Court Opinion

ID: 9562055
Source: CourtListenerOpinion
Date Created: 2023-08-21 18:20:50.384454+00
Date Added: 2024-06-11T09:17:11.311616
License: Public Domain

KAUS, J.,* Concurring and Dissenting.—I
I concur generally in Justice Lucas’ concurring and dissenting opinion. In most cases, once the insured has started to litigate, the evidence of bad faith which a stingy offer may permit is submerged by the strategic and tactical maneuvers—the gamesmanship-generated by the suit. This seems particularly true in this case, where the inference would be weak even if no action had been started: the company had a plausible policy defense to an aspect of the claim with respect to which the insured’s estimate of the damage was outrageously high. Even if liability on the policy had been conceded, the offers were within hailing distance of the damages which, at the time of the evidentiary ruling, the jury had already fixed at $8,400.1 Finally I can see no rational basis for excluding the insurer’s final offer of $15,000. Surely the inference as to the insurer’s intent which emanates from a reasonable offer is not nullified by the fact that liability has been adjudged. Under plaintiffs’ ground rules, whether the $15,000 offer was reasonable, although the consideration included dismissal of the bad faith claim, was a question of fact for the jury.
The only reason why I cannot get very excited about the result of this litigation, is that this particular jury showed unusual restraint for a type of case in which multi-million dollar awards for punitive damages appear to be almost routine. It is perhaps fortunate that so far most of the defendants in these bad faith cases have been insurance companies which can spread the cost of their mishandling of claims with relative ease. We know, however, that there is tremendous pressure on the courts, particularly this court, to extend bad faith liability to other contractual relationships. (Seaman’s Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 767-770 [206 Cal.Rptr. 354, 686 P.2d 1158].) So far we have not succumbed, although a satisfactory rationale for continued resistance is hard to come by. We have learned how to spell “banana” but not how to stop. Nevertheless, in my view it would be disastrous if every contract were to be subjected to the same set of rules which we have applied in the context of the insurer-insured relationship.2 Without wishing to strike a blow for bad *901faith or unfair dealing, I just cannot see every person who wilfully breaks a contract subjected to almost unlimited liability for punitive damages.
At the same time it must be recognized that in many cases confining a successful plaintiff in a contract case to traditional damages, which do not even include attorneys’ fees, is to guarantee that he will not be made whole. This seems unconscionable where the defaulting defendant has acted in bad faith. Unfortunately our desire to prevent this kind of injustice has caused us to go overboard in the other direction and paint ourselves into a corner from which we can only escape by taking back much of what we have said in the insurance cases or applying the rule of those cases to all other contracts.
While I believe that in the long run the courts can develop an equitable solution, the issue appears to be one of some urgency and no quick answers should be expected from the judiciary. On the one hand too much established law—some of it statutory—would have to be overturned or “reinterpreted” if we were to refashion contract remedies so that contract claimants against insurance companies are made truly “whole.” On the other, our experience in Seaman’s surely tells us that there are real problems in applying the substitute remedy of a tort recovery—with or without punitive damages—outside the insurance area. In other words, I believe that under all the circumstances, the problem is one for the Legislature—a suggestion which should not come as too much of a shock to devotees of separation of powers.3
If any legislator should feel moved to draft a bill, he could do worse than to study an excellent article by Michael Traynor which, written in the wake of Seaman’s, reviews the need for more liberal compensatory damage awards in contract, explains why the bad faith/punitive damage solution is unsatisfactory and suggests specific remedies. (Traynor, Bad Faith Breach of a Commercial Contract: A Comment on the Seaman’s Case (Cal. State Bar, Fall 1984) 8 Bus. L. News 1.) I copy some of the latter below.4 To *902quote Mr. Tray nor, the solution for the victims of breaches of contract should not be “a hit or miss game of punitive damages.” (Id., at p. 12.) “If,” however, “judges, legislators and lawyers focus on the adequacy of compensation for breach of contract, they will be focusing on the central problem.” (Ibid.)
Appellant’s petition for a rehearing was denied February 14, 1986. Lucas, J., and Panelli, J., were of the opinion that the petition should be granted.

Retired Associate Justice of the Supreme Court sitting under assignment by the Chairperson of the Judicial Council.

On the majority’s reasoning, defendant would have been better off if it had made no offer at all. Discouraging “ballpark” offers by permitting them to be used as evidence of bad faith seems very poor policy.

The problem is not so much the theory of the bad faith cases, as its application. It seems to me that attorneys who handle policy claims against insurance companies are no longer interested in collecting on those claims, but spend their wits and energies trying to maneuver the insurers into committing acts which the insureds can later trot out as evidence of bad faith.

I emphasize that I am merely thinking about policy, not constitutionality. Certain constitutional aspects of bad faith claims against insurers are now pending in the United States Supreme Court in Aetna Life Ins. Co. v. Lavoie (Ala. 1984) 470 So.2d 1060, consideration of jurisdiction postponed to hearing on merits (1985) — U.S. — [86 L.Ed.2d 691, 105 S.Ct. 2672],

“There are several ways in which damages for bad faith breach of contract could be amplified to yield an adequate compensatory award without radically altering the existing framework of contract law:
“First, the Hadley v. Baxendale [(1854) 156 Eng. Rep. 145] rule that consequential damages are limited to those in contemplation of the parties when the contract was made could be relaxed in accordance with the current trend; both the applicable statutory language and existing case law support compensatory damages that go beyond that limit and that approach *902or are comparable to compensatory damages in tort cases.
“Second, contractual limitations on the amount of damages or on the availability of consequential damages could be denied enforcement or circumscribed; doing so would provide a second look, at the damages phase, at clauses whose mere existence might not cause the bargain to be unconscionable but whose enforcement in a bad faith case could produce an unconscionable result.
“Third, the present discretion of courts to award prejudgment interest when the amount of the liability is not certain could be exercised more broadly to ameliorate the loss of opportunity and delay that results from the breach.
“Fourth, by legal rule and jury instruction, trial courts and juries could be encouraged as well as guided in bad faith cases to award a higher rather than a lower compensatory award within the leeways and the range of uncertainty that presently exist in the law of contract damages; such a development would recognize what now occurs frequently, although ad hoc, in practice.
“Fifth, in appropriate cases, a court could consider invoking principles of restitution and unjust enrichment to take away the profits resulting from a bad faith breach and award them to the party whose expectations were destroyed.
“The foregoing suggestions are by no means exhaustive; there may be additional opportunities for rationally developing the resources of contract law to improve compensatory damages when a contract is broken in bad faith.” (Fns. omitted.) (Traynor, supra, 8 Bus. L. News at pp. 12-13.)