Opinion ID: 1386513
Heading Depth: 1
Heading Rank: 2

Heading: farmers' appeal

Text: In Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566 [108 Cal. Rptr. 480, 510 P.2d 1032], we made it clear that the duty of an insurer to accept reasonable settlements of third party claims against its insured (see Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425 [58 Cal. Rptr. 13, 426 P.2d 173]; Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654 [328 P.2d 198, 68 A.L.R.2d 883]), is but one aspect of its obligation, imposed by law, to act fairly and in good faith in discharging its contractual responsibilities to its insured. Another aspect of that obligation, we pointed out, is the duty of the insurer to act fairly and in good faith in handling claims submitted by its insured, which we characterized as a duty not to withhold unreasonably payments due under a policy. (9 Cal.3d at p. 573.) Thus, we held, when an insurer fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing. ( Id., at p. 574.) It is an asserted breach of the latter duty which forms the basis of this litigation and upon which the challenged judgment rests. (1a) We can deal briefly with Farmers' first contention  that there was no substantial evidence that it had breached the aforesaid duty. Suffice it to say that the substantial record herein, which we have summarized only in broad outline above, contains abundant evidence, a good deal of it conflicting, on the subject of defendant's conduct and motives. While some of that evidence was to the effect that Farmers did no more here than assert its legal position reasonably and in good faith, the jury herein clearly concluded to the contrary. (2) (See fn. 5.), (1b) It did so on the basis of evidence of undeniable substantiality to the effect that Farmers knew at an early date  certainly no later than its receipt of Mr. Gergen's letter dated May 1, 1971  that it had no colorable defense to plaintiff's claim under the uninsured motorist provisions of its policy and that the only genuine issue was that of the availability of an offset for the $5,000 paid by it under the medical payment provisions; [4] that Mr. Gergen's offer to settle for an additional $10,000, reserving the offset question for later decision by an appropriate tribunal, was wholly reasonable and should in good faith have been promptly accepted; and that Farmers' subsequent refusal to accept the offer constituted a breach of its obligation to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy. ( Gruenberg, supra, at p. 574.) [5] The function of an appellate court upon the review of a question of substantial evidence, and the beginning and ending of our power in that respect, are too well known to require reiteration here. (See Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881 [92 Cal. Rptr. 162, 479 P.2d 362]; Primm v. Primm (1956) 46 Cal.2d 690, 693 [299 P.2d 231]; Estate of Bristol (1943) 23 Cal.2d 221, 223-224 [143 P.2d 689]; Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429 [45 P.2d 183].) (3a) Farmers' second contention  that there was no substantial evidence to support an award of punitive damages  is similarly without merit. (4) In order to justify an award of exemplary damages, the defendant must be guilty of oppression, fraud or malice. (Civ. Code, § 3294.) He must act with the intent to vex, injure, or annoy, or with a conscious disregard of the plaintiff's rights. [Citations.] ( Silberg v. California Life Ins. Co., supra, 11 Cal.3d 452, 462.) (3b) As we have pointed out above, there was substantial evidence before the jury to support a finding that defendant had breached its duty to deal reasonably and in good faith with its insured, rendering Farmers liable to pay compensatory damages for all detriment proximately caused by that breach (see Civ. Code, § 3333). However, as we emphasized in Silberg v. California Life Ins. Co., supra, 11 Cal.3d 452, at pages 462-463, such a determination does not in itself establish that defendant acted with the quality of intent that is requisite to an award of punitive damages. For this we must look further  beyond the matter of reasonable response to that of motive and intent. We are satisfied, after an examination of the whole record in a light most favorable to the judgment (see Bertero v. National General Corp. (1974) 13 Cal.3d 43, 65 [118 Cal. Rptr. 184, 529 P.2d 608, 65 A.L.R.3d 878]), that an award of punitive damages was here proper. There was substantial evidence before the jury from which it might reasonably have concluded that defendant Farmers here acted maliciously, with an intent to oppress, and in conscious disregard of the rights of its insured. [6] That evidence, in brief, indicated that Farmers' refusal to accept Mr. Gergen's offer of settlement, and its subsequent submission of the matter to its attorney for opinion, [7] were all part of a conscious course of conduct, firmly grounded in established company policy, [8] designed to utilize the lamentable circumstances in which Mrs. Neal and her family found themselves, and the exigent financial situation resulting from it, as a lever to force a settlement more favorable to the company than the facts would otherwise have warranted. The presence in the record of evidence to the contrary can be of no moment to this court for present purposes. Clearly, the record supports an award of punitive damages against Farmers. [9] (5) Defendant Farmers next complains of certain evidentiary rulings made by the trial court. First it urges that the trial court erred when it refused to admit into evidence its exhibits marked A and B for identification. The first of these was the entire case file of defendant's attorney, consisting of some 386 pages, and the latter was the entire case file of defendant Farmers, consisting of some 354 pages. It is urged that these materials, especially those relating to the arbitration proceeding, were relevant on the issue of bad faith. It appears, however, that the trial court, correctly assessing these documents as containing substantial quantities of selfserving hearsay and irrelevant matter, ruled that any particular documents therein would be admitted upon a proper foundational showing, but that the files in their entirety would not be admitted. Defendant thereafter offered several specific items into evidence, some of which were accepted and some of which were rejected. No prejudicial error appears in the trial court's refusal to accept the entire files into evidence, or in its rulings on specific items therein which were later offered pursuant to that ruling. (6a) Defendant also contends that the trial court was guilty of prejudicial error when it permitted two of plaintiff's witnesses, Attorneys Gergen and Burton, to give opinions as experts on the subject of Farmers' bad faith or lack of it. This, defendant contends, was not a proper subject for expert opinion because it was not a matter sufficiently beyond common experience that the opinion of an expert would assist the trier of fact. (Evid. Code, § 801, subd. (a).) (7) The matter of the admission of expert evidence, however, is one within the sound discretion of the trial court. ( People v. Cole (1956) 47 Cal.2d 99, 105 [301 P.2d 854, 56 A.L.R.2d 1435].) (6b) We can conceive of many ways in which a lay jury, in assessing the conduct and motives of an insurance company in denying coverage under its policy, could benefit from the opinion of one who, by profession and experience, was peculiarly equipped to evaluate such matters in the context of similar disputes. Moreover, the jury was specifically instructed that it was not bound by the opinions of such witnesses but should give such opinions the weight to which they thought them entitled in view of the qualifications and credibility of the witnesses and the reasons given by them in support of their opinions. No abuse of discretion here appears. We are thus brought to what we conceive to be the most significant contention raised by Farmers in its appeal  to wit, that the judgment, even as modified by the court, was excessive, being the result of passion and prejudice. The arguments presented under this heading in our view are addressed to two different issues. The first is whether the conduct of plaintiff's counsel at trial had the effect of injecting irrelevant, prejudicial, and misleading evidence and argument into the proceedings, resulting in a verdict tainted by passion and prejudice. The second is whether the verdict, as reduced, is excessive as a matter of law. We address each of these contentions in order. (8a) It is first urged that counsel was guilty of misconduct in placing before the jury, by various means, what defendant refers to as the third party argument. In short it appears that counsel, by means of questions asked and argument made by him, sought to indicate to the jury that Farmers' conduct should be gauged not in the context of its policy limits but in the context of the total value of the injuries suffered by Mrs. Neal in the underlying accident, which was indicated to be in the neighborhood of $500,000. (9) This approach was apparently suggested to counsel by our opinions in Comunale and Crisci, supra, wherein we held that where an insurer in violation of its duty of reasonable and fair dealing refuses to settle a within-limits claim of a third person against its insured, it can be held liable for the full amount of any judgment subsequently rendered against the insured without regard to policy limits. Such a principle clearly has no application in the instant context, and we hasten to condemn counsel's intimation before the jury that it does. As we have pointed out above, an insurer's breach of its duty of good faith and fair dealing renders it liable for any damages which are the proximate result of that breach. In the so-called third party situation, of which Comunale and Crisci are representative, the breach of duty may have as its proximate result the entry of a judgment in excess of policy limits against the insured. In a situation such as that before us, which the parties hereto are pleased to term a first party situation, the injuries of the plaintiff, being sustained prior to the alleged breach, cannot be a proximate result of that breach, and therefore cannot serve as a proper measure of damages. Only damages proximately resulting from the breach  such as consequent economic loss or emotional distress, for example  are recoverable as compensation therefor. (See Gruenberg, supra, at pp. 579-580; Fletcher v. Western National Life Ins. Co. (1970) 10 Cal. App.3d 376, 401-402 [89 Cal. Rptr. 78, 47 A.L.R.3d 286].) (8b) In spite of the foregoing, however, we do not believe that the conduct complained of was prejudicial to defendant in light of the whole record. As we shall point out below, the extent and severity of Mrs. Neal's injuries  and defendant's knowledge thereof  was a matter relevant to the jury's determinations relative to punitive damages. Moreover, the instructions of the court made it clear to the jury that it was not to consider the value of Mrs. Neal's injuries as an element of compensatory damages. [10] In these circumstances we cannot conclude that the jury was or might have been misled in this respect. Defendant also complains of certain alleged misstatements of the evidence occurring during the course of certain expert testimony by one of plaintiff's attorneys and of other alleged misstatements occurring during argument. We have fully examined the record in this respect and find that in each asserted instance the testimony or argument was either a proper statement of the record or was subject to prompt cure by objection and request for admonition. (10) Defendant's final contention concerning the conduct of plaintiff's counsel relates to asserted appeals to passion which, defendant urges, had the effect of tainting the entire proceeding. It is urged that plaintiff's counsel, by means of unremitting reference to Mrs. Neal's grievous condition following the accident, her subsequent death from cancer, and the similar fate of her son  and by contrasting against these the wealth of the defendant  sought to inflame the passions of the jury against defendant. That counsel was eminently successful in this, Farmers urges, is evidenced by the size of the verdict rendered. Our review of the record indeed discloses that plaintiff's counsel, from opening statement to the last line of closing argument, was extremely diligent in his efforts to place before the jury at every opportunity the sorry details of Mrs. Neal's condition following the accident, the fact of her subsequent death from cancer, and the compounded tragedy of her son's demise from the same disease. It also appears that counsel took pains to contrast this lamentable situation against the admitted net worth of Farmers and to suggest that oppression was the inevitable result. Counsel's zeal in this respect in some instances led him into excesses, which on more than one occasion earned him reproof on the part of the trial judge. We have no doubt that similar warnings, along with appropriate admonitions to the jury, might well have followed on other occasions if objection and a proper request for admonition had been lodged by opposing counsel. It is clear, however, that the facts on which counsel based this tactic  at least in conjunction with other evidence on the matter of Farmers' awareness of such facts  were clearly relevant to the issues before the jury in the matter of punitive damages. Thus, in determining whether Farmers, in breaching its duty to the insured to make a reasonable settlement, did so in a spirit of oppression, the jury was clearly entitled to consider evidence of the situation of the insured at the time of the proffered settlement insofar as that situation was known to the insurer and might be considered to have motivated its actions. In view of all of these circumstances we cannot conclude, as defendant would have us, that the verdict as reduced by the trial court resulted from passion and prejudice induced by the conduct of counsel here complained of. (11a) We next consider Farmers' contention that the verdict even as reduced by the trial judge upon plaintiff's consent to remittitur, was excessive as a matter of law. Before proceeding to the merits of this contention we think it necessary to address ourselves briefly to a matter of practical significance. As noted at the outset of this opinion, the jury herein was supplied with and returned an undifferentiated verdict form, i.e., one providing a single space for the insertion of the amount of damages, without any means for segregating the total amount into its compensatory and punitive components. We can see no justification for this practice in a case wherein damages of both varieties are sought, and we herewith disapprove it. In most cases the use of such a form would make review of questions of excessive damages next to impossible for both the trial court on a motion for new trial and an appellate court on appeal. Fortunately, however, we are able to avoid this problem in the instant case. Here, because plaintiff was precluded by statute from recovering damages for any emotional distress suffered by Mrs. Neal (see fn. 3, ante ), and because all parties and the trial court were agreed that economic damages consequent upon the defendant's alleged breach of duty amounted to no more than $10,000, it can be concluded that the balance of the original verdict represented punitive damages. Applying the same procedure to the verdict as reduced by the trial court, we can conclude with reasonable certainty that the amount of punitive damages awarded was in the neighborhood of $740,000. [11] It is to this figure, then, that we shall look in determining whether the punitive [12] damage award was excessive. (12) As we pointed out in Bertero v. National General Corp., supra, 13 Cal.3d 43, our review of punitive damage awards rendered at the trial level is guided by the historically honored standard of reversing as excessive only those judgments which the entire record, when viewed most favorably to the judgment, indicates were rendered as the result of passion and prejudice.... (13 Cal.3d at p. 65, fn. 12.) Stating the matter somewhat differently in a similar case, we indicated that an appellate court may reverse such an award only `[w]hen the award as a matter of law appears excessive, or where the recovery is so grossly disproportionate as to raise a presumption that it is the result of passion or prejudice.' ( Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 919 [114 Cal. Rptr. 622, 523 P.2d 662].) (13) (See fn. 13.), (14) In making the indicated assessment we are afforded guidance by certain established principles, all of which are grounded in the purpose and function of punitive damages. [13] One factor is the particular nature of the defendant's acts in light of the whole record; clearly, different acts may be of varying degrees of reprehensibility, and the more reprehensible the act, the greater the appropriate punishment, assuming all other factors are equal. (See Bertero v. National General Corp., supra, 13 Cal.3d 43, 65; Fletcher v. Western National Life Ins. Co., supra, 10 Cal. App.3d 376, 408-409; Ferraro v. Pacific Fin. Corp. (1970) 8 Cal. App.3d 339, 352-353 [87 Cal. Rptr. 226].) Another relevant yardstick is the amount of compensatory damages awarded; in general, even an act of considerable reprehensibility will not be seen to justify a proportionally high amount of punitive damages if the actual harm suffered thereby is small. (But cf. Finney v. Lockhart (1950) 35 Cal.2d 161, 164 [217 P.2d 19].) Also to be considered is the wealth of the particular defendant; obviously, the function of deterrence (see fn. 13, ante), will not be served if the wealth of the defendant allows him to absorb the award with little or no discomfort. (See Bertero, supra, at p. 65; Roemer v. Retail Credit Co. (1975) 44 Cal. App.3d 926, 937 [119 Cal. Rptr. 82]; Wetherbee v. United Ins. Co. of America (1971) 18 Cal. App.3d 266, 270-271 [95 Cal. Rptr. 678]; Ferraro v. Pacific Fin. Corp., supra, 8 Cal. App.3d 339, 353; MacDonald v. Joslyn (1969) 275 Cal. App.2d 282, 293-294 [79 Cal. Rptr. 707, 35 A.L.R.3d 641].) By the same token, of course, the function of punitive damages is not served by an award which, in light of the defendant's wealth and the gravity of the particular act, exceeds the level necessary to properly punish and deter. (11b) Applying the foregoing considerations to the case before us, we cannot conclude that the award here in question was excessive as a matter of law. Looking at the record as we must in a light most favorable to the judgment ( Bertero, supra ), it appears that the jury and the court could properly have concluded that the conduct of Farmers in this case was highly reprehensible, involving a calculated attempt on the part of the insurer to take advantage of the series of tragedies afflicting Mrs. Neal and her family in order to effect a settlement at a bargain price and thereby retain monies rightfully due to the insured. Although the amount of compensatory damages legally recoverable was limited to a relatively modest amount (no more than $10,000) by the fortuitous occurrence of Mrs. Neal's death prior to trial (see fn. 3, ante ), we think it likely that absent this limitation plaintiff would have recovered a substantial additional amount in compensation for emotional distress suffered by Mrs. Neal as a consequence of the insurer's breach of duty. In these circumstances we cannot allow the apparent disproportion between recoverable compensatory damages and the total award as reduced to lead us to nullify the award. (See and compare Finney v. Lockhart, supra, 35 Cal.2d 161; Kluge v. O'Gara (1964) 227 Cal. App.2d 207 [38 Cal. Rptr. 607]; Sterling Drug, Inc. v. Benatar (1950) 99 Cal. App.2d 393, 400-402 [221 P.2d 965].) Finally, we note that the amount of punitive damages represented by the reduced judgment (i.e., approximately $740,000) represents less than one-tenth of 1 percent of defendant's gross assets and less than a week's worth of its net income according to 1974 figures. As we said in Bertero, punitive damages are awarded against defendant `for the sake of example and by way of punishing' him (Civ. Code, § 3294.) It follows that the wealthier the wrongdoing defendant, the larger the award of exemplary damages need be in order to accomplish the statutory objective. [Citations.] ( Bertero, supra, at p. 65.) We determine on the record before us that here, as in Wetherbee v. United Ins. Co. of America, supra, 18 Cal. App.3d 266, 271, the jury and the trial court could reasonably conclude that an award equal to one week's earnings was required to effect the necessary punishment of defendant and to serve as an example for other insurers. (Cf. Zhadan v. Downtown L.A. Motors (1976) 66 Cal.3d 481, 499-501 [136 Cal. Rptr. 132].) We therefore decline to hold that the jury's award, as reduced by the trial court with consent of the plaintiff, was excessive as a matter of law. [14]