,887.  While preserving their 
right to cross-appeal, the Joneses consented to the remittitur. 
 
Cal-Eagle and Jonathan Neil & Associates, Inc. (hereafter collectively Cal-
Eagle), filed timely notices of appeal, as did the Joneses.  The Court of Appeal 
reversed.  It first held that as a matter of law, tort damages are not available for the 
breach of an implied covenant of good faith and fair dealing in an insurance 
contract when the breach involves a dispute over premiums, as opposed to matters 
concerning payment or settlement of insurance claims.  The Court of Appeal also 
concluded that the Joneses were required to exhaust their administrative remedies 
with the DOI, or alternatively that the doctrine of primary jurisdiction required an 
 
12
initial resort to such remedies before bringing a lawsuit.  Because the Joneses 
failed to fully avail themselves of such remedies, the court reversed the trial 
court’s judgment and remanded with directions to stay proceedings until DOI 
remedies had been exhausted.  We granted review to consider both issues. 
II. 
DISCUSSION 
A. Exhaustion of Administrative Remedies 
The first question posed by this case is whether the Joneses failed to 
exhaust their administrative remedies with the DOI, or, in the alternative, whether 
the doctrine of primary jurisdiction requires the DOI to initially decide the 
questions of the proper premium to be charged.  We conclude that the latter 
doctrine is implicated here and that the judgment should be reversed on that basis. 
Our discussion of the exhaustion doctrine in Rojo v. Kliger (1990) 52 
Cal.3d 65 (Rojo) shows that the doctrine consists of at least three distinct strands, 
justified by somewhat different rationales.  First, when a statute and lawful 
regulations pursuant thereto establish a quasijudicial administrative tribunal to 
adjudicate statutory remedies, the aggrieved party is generally required to initially 
resort to that tribunal and to exhaust its appellate procedure.  “As Witkin explains: 
‘The administrative tribunal is created by law to adjudicate the issue sought to be 
presented to the court.  The claim or “cause of action” is within the special 
jurisdiction of the administrative tribunal, and the courts may act only to review 
the final administrative determination.  If a court allowed a suit to be maintained 
prior to such final determination, it would be interfering with the subject matter 
jurisdiction of another tribunal.’ ”  (Id., at p. 85, quoting 3 Witkin, Cal. Procedure, 
Actions (3d ed. 1985) § 234, at p. 265.) 
Second, the exhaustion doctrine has been applied when a private or public 
organization has provided an internal remedy.  (See Westlake Community Hosp. v. 
 
13
Superior Court (1976) 17 Cal.3d 465 (Westlake).)  Whereas the exhaustion 
requirement in the first category is based on a discernment of legislative intent, the 
second category is more a matter of judicial policy:  “The reason for the 
exhaustion requirement in this context is plain. . . .  ‘[W]e believe as a matter of 
policy that the association itself should in the first instance pass on the merits of an 
individual’s application rather than shift this burden to the courts.  For courts to 
undertake the task “routinely in every such case constitutes both an intrusion into 
the internal affairs of [private associations] and an unwise burden on judicial 
administration of the courts.”  [Citation.]’ ”  (Rojo, supra, 52 Cal.3d at p. 86.)  In 
this context, the “exhaustion of administrative remedies furthers a number of 
important societal and governmental interests, including: (1) bolstering 
administrative autonomy; (2) permitting the agency to resolve factual issues, apply 
its expertise and exercise statutorily delegated remedies; (3) mitigating damages; 
and (4) promoting judicial economy.”  (Ibid.) 
Third, courts have required “exhaustion of ‘external’ administrative 
remedies in a variety of public contexts.”  (Rojo, supra, 52 Cal.3d at p. 87.)  In 
such cases, although the legislative intent to resort in the first instance to 
administrative remedies is not entirely clear, courts have required exhaustion when 
they “have expressly or implicitly determined that the administrative agency 
possesses a specialized and specific body of expertise in a field that particularly 
equips it to handle the subject matter of the dispute.  Typical of these is Karlin v. 
Zalta (1984) 154 Cal.App.3d 953, involving a physician’s class action for 
equitable relief and damages arising out of defendant insurers’ alleged charging of 
excessive malpractice insurance premium rates . . . .  [¶]  [T]he court held 
plaintiffs were required to exhaust their administrative remedies under the 
McBride Act (Ins. Code, §§ 1850-1860.3).  Citing the ‘factual complexities’ of 
medical malpractice insurance ratemaking and the McBride Act’s ‘pervasive and 
 
14
self-contained system of administrative procedure’ for monitoring rates and 
relevant market conditions, the court determined the excessive-rates issue was a 
matter ‘singularly within the technical competence of the Insurance Commissioner 
through the enlistment of agency resources.’ (154 Cal.App.3d at p. 983.)  In these 
circumstances, the court held, ‘it is indispensable that the expertise of the 
insurance commissioner and the agency’s staff be initially engaged to make such 
review.’ ”  (Rojo, supra, 52 Cal.3d at p. 87.) 
In addition to the above three categories, we have recognized in some cases 
that although exhaustion is not required, the doctrine of “primary jurisdiction” of 
administrative agencies, long used in federal law, should be invoked to require 
resort to an administrative agency to resolve issues within its particular area of 
expertise.  In Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377 
(Farmers Ins. Exchange), we explained that exhaustion and primary jurisdiction 
are “two closely related concepts [citation].  ‘Both are essentially doctrines of 
comity between courts and agencies.  They are two sides of the timing coin:  Each 
determines whether an action may be brought in a court or whether an agency 
proceeding, or further agency proceeding, is necessary.’  [Citation.]  [¶]  . . . 
‘ “Exhaustion” applies where a claim is cognizable in the first instance by an 
administrative agency alone; judicial interference is withheld until the 
administrative process has run its course.  “Primary jurisdiction,” on the other 
hand, applies where a claim is originally cognizable in the courts, and comes into 
play whenever enforcement of the claim requires the resolution of issues which, 
under a regulatory scheme, have been placed within the special competence of an 
administrative body; in such a case the judicial process is suspended pending 
referral of such issues to the administrative body for its views.’  [Citations.]”  
(Farmers Ins. Exchange, supra, 2 Cal.4th at p. 390.) 
 
15
“The policy reasons behind the two doctrines are similar and overlapping.  
The exhaustion doctrine is principally grounded on concerns favoring 
administrative autonomy (i.e., courts should not interfere with an agency 
determination until the agency has reached a final decision) and judicial efficiency 
(i.e., overworked courts should decline to intervene in an administrative dispute 
unless absolutely necessary).  [Citations.]  . . .  [T]he primary jurisdiction doctrine 
advances two related policies:  it enhances court decisionmaking and efficiency by 
allowing courts to take advantage of administrative expertise, and it helps assure 
uniform application of regulatory laws.  [Citations.] 
“No rigid formula exists for applying the primary jurisdiction doctrine 
[citation].  Instead, resolution generally hinges on a court’s determination of the 
extent to which the policies noted above are implicated in a given case.  
[Citations.]  This discretionary approach leaves courts with considerable flexibility 
to avoid application of the doctrine in appropriate situations, as required by the 
interests of justice.”  (Farmers Ins. Exchange, supra, 2 Cal.4th at pp. 391-392, fns. 
omitted.) 
In Farmers Ins. Exchange, the Attorney General brought suit against 
various insurance companies, asserting that they violated Insurance Code sections 
1861.02 and 1861.05 by refusing to offer good driver discounts to appropriate 
applicants and sufficient discounts to those who qualified.  The Attorney General 
also alleged that the violation of these provisions constituted an unlawful business 
practice actionable under the Unfair Practices Act, Business and Professions Code 
section 17200 et seq.  We concluded that the Insurance Code claims “presented a 
question of exhaustion of administrative remedies; the People [cannot] litigate 
Insurance Code claims over which the Insurance Commissioner has been given 
exclusive jurisdiction without first invoking and completing the available 
administrative process set out in the Insurance Code.  [Citation.]  By contrast, . . . 
 
16
[t]he Business and Professions Code claim . . . is ‘originally cognizable in the 
courts,’ and thus it triggers application of the primary jurisdiction doctrine.”  
(Farmers Ins. Exchange, supra, 2 Cal.4th at p. 391.) 
We further concluded that the primary jurisdiction doctrine was properly 
invoked:  “First, . . . the Insurance Commissioner has at his disposal a ‘pervasive 
and self-contained system of administrative procedure’ (Rojo, supra, [52 Cal.3d] 
at p. 87) to deal with the precise questions involved herein.  [¶]  Second, and more 
important, based on the allegations in the People’s complaint, there is good reason 
to require that these administrative procedures be invoked here.  . . . [W]e 
conclude that considerations of judicial economy, and concerns for uniformity in 
application of the complex insurance regulations here involved, strongly militate 
in favor of a stay to await action by the Insurance Commissioner in the present 
case.”  (Farmers Ins. Exchange, supra, 2 Cal.4th at p. 396.)  “It seems clear to us 
that the Insurance Commissioner is best suited initially to determine whether his or 
her own regulations pertaining to eligibility [for a Good Driver discount] have 
been faithfully adhered to by an insurer.  [¶]  Similarly, the determination of 
whether a given Good Driver Discount policy comports with the ‘20 percent 
discount’ provision of the statute also calls for exercise of administrative expertise 
preliminary to judicial review.”  (Id. at p. 399.) 
As discussed, the chief distinction between the two doctrines is that the 
“primary jurisdiction” doctrine applies to cases “originally cognizable in the 
courts” (Farmers Ins. Exchange, supra, 2 Cal.4th at p. 390), whereas exhaustion 
generally applies to certain statutory claims initially cognizable by an 
administrative agency (see Rojo, supra, 52 Cal.3d at p. 83 [FEHA claimants 
statutorily required to exhaust administrative remedies]).  Another related 
distinction between the two doctrines is that in the case of exhaustion, the 
administrative agency must initially decide the “entire controversy,” whereas 
 
17
under the primary jurisdiction doctrine, the court “makes its own decision” based 
in part on the agency’s decision on an issue or issues within the case.  (Koch, 
Administrative Law and Practice (2d ed. 1997) §  13.24, p. 357.)5 
We conclude that the doctrine of primary jurisdiction rather than exhaustion 
of remedies should be applied here.  Both Cal-Eagle’s suit for breach of contract 
and the Joneses’ cross-claim for breach of the covenant of good faith and fair 
dealing and fraud are originally cognizable in court.  The Insurance Commissioner 
has no authority to decide these common law claims, but can only make a 
determination regarding some of the issues in the case.  Nor can we discern in 
Insurance Code section 11620 et seq. an absolute statutory bar to prosecuting such 
claims absent a prior administrative determination. 
 
That being said, the case for invoking the primary jurisdiction of the 
Insurance Commissioner is compelling.  The issues raised in the Joneses’ cross-
complaint directly implicate the regulatory authority and expertise of the Insurance 
Commissioner.  What we stated in Farmers Ins. Exchange applies with at least as 
much force in this case: “the Insurance Commissioner has at his disposal a 
                                             
 
5 
The above distinctions are not entirely borne out by California case law.  In 
particular, cases affirming the requirement to exhaust internal remedies sometimes 
involve common law claims, perhaps because the organization cannot be said to 
have made a final decision on the matter affecting the common law claim until the 
organization’s internal remedies are exhausted.  (See, e.g., Westlake, supra, 17 
Cal.3d 465 [exhaustion required in physician’s suit for damages against hospital 
revoking his staff privileges]; Robinson v. Templar Lodge, I.O.O.F. (1897) 117 
Cal. 370 [failure to exhaust internal remedies defeats contract claim against 
fraternal lodge], disapproved on other grounds in Westlake, supra, at p. 479.)  In 
any event, the present case does not fit readily into this “internal remedy” 
category.  The administrative remedies of the CAARP, which are part of a 
comprehensive regulatory framework, more closely resemble those found in 
Farmers Ins. Exchange than they do the internal organizational remedies of a 
hospital or other private organization found in Westlake and similar cases. 
 
18
‘pervasive and self-contained system of administrative procedure’ ” (Farmers Ins. 
Exchange, supra, 2 Cal.4th at p. 396), in the form of an assigned risk program 
heavily regulated and indeed ultimately governed by the Commissioner.  As 
discussed, the CAARP was created by the Insurance Commissioner pursuant to 
Insurance Code section 11620, in order to accomplish the important public 
purpose of providing automobile liability insurance to those unable to obtain such 
insurance by “ordinary methods.”  The CAARP committee and CAIP 
subcommittee are advisory to the Insurance Commissioner, pursuant to section 
11623, subdivision (a).  One of the statutorily required features of the CAARP is 
the establishment of an “appeal to the commissioner by persons who believe 
themselves aggrieved by the operation of the plan.”  (Ins. Code, §  11624, subd. 
(b).)  Pursuant to this statute, the Commissioner has adopted section 2495 of title 
10, California Code of Regulations, which provides in pertinent part that “Any . . . 
insured . . . under the plan who is affected by any act, ruling, decision or order of 
an insurer, the manager or the [CAARP] committee” may complain to the 
committee, with the committee’s decision eventually appealable to the Insurance 
Commissioner, who will then “render a decision which shall be binding upon all 
parties.”   
Furthermore, as in Farmers Ins. Exchange, “concerns for uniformity in 
application of the complex insurance regulations here involved, strongly militate 
in favor of a stay to await action by the Insurance Commissioner in the present 
case.”  (Farmers Ins. Exchange, supra, 2 Cal.4th at p. 396.)  Premiums under the 
CAIP for truckers such as the Joneses are set according to rules promulgated by 
the DOI and the CAARP.  At the heart of the present controversy is a dispute 
about an interpretation and application of rule 23 regarding the method of 
computing insurance premiums to cover an insured trucking company’s 
subhaulers under the CAIP, including the type of documentation required to 
 
19
qualify for a retroactive assessment of the premium on an “excess” basis in 
conformity with paragraph C.2.a(2) of the rule.  The DOI’s interpretation and 
application of these regulations in the first instance is necessary to secure 
regulatory uniformity informed by its expertise and extensive experience with this 
area of regulation.  Indeed, the Insurance Commissioner, as amicus curiae, 
vigorously argues in favor of an exhaustion of remedies requirement as a means of 
securing such regulatory uniformity. 
The conduct of the trial that did occur in this case, without the benefit of the 
Insurance Commissioner’s final determination of the premium issues, confirms the 
need to afford the Insurance Commissioner primary jurisdiction.  The record 
reveals that at least six witnesses currently or formerly employed by the DOI 
testified about the operation of rule 23 or the inner workings of the CAARP.  The 
Joneses, in their opening brief in the Court of Appeal, stated that the jury trial was 
tantamount to “a two (2) month training course on Assigned Risk underwriting, 
auditing, and premium calculation.”  Such time and expense was in addition to the 
similar “training course” the trial court had to undergo in phase I of the trial.  The 
reliance on DOI experts and the need to intensively “train” the judge and jury on 
the fine points of an insurance regulatory scheme illustrate the folly of bypassing a 
statutorily authorized grievance process within the DOI, operated by employees 
who would not require such training, and who might have been able to 
expeditiously resolve the matter. 
We conclude for all the above reasons that the trial court abused its 
discretion in not staying the proceeding and referring the premium dispute issue to 
the DOI.  The proper remedy is to reverse the judgment and direct such reference 
occur on remand.  (See General American Tank Car Corp. v. El Dorado Terminal 
Co. (1940) 308 U.S. 422, 433 [appropriate to stay judicial proceedings already 
initiated, even when trial has concluded, to permit administrative determination of 
 
20
issues pertinent to the litigation].)  The fact that a lengthy trial has already been 
held, which may well have been unnecessary, highlights the need for trial and 
appellate courts to timely apply the primary jurisdiction doctrine when 
appropriate.6 
The Joneses also claim, in effect, that they have already exhausted their 
administrative remedies.  As discussed, the Joneses did file a complaint through 
the DOI’s generic complaint process pursuant to Insurance Code section 12921.1.  
The department official, after an apparently superficial investigation, concluded 
that the Joneses would be required to submit more paperwork regarding their 
subhaulers, as requested by Cal-Eagle.  The Joneses contend that Cal-Eagle 
misrepresented to the DOI the paperwork requirements imposed on the Joneses, 
and also strenuously, and not unpersuasively, argue that these requirements were 
intrinsically unfair and impossible to meet.  But the Joneses did not attempt to 
inform the DOI of Cal-Eagle’s misrepresentation, nor to press the matter with the 
DOI attorney in charge of handling the complaint, much less pursue an appeal.  
The Joneses also contend that Cal-Eagle did not inform them of the CAARP 
appeal process.  But such a process was public information and there was no 
indication that the Joneses, who were represented by counsel at this point and who 
were already in contact with the DOI, were affirmatively misled into believing that 
such appeal was unavailable. 
                                             
 
6  
We note that our holding regarding the primary jurisdiction of the 
Insurance Commissioner does not extend to all disputes between insureds and 
insurers participating in the CAARP but only to those disputes within the 
CAARP’s jurisdiction.  (See Hightower v. Farmer’s Ins. Exchange (1995) 38 
Cal.App.4th 853, 860 [CAARP committee’s regulatory authority limited to such 
matters as issuance of assigned risk policies and setting rates for such policies, not 
to the adjustment of claims under the policies].) 
 
21
Failure to exhaust administrative remedies is excused if it is clear that 
exhaustion would be futile.  (Sea & Sage Audubon Society, Inc. v. Planning Com. 
(1983) 34 Cal.3d 412, 418.)  Similarly, it is improper to invoke the primary 
jurisdiction of an administrative agency if it is clear that further proceedings 
within that agency would be futile.  (See Farmers Ins. Exchange, supra, 2 Cal.4th 
at pp. 391-392 [application of primary jurisdiction doctrine not required when the 
policy interests underlying the doctrine would not be served].)  The Joneses claim 
such futility with respect to the DOI remedies.  We disagree.  The futility 
exception requires that the party invoking the exception “can positively state that 
the [agency] has declared what its ruling will be on a particular case.”  (Sea & 
Sage Audubon Society, Inc. v. Planning Com., supra, at p. 418, italics omitted.)  
There is nothing in the record to indicate how the DOI would have decided the 
Joneses’ case had the latter fully availed themselves of the CAARP’s complaint 
and appeals processes.7 
                                             
 
7  
The Joneses contend that the CAARP grievance process failed to meet 
minimal due process standards because it did not authorize the taking of testimony 
under oath or the submission of legal briefs, and because appeal to the Insurance 
Commissioner did not require any type of formal hearing.  The Joneses also 
contend that the CAARP committee was composed of a majority of members from 
the insurance industry, and the insurance industry would be obligated to indemnify 
Cal-Eagle in the event it was found liable, thereby rendering a majority of the 
CAARP committee financially interested in the outcome of the proceeding. 
 
“ ‘[I]f the [administrative] remedy provided does not itself square with the 
requirements of due process the exhaustion doctrine has no application.’  
[Citation.]  Due process, though, ‘does not require any particular form of notice or 
method of procedure.  If the [administrative remedy] provides for reasonable 
notice and a reasonable opportunity to be heard, that is all that is required.’ ”  
(Bockover v. Perko (1994) 28 Cal.App.4th 479, 486.)  Nothing in the present 
record indicates the CAARP’s grievance and appeals process was lacking in these 
minimal due process requirements, nor that committee members did in fact have a 
 
(footnote continued on next page) 
 
22
The judgment must therefore be reversed and the matter stayed pending the 
Insurance Commissioner’s determination of the additional premium, if any, owed 
by the Joneses, and related issues.  (See Reiter v. Cooper (1993) 507 U.S. 258, 
268-269 [proceeding to be stayed unless in the interest of justice the trial court 
dismisses without prejudice].)  On remand, the Joneses, if they wish to continue 
the action, must pursue the DOI’s administrative remedies to its conclusion.  Like 
the Court of Appeal, we conclude that at this juncture, the matter should be 
referred to the CAARP committee, which has the specific expertise to address the 
premium issue, rather than to the DOI’s generic complaint process, with right of 
appeal to the Insurance Commissioner.  (See Cal. Code Regs., tit. 10, §  2495.)  If 
the Insurance Commissioner decides against the Joneses in the underlying billing 
dispute, then the litigation will likely come to an end.  If the Commissioner 
decides in the Joneses’ favor, then the Joneses may proceed with their lawsuit, but 
trial will be assisted by the fact that the Commissioner has made a decision on the 
billing dispute that is the predicate for the suit.8 
                                                                                                                                                              
 
(footnote continued from previous page) 
 
substantial financial incentive in finding in Cal-Eagle’s favor or were otherwise 
biased.   
8  
The Joneses contend that the jury’s verdict on the fraud issue alone is 
sufficient to support the damages award, and that the fraud verdict is not to be 
subject to the exhaustion of remedies requirements or the invocation of primary 
jurisdiction because its resolution is beyond the jurisdiction of the DOI.  But both 
the fraud verdict and the verdict on the implied covenant of good faith and fair 
dealing are premised on the alleged fact that the Joneses were incorrectly billed for 
a retroactive premium increase.  Whether that allegation is true is to be determined 
in the first instance by the DOI and the Insurance Commissioner. 
 
23
B. Tortious Breach of the Implied Covenant of Good Faith and Fair 
Dealing 
Because this case may be retried, we address the other issue in this case: 
whether the Joneses have an action in tort for breach of the covenant of good faith 
and fair dealing. 
“ ‘Every contract imposes upon each party a duty of good faith and fair 
dealing in its performance and its enforcement.’  [Citation.]  . . .  Because the 
covenant is a contract term, however, compensation for its breach has almost 
always been limited to contract rather than tort remedies.  As to the scope of the 
covenant, ‘[t]he precise nature and extent of the duty imposed by such an implied 
promise will depend on the contractual purposes.’  [Citation.]  Initially, the 
concept of a duty of good faith developed in contract law as ‘a kind of “safety 
valve” to which judges may turn to fill gaps and qualify or limit rights and duties 
otherwise arising under rules of law and specific contract language.’  [Citation.]  
As a contract concept, breach of the duty led to imposition of contract damages 
determined by the nature of the breach and standard contract principles.”  (Foley, 
supra, 47 Cal.3d at pp. 683-684.) 
In the area of insurance contracts the covenant of good faith and fair 
dealing has taken on a particular significance, in part because of the special 
relationship between the insurer and the insured.  “We [have] held that the insurer, 
when determining whether to settle a claim, must give at least as much 
consideration to the welfare of its insured as it gives to its own interests.  The 
governing standard is whether a prudent insurer would have accepted the 
settlement offer if it alone were to be liable for the entire judgment.  [Citations.]  
The standard is premised on the insurer’s obligation to protect the insured’s 
interests in defending the latter against claims by an injured third party.”  (Egan v. 
Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818.)  A breach of this duty of 
 
24
reasonable settlement gives rise to tort damages.  (Crisci v. Security Ins. Co. 
(1967) 66 Cal.2d 425, 432-433.)  
“The implied covenant imposes obligations not only as to claims by a third 
party but also as to those by the insured.  [Citations.]  In both contexts the 
obligations of the insurer ‘are merely two different aspects of the same duty.’  
[Citations.]  . . .  For the insurer to fulfill its obligation not to impair the right of 
the insured to receive the benefits of the agreement, it again must give at least as 
much consideration to the latter’s interests as it does to its own.” (Egan v. Mutual 
of Omaha Ins. Co., supra, 24 Cal.3d at pp. 818-819.)  As in the case of failure to 
properly settle third party claims, “ ‘[w]hen the insurer unreasonably and in bad 
faith withholds payment of the claim of its insured, it is subject to liability in 
tort.’ ”  (Id. at p. 818.) 
In Foley, supra, 47 Cal.3d 654, the court refused to extend the tort of bad 
faith to the employment relationship, concluding that it was substantially different 
from the insurance relationship.  In so concluding, it focused on three areas.  First, 
when an insurer in bad faith fails to properly settle or pay a claim, “the insured 
cannot turn to the marketplace to find another insurance company willing to pay 
for the loss already incurred.  The wrongfully terminated employee, on the other 
hand, can (and must, in order to mitigate damages [citation]) make reasonable 
efforts to seek alternative employment. [Citation.]  [Second], the role of the 
employer differs from that of the ‘quasi-public’ insurance company with whom 
individuals contract specifically in order to obtain protection from potential 
specified economic harm.  The employer does not similarly ‘sell’ protection to its 
employees; it is not providing a public service. . . .  [¶]  [Third,] . . . [i]n the 
insurance relationship, the insurer’s and insured’s interest are financially at 
odds. . . .  [¶]  . . .  [But] as a general rule it is to the employer’s economic benefit 
to retain good employees.  The interests of employer and employee are most 
 
25
frequently in alignment.  If there is a job to be done, the employer must still pay 
someone to do it. . . .  Thus the need to place disincentives on employer’s conduct 
in addition to those already imposed by law simply does not rise to the same level 
as that created by the conflicting interests at stake in the insurance context.”  (Id. 
at pp. 692-693, fn. omitted; see also Cates Construction, Inc. v. Talbot Partners 
(1999) 21 Cal.4th 28, 44 [refusing to extend the remedy for tortious breach to 
breaches of performance bonds for reasons similar to those in Foley].) 
The question at issue is whether tort remedies should be extended to the 
breach of the covenant of good faith and fair dealing when the insurer has in 
bad faith retroactively billed an insured for an excessive premium.  The 
Joneses argue that the factors discussed immediately above apply in such cases  
the insurer is compromising the availability of a public service, and the insured 
will not obtain replacement insurance for a policy year partly or wholly passed.  
The Joneses also assert that the interest of insurers and insureds in billing disputes 
are adverse. 
In addressing this issue, we first observe that, generally speaking, the 
insurer’s ability to charge excessive premiums will be disciplined by competition 
among insurers.  In the present case market forces, to be sure, are less significant, 
both because the premium is assessed retroactively and because the insurance 
program is an assigned risk plan, a public insurance program of last resort.  But 
although the CAARP insurer is not restrained by the marketplace from 
overcharging premiums, premium-setting in the CAARP program is extensively 
regulated, and an insured faced with such an overcharge may seek administrative 
remedies established in place of market controls to expeditiously resolve billing 
disputes, as discussed above. 
Aside from this observation, there are several critical factors that counsel 
against the availability of tort remedies for breach of the covenant of good faith 
 
26
and fair dealing in the present case.  First, the billing dispute does not, by itself, 
deny the insured the benefits of the insurance policy  the security against losses 
and third party liability.  (See Old Republic Ins. Co. v. FSR Brokerage Inc. (2002) 
80 Cal.App.4th 666, 688.)  Second, the dispute does not require the insured to 
prosecute the insurer in order to enforce its rights, as in the case of bad faith 
claims and settlement practices.  (See Ibid.) 
Third, traditional tort remedies may be available to the insured who is 
wrongfully billed a retroactive premium.  If the premium charge is wholly 
unjustified, the insured may, after successfully defending the action, sue for 
malicious prosecution.  (See Sheldon Appel Co. v. Albert & Oliker (1989) 47 
Cal.3d 863, 871-872.)  If the debt is reported to third parties, to the debtor’s 
detriment, a defamation action may lie.  (Pulver v. Avco Code Financial Services 
(1986) 182 Cal.App.3d 622, 638; Schneider v. United Airlines, Inc. (1989) 208 
Cal.App.3d 71, 75.)  The untruthful, bad faith creditor may also be liable for 
intentional interference with prospective economic advantage.  (See Walsh v. 
Glendale Fed. Sav. & Loan Assn. (1969) 1 Cal.App.3d 578, 588-589, disapproved 
on other grounds in Garrett v. Coast & Southern Fed. Sav. & Loan Assn. (1973) 9 
Cal.3d 731, 737-738.) 
The Joneses contend that the very act of billing a retroactive excess 
premium created such financial uncertainty as to compel them to close their 
business.  Assuming someone in a similar position to the Joneses can prove that, 
notwithstanding their resort to available administrative remedies, the excessive 
premium charge compelled them to close their business, lost profits would be 
available even when the implied covenant of good faith and fair dealing sounds 
only in contract, so long as the lost profits were among “the natural and direct 
consequences of the breach.”  (Brandon & Tibbs v. George Kevorkian 
 
27
Accountancy Corp. (1990) 226 Cal.App.3d 442, 457 [breach of contract action 
permitting lost profit damages].) 
The Joneses cite a number of cases in the workers’ compensation insurance 
context in which the bad faith overbilling of a premium was held to sound in tort.  
Typical of these cases is Security Officers Service, Inc. v. State Compensation Ins. 
Fund (1993) 17 Cal.App.4th 887 (Security Officers Service).  The plaintiff 
employer contracted for workers’ compensation insurance with the State 
Compensation Insurance Fund (SCIF), a public workers’ compensation insurance 
enterprise.  The premiums were calculated pursuant to a rating plan approved by 
the Insurance Commissioner, including an “experience rating,” based on the 
number of outstanding claims at the end of the year and the amount of reserves 
that the SCIF had set aside to cover the unresolved claim.  (Id. at p. 891.)  The 
plaintiff alleged a breach of the implied covenant of good faith and fair dealing 
based on the SCIF’s manipulation of the experience rating in its favor by delaying 
the resolution of claims and inflating the reserves, thereby permitting it to charge 
the plaintiff excess premiums and diminish plaintiff’s dividends.  (Id. at pp. 891-
892.)  The Court of Appeal affirmed that such alleged misconduct, if true, 
established a breach of the implied covenant of good faith and fair dealing that 
could give rise to tort as well as contract damages.  (Id. at pp. 894, 899.) 
Security Officers Service is clearly distinguishable from the present case.  
There, the overcharging of premiums was inextricably linked to the deliberate 
mishandling of claims  precisely the kind of bad faith behavior that goes to the 
heart of the special insurance relationship and gives rise to tort remedies.9  The 
                                             
 
9 
Other cases cited by the Joneses are similarly distinguishable.  (See Lance 
Camper Manufacturing Corp. v. Republic Indemnity Co. (2001) 90 Cal.App.4th 
1151, 1160; Notrica v. State Comp. Ins. Fund (1999) 70 Cal.App.4th 911, 918-
 
(footnote continued on next page) 
 
28
premium overbilling alleged in this case is separate from any allegations of claims 
mishandling.10  Moreover, unlike the concealed mishandling of claims affecting 
premiums and dividends, the retroactive overbilling of a premium does not require 
the insured to prosecute the insurer in order to vindicate its contractual rights 
under the insurance policy. 
The Joneses also cite in support of their position Spindle v. Travelers Ins. 
Companies (1977) 66 Cal.App.3d 951, 958.  In that case the Court of Appeal, in 
reversing the trial court’s dismissal upon demurrer, affirmed the availability of tort 
damages for the cancellation of an insurance policy for an improper motive  in 
order to pressure members of a doctors group to consent to a large increase in their 
medical malpractice premiums.  We have no occasion to decide whether Spindle 
was correctly decided or whether and when the cancellation of an insurance 
                                                                                                                                                              
 
(footnote continued from previous page) 
 
919; Tricor California, Inc. v. State Compensation Ins. Fund (1994) 30 
Cal.App.4th 230, 239-240.)  Still other cited cases do not involve tort damages.  
(MacGregor Yacht Corp. v. State Comp. Ins. Fund (1998) 63 Cal.App.4th 448, 
456-458 [contract damages for improper claims handling and premium 
assessments]; Mission Ins. Group, Inc. v. Merco Construction Engineers, Inc. 
(1983) 147 Cal.App.3d 1059, 1062 [equitable accounting ordered to determine 
how insurer calculated the dividend].) 
10 
The proposed holding thus applies only to retroactive billing cases in which 
the billing is separate and distinct from any allegations of claims mishandling.  
The Joneses contend that Cal-Eagle engaged in the bad faith settlement of a third 
party claim involving one of the Joneses’ employees, but do not allege that the 
settlement was part of the premium billing dispute.  Cal-Eagle denies any such bad 
faith conduct and points to the fact that the only economic damages the jury 
awarded was for lost profits attributable to the billing dispute.  The Court of 
Appeal declined to address the question whether the judgment could be sustained 
on the bad faith handling of the claim alone because it reversed the judgment on 
the exhaustion of remedies/primary jurisdiction ground.  We do not address this 
issue for the same reason. 
 
29
contract for improper motives could ever give rise to tort damages.  There may be 
circumstances in which cancellation of the policy denies the insured the benefits of 
the policy.  (See, e.g., Helfand v. National Union Fire Ins. Co. (1992) 10 
Cal.App.4th 869 [tort damages for bad faith conduct upheld when an insurer 
canceled a three-year policy so as to avoid payment of claims expected to come 
due in the third year].)  Such is not the present case.11 
In sum, the Joneses were not in the same vulnerable position as those who 
suffer from the insurer’s bad faith claims and settlement practices  they were not 
denied the benefits of the insurance policy, were not required to prosecute the 
insurer to vindicate their contractual rights, and had available various 
administrative, contractual, and tort remedies.  Accordingly, we conclude that tort 
remedies for breach of the implied covenant of good faith and fair dealing in this 
circumstance are unnecessary to protect the insured’s interests and hold that no 
such damages are available for the Joneses’ bad faith claim. 
III. 
DISPOSITION 
 
The Court of Appeal reversed the judgment in favor of the Joneses and 
directed the trial court to direct the Joneses “to pursue to finality an administrative 
complaint under California Code of Regulations, title 10, section 2495.”  The 
                                             
 
11  
We do not decide whether an insurer who in bad faith terminates or causes 
the termination of an insured in an assigned risk program such as the CAARP, 
effectively leaving the insured without the benefits of insurance, may be liable in 
tort, as the Joneses appear to suggest.  No such termination was alleged in this 
case.  The Joneses did allege that the billing of an excessive premium compelled 
them to close their business and they obtained a favorable verdict on that issue, 
which must be reversed on the primary jurisdiction grounds discussed above.  But 
the Joneses failed to fully avail themselves of administrative remedies provided by 
the CAARP and DOI, as discussed in the previous part of this opinion.  As such, 
we cannot say that the alleged overbilling of the Joneses, even if proven true, 
amounted to a constructive termination from the assigned risk program. 
 
30
Court of Appeal further directed the trial court to stay all proceedings “until and 
unless either party petitions for dissolution of the stay based on the final 
administrative outcome.”  We affirm the Court of Appeal’s judgment.  Further  
proceedings should be conducted in accord with the views expressed in this 
opinion. 
MORENO, J. 
WE CONCUR: GEORGE, C. J. 
 
KENNARD, J. 
 
WERDEGAR, J. 
 
CHIN, J. 
 
BROWN, J. 
 
*DOI TODD, J. 
                                             
 
* 
Associate Justice, Court of Appeal, Second Appellate District, Division 2, 
assigned by the Chief Justice pursuant to article VI, section 6 of the California 
Constitution. 
 
31
See last page for addresses and telephone numbers for counsel who argued in Supreme Court. 
 
Name of Opinion Jonathan Neil & Associates v. Jones 
__________________________________________________________________________________ 
 
Unpublished Opinion 
Original Appeal 
Original Proceeding 
Review Granted XXX 98 Cal.App.4th 434 
Rehearing Granted 
 
__________________________________________________________________________________ 
 
Opinion No. S107855 
Date Filed: August 5, 2004 
__________________________________________________________________________________ 
 
Court: Superior 
County: Fresno 
Judge: Franklin P. Jones 
 
__________________________________________________________________________________ 
 
Attorneys for Appellant: 
 
Fried, Frank, Harris, Shriver & Jacobson, Richard A. Brown, E. Randol Schoenberg; Greines, Martin, Stein 
& Richland, Irving H. Greines, Robin Meadow, Tyna Thall Orren and Peter O. Israel for Plaintiff and 
Appellant and for Cross-defendant and Appellant. 
 
Sedgwick, Detert, Moran & Arnold, Christina J. Imre and Stephanie Rae Williams for Aetna Healthcare of 
California and Aetna Life Insurance Company as Amici Curiae on behalf of Plaintiff and Appellant and 
Cross-defendant and Appellant. 
 
Sonnenschein Nath & Rosenthal, Thomas E. McDonald and Sanford Kingsley for California Automobile 
Assigned Risk Plan as Amicus Curiae on behalf of Plaintiff and Appellant and Cross-defendant and 
Appellant. 
 
Bill Lockyer, Attorney General, Manuel M. Medeiros, State Solicitor General, David S. Chaney, Assistant 
Attorney General, and Elisa B. Wolfe-Donato, Deputy Attorney General as Amici Curiae on behalf of 
Plaintiff and Appellant and Cross-defendant and Appellant. 
 
Deborah J. La Fetra for Pacific Legal Foundation as Amicus Curiae on behalf of Plaintiff and Appellant. 
 
Sonnenschein Nath & Rosenthal, Paul E. B. Glad, Cheryl Dyer Berg and Sean McEneaney for California 
Workers’ Compensation Institute, Association of California Insurance Companies and Fireman’s Fund 
Insurance Company as Amici Curiae on behalf of Plaintiff and Appellant. 
 
Horvitz & Levy, Mithcell C. Tilner and S. Thomas Todd for State Compensation Insurance Fund 
as Amicus Curiae on behalf of Cross-defendant and Appellant. 
 
Heller Ehrman White & McAulife, Vanessa Wells, Victoria Collman Brown and Jessica Rossman for State 
Farm Mutual Automobile Insurance Company as Amicus Curiae on behalf of Cross-defendant and 
Appellant. 
 
 
 
 
32
 
 
 
Page 2 - counsel continued - S107855 
 
 
Attorneys for Appellant: 
 
McCormick, Barstow, Sheppard, Wayte & Carruth, James P. Wagoner, Wendy S. Loyd and David W. 
Burnett for Defendant, Cross-complainant and Appellant and for Cross-complainants and Appellants. 
 
Robert S. Gerstein; Gianelli & Morris, Robert S. Gianelli and Sherril Nell Babcock for Consumer 
Attorneys of California as Amicus Curiae on behalf of Defendant, Cross-complainant and Appellant and 
Cross-complainants and Appellants. 
 
 
 
 
__________________________________________________________________________________ 
 
Attorneys for Respondent: 
 
Emerson Corey & Barsotti and Todd B. Barsotti for Cross-defendant and Respondent. 
 
 
 
 
 
 
 
33
 
 
 
 
Counsel who argued in Supreme Court (not intended for publication with opinion): 
 
Peter O. Israel 
Greines, Martin, Stein & Richland 
5700 Wilshire Boulevard, Suite 375 
Los Angeles, CA  90036-3697 
(310) 859-7811 
 
James P. Wagoner 
McCormick, Barstow, Sheppard, Wayte & Carruth 
5 River Park Place East 
Fresno,CA  93720 
(559) 433-1300