Court Opinion

ID: 9528990
Source: CourtListenerOpinion
Date Created: 2023-08-07 03:46:01.287463+00
Date Added: 2024-06-11T13:27:34.426788
License: Public Domain

ROTH, J.*
I dissent.
This dissent does not deny that lack of good faith and fair dealing by an insurer in disposition of a contractual obligation exposes it to tort liability. It purports only to show that at bench no action in tort is stated aided by that doctrine as originally enunciated, or as it is currently expanded. In fact, unless Hickman v. London Assurance Corp., 184 Cal. 524 [195 P. 45, 18 A.L.R. 742] is overruled, it does not state a cause of action for breach of contract.
Comunale v. Traders & General Ins. Co., 50 Cal.2d 654 [328 P.2d 198, 68 A.L.R.2d 883] and Crisci v. Security Ins. Co., 66 Cal.2d 425 [58 Cal.Rptr. 13, 426 P.2d 173], involve liability policies protecting an *582insured primarily against the claims of third persons. Such policies expressly reserve to insurer the exclusive right to investigate, defend, compromise, arbitrate or otherwise dispose of a claim against an insured and obligate the insured to cooperate. Insured’s failure to cooperate may release the insurer. Such a policy handcuffs the insured’s ability to protect himself and creates a fiduciary agency between the two. The interests of the insurer are to delay payment or indulge in other tactical conduct to achieve frugal disposition of claims or reject them. The interest of the insured is that claims against him be finally disposed of as promptly as good faith and fair dealing requires. This conflict obligates the insurer to handle all claims with the interest of the insured uppermost.
“. . . As the champion of the insured, [the insurer] must consider as paramount his interests, rather than its own, and may not gamble with his funds. . . .” (7A Appleman, Insurance Law and Practice, § 4711, Insurer’s Duty to Settle, p. 553, § 4712, p. 570.) Failure to do so is bad faith and renders the insurer liable for breach of its fiduciary duty, in the amount of the judgment over the policy limit. (Ivy v. Pacific Automobile Ins. Co., 156 Cal.App.2d 652, 660 [320 P.2d 140]; National Farmers Union Property & Casualty Co. v. O’Daniel, 329 F.2d 60, 64-65; Fetter Livestock Co. v. National Farmers U. P. & C. Co., 257 F.Supp. 4, 10.)
The rule propounded by Comunale and Crisci equates with a fiduciary duty on the insurer. The insurer has insisted upon and assumed high fiduciary obligations by the express terms of the only type of insurance an insured can buy.
The fire policy at bench differs from those construed in Comunale and Crisci. It protects only the insured and requires payment to insured. It does not per se create a fiduciary conflict of interest. (16 Appleman, Insurance Law and Practice (1973 Supp.) § 8867, p. 157, citing Moses v. Manufacturers Life Ins. Co., 298 F.Supp. 321, affd. 407 F.2d 1142, cert, den. 396 U.S. 827 [24 L.Ed.2d 77, 90 S.Ct. 73].) All of the terms of a fire policy are written by the state Legislature. (Ins. Code, § § 2070-2071.) Presumably the bargaining position of insurer and insured has been carefully weighed and is fair to both sides. Ordinary rules of construction should apply instead of the “adhesion rules” enunciated by Tunkl v. Regents of the University of California, 60 Cal.2d 92 [32 Cal.Rptr. 33, 383 P.2d 441, 6 A.L.R.3d 693]; Gray v. Zurich Insurance Co., 65 Cal.2d 263 [54 Cal.Rptr. 104, 419 P.2d 168], and kindred cases.
A fire policy also differs from that construed in Fletcher v. Western National Life Ins. Co., 10 Cal.App.3d 376 [89 Cal.Rptr. 78, 47 A.L.R.3d 286] (a health and disability policy). The policy in Fletcher was written by the insurer. It is subject to adhesion rules of construction. In spite of the *583difference between the fire policy at bench and the policies in Crisci and Fletcher, it is assumed in this dissent that the duty of the insurer enunciated by those cases applies. It should be noted, however, that the Crisci court did say: “In determining whether an insurer has given consideration to the interests of the insured, the test is whether a prudent insurer without policy limits would have accepted the settlement offer. [Cases omitted.]
“Several cases, in considering the liability of the insurer, contain language to the effect that bad faith is the equivalent of dishonesty, fraud and concealment.” [Cases omitted.] (Pp. 429-430.)
Comunale states at page 658: “. . . neither party will do anything which will injure the right of the other . . .” Good faith and fair dealing are expected on both sides. It is fair to assume that the doctrine of Comunale and Crisci is a two-way street.
The thrust of Comunale and Crisci is absence of good faith and fair dealing, but it appears that the thrust of cases like Fletcher; Wetherbee v. United Ins. Co. of America, 18 Cal.App.3d 266 [95 Cal.Rptr. 678]; Richardson v. Employers Liab. Assur. Corp., 25 Cal.App.3d 232 [102 Cal.Rptr. 547], is grounded in conduct which is false, malicious, oppressive, unreasonable, misleading, or which indicates an intention to evade and not perform a fixed promise or which is outrageous or unconscionable and thus equates with or partakes of fraud. Amici point out that the theory of these cases is the intentional infliction of emotional distress. The majority, although stressing good faith and fair dealing, expand the doctrine of Crisci to include one or more of the elements of fraud involved in the cases cited above. Thus, if the complaint is bottomed on fraud, the ingredients of fraud should be properly pleaded.
The Complaint Does Not State A Cause of Action
Subjecting the complaint at bench to liberal construction, as it should be, and subjecting the fire policy involved to adhesion rules of construction and the doctrine of Crisci and Fletcher, although in fairness it should not be, no cause of action in tort is stated against insurer.
On the expanded premise of Crisci, waiving the rigorous requirements of a fraud pleading (3 Witkin, Cal. Procedure (2d ed. 1971) pp. 2211-2212), it could be conceded that if plaintiff had pleaded his cause of action in the form of conclusionary allegations generally acceptable in negligence pleadings, the complaint might withstand a general demurrer. (Code Civ. Proc., § 452; 3 Witkin, Cal. Procedure (2d ed. 1971) pp. 1948, 2119; Reichert v. General Ins. Co., 68 Cal.2d 822, 840-841 [69 Cal.Rptr. 321, 442 P.2d 377].)
*584Plaintiff, however, did not content himself with conclusionary allegations. The complaint is large with probative facts detailing the basis of plaintiff’s cause of action.1 In addition, plaintiff has voluntarily supplied a portion of the transcript of the preliminary hearing referred to in the complaint as part of his record. In pertinent part the magistrate presiding at the preliminary hearing said:
“The fact that [plaintiff] left the premises within a couple of minutes after the bartender, Mr. Elias, and Mr. Elias testified he saw the defendant in his car passing him as he was at the next comer, a short block, would indicate to the Court that he would not have had time to have removed the door and spread the gasoline. Obviously, we are satisfied that the evidence supports the facts that the fire was incendiary; however, we do not feel there is sufficient evidence to connect it with the defendant.”
Plaintiff attempts to weave the recited probative facts into a cause of action by the conclusionary allegation quoted by the majority “. . . defendants . . . joined together ... to falsely imply that . . . plaintiff . . . deliberately set fire to . . . his place of business ... [to avoid] . . . paying ... the policies of insurance. . . .” This conclusionary allegation is then followed by a reiteration of the primary probative facts to show how insurer effectuated this purpose: (a) defendant Busching stated to an arson investigator plaintiff had excessive insurance; (b) defendant demanded an examination under oath and production of certain documents “to support the false implication . . . plaintiff was guilty of arson;” and (c) Busching appeared as a witness at a preliminary hearing in which plaintiff was charged with arson and reaffirmed in testimony under oath the statement referred to in (a). An additional conclusionary allegation follows: “that the defendants and each of them conducted themselves and acted in the manner as hereinabove alleged, intentionally and in bad faith for the sole purpose of depriving the plaintiff of the benefits of the policies of insurance issued by the defendant Insurers.”
The majority say:
“. . . plaintiff has alleged . . . that defendants wilfully and maliciously entered into a scheme to deprive him of the benefits of the fire policies in that they encouraged criminal charges by falsely implying that he had a motive to commit arson, and . . . knowing plaintiff would not appear for an examination during the pendency of criminal charges . . . they used his failure to appear as a pretense for denying liability under
*585the policies. We conclude therefore that while the complaint is far from a model pleading, it does allege in substance a breach on the part of defendant insurance companies of their duty of good faith and fair dealing which they owed plaintiff.”
In Reichert, the court commented on similar allegations at page 831: “The embellishments added by the pleader, as for example, that defendant ‘in doing all of the things as herein alleged, has done them deliberately, fraudulently and oppressively,’ and that defendant is ‘guilty of oppression and fraud,’ aside from their obvious conclusionary character, do not derogate from the contractual character of the pleading. In sum, it is abundantly clear that the liability sought to be imposed arises upon a contract.”
Nowhere does the complaint allege that Busching’s statement re excessive insurance is false or that Busching knew it was false when he made it and/or swore to it. The complaint alleges: “. . . Busching did not tell the investigator that at the same time a new insurance policy was issued to the plaintiff, other policies were being cancelled and that the face amount of fire insurance in effect as of September 18, 1969 was $15,000 less than had previously been in effect. At the time . . . Busching made the aforesaid statement to the investigator he had full knowledge of all the facts alleged in this paragraph.”
Since Busching, according to plaintiff’s quoted admission, knew about the cancellation of $15,000 worth of insurance, he obviously was directing his opinion to the insurance that remained in effect at the time he made his challenged statement, to wit: $35,000. The complaint does not allege that the insurance extant at the time of the fire was not excessive.
The decisive question as a matter of pleading is whether the pleaded facts which show the prudent exercise of legal and contractual rights and the performance of a public duty by an insurer can be, by an application of liberal rules of interpretation with the aid of conclusionary allegations, transmuted from lawful and prudent acts into “dishonesty, fraud and concealment” (Crisci, at p. 430), or oppressive, misleading, outrageous, unreasonable, unconscionable, wilful or malicious acts.
A complaint is not aided by allegations “. . . that the defendants and each of them joined together and acted in concert to falsely imply that the plaintiff had a motive to deliberately set fire to and bum down his place of business. . . .” There is no action for civil conspiracy in California. A conspiracy must stand or fall depending upon the commission of unlawful acts or civil wrongs. (Chicago Title Ins. Co. v. Great Western *586Financial Corp. (1968) 69 Cal.2d 305, 316 [70 Cal.Rptr. 849, 444 P.2d 481]; Marin v. Jacuzzi (1964) 224 Cal.App.2d 549 [36 Cal.Rptr. 880].) In Jacuzzi, the court said at page 552: “. . . A demurrer does not . . . admit contentions, deductions or conclusions of facts or law which may be alleged. . . . The use of the words wrongfully, wilfully and maliciously adds nothing to the pleadings except to convey a sense of outrage on the part of the appellant (Hancock v. Burns, 158 Cal.App.2d 785, 790). . . .”
The request of insurer for an examination and production of documents was in accordance with the legislative mandate (Ins. Code, §§ 2070-2071). It was prudent, in good faith and in accordance with fair and accepted business practice. There is no suggestion of dishonesty, fraud or concealment. The thrust of the majority, as applied to the facts alleged, seems to be “. . . in the case before us we consider the duty of an insurer to act in good faith and fairly in handling the claim of an insured, namely not to withhold unreasonably payments due under a policy.”
The test of good faith and fair dealing as applied at bench is, as has been pointed out, an extension of Crisci. The Crisci definition, as it has been extended, therefore must be applied to the three acts charged against insurer:
(1) Busching’s privileged statement to an arson expert, reiterated under oath at preliminary hearing;
(2) Its request for an examination and inspection of documents;
(3) Its rejection of plaintiff’s offer to submit to an examination two weeks after dismissal of the criminal charges.
None of the three acts trespass on the expanded definition of Crisci.
A prudent insurer cannot be charged with dishonesty, fraud or concealment, or with a violation of the expanded Crisci doctrine, by reason of the Busching statement. At bench, the insurer through Busching transmitted privileged information the day after the fire to an arson expert working for an interested governmental entity who, without insurer’s knowledge, had in the early morning, when the fire occurred, already placed plaintiff under arrest. A prudent insurer has a duty to disclose all it knows and also its opinions to an arson expert in the employ of the city fire department who is charged with the responsibility to investigate fires.
It cannot be assumed from the facts alleged that: Busching made a false statement and knew it was false when he made it and aggravated his fraud with perjury; the information upon which it was based would *587not have impelled a prudent insurer to act; the arson expert who had already arrested plaintiff would accept such a statement as the sole cause of his suspicion and not make an independent investigation; the district attorney would cause a felony complaint to be filed with no evidence other than the statement; the arson expert and the district attorney did not act in the proper exercise of a governmental function for a public purpose, but that instead they committed a felony to help insurer pressure the plaintiff; or that because the arson complaint was dismissed, insurers had not acted prudently, reasonably and legally in reliance upon California law then extant (Hickman). Insurer had the right and obligation to investigate if it had no suspicion about the fire. When it did have a suspicion the exercise of the right becomes not only a responsibility to stockholders, policyholders and the public, but its failure to exercise it would equate with negligent business operation. (Amsden v. Grinnell Mutual Reinsurance Co. (Iowa 1972) 203 N.W.2d 252, 255; Machurek v. Ohio Nat. Life Ins. Co., 125 Neb. 35 [249 N.W. 81, 84].)
Busching’s testimony at the preliminary hearing was not a sinister act. It was proper and valid.
Civic duty and conscience should impel one in the possession of relevant evidence to volunteer as a witness in the public interest in every case in which a crime is charged. However, lack of time, inconvenience, intimidating courtroom atmosphere, natural diffidence, dread of cross-examination and frequently actual hazards to their safety,"comfort and purse, restrain prospective witnesses. One of the prime obstacles all public prosecutors encounter is persuading even interested witnesses to remember what they know, what they saw and heard and then indúcing them to appear and testify. The majority would augment this difficulty.
The factual allegations of the complaint impel no conclusion that the adjuster committed perjury or that the adjuster, the arson expert, and the district attorney were severally guilty of the felony to conspire to obtain a conviction of plaintiff on false evidence. Such assumptions cannot be validly made on the basis of worthless conclusionary allegations which are contradicted by the probative facts pleaded, especially since all parties, except the insurer, to the alleged criminal conspiracy, are dismissed by the majority from any liability.
Concededly, plaintiff charged with a felony upon which a preliminary hearing had been calendared, was in a sensitive position. He had the right to invoke his Fifth Amendment privilege.2 Insurer had the right and if it *588suspected arson it had the obligation, under the prudent man rule enunciated by Crisci, to insist on an examination. The question posed is whether plaintiff can use his Fifth Amendment right to ignore or postpone his contractual obligation to submit to an examination by insurer. Hickman settled that to the contrary. (Hickman v. London Assurance Corp., 184 Cal. 524, 531-533 [195 P. 45, 18 A.L.R. 742]; Savoy Club v. Board of Supervisors (1970) 12 Cal.App.3d 1034 [91 Cal.Rptr. 198]; Marcello v. United States (5th Cir.) 196 F.2d 437, 441; Restina v. Aetna Casualty & Surety Company, 61 Misc.2d 574 [306 N.Y.S.2d 219].)
The attorney’s letter of November 25, 1969, fixes December 10, 1969 as the date of the examination. It should be noted the letter lists nine items covering papers, books and documents pertinent to a claim which plaintiff might file and requested plaintiff to bring the same with him. The letter does not state or suggest that there will be any interrogation as to the cause of the fire. Nor does the complaint charge that it does.
Assuming plaintiff had reasonable ground to request a delay, did the refusal of insurer at this stage to accede thereto predicated on the pleaded facts constitute such an abuse of the prudent man rule as to constitute bad faith and unfair dealing under the expanded definition of Crisci?
The criminal proceeding against plaintiff was dismissed and concluded on January 12, 1970. It might not have been concluded until January 12, 1980. Does the insurer have to await a final conclusion of criminal proceedings to gather evidence or otherwise investigate by the exercise of legal rights to assist it in a determination of whether it has a responsibility? Is there ever any finality to a criminal judgment unless the defendant is acquitted? .
If the insurer must wait, problems arise. The majority say: “In other words, the insurer’s duty is unconditional and independent of the performance of plaintiff’s contractual obligations.” Plaintiff (a) could or would file a claim within the time allowed by the policy; and (b) if a claim were filed, could insurer ignore it until the plaintiff submitted to the request for examination? If insurer could ignore the claim, plaintiff would not collect his insurance until some time after the criminal proceedings had been concluded, but if 10 months or 10 years elapsed before plaintiff is acquitted of an arson charge, would insurer be responsible for *589the claim plus interest from date of claim, from date of acquittal, or would it be called upon to defend an action for “unreasonable” or “unconscionable” delay arising from its outrageous and tortious temerity to exercise its legal right to investigate and question the cause of the fire.
Continuing with the arguendo assumption that plaintiff fairly used his Fifth Amendment privilege to abate or limit his contractual obligation to submit to an examination, did he fairly and in good faith invoke it as against his insurer?3
If good faith and fair dealing is a two-way street, it was the duty of plaintiff to submit to insurer in writing a waiver of his right to prompt settlement of his potential claim. No such waiver was made and none is pleaded. It would also have been good faith and fair dealing for plaintiff to indicate to insurer in writing, fortified with the acknowledgment of his lawyer that the books and other documents requested (identifying them) were in the custody of his lawyer, and would be made available to insurer when the criminal proceeding was concluded, or at some other appropriate time, or if there were no books or documents, to make a written statement to that effect.
Did good faith on plaintiff’s part require him to appear for the examination and answer such questions and submit such documents as would not incriminate him? The privilege must be claimed at the time the questions are asked. (Marcello v. United States, supra, 196 F.2d 437, 441.)
Would plaintiff have incriminated himself if he had stated to insurer at any time before the date set for the examination (approximately two weeks after the first letter) that the statement re “excessive insurance” made by its adjuster was false and that the inventory he had predicated insurance upon was available for insurer’s inspection?
Would it have been fair to the insurer and its adjuster, if an attempt had been made by plaintiff who was represented by counsel, to convince insurer of the money soundness of the insurance at risk and thus probably avoid any adverse testimony from the adjuster?
Was Insurer Justified in Rejecting Plaintiff’s Claim Presented After Dismissal of the Criminal Action?
Was Delay Prejudicial?
Plaintiff argues that after the arson charge was dismissed, insurer rejected his claim even though he offered himself for examination and that *590since insurer was not prejudiced by the delay, insurer should have accepted the claim and paid or otherwise acted upon it. (Campbell v. Allstate Ins. Co., 60 Cal.2d 303, at p. 305 [32 Cal.Rptr. 827, 384 P.2d 155].) On this theory a clear and single question of law is presented. Was insurer obligated under the expanded Crisci doctrine to accept the claim or otherwise promptly act on it?
Plaintiff argues that his failure to appear for examination when it was requested cannot be a valid defense unless the insurer was substantially prejudiced thereby. “The burden of proving that a breach of a cooperation clause resulted in prejudice is on the insurer.” (Campbell, supra, at p. 306.) (Northwestern Title Security Co. v. Flack, 6 Cal.App.3d 134, 141 [85 Cal.Rptr. 693]; Bergeron v. Employers’ Fire Ins. Co., 115 Cal.App. 672 [2 P.2d 453]; Phillips v. Protection Insurance Co., 14 Mo. 220, 234-236; Joyce v. United Ins. Co., 202 Cal.App.2d 654, 662 [21 Cal.Rptr. 361, 17 A.L.R.3d 517].)
Hickman v. London Assurance Corp., 184 Cal. 524 [195 P. 45, 18 A.L.R. 742] (not overruled) and other well reasoned cases hold that the clause in the policy upon which insurer at bench relies is a condition precedent to collection of a claim.
Section 2071 of the Insurance Code says in pertinent part: “No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with. . . .” (Claflin v. Commonwealth Insurance Company, 110 U.S. 81, 97 [28 L.Ed. 76, 82, 3 S.Ct. 507]; Restina v. Aetna Casualty & Surety Company (1969) supra, 306 N.Y.S.2d at p. 219.)
Since the law abhors forfeitures it may be that the forfeiture of rights required by Hickman and other cases is not sound. However, proper perspective if good faith and fair dealing is the issue, would impel the court also to bear in mind that the law abhors penalties. There can be no question that a tort action with its loaded measure of damages is a penalty.
Thus, the question presented applying the expanded Crisci doctrine narrows itself to whether the insurer, guided by .advice of counsel, and acting under a clause drafted by the Legislature and interpreted by this court as a condition precedent, can be properly accused of bad faith and unfair dealing when it rejected the claim. Restina, cited above, is on all fours with the facts at bench, and although by an inferior court, relies upon Hickman. When another court seeking only to administer the law, *591relies upon the doctrine of Hickman, can this court which enunciated the doctrine, now say it was bad faith and unfair dealing for insurer to rely on it?
Should this court decide that Hickman does not compel a forfeiture of plaintiff’s rights, does it follow that the court must, under Crisci, find bad faith and unfair dealing and penalize the insurer for no reason other than that it follows the law? In the circumstances, would- it be just to limit recovery to the amount of the policy, assuming insured can make the necessary proof?
In Restina, the New York court said in pertinent part:
“There does not appear to be any New York State case law authority on this particular issue. However, in Hickman v. London Assurance Corp., 184 Cal. 524, ... the Supreme Court of California sitting en banc faced an identical situation as presented here, and it held that the constitutional immunity from self-incrimination did not absolve an insured from complying with the provisions of the insurance contract requiring the insured to submit to an examination under oath, even though the insured is at that time under indictment for arson for the burning of the property in question. The court further held that an insured’s refusal to submit to such examination on those particular grounds constituted a breach of the contract and deprives the insured of any claim or cause of action against the insurer on the insurance contract.
“This court agrees with and adopts as its own the sound legal reasoning set forth in the Hickman case to the present case on this issue.”
The majority accept nonperformance by plaintiff, avoid Hickman and ignore Restina. They say: “We conclude, therefore, that the duty of good faith and fair dealing on the part of defendant insurance companies is an absolute one. At the same time, we do not say that the parties cannot define, by the terms of the contract, their respective obligations and duties. We say merely that no matter how those duties are stated, the non-performance by one party of its contractual duties cannot excuse a breach of the duty of good faith and fair dealing by the other party while the contract between them is in effect and not rescinded.” (Italics added.)
Does this mean that irrespective of how well defined the obligations of plaintiff are, he can ignore them and still demand performance on the part of the other party? Under liberal rules of pleading it is required that a *592plaintiff in a breach of contract complaint make it clear that plaintiff has performed in all respects and defendant has not.
It is respectfully suggested that the majority have advised an insurer that if it expects to avoid a Crisci or Fletcher lawsuit, there is only one safe course: Pay all claims and investigate afterwards, assuming, of course, payment doesn’t waive that right.
I would affirm the judgment.
Respondents’ petition for a rehearing was denied July 18, 1973.

Assigned by the Chairman of the Judicial Council.

Pleader is preconcluded, as he should be, by material specific averments; general averments and conclusions are negatived when pleaded facts are to the contrary. (3 Witkin, Cal. Procedure (2d ed. 1971) pp. 1971, 1972, 2006, 2008, 2010.)

The majority state: “. . . defendants . . . maliciously entered into a scheme . . . by falsely implying . . . [plaintiff] had a motive to commit arson, . . . and . . . *588knowing plaintiff would not appear for an examination . . . used his failure ... as a pretense for denying liability . . . .” Yet, in footnote 7 the majority say: “Plaintiff . . . does not contend . . . privilege justifies his failure to attend . . . .” Further, “. . . [Pjlaintiff’s failure to appear ... to submit to an examination ... is not fatal . . . to . . . such cause of action; . . .”

The specific obligation of insurer is fixed by the majority as “in the case before us we consider the duty of an insurer to act . . . fairly ... a duty not to withhold unreasonably payments due. . . .”