Source: https://scocal.stanford.edu/opinion/royal-globe-ins-co-v-superior-court-30520
Timestamp: 2020-08-13 09:40:26
Document Index: 721012150

Matched Legal Cases: ['§ 790', '§ 790', '§ 790', '§ 790', '§ 790', '§ 16700', '§ 41', '§ 16000', '§ 17000', '§ 17070']

Royal Globe Ins. Co. v. Superior Court - 23 Cal.3d 880 - Thu, 03/29/1979 | California Supreme Court Resources
Home > Opinions > Royal Globe Ins. Co. v. Superior Court
Citation 23 Cal.3d 880
Royal Globe Ins. Co. v. Superior Court , 23 Cal.3d 880
Robert E. Cartwright, Edward I. Pollock, Leroy Hersh, David B. Baum, Stephen I. Zetterberg, Robert G. Beloud, Arne Werchick, William P. Camusi, Glen T. Bashore, Ralph Drayton and Leonard Sacks as Amici Curiae on behalf of Real Parties in Interest. [23 Cal.3d 883]
Subdivision (h) of section 790.03 of the Insurance Code, a provision of the Unfair Practices Act (Ins. Code, § 790 et seq., hereinafter called the act) provides that insurers are prohibited from engaging in certain unfair claims settlement practices set forth in the section. fn. 1 The [23 Cal.3d 884] sole issue in this proceeding is whether an individual who is injured by the alleged negligence of an insured may sue the negligent party's insurer for violation of the subdivision.
The purpose of the act is "to regulate trade practices in the business of insurance ... by defining ... such practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined." (§ 790.) Section 790.02 prohibits any person from engaging in [23 Cal.3d 885] any trade practice defined in section 790.03 as "an unfair or deceptive act or practice in the business of insurance." The commissioner is empowered to investigate the affairs of insurers (§ 790.04), and if he has reason to believe that an insurer is engaged in an unfair or deceptive act or practice defined in section 790.03, he shall, after notice and hearing, issue a cease and desist order. (§ 790.05.) A penalty of $50 may be imposed for violation of such an order, or $500 for a wilful violation, and subsequent violations may result in suspension or revocation of an insurer's license. (§ 790.07.)
This interpretation of section 790.09 has been adopted in several recent cases. In Greenberg v. Equitable Life Assur. Society (1973) 34 Cal.App.3d 994 [110 Cal.Rptr. 470], the plaintiff brought a class action alleging that the defendant insurer had illegally compelled borrowers to purchase policies of life insurance as a condition of obtaining home loans. It was held that these allegations constituted a cause of action based upon subdivision (c) of section 790.03, which prohibits coercion by an insurer resulting in unreasonable restraint of the business of insurance. In reply [23 Cal.3d 886] to the defendant's assertion that only the commissioner has the right to enforce the section, the court held that section 790.09 "contemplates a private suit to impose civil liability irrespective of governmental action against the insurer for violation of a provision of the Insurance Code. The fair construction is that the person to whom the civil liability runs may enforce it by an appropriate action." (34 Cal.App.3d at p. 1001.)
Greenberg was followed by Shernoff v. Superior Court (1975) 44 Cal.App.3d 406 [118 Cal.Rptr. 680]. There, plaintiffs filed a class action for damages against several title insurers, alleging a conspiracy to fix title insurance rates. The defendants asserted that plaintiffs had failed to exhaust their administrative remedies before the commissioner. The court declared that, while the commissioner does not have power under the act to award money damages for past injuries, the courts may award such damages. fn. 3 Defendants claimed, as in Greenberg, that only the commissioner has power to enforce the act; the court rejected this holding, quoting at length from Greenberg. The same principles were applied in Homestead Supplies, Inc. v. Executive Life Ins. Co. (1978) 81 Cal.App.3d 978, 992 [147 Cal.Rptr. 22]. These well-reasoned authorities make it clear, therefore, that private litigants may rely upon the proscriptions set forth in the act as a basis for the imposition of civil liability upon an insurer.
Defendant's contention is contrary to the holdings of both Greenberg and Shernoff. Defendant asserts that Greenberg is distinguishable because the complaint there was based upon tie-in sales coerced by an insurer, a practice which is illegal even without the prohibition contained in section 790.03. However, the court determined that the general antitrust prohibitions of the Cartwright Act (Bus. & Prof. Code, § 16700 et seq.) were [23 Cal.3d 887] inapplicable to insurance companies and that only section 790.03 prohibits insurers from engaging in anticompetitive activity. (34 Cal.App.3d at p. 999, fn. 2.) Thus, it expressly recognized that only the act prohibits anticompetitive activity by an insurer, and held that the plaintiff could rely upon the provisions of the act in bringing a private suit for civil damages.
[3] Both defendant and amicus curiae, State Farm Mutual Automobile Insurance Company, argue that the legislative history of the act demonstrates that it was not intended to apply to actions brought by private parties. Defendant relies upon a letter sent to the trial court by Richards D. Barger, who was Insurance Commissioner at the time subdivision (h) was enacted and actively supported the measure; he is now an attorney in private law practice. The letter declares that the intent of the act was to afford the commissioner certain remedies against insurers and not to grant a cause of action to third party litigants based upon an insurer's violation of the act. fn. 4 The writer was not a legislator, and was not acting on behalf of the Legislature in supporting the measure. Thus, his understanding of the meaning of the provision is not persuasive evidence of the Legislature's intention. (See Carmona v. Division of Industrial Safety (1975) 13 Cal.3d 303, 311-312, fn. 8 [118 Cal.Rptr. 473, 530 P.2d 161]; cf. In re Marriage of Bouquet (1976) 16 Cal.3d 583, 589-591 [128 Cal.Rptr. 427, 546 P.2d 1371].) The other matters relied upon by defendant and amicus as evidence of legislative intent are too general or remote to provide any firm guidance in this regard. fn. 5
Another argument of defendant is that the act was based upon the Federal Trade Commission Act (15 U.S.C.A. § 41 et seq.), that the [23 Cal.3d 888] purpose of the federal legislation is to regulate unfair practices in commerce, and that since there is no private right of action under the federal legislation (Holloway v. Bristol-Myers Corporation (D.C.Cir. 1973) 485 F.2d 986), the same result should follow with regard to subdivision (h). But the federal statute contains no provision equivalent to section 790.09. Indeed, as pointed out in Holloway, the federal legislation relates "expressly ... only to enforcement proceedings brought by the Commission or the Attorney General, or the review thereof." (485 F.2d at p. 1001.)
Another indication that the Legislature intended the language of the subdivision to protect claimants is revealed by the legislative history of the measure. When Assembly Bill No. 459, which added subdivision (h) to the act, was enacted in 1972, a representative of the Department of Insurance testified before various legislative committees that the measure "could be construed to affect third parties." He also referred to this matter in conversations with the staffs of the committees. According to [23 Cal.3d 889] him, "[n]obody argued against that position." fn. 6 The department, in a "Bill Analysis" sent to Assemblyman Pierson, a sponsor of the measure, noted that the bill needed clarification, that some of the unfair claims settlement practices appeared to apply to insureds, some to third parties, and some to both. No change was made in the measure in spite of these concerns. Since the legislative committees which considered the bill were expressly made aware that -- as clearly appears from the face of subdivision (h) -- some of the practices specified therein applied to claimants, and nevertheless refrained from amending the bill to indicate otherwise, it is a reasonable implication that the committees' inaction represented a deliberate decision that third party claimants were to enjoy the protection afforded by the bill. (Cf. Rich v. State Board of Optometry (1965) 235 Cal.App.2d 591, 603 [45 Cal.Rptr. 512].) In accordance with this understanding of the scope of subdivision (h) the department investigates complaints from third parties in connection with its enforcement powers under the act. fn. 7 In 1977 the Policy Services Bureau of the department resolved 14,740 claim complaints, of which 492 were third party complaints.
Defendant relies heavily on Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937 [132 Cal.Rptr. 424, 553 P.2d 584]. In that case, we held that a third party claimant who had recovered a judgment against the insured for an amount in excess of the policy limits but who had not secured an assignment of the insured's cause of action could not sue the insurer for breach of the duty to settle. Our holding was based primarily upon contractual principles. That is, we held that since the third party claimant was not a party to the contract between the insured and the insurer and the duty to settle which the insurer owes to the insured is intended to protect the insured from liability for excess coverage rather than to benefit the injured claimant, neither the third party beneficiary doctrine, the provisions of section 11580, subdivision (b)(2), of the Insurance Code, fn. 8 nor the Financial Responsibility Law (Veh. Code, § 16000 et seq.) [23 Cal.3d 890] require that the injured party be permitted to sue for a breach of the duty to settle.
The ambiguity in the introductory language is not dispelled by the listing of the matters which constituted unfair conduct, for some of these [23 Cal.3d 891] are referred to in the singular and others in the plural. For example, subdivision (h)(1) prohibits misrepresenting to claimants "insurance policy provisions relating to ... coverages," while subdivision (h)(15) proscribes misleading "a claimant as to the applicable statute of limitations." fn. 11
[1c] Finally, we agree with defendant that plaintiff may not sue both the insurer and the insured in the same lawsuit. Section 1155 of the Evidence Code provides that evidence of insurance is inadmissible to prove negligence or wrongdoing. The obvious purpose of the provision is to prevent the prejudicial use of evidence of liability insurance in an action against an insured. (See, e.g., Citti v. Bava (1928) 204 Cal. 136, 139 [266 P. 954]; Rising v. Veatch (1931) 117 Cal.App. 404, 406 [3 P.2d 1023].) A joint trial against the insured for negligence and against the insurer for violating its duties under subdivision (h) would obviously violate both the letter and spirit of the section. fn. 12 [23 Cal.3d 892]
Only three years ago we unanimously held, in Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937 [132 Cal.Rptr. 424, 553 P.2d 584], that the [23 Cal.3d 893] insurer's duty to settle runs to the insured and not to the injured party, and that, accordingly, the latter may not recover from the insurer for breach of that duty in the absence of a proper formal assignment of the insured's cause of action. In carefully describing the relationship of insured-carrier-third-party claimant, we said in Murphy: "The duty to settle is implied in law to protect the insured from exposure to liability in excess of coverage as a result of the insurer's gamble -- on which only the insured might lose. (See Shapero v. Allstate Ins. Co. (1971) 14 Cal.App.3d 433 [92 Cal.Rptr. 244].) [¶] The insurer's duty to settle does not directly benefit the injured claimant. In fact, he usually benefits from the duty's breach. Instead of receiving an award near policy limits, he stands to obtain judgment exceeding policy coverage. For instance, in the present case plaintiff has already received an amount equal to her highest settlement demand, holding an unsatisfied judgment for an additional $17,500. [¶] The insurer's duty to settle -- running to the insured and not to the injured claimant -- is also demonstrated by Shapero v. Allstate Ins. Co., supra, 14 Cal.App.3d 433. The insured died leaving no asset other than the insurance policy. Thus, a judgment in excess of policy limits presenting no risk to the insured or to his heirs, the insurer had no duty to settle within policy limits." (Italics added, p. 941.)
As a basis for its creation of this new cause of action, the majority seizes upon section 790.03 which lists various unfair and deceptive practices, including "(h) Knowingly committing or performing with such [23 Cal.3d 894] frequency as to indicate a general business practice any of the following unfair claims settlement practices: [¶] ... (5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear." (Italics added.) The majority holds that henceforth a third party such as plaintiff may directly sue the insurer to recover damages arising from a single act of refusal to settle under the foregoing section. Yet, under the clear and very express language of subdivision (h), the conduct specified therein does not become unfair or unlawful until those acts are repeated with such frequency as to constitute a "general business practice."
The analytical fault of the majority becomes even more glaring with its further conclusion that "... it is inconceivable that the Legislature [23 Cal.3d 895] intended that such a [third party] litigant would be required to show that the insurer committed the acts prohibited by [subd. (h)] 'with such frequency as to indicate a general business practice.' There would be no rational reason why an insured or a third party claimant injured by an insurer's unfair conduct, knowingly performed, should be required to demonstrate that the insurer had frequently been guilty of the same type of misconduct involving other victims in the past." (Ante, p. 891.) Such a contention ignores the simple, and I suggest much more accurate, explanation for the "frequency" requirement, an explanation which is neither "inconceivable" nor irrational: By adopting subdivision (h) of section 790.03, the Legislature had no intent to create any civil liability to anyone for the acts specified in that subdivision. Rather, such acts were to be considered unfair practices subject to administrative regulation and discipline and then only if committed with the requisite frequency.
Thus, as I amplify below, the majority's major premise is unsound. Nothing in the Insurance Code provisions supports any theory that a bad faith refusal to settle (or any other asserted unfair practice) is either actionable by, or creates any new civil remedy in favor of, a third party. As we recently explained in Murphy, supra, California has consistently [23 Cal.3d 896] held that the duty to settle runs to the insured. Section 790.03, subdivision (h), creates neither a new independent duty nor civil liability which may be extended beyond the insured to third parties.
For example, the Unfair Practices Act of 1941 (Bus. & Prof. Code, § 17000 et seq.) describes various unfair trade practices and then expressly provides that "Any person ... may bring an action to enjoin and restrain any violation of this chapter and, in addition thereto, for the recovery of damages." (Id., § 17070.) I find it revealing that in 1941 the Legislature was fully capable of writing an unambiguous statute creating [23 Cal.3d 897] civil liability for particular unfair business practices. In my view, the wide disparity in clarity of language between Insurance Code section 790.09 and Business and Professions Code section 17070 is conclusive evidence of the legislative intent to preclude third party civil actions unless and until such actions are expressly authorized. The legislative tools were at hand. They were not used.
As we have frequently emphasized, the contemporaneous construction of agencies charged with administering legislation is entitled to great weight. (Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 245-246 [149 Cal.Rptr. 239, 583 P.2d 1281].) Nonetheless, the majority wholly ignores this well established interpretive principle.
The majority relies primarily upon Greenberg v. Equitable Life Assur. Society (1973) 34 Cal.App.3d 994 [110 Cal.Rptr. 470], and upon two subsequent cases which have repeated its language without further analysis. Greenberg is not controlling, for that case involved a suit by the insured to recover against the insurer for its unfair practice, an illegal "tie-in" agreement. The court reviewed the language of section 790.09, and concluded without extensive discussion that the section "contemplates a private suit to impose civil liability irrespective of governmental [23 Cal.3d 898] action against the insurer," and that "The fair construction is that the person to whom the civil liability runs may enforce it by an appropriate action." (Italics added, p. 1001, fn. omitted.) In a footnote, the court explained its reasoning: "Any other construction would overturn by implication the rule of Crisci v. Security Ins. Co., 66 Cal.2d 425 ...." (Ibid., fn. 5.)
­FN 1. All references will be to the Insurance Code, unless otherwise stated.
­FN 2. Plaintiff's husband also joined in the action, alleging that he lost plaintiff's services and incurred expenses as a result of her injuries.
­FN 3. Although the opinion does not state expressly that the suit was based upon the provisions of the act, this is clear from the references to sections 790.09 and 790.03 in the opinion.
­FN 4. The letter states in part, "A careful review of the history of the NAIC Model Bill and its enactment by the several states ... clearly shows that the purpose and intent of the NAIC Model Act and the provisions inserted in the California Insurance Code in section 790 et seq. was to allow the Insurance Commissioner the right of regulatory oversight over certain practices of insurers admitted in the State of California, and never contemplated a private cause of action by a third party. To allow otherwise would be to expand the administrative remedies far beyond those contemplated by the Commissioners when the NAIC Model Bill was adopted and enacted into law in the State of California."
­FN 5. For example, a letter from Assemblyman Pierson who sponsored Assembly Bill No. 459 to the Governor states that the bill is based upon the model act, and that a number of amendments were made to the bill in cooperation with "the interested segments of the insurance business which made the bill unobjectionable to the industry." The legislative analyst stated in an analysis of the bill that "The Department of Insurance advises that, as the bill serves primarily to make more specific the prohibitions against unfair practices already implied in the law, no increased state cost is anticipated under the measure." Other documents offered relate to matters too remote to provide an indication of the Legislature's intentions.
­FN 6. The commissioner filed an amicus curiae brief reviewing the legislative history of the act. The information regarding the testimony referred to above is contained in the exhibits to that brief, in the form of an interdepartmental communication sent to the chief counsel for the Department of Insurance.
­FN 7. The commissioner's amicus curiae brief concludes that neither the Legislature nor the drafters of the model bill addressed the question of whether the claim settlement practices set forth in the subdivision are applicable to third party claimants.
­FN 8. Section 11580, subdivision (b)(2), provides that an insurance policy delivered in California must contain a provision that "whenever judgment is secured against the insured ... in an action based upon bodily injury, death, or property damage, then an action may be brought against the insurer on the policy and subject to its terms and limitations, by such judgment creditor to recover on the judgment."
­FN 9. The model act does not contain the word "Knowingly."
­FN 10. We note, however, that section 790.03 provides that the section defines unfair "acts" or practices.
­FN 11. The amicus curiae brief of the commissioner concludes that neither the commissioner nor the drafters of the model act considered the question whether repeated violations are required in order to sue an insurer for civil liability under the act.
­FN 12. Contrary to plaintiff's assertion, Mel H. Binning, Inc. v. Safeco Ins. Co. (1977) 74 Cal.App.3d 615 [141 Cal.Rptr. 547], does not support her assertion that she may proceed to try her action against both the insurer and the insured in a joint trial. In Binning, the plaintiff alleged causes of action against three insureds and their insurer, in a single complaint, basing the liability of the insurer upon allegations of fraud. It was held that he had stated a cause of action against the insurer, but the opinion does not discuss the question whether a joint trial would be appropriate.
Thu, 03/29/1979 23 Cal.3d 880 Review - Criminal Appeal Opinion issued
1 ROYAL GLOBE INSURANCE COMPANY, Petitioner, v. THE SUPERIOR COURT OF BUTTE COUNTY (Respondent)
2 ; RUTH M. KEOPPEL et al., Real Parties in Interest (; RUTH M. KEOPPEL et al.)
3 ROYAL GLOBE INSURANCE COMPANY (Petitioner)
5 ; RUTH M. KEOPPEL et al., Real Parties in Interest (; RUTH M. KEOPPEL et al.)
Mar 29 1979 Writ Issued
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