Source: https://scocal.stanford.edu/opinion/moradi-shalal-v-firemans-fund-ins-companies-28538
Timestamp: 2020-08-10 00:18:50
Document Index: 162805527

Matched Legal Cases: ['§ 790', '§ 759', '§ 3294', '§ 3291', '§ 650', '§ 11582', '§ 790']

Moradi-Shalal v. Fireman's Fund Ins. Companies - 46 Cal.3d 287 - Thu, 08/18/1988 | California Supreme Court Resources
Home > Opinions > Moradi-Shalal v. Fireman's Fund Ins. Companies
Citation 46 Cal.3d 287
Moradi-Shalal v. Fireman's Fund Ins. Companies
Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287 , 758 P.2d 58; 250 Cal.Rptr. 116
(Opinion by Lucas, C.J., with Panelli, Arguelles, Eagleson and Kaufman, JJ., concurring. Separate dissenting opinion by Mosk, J., with Broussard, J., concurring.) [46 Cal.3d 288]
Haight, Dickson, Brown & Bonesteel, Roy G. Weatherup and David F. Peterson for Defendant and Respondent. [46 Cal.3d 292]
We initially granted review in this case to attempt to resolve some of the widespread confusion that has arisen regarding the application of our opinion in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 [153 Cal.Rptr. 842, 592 P.2d 329]. In Royal Globe, the court held that Insurance Code section 790.03, subdivision (h) (a provision of the Unfair Practices Act, Ins. Code, § 790 et seq.), created a private cause of action against insurers who commit the unfair practices enumerated in that provision. (All further statutory references are to the Insurance Code unless otherwise indicated.) [1] Among the issues raised and argued by counsel and amici curiae, however, is the more basic question whether we should reconsider our holding in Royal Globe. fn. 1
In this case, plaintiff settled her personal injury suit for damages against defendant's insured, and that suit was dismissed with prejudice. Her subsequent complaint against defendant insurer for violations of section 790.03, subdivisions (h)(2), (3), and (5), fn. 2 alleged the following facts: [46 Cal.3d 293]
The Court of Appeal reversed, holding that settlement coupled with a dismissal with prejudice was a sufficient conclusion of the underlying action to support a subsequent Royal Globe action against defendant. In part VI hereof, we review the correctness of that holding within the constraints of Royal Globe. First, however, we reconsider the validity of the Royal Globe holding itself. [46 Cal.3d 294]
Justice Richardson's dissent (joined by Justices Clark and Manuel) disputed most of the majority's conclusions. In the dissent's view, nothing in the language of sections 790.03 or 790.09 either created or authorized a private action by anyone against the insurer for bad faith refusal to settle a claim. The dissent pointed out that if the Legislature truly had intended to grant third party claimants a private cause of action against an insurer for failing to settle claims against the insured, "then surely much more direct [46 Cal.3d 295] and precise language would have been selected" than the language of section 790.09 to the effect that administrative proceedings under the act would not "relieve or absolve" an insurer from civil liability "under the laws of this State." (23 Cal.3d at p. 896.) As the dissent noted, "one would reasonably have expected that the Legislature simply would have directly imposed such liability in clear, understandable, unmistakable terms, as it has done in numerous other statutes." (Ibid.) The dissent observed that an amicus curiae brief submitted in Royal Globe by the California Insurance Commissioner, and containing the available legislative history, supported the view that the framers of the act "had no intent to create a private cause of action." (23 Cal.3d at p. 897.)
The dissent also pointed out that the majority's creation of a cause of action in favor of the third party claimant was contrary to our then recent unanimous opinion in Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 941 [132 Cal.Rptr. 424, 553 P.2d 584], holding that the insurer's duty to settle runs solely to the insured and not to the injured third party. (Royal Globe, supra, 23 Cal.3d at pp. 892-893.) As Justice Richardson explained, "California has consistently 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." (Id., at pp. 895-896, italics in original.)
The dissent distinguished the three Court of Appeal decisions, relied on by the Royal Globe majority, which had found or acknowledged private causes of action implied in the statute. (Homestead Supplies, Inc. v. Executive Life Ins. Co. (1978) 81 Cal.App.3d 978, 992 [147 Cal.Rptr. 22] (Kaufman, J.); Shernoff v. Superior Court (1975) 44 Cal.App.3d 406, 409 [118 Cal.Rptr. 680]; Greenberg v. Equitable Life Assur. Society (1973) 34 Cal.App.3d 994, 1001 [110 Cal.Rptr. 470]; see Royal Globe, supra, 23 Cal.3d at pp. 885-887 [maj. opn.], 897-898 [dis. opn.].) Neither Greenberg nor Shernoff involved any of the unfair practices listed in subdivision (h) of section 790.03; moreover, Homestead merely acknowledged that the earlier two cases had imposed civil liability for some violations of the act, but did not itself address that issue further.
The dissent also criticized the majority for holding that a single act of misconduct could constitute a violation of section 790.03. The dissent noted that section 790.03, subdivision (h), expressly refers to the commission of unfair settlement practices "with such frequency as to indicate a general business practice ...." In the dissent's view, "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 [46 Cal.3d 296] discipline and then only if committed with the requisite frequency." (23 Cal.3d at p. 895, italics in original.)
[3] It is likewise well established, however, that the foregoing policy is a flexible one which permits this court to reconsider, and ultimately to depart from, our own prior precedent in an appropriate case. (Id., § 759, and cases cited.) As we stated in Cianci v. Superior Court (1985) 40 Cal.3d 903, 924 [221 Cal.Rptr. 575, 710 P.2d 375], "[a]lthough the doctrine [stare decisis] does indeed serve important values, it nevertheless should not shield court-created error from correction." (Accord, People v. Guerrero (1988) 44 Cal.3d 343, 356 [243 Cal.Rptr. 688, 748 P.2d 1150]; People v. Anderson (1987) 43 Cal.3d 1104, 1147 [240 Cal.Rptr. 585, 742 P.2d 1306]; County of Los Angeles v. Faus (1957) 48 Cal.2d 672, 679 [312 P.2d 680].) In Anderson, Justice Mosk noted the need for flexibility in applying stare decisis, stating, "This is especially so when, as here, the error [in the prior opinion] is related to a 'matter of continuing concern' to the community at large. (United States v. Reliable Transfer Co. (1975) 421 U.S. 397, 409, fn. 15 [44 L.Ed.2d 251, 261, 95 S.Ct. 1708].)" (Anderson, supra, 43 Cal.3d at p. 1147; see also Monell v. New York City Dept. of Social Services (1978) 436 U.S. [46 Cal.3d 297] 658, 695 [56 L.Ed.2d 611, 638, 98 S.Ct. 2018] [stare decisis not mechanically applied to prohibit overruling prior decisions interpreting statutes].)
[4] Anderson also recognized that reexamination of precedent may become necessary when subsequent developments indicate an earlier decision was unsound, or has become ripe for reconsideration. (43 Cal.3d at pp. 1138-1141.) For example, in Anderson we found that intervening changes in federal constitutional law demonstrated the unsoundness of some of the underlying premises supporting our earlier decision in Carlos v. Superior Court (1983) 35 Cal.3d 131 [197 Cal.Rptr. 79, 672 P.2d 862]. As we explain below, developments occurring subsequent to our Royal Globe decision convince us that it was incorrectly decided, and that it has generated and will continue to produce inequitable results, costly multiple litigation, and unnecessary confusion unless we overrule it.
Thus, the courts in eight states have expressly acknowledged, but declined to follow, Royal Globe, fn. 4 and the courts in nine states have implicitly rejected its holding. fn. 5 Indeed, only two states other than California recognize [46 Cal.3d 298] a statutory cause of action for private litigants, and the courts in those states have rejected Royal Globe's conclusion that a single violation of the statute is a sufficient basis for a suit for damages. fn. 6
B. Scholarly Criticism -- Commentary on Royal Globe has been generally critical of that decision. (See, e.g., Note, Rodriguez v. Fireman's Fund Insurance Companies, Inc.: An Illustration of the Problems Inherent in the Royal Globe Doctrine (1985) 15 Sw.U.L.Rev. 371; Note, Bad Faith: Defining Applicable Standards in the Aftermath of Royal Globe v. Superior Court (1983) 23 Santa Clara L.Rev. 917; Allen, Insurance Bad Faith Law: The Need for Legislative Intervention (1982) 13 Pacific L.J. 833, 843; Comment, Liability Insurers and Third-Party Claimants: The Limits of Duty (1981) 48 U.Chi.L.Rev. 125, 148-151; Comment, Liability to Third Parties [46 Cal.3d 299] for Economic Injury: Privity as a Useful Animal, or a Blind Imitation of the Past (1981) 12 Sw.U.L.Rev. 87, 111-118, 125-127; Price, Royal Globe Insurance Company v. Superior Court: Right to Direct Suit Against an Insurer by a Third Party Claimant (1980) 31 Hastings L.J. 1161, 1176-1187; Note, Extending the Liability of Insurers for Bad Faith Acts: Royal Globe Insurance Company v. Superior Court (1980) 7 Pepperdine L.Rev. 777, 791-793.)
Neither plaintiff nor the amici curiae in her support challenge the foregoing factual recitals. We find the N.A.I.C. report instructive regarding the intent of the framers of the model act on which the California act was based. [46 Cal.3d 300]
D. Additional Legislative History -- One of the articles previously cited contains some additional legislative history not mentioned in either the majority or dissenting opinions in Royal Globe. According to the article, the representations of which are not contradicted by plaintiff or her amici curiae, the proposed legislation creating section 790.03 was examined by the state's Legislative Analyst, whose report described the bill as contemplating only administrative enforcement by the Insurance Commissioner. In addition, the Legislative Counsel's digest accompanying the proposed bill likewise described it as calling for administrative enforcement; no mention was made of a possible private civil remedy. (Price, supra, 31 Hastings L.J. 1161, 1178-1179.) [6] The fact that neither the Legislative Analyst nor the Legislative Counsel observed that the new act created a private right of action is a strong indication the Legislature never intended to create such a right of action. (See People v. Anderson, supra, 43 Cal.3d at p. 1143; Heckendorn v. City of San Marino (1986) 42 Cal.3d 481, 486 [229 Cal.Rptr. 324, 723 P.2d 64].)
[8] Moreover, even were we to view the foregoing events as evidencing a "rejection" of the bill, we could not characterize that rejection as an affirmative acceptance of the Royal Globe holding. As we recently stated in Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1396 [241 Cal.Rptr. 67, 743 P.2d 1323], "[s]imilarly inconclusive is the Legislature's rejection of special provisions which would have expressly allowed the award of damages. Unpassed bills, as evidences of legislative intent, have little value. [Citations.]"
Plaintiff observes, however, that in 1983 the Legislature modified section 790.03 in certain unrelated respects without changing subdivision (h) or addressing the Royal Globe issue. According to plaintiff, such legislative [46 Cal.3d 301] failure to act indicates acquiescence with the prior law. (See Estate of McDill (1975) 14 Cal.3d 831, 837-838 [122 Cal.Rptr. 754, 537 P.2d 874].) But as we later confirmed in Cianci v. Superior Court, supra, 40 Cal.3d 903, 923, where a similar argument was made, "'... something more than mere silence should be required before that acquiescence is elevated into a species of implied legislation ....' [Citation.] Here there is nothing more than mere silence." (Fn. omitted.) Likewise, in the present case, the Legislature may have passively acquiesced in Royal Globe, but it has never expressly or impliedly adopted the holding in that case. As Cianci indicates, under such circumstances we are free to reexamine our prior holding.
Other commentators agree that Royal Globe, and its allowance of a direct action against the insurer, may result in escalating insurance costs to the general public resulting from insurers' increased expenditures to fund coerced settlements, excessive jury awards and increased attorney fees. [46 Cal.3d 302] (Allen, supra, 13 Pacific L.J. at p. 851; Note, supra, 7 Pepperdine L.Rev. at pp. 792-793; Note, supra, 15 Sw.U.L.Rev. at p. 393.) As stated by one writer, "The increased settlement costs required to settle the actual lawsuit and the potential one that hovers over most litigation involving an insured defendant will obviously result in higher premiums. In addition, those insurers that have the courage to refuse settlement where they do not feel it is warranted will necessarily be the subject of additional litigation because they will not in all instances have guessed correctly regarding the value of the case. When they have guessed incorrectly, Royal Globe encourages lawsuits against them." (Allen, supra, 13 Pacific L.J. at p. 851.)
Another commentator similarly notes our failure to clarify such issues as "the test of liability, standing to sue, the extent of recoverable damages, the [46 Cal.3d 303] extent to which Royal Globe applies to the various subsections of section 790.03, and other issues." (Allen, supra, 13 Pacific L.J. at p. 844, fn. omitted; see also Note, supra, 15 Sw.U.L.Rev. at pp. 387-395 [difficulties in applying Royal Globe where underlying suit is settled without judicial determination of liability].)
It seems evident that resolution of these issues regarding the application of Royal Globe involves a difficult weighing of competing policies. Such a [46 Cal.3d 304] determination is more properly made by the Legislature. Yet the interpretive difficulties and complex public policy choices arising under Royal Globe result solely from its conclusion that the Legislature intended to confer a private right of action for violation of section 790.03. Reconsideration of that decision seems a far better alternative than allowing ourselves to be swept deeper into the developing interpretive whirlpool it has created.
[9] The points raised by the dissent in Royal Globe, as reflected in the cases from other states, the adverse scholarly comment, and the available legislative history, seem irrefutable. Neither section 790.03 nor section 790.09 was intended to create a private civil cause of action against an insurer that commits one of the various acts listed in section 790.03, subdivision (h). The contrary Royal Globe holding reportedly has resulted in multiple litigation or coerced settlements, and has generated confusion and uncertainty regarding its application. For all the foregoing reasons, we have concluded Royal Globe, supra, 23 Cal.3d 880, should be overruled.
[10] Moreover, apart from administrative remedies, the courts retain jurisdiction to impose civil damages or other remedies against insurers in appropriate common law actions, based on such traditional theories as [46 Cal.3d 305] fraud, infliction of emotional distress, and (as to the insured) either breach of contract or breach of the implied covenant of good faith and fair dealing. Punitive damages may be available in actions not arising from contract, where fraud, oppression or malice is proved. (See Civ. Code, § 3294.) In addition, prejudgment interest may be awarded where an insurer has attempted to avoid a prompt, fair settlement. (See id., § 3291.) Finally, nothing we hold herein would prevent the Legislature from creating additional civil or administrative remedies, including, of course, creation of a private cause of action for violation of section 790.03. We hold, however, that thus far the Legislature has not manifested an intent to create such a private cause of action.
[11a] The question arises whether our decision should apply to Royal Globe actions that already have been filed or litigated, but are not yet final. [12] The general rule is that "a decision of a court of supreme jurisdiction overruling a former decision is retrospective in its operation. [Fn. & citation omitted.] We have recognized exceptions to that rule when considerations of fairness and public policy preclude full retroactivity. [Citation.] For example, where a ... statute has received a given construction by a court of last resort, and contracts have been made or property rights acquired in accordance with the prior decision, neither will the contracts be invalidated nor will vested rights be impaired by applying the new rule retroactively. [Citation.]" (Peterson v. Superior Court (1982) 31 Cal.3d 147, 151-152 [181 Cal.Rptr. 784, 642 P.2d 1305], fn. omitted.)
[13a] In Royal Globe we did not discuss the procedural prerequisites of a third party's section 790.03 claim against the insurer, except to hold that such a claim "may not be brought until the action between the injured party and the insured is concluded." (23 Cal.3d at p. 884.) We did not explicitly consider what would constitute a sufficient "conclusion" of the action. For purposes of the present case and other pending Royal Globe actions which are not affected by the decision here, we must now decide whether settlement of the third party's underlying claim against the insured "concludes" the action within the meaning of Royal Globe, so that after settling the [46 Cal.3d 306] underlying claim a claimant can bring a subsequent suit against the insurer under section 790.03, subdivision (h). We will hold, for these pending cases, that settlement is an insufficient conclusion of the underlying action: there must be a conclusive judicial determination of the insured's liability before the third party can succeed in an action against the insurer under section 790.03.
Several courts have concluded that a determination of the insured's liability is a prerequisite to recovery on a Royal Globe claim, relying in part on the notion that the underlying insurance contract is an indemnity contract. "It is fundamental that an insurance contract is, by nature, an indemnity contract; no enforceable claim accrues against the insurer until the insured's liability is in fact established." (Williams v. Transport Indemnity Co. (1984) 157 Cal.App.3d 953, 960 [203 Cal.Rptr. 868].)
The Williams court affirmed a summary judgment in favor of an insurer where the third party claimant had failed to initiate any legal action to establish the liability of the insured. The claimant argued that under section 790.03 the liability of the insured was not at issue, and that the only issue [46 Cal.3d 307] was whether the insurer failed to attempt in good faith to make a prompt and fair settlement of the underlying claim at a time when liability had become "reasonably clear." The court responded, "the issue of whether, from facts known to defendants, liability had become reasonably clear at a certain time cannot be decided in a vacuum." (157 Cal.App.3d at p. 959.) Because under its indemnity contract the insurer could be liable only if the insured was liable, the court stated, "the essential preliminary inquiry in any action alleging the insurer's violation of ... section 790.03, subdivision (h)(5) must be whether the insured was liable in actuality for the third party claimant's injury." (Id., at p. 960.) In short, if the insured is not liable to the claimant, then the insurer is likewise not liable on the claim.
In Heninger v. Foremost Ins. Co. (1985) 175 Cal.App.3d 830 [221 Cal.Rptr. 303], Justice Eagleson, relying in part on the Williams indemnification rationale, found that "[t]he right of an insured party to file a direct suit against an insurer under the Royal Globe doctrine does not eliminate th[e] requirement" that the liability of the insured must be determined before the liability of the insurer can arise. (Id., at pp. 834-835.) A determination of the insured's liability was required because "otherwise these prohibitions [of section 790.03] on unfair claims settlement practices would create a form of statutory liability without fault." (Id., at p. 834.) The court concluded, "There cannot be unfair claims settlement practices in vacuo. ... [T]he cases do not support nor can we perceive any legislative intent to create rights of action totally divorced from ultimate legal liability [of the insured]." (Ibid.) In other words, according to Heninger, the statute does not require an insurer to pay or settle every claim presented by a third party claimant without regard to whether its insured is liable on the underlying claim. This analysis seems reasonable to us.
Plaintiff argues that the Williams/Heninger reliance on indemnification concepts is troublesome because a violation of section 790.03 stems directly from the insurer's unfair practices, and not from the insured's underlying fault. We do disagree with Williams's statement that "a duty to settle a third party claim in good faith does not arise unless the insured is liable" (157 Cal.App.3d at p. 965). The duty to attempt to settle arises under section 790.03, subdivision (h)(5), when liability becomes "reasonably clear." Yet we differentiate here between the duty that the insurer owes (which exists before the insured's liability is finally established) and the right to recover, under Royal Globe, for a breach of that duty. (Compare a legal malpractice action in which, before a client can recover for the attorney's breach of duty, he must first establish that absent the attorney's malpractice he would have prevailed on the underlying action. [See, e.g., Kessler v. Gray (1978) 77 Cal.App.3d 284 [143 Cal.Rptr. 496]; see also Mallen & Levit, Legal Malpractice (2d ed. 1981) § 650, pp. 796-799.] The trial of the "suit within a suit" involves a determination of the merits of the [46 Cal.3d 308] underlying action; thus, there can be no recovery for a breach of duty without a preliminary showing as to the merits of an underlying claim.)
Our conclusion that a determination of the insured's liability is necessary in order for the claimant to recover from the insurer for a violation of section 790.03 is not in itself determinative of whether a Royal Globe suit could be brought following a settlement of the underlying claim. Clearly, a settlement without more does not constitute a determination of the insured's liability. (§ 11582; Zalta v. Billips (1978) 81 Cal.App.3d 183, 190 [144 Cal.Rptr. 888] ["Obviously, the fact of settlement says nothing about a defendant's liability, his nonliability, his freedom from fault, or his culpability"]; Rodriguez v. Fireman's Fund Ins. Co. (1983) 142 Cal.App.3d 46, 55 [190 Cal.Rptr. 705].) Plaintiff contends, however, that the insured's liability can be determined after settlement, as part of the Royal Globe suit. Defendant insists, to the contrary, that a prior final judicial determination of the insured's liability is a condition precedent to the bringing of a Royal Globe action (the "predetermination" rule). We turn now to this question of the timing of the required determination of liability.
The first published opinion after Royal Globe to refer to the "determination of liability" as a condition precedent to a section 790.03 cause of action was Doser v. Middlesex Mutual Ins. Co. (1980) 101 Cal.App.3d 883, 891 [162 Cal.Rptr. 115]. Doser did not involve a third party Royal Globe claim, but rather a cause of action for breach of the implied covenant of good faith and fair dealing asserted by an assignee of the insured. In that case, after initiating a wrongful death action against the estate of the alleged tortfeasor, [46 Cal.3d 309] plaintiffs obtained from the estate an assignment of all its causes of action against the estate's insurer, then sued the insurer, leaving the wrongful death action in abeyance. The insurer argued in the section 790.03 suit that the estate had not suffered any legal liability because there had been no final judgment in the wrongful death action, and thus the assignee had no cause of action to assert. The court agreed, holding that no cause of action for breach of the implied covenant could arise until the insured incurred a binding judgment in excess of the policy limit. (101 Cal.App.3d at p. 891.) It then noted, in dictum, that "even under the reasoning in [Royal] Globe, '... the third party's suit may not be brought until the action between the injured party and the insured is concluded ... [and] liability of the insured is first determined ....'" (Ibid.) Several later cases have agreed with the Doser interpretation of Royal Globe as requiring both a conclusion of the action and a determination of liability as conditions precedent to commencement of a section 790.03 action.
In Nationwide Ins. Co. v. Superior Court (1982) 128 Cal.App.3d 711, 714 [180 Cal.Rptr. 464], Justice Kaufman, citing Doser, stated that Royal Globe held "the injured third party may not institute [a section 790.03] action until a judgment establishing the liability of the insured has been secured." In Nationwide, the claimant sued the alleged tortfeasor's insurer after obtaining a judgment against the insured, but during the pendency of the insured's appeal from that judgment. The court held that because the judgment against the insured could be reversed on appeal and the case retried, Royal Globe's concerns regarding discovery and determination of damages were "fully applicable to the case at bench." (128 Cal.App.3d at p. 714.) It concluded that the Royal Globe language about determination of liability and conclusion of the action "could only have had reference to a final determination and conclusion, a final judgment." (Ibid.)
Following Nationwide, the court in Williams v. Transport Indemnity Co., supra, 157 Cal.App.3d 953, stated that a section 790.03 action was "subject to [a] condition precedent ... [that] the liability of the insured must be finally determined prior to commencement of a suit against the insurer." (Id., at p. 964.) In Heninger v. Foremost Ins. Co., supra, 175 Cal.App.3d 830, 834, the court, citing Nationwide and Williams, concluded that "no viable cause of action can be pled for an alleged violation of [section 790.03, subdivision (h)] until the twin requirements of conclusion of the dispute between the injured party and the insured, and final determination of the insured's liability are alleged." (Original italics.)
The Court of Appeal in the present case departed from the Nationwide reasoning. It held that the plaintiff could maintain her section 790.03 action following a settlement and dismissal with prejudice of the underlying claim, stating, "Nor do we agree with the Heninger court's reading of Royal Globe [46 Cal.3d 310] as requiring a final determination of liability[,] as long as the underlying action has been 'concluded.'" The court decided that the "obvious purpose" of the Royal Globe requirement of a "conclusion" of the underlying action was "to avoid prejudicing the defense of the insured in the underlying case and to ascertain the amount of the damages, if any, suffered by the injured plaintiff, not to shield an err[a]nt insurer from the consequences of its tortious breach of its duties to that injured claimant. The language in Royal Globe 'until the liability of the insured is first determined' was not necessary to and did not serve the purpose of determining any of the facts or issues of that case which deferred the determination of the 790.03 action until after the conclusion of the underlying action." Yet, somewhat inconsistently, the court at another point in its opinion stated, "We must next determine whether the insured's liability has been conclusively established, that being a prerequisite to bringing an unfair practice bad faith action against the insurer." (Italics added.)
For the first aspect of its holding, that a final determination of the insured's liability was not a prerequisite to bringing a Royal Globe action, the Court of Appeal purported to rely on Rodriguez v. Fireman's Fund, supra, 142 Cal.App.3d 46. The Rodriguez court declined to follow the Nationwide rule holding a final judgment to be a condition precedent to a section 790.03 action. In Rodriguez, a third party claimant sued the insurer after settling her underlying claim against the insured. She alleged the insurer had "admitted the liability of its insured." (Id., at p. 55.) The court held she had stated a cause of action under Royal Globe, because "where the liability of the insured is admitted" a prior judgment determining liability was unnecessary. (Id., at p. 53, italics added; see also Williams, supra, 157 Cal.App.3d at pp. 958-959; Heninger, supra, 175 Cal.App.3d at pp. 833, 835.) We find no indication in the record herein that defendant admitted the insured was liable, and thus the appellate court's reliance on Rodriguez is misplaced. In any event, we have determined that a final judicial determination is required, and that an admission does not suffice to determine the insured's liability.
Aside from Rodriguez, supra, the Court of Appeal opinion in this case is consistent with two published cases of the Fourth District, Division Three. In Afuso v. United States Fid. & Guar. Co. (1985) 169 Cal.App.3d 859 [215 Cal.Rptr. 490], the court held that a third party claimant stated a cause of action for breach of section 790.03 by alleging she had settled the underlying dispute, and executed "a release of all claims." The court held, "by pleading a settlement and release, plaintiff has met the minimum requirements for establishing her action was concluded within the meaning of Royal Globe." (Id., at p. 863.) The court did not discuss the requirement that the insured's liability be first determined. In Vega v. Western Employers Ins. Co. (1985) 170 Cal.App.3d 922 [216 Cal.Rptr. 592], the same court [46 Cal.3d 311] reversed a summary judgment in favor of the insurer on a section 790.03 claim where the claimant had settled the underlying claim, after a verdict against the insured, and while the insured's appeal was pending. Again, the court failed to address the issue of a requirement of a final determination of the insured's liability.
Further, the existence of a previous settlement could itself improperly influence a jury's evaluation of the insured's liability. The jury would know that the insured would not be adversely affected by the verdict, and it would also necessarily be aware that the insurer had paid money in settlement to the claimant on behalf of the insured. Although, as we have noted, the existence of a settlement is irrelevant to the issue of the insured's liability (see Zalta v. Billips, supra, 81 Cal.App.3d at p. 190), it would be difficult to prevent the jury from considering the settlement as evidence that the insured was liable. This use of evidence of settlement would violate Evidence [46 Cal.3d 312] Code section 1152, which prohibits admitting such evidence to prove the settling party's liability on the claim settled.
[13b] Finally, if, as in this case, the claimant has dismissed the action against the insured after settling the claim, then it could be argued that the settlement combined with a dismissal with prejudice legally precludes litigating the liability of the insured. The Court of Appeal here found that the settlement and dismissal together constituted a final "conclusion" of the action, precluding any further proceedings on the underlying claim: "'"Where the parties to an action settle their dispute and agree to a dismissal, it is a retraxit and amounts to a decision on the merits and as such is a bar to further litigation on the same subject matter between the parties."'" (Italics omitted, quoting Datta v. Staab (1959) 173 Cal.App.2d 613, 621 [343 P.2d 977]; the identical language also appears in Rodriguez, supra, 142 Cal.App.3d at p. 54.) Under this analysis, a settlement arguably precludes later litigation on the issue of liability as well as on the value of the claim because, although it does not amount to a determination of liability, it is intended to function as a final conclusion of the underlying action which involves both the issues of liability and damages. (See A.J. Industries, [46 Cal.3d 313] Inc. v. Ver Halen (1977) 75 Cal.App.3d 751, 759 [142 Cal.Rptr. 383] [refusing to allow relitigation of issue of liability after settlement]; County of Los Angeles v. Law Building Corp. (1967) 254 Cal.App.2d 848, 853-855 [62 Cal.Rptr. 542] [settlement barred relitigation on value of settled claim].)
Royal Globe (1979-1988), may it Rest in Peace. fn. 1 During its life it served the people of California well, particularly the victims of unfair and deceptive practices. The majority have now replaced Royal Globe with a "Royal [46 Cal.3d 314] Bonanza" for insurance carriers, i.e., total immunity for unfair and deceptive practices committed on innocent claimants. They have exalted principal over principle. It will be interesting to observe whether this judicial largesse causes insurance premiums to decrease or insurance profits to increase.
"* * * [46 Cal.3d 315]
"(13) Failing to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement. [46 Cal.3d 316]
It is inconceivable that the Legislature intended that a litigant would be required to show that the insurer committed the acts prohibited by subdivision (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. The insurance department may have a policy to require repeated misconduct as the basis for its enforcement of subdivision (h). But while repetition of prohibited acts may be relevant to the duty of the Insurance Commissioner to issue a [46 Cal.3d 317] cease and desist order, to an aggrieved private litigant who can demonstrate that the insurer acted deliberately, the frequency of the insurer's misconduct and its application to other victims are irrelevant. (Accord, Delos v. Farmers Insurance Group (1979) 93 Cal.App.3d 642, 653 [155 Cal.Rptr. 843].)
With full knowledge of Royal Globe and its construction of the relevant Insurance Code sections, for nine years the Legislature has refused to enact bills designed to overrule, modify or limit the decision and its statutory interpretation. First there was Senate Bill No. 483 (1979 Reg. Sess.), initially introduced on March 1, 1979, to amend the general provisions of Insurance Code section 31. On May 9, 1979 -- five weeks after our decision in Royal Globe -- the bill was amended to change section 790.03. The amended bill provided: "... (i) Notwithstanding the provisions of Section 790.09, a violation of subdivision (h) shall not create civil liability against any insurer by an insured, third party claimant, or any person other than the commissioner pursuant to the authority provided in Sections 790.05 and 790.06. [¶] Sec. 2. It is the intent of this act to overrule the holding in Royal Globe Insurance Company v. Superior Court (___ 3rd ___) which established a [46 Cal.3d 318] cause of action by a third party claimant or insured based upon a violation of subdivision (h) of Section 790.03." (2 Sen. J. (1979 Reg. Sess.) p. 3071.)
After a subsequent amendment, Senate Bill No. 483 passed the Senate by a six-vote margin on June 1, 1979, and was referred to the Assembly. On September 11, 1979, the bill was rejected by the Ways and Means Committee, and on November 30, 1980, was transferred from the Assembly without further action. (Sen. Final Hist. (1979 Reg. Sess.) p. 305.) The proposal ultimately died. Thus the Legislature was not merely silent after Royal Globe, but refused to pass a bill expressly overruling it. In the circumstances this represents affirmative legislative approval and confirmation of the Royal Globe decision far beyond mere inattention. (People v. Hallner (1954) 43 Cal.2d 715, 719 [277 P.2d 393].)
In 1983 the Legislature actually amended section 790.03 without addressing or changing subdivision (h) or the Royal Globe holding. In adopting legislation, the Legislature is presumed to know of existing domestic judicial decisions and to enact and amend statutes in light of such decisions that have a direct bearing on them. (Estate of Banerjee (1978) 21 Cal.3d 527, 537 [147 Cal.Rptr. 157, 580 P.2d 657].) The failure of the Legislature to change the law in a particular respect, when the general subject is before it and changes in other respects are made, is indicative of an intent to leave the law as it stands in the aspects not amended. (Estate of McDill (1975) 14 Cal.3d 831, 837-838 [122 Cal.Rptr. 754, 537 P.2d 874]; Bailey v. Superior Court (1977) 19 Cal.3d 970, 977-978, fn. 10 [140 Cal.Rptr. 669, 568 P.2d 394]; People v. Olsen (1984) 36 Cal.3d 638, 647, fn. 19 [205 Cal.Rptr. 492, 685 P.2d 52].) The majority's futile effort to avoid the foregoing case law stands the concept of legislative intent on its head.
The first case was Greenberg v. Equitable Life Assur. Society (1973) 34 Cal.App.3d 994 [110 Cal.Rptr. 470]. The court, in an opinion by Justice Thompson and concurred in by Justices Wood and Lillie, held that the Insurance Code "contemplates a private suit to impose civil liability [46 Cal.3d 319] irrespective of governmental action against the insurer for violation" of code provisions. The court added that "The fair construction is that the person to whom the civil liability runs may enforce it by an appropriate action." (Id. at p. 1001.) Any other construction, the court held, "would overturn by implication the rule of Crisci v. Security Ins. Co. [1967] 66 Cal.2d 425 [58 Cal.Rptr. 13, 426 P.2d 173]." (Id. at p. 1001, fn. 5.) A petition for hearing in this court was unanimously denied.
A second case adopting the identical reasoning was Shernoff v. Superior Court (1975) 44 Cal.App.3d 406 [118 Cal.Rptr. 680], by Justice Fleming with Justices Compton and Beach concurring. The court pointed out that the "commissioner's disciplinary authority is limited to restraint of future illegal conduct by real parties in interest, and he possesses no authority to enter money judgments for past injuries." (Id. at p. 409.) The court relied on section 790.09, which clearly declares that no cease and desist order absolves an insurance carrier from civil liability.
The third case, written by Justice Kaufman for himself and Justices Tamura and McDaniel, was Homestead Supplies, Inc. v. Executive Life Ins. Co. (1978) 81 Cal.App.3d 978 [147 Cal.Rptr. 22]. The court held that the Insurance Code sections "define and prohibit insurers from engaging in unfair methods of competition and unfair and deceptive acts or practices in the business of insurance. They are directed at insurers, not insureds. Indeed, the nature of the conduct proscribed indicates clearly that at least one of the statutory purposes is protection of the public. (See § 790.03.) In fact, it has been held that section 790.09 contemplates civil liability to members of the consuming public injured by an insurer's violation of sections 790.02 and 790.03." (Id. at p. 992.)
In addition to the foregoing, Schlauch v. Hartford Accident & Indemnity Co. (1983) 146 Cal.App.3d 926, 934 [194 Cal.Rptr. 658], held Royal Globe to apply retroactively, "since insurers were statutorily prohibited from engaging in these unfair practices, they can claim no reliance upon the lack of legal authority for third party damage suits. In short, insurance carriers had fair warning that their conduct was prohibited. ... Since the decision in Royal Globe did not impose a new duty upon insurers, but only provided a different means of enforcement, [it] should have been foreseen. ..." (Italics added.) Indeed, as pointed out in Bodenhamer v. Superior Court (1986) 178 Cal.App.3d 180 [223 Cal.Rptr. 486], there is nothing "novel or incongruous" in subjecting an insurance business to more than one avenue of responsibility.
Thus it is clear that Royal Globe was preordained. Certainly it is indefensible for defendant and the majority to assert the opinion was unprecedented [46 Cal.3d 320] when manifestly it followed the rule established in at least three earlier well-reasoned appellate decisions. I must assume that the majority, though they are curiously silent about it, mean to also overrrule Greenberg, supra, 34 Cal.App.3d 994, Shernoff, supra, 44 Cal.App.3d 406, and Homestead Supplies, supra, 81 Cal.App.3d 978, and thus to repudiate the statutory interpretation by nine distinguished Court of Appeal justices.
Subsequent to Royal Globe, Courts of Appeal have had remarkably little difficulty in interpreting and applying it as authority. See, e.g., Justice Kaufman's opinion in Nationwide Ins. Co. v. Superior Court (1982) 128 Cal.App.3d 711 [180 Cal.Rptr. 464]; Justice Eagleson's opinion in Heninger v. Foremost Ins. Co. (1985) 175 Cal.App.3d 830 [221 Cal.Rptr. 303]; and the following, among many other cases: Sych v. Insurance Co. of North America (1985) 173 Cal.App.3d 321 [220 Cal.Rptr. 692]; Vega v. Western Employers Ins. Co. (1985) 170 Cal.App.3d 922 [216 Cal.Rptr. 592]; Afuso v. United States Fid. & Guar. Co. (1985) 169 Cal.App.3d 859 [215 Cal.Rptr. 490]; Smith v. Interinsurance Exchange (1985) 167 Cal.App.3d 301 [213 Cal.Rptr. 138]; Williams v. Transport Indemnity Co. (1984) 157 Cal.App.3d 953 [203 Cal.Rptr. 868]; Trujillo v. Yosemite-Great Falls Ins. Co. (1984) 153 Cal.App.3d 26 [200 Cal.Rptr. 26]; Rodriguez v. Fireman's Fund Ins. Co. (1983) 142 Cal.App.3d 46 [190 Cal.Rptr. 705]. All of these well-considered cases are now to be eliminated sub silentio.
The insurance industry, with a lavish public relations and media campaign, has failed to persuade the people of California that it should be immune from responsibility for unfair and deceptive acts. Up to now no court has so held. The industry, with the service of dozens of lobbyists, failed to persuade the Legislature that the statute was improperly imposing liability for unfair and deceptive acts. Now, regrettably, the insurance industry has succeeded in persuading justices of this court that it is entitled to immunity from the same type of responsibility required of every other business and individual that commit deceptive practices. [46 Cal.3d 321]
The effective date of this order and the date our decision in this cause becomes final is October 17, 1988. [46 Cal.3d 322]
­FN 1. The dissent herein, observing that defendant did not raise the issue in the lower courts, suggests that we have improperly sought out an opportunity to overrule Royal Globe. But clearly it was pointless for defendant to ask either the trial or appellate court to overrule one of our decisions. The original petition for review squarely raised the point, and we never narrowed the issues to exclude it. (See rule 29.2(b), Cal. Rules of Court.) Accordingly, the Royal Globe issue is properly before us.
­FN 2. Section 790.03 reads in relevant part: "The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance.
­FN 3. Subdivision (h)(14) includes as an unfair practice "[d]irectly advising a claimant not to obtain the services of an attorney."
­FN 4. (See White v. Unigard Mut. Ins. Co. (1986) 112 Idaho 94 [730 P.2d 1014, 1020-1021]; Scroggins v. Allstate Ins. Co. (1979) 74 Ill.App.3d 1027 [393 N.E.2d 718, 723-725]; Seeman v. Liberty Mut. Ins. Co. (Iowa 1982) 322 N.W.2d 35, 40-43; Earth Scientists v. United States Fidelity & Guar. (D. Kan. 1985) 619 F.Supp. 1465, 1470-1471; Tweet v. Webster (D.Nev. 1985) 610 F.Supp. 104, 105; Patterson v. Globe American Cas. Co. (1984) 101 N.M. 541 [685 P.2d 396, 397-398]; A&E Supply Co. v. Nationwide Mut. Fire Ins. Co. (4th Cir. 1986) 798 F.2d 669, 673-675 [Va. law]; Kranzush v. Badger State Mut. Cas. Co. (1981) 103 Wis.2d 56 [307 N.W.2d 256, 269].)
­FN 5. (See Young v. Michigan Mut. Ins. Co. (1984) 139 Mich.App. 600 [362 N.W.2d 844, 846-847]; Morris v. American Family Mut. Ins. Co. (Minn. 1986) 386 N.W.2d 233, 234-238; Lawton v. Great Southwest Fire Ins. Co. (1978) 118 N.H. 607 [392 A.2d 576, 581]; Farris v. U. S. Fidelity and Guaranty Co. (1978) 284 Ore. 453 [587 P.2d 1015, 1018-1023]; D'Ambrosio v. Pa. Nat. Mut. Cas. Ins. Co. (1981) 494 Pa. 501 [431 A.2d 966, 969-970]; Swinton v. Chubb & Son, Inc. (1984) 283 S.C. 11 [320 S.E.2d 495, 496-497]; Russell v. Hartford Cas. Ins. Co. (Tex. Civ. App. 1977) 548 S.W.2d 737, 742 [writ ref. N.R.E.]; Wilder v. Aetna Life & Cas. Ins. Co. (1981) 140 Vt. 18 [433 A.2d 309, 310]; Tank v. State Farm Fire & Cas. Co. (1984) 38 Wn.App. 438 [686 P.2d 1127, 1132].)
­FN 6. (See Klaudt v. Flink (1983) 202 Mont. 247 [658 P.2d 1065, 1068]; Jenkins v. J. C. Penney Cas. Ins. Co. (W.Va. 1981) 280 S.E.2d 252, 259-260.)
­FN 1. Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 [153 Cal.Rptr. 842, 592 P.2d 329].
Thu, 08/18/1988 46 Cal.3d 287 Review - Criminal Appeal Opinion issued
1 PARVANEH MORADI-SHALAL, Plaintiff and Appellant, v. FIREMAN'S FUND INSURANCE COMPANIES (Defendant and Respondent)
2 FIREMAN'S FUND INSURANCE COMPANIES (Defendant and Respondent)
Aug 18 1988 Opinion: Reversed
SCOCAL, Moradi-Shalal v. Fireman's Fund Ins. Companies , 46 Cal.3d 287 available at: (https://scocal.stanford.edu/opinion/moradi-shalal-v-firemans-fund-ins-companies-28538) (last visited Sunday August 9, 2020).