Court Opinion

ID: 4345790
Source: CourtListenerOpinion
Date Created: 2018-11-29 20:02:11.180612+00
Date Added: 2024-06-11T14:48:13.885338
License: Public Domain

Filed 11/29/18
                              CERTIFIED FOR PUBLICATION

             IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                               THIRD APPELLATE DISTRICT
                                            (Placer)
                                              ----

AMANDA MELESKI,                                                        C080023

                 Plaintiff and Appellant,                    (Super. Ct. No. SCV31995)

        v.

ESTATE OF ALBERT HOTLEN,

                 Defendant and Respondent.

      APPEAL from a judgment of the Superior Court of Placer County, Mark S. Curry,
Judge. Reversed with directions.

      Arnold Law Firm, Anthony M. Ontiveros; and Leslie Mitchell for Plaintiff and
Appellant.

      Spinelli, Donald & Nott, Ross R. Nott and Alison W. Winter for Defendant and
Respondent.

        This case involves a procedure by which an insurance company, as the entity
controlling the litigation and incurring the risk of loss, is a de facto party under Probate
Code sections 550 through 555 in “an action to establish [a] decedent’s liability for which

                                               1
the decedent was protected by insurance” (Prob. Code, § 550),1 and thus also is a party
under Code of Civil Procedure2 section 998 that must pay specified costs after rejecting a
reasonable settlement offer.
        Amanda Meleski was injured when Albert Hotlen ran a red light and collided with
her vehicle. Unfortunately, Hotlen was deceased at the time of the lawsuit, and he had no
estate from which she could recover. However, Hotlen had purchased a $100,000
insurance policy from Allstate Insurance Company (Allstate) covering the accident.
Meleski brought her action pursuant to Probate Code sections 550 through 555, which
allowed her to serve her complaint on Allstate and recover damages from the Allstate
policy, but limited her recovery of damages to the policy limits.
        Meleski attempted to settle the matter before going to trial by making an offer
pursuant to section 998 for $99,999. The offer was not accepted, and at trial a jury
awarded her $180,613.86. Because the offer was rejected and Meleski was awarded
judgment in excess of her offer to compromise, she expected to recover her costs of suit,
the postoffer costs of the services of expert witnesses, and other litigation costs.
        Meleski argued that she should be able to recover costs in excess of the policy
limits from Allstate, since it was Allstate that had refused to accept a reasonable
settlement offer prior to trial. The trial court disagreed, and Meleski filed this appeal.
She argues Allstate is a party within the meaning of section 998 for purposes of
recovering costs, and that such costs are recoverable from the insurer despite the
limitation on the recovery of “damages” found in Probate Code sections 550 through 555.

1 Under this statutory scheme, the estate must be named as the defendant, but service is
on the insurance company. (Prob. Code, § 552, subd. (a).) “A judgment in favor of the
plaintiff in the action is enforceable only from the insurance coverage and not against
property in the estate.” (Prob. Code, § 554, subd. (a).)
2   Undesignated statutory references are to the Code of Civil Procedure.

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“ ‘[Costs] constitute no part of a judgment at the moment of its rendition . . . .’
[Citations.]” (Folsom v. Butte County Assn. of Governments (1982) 32 Cal. 3d 668, 677.)
       We agree and shall reverse the judgment. Even though the decedent’s estate is the
named defendant in actions under Probate Code sections 550 through 555, this is a legal
fiction. The insurance company accepts service of process, hires and pays for counsel to
defend the action, makes all decisions regarding settlement of the litigation, is responsible
for paying the judgment in favor of the plaintiff if such judgment is rendered, and makes
the decision whether or not to appeal an adverse judgment. There is no actual person or
entity other than the insurance company to do any of this. This is a reality we will not
ignore. Moreover, we find it manifestly unfair that section 998 could be employed by
Allstate to recover costs from the plaintiff (which costs it would have no obligation to
pay to the estate), but Allstate would have no corresponding responsibility to pay costs
merely because it is not a named party.
                   FACTUAL AND PROCEDURAL BACKGROUND
       Meleski suffered physical injuries in a vehicle collision with Albert Hotlen. When
Meleski’s attorney attempted to serve the summons and complaint on Hotlen, he was
informed Hotlen had died. Hotlen was insured by Allstate at the time of the collision.
       When Allstate refused to tender the policy limit of $100,000, Meleski amended the
complaint to name the estate of Albert Hotlen as the defendant in the action. The parties
agree this was done pursuant to Probate Code sections 550 through 555, which allow an
action to establish a decedent’s liability for which the decedent was covered by insurance
to be continued against the estate without the need to join the decedent’s personal
representative or successor in interest. (Prob. Code, § 550, subd. (a).) Under this
statutory scheme, the estate must be named as the defendant, but service is on the
insurance company. (Prob. Code, § 552, subd. (a).) Any judgment in such an action does
not adjudicate rights by or against the estate, unless the personal representative of the
estate is joined as a party. (Prob. Code, § 553.) Also, unless the personal representative

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is joined as a party, no damages may be recovered outside the policy limits. (Prob. Code,
§ 554, subd. (a).) A judgment in favor of the plaintiff in the action is enforceable only
from the insurance coverage and not against the estate. (Ibid.) In this case, Hotlen did
not leave an estate.
       Meleski sent an offer of compromise pursuant to section 998 for $99,999, which
was one dollar less than the policy limits. The offer provided that each party would bear
its own costs, interest, and attorney fees. The offer was served on Allstate. Allstate did
not accept the offer. Instead, defendant sent its own section 998 offer of compromise for
$40,000, with each side to bear its own costs and fees. Meleski did not accept the offer,
and the matter went to trial.
       The jury returned a verdict for Meleski and found her total damages to be
$180,613.86. Judgment was entered in Meleski’s favor in the amount of $180,613.86,
plus interest and costs. Following the verdict, Meleski filed a memorandum of costs
seeking to recover expert witness fees and other litigation costs pursuant to section 998.
These amounts totaled $66,017.08. Defendant responded by arguing, in a motion to
strike costs, or tax costs, that its liability was limited to the policy limits, pursuant to
Probate Code section 550 et seq.
       The trial court agreed with defendant that Meleski’s recovery was limited to the
policy limits of $100,000. Defendant also moved for a new trial for excessive damages.
The trial court denied this, stating “there is no evidence the jury’s verdict of damages was
excessive or unreasonably high given the underlying facts of the case. Rather, judgment
must be reduced, as a matter of law, under Probate Code section 554, because the
judgment is enforceable only up [to] the maximum insurance coverage, in this case
$100,000.” The trial court found that whether Meleski was entitled to costs pursuant to
section 998 was a moot point, since the judgment was limited to $100,000. In any event,
the trial court found that section 998 was applicable to the case, and that the costs

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submitted by Meleski were reasonable and appropriate, and that Meleski would have
been entitled to the requested costs had there not been an insurance cap.
                                          DISCUSSION
       Meleski argues Allstate was obligated to pay an award of costs under section 998,
that Allstate was a party pursuant to Probate Code sections 550 through 555 and section
998, and that relieving insurers of the obligation to pay costs in this circumstance would
conflict with the Legislature’s intent in passing section 998. We agree.
       Defendant argues Allstate cannot be forced by section 998 to pay costs because it
was not a party to the action, and that in any event Probate Code sections 550 through
555 limit the amount a plaintiff can recover to the coverage limits of the decedent’s
policy. We address each of these claims in turn.
                                                  I
                        Allstate Is a Party for Purposes of Section 998
       Section 998 provides in pertinent part that prior to commencement of trial, “any
party may serve an offer in writing upon any other party to the action to allow judgment
to be taken or an award to be entered in accordance with the terms and conditions stated
at that time.” (§ 998, subd. (b), italics added.) If the offer is not accepted within 30 days
of being made, it is deemed withdrawn. (§ 998, subd. (b)(2).) “If an offer made by a
plaintiff is not accepted and the defendant fails to obtain a more favorable judgment or
award in any action or proceeding . . . the court . . . in its discretion, may require the
defendant to pay a reasonable sum to cover postoffer costs of the services of expert
witnesses, who are not regular employees of any party, actually incurred and reasonably
necessary in either, or both, preparation for trial . . . , or during trial . . . , of the case by
the plaintiff, in addition to plaintiff’s costs.” (§ 998, subd. (d).)
       The purpose of section 998 is to encourage settlements. (Santantonio v.
Westinghouse Broadcasting Co. (1994) 25 Cal. App. 4th 102, 113.) The statute
“ ‘achieves its aim by punishing a party who fails to accept a reasonable offer from the

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other party.’ (Original italics.) [Citation.]” (Ibid.) The policy behind section 998 is
“plain.” (Bank of San Pedro v. Superior Court (1992) 3 Cal. 4th 797, 804.) “It is to
encourage settlement by providing a strong financial disincentive to a party--whether it
be a plaintiff or a defendant--who fails to achieve a better result than that party could
have achieved by accepting his or her opponent’s settlement offer. (This is the stick. The
carrot is that by awarding costs to the putative settler the statute provides a financial
incentive to make reasonable settlement offers.)” (Ibid.) The policy in favor of
settlement “primarily is intended to reduce the burden on the limited resources of the trial
courts. The trial of a lawsuit that should have been resolved through compromise and
settlement uses court resources that should be reserved for the resolution of otherwise
irreconcilable disputes.” (Wilson v. Wal-Mart Stores, Inc. (1999) 72 Cal. App. 4th 382,
390-391.)
       Obviously, since the purpose of section 998 is to encourage settlement by
punishing the refusal of a reasonable settlement offer, it is directed at the entity that
(1) controls the litigation, and (2) will incur the risk of loss from section 998 if the
gamble to force the other side to trial is not successful. Section 998 refers to this entity as
the party because in nearly every circumstance, the party is the entity controlling the
litigation and incurring the risk of loss. The case before us is different because of Probate
Code sections 550 through 555.
       Probate Code section 550, subdivision (a) provides that “an action to establish the
decedent’s liability for which the decedent was protected by insurance may be
commenced or continued against the decedent’s estate without the need to join as a party
the decedent’s personal representative or successor in interest.” Probate Code section
552 provides that the named defendant in such an action shall be the decedent’s estate,
but summons shall be served on the insurer. The proceedings are conducted as if the
action were against the personal representative of the estate; however, Probate Code

                                               6
section 553 provides that unless the personal representative is joined as a party, a
judgment does not adjudicate any rights against the estate.
       Unless the personal representative is joined as a party or the plaintiff files a
creditors’ claim in probate, the damages sought in the action must be within the coverage
limits of the policy, or recovery in excess of the limits is waived. (Prob. Code, § 554.)
“A judgment in favor of the plaintiff in the action is enforceable only from the insurance
coverage and not against property in the estate.” (Prob. Code, § 554, subd. (a).) Thus, by
naming the estate as the defendant without joining the estate’s personal representative or
filing a creditors’ claim with the estate, Meleski agreed to limit her recovery of damages
against the estate to the policy limits.
       Even though Hotlen’s estate was the named defendant in the action, the estate was
not really a party because it is not a legal entity. “The ‘estate’ of a decedent is not an
entity known to the law. It is neither a natural nor an artificial person. It is merely a
name to indicate the sum total of the assets and liabilities of a decedent . . . . [Citation.]
In order for a civil action to be prosecuted, there must be some existing entity aimed at by
the processes of the law, and against whom the court’s judgment will operate.” (Tanner
v. Estate of Best (1940) 40 Cal. App. 2d 442, 445.) In this case, Hotlen left no assets, so
there was actually no “estate” for Meleski to sue. Although the attorney representing the
defense in this case purported to represent the estate of Hotlen, the summons, complaint,
and offer to compromise were all served on Allstate’s agent for service of process.
Allstate provided the defense to the estate. As there was no estate representative named,
Allstate was in complete control of the litigation, and was the only litigant for the
defense.
       We consider Allstate a party for purposes of section 998 because, “[a] person who
is not a party to an action but who controls or substantially participates in the control of
the presentation on behalf of a party is bound by the determination of issues decided as
though he were a party.” (Rest.2d Judgments, § 39.) Not only did Allstate have

                                               7
complete control of the litigation of this matter, it also was the only entity opposing
Meleski that risked losing money in the litigation. The named party, the estate, was not
at risk for payment of damages, which were limited to the Allstate policy. (Prob. Code, §
554.) “Unless the personal representative is joined as a party, a judgment in the action
under this chapter . . . does not adjudicate rights by or against the estate.” (Prob. Code, §
553.) It is a legal fiction that the estate is the party. In actuality, Allstate is the party
litigating the case, inasmuch as it alone is at risk of loss and it alone controls the
litigation.
       We disagree with defendant’s statement that by holding Allstate accountable as a
party, we would render the insurer liable for the insured’s conduct beyond the contractual
bargain between the insured and the insurer. Not so. By enforcing the terms of section
998 against Allstate, we are holding Allstate accountable for its own actions in failing to
accept a reasonable settlement offer.
       We are aware that Smith v. Interinsurance Exchange (1985) 167 Cal. App. 3d 301,
304, held that the predecessor to Probate Code sections 550 through 555 (Prob. Code, §
721) did not make the insurer a responsible party to the action, despite the fact that it
required the insurer to accept service of the complaint and defend on behalf of the estate.
However, the particular question there was whether the plaintiff could sue the insurer for
unfair claims practices and the estate to establish the decedent’s liability in the same
action. (Smith, at pp. 302-303.) The court held that trial against the insurer must be
postponed until the liability of the insured is first determined. (Id. at p. 304.) The case
was not concerned with section 998, the goal of which is to punish a litigating party for
refusing to accept a reasonable settlement offer.
       In this particular case, defendant would have us hold that no entity defending the
matter had an obligation to pay costs pursuant to section 998 for failure to accept a
reasonable settlement offer. The effect here was that Allstate could refuse a reasonable
998 settlement offer, forcing the matter to trial with no risk of liability for statutory costs

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beyond the policy limits. On the other hand, defendant made its own 998 offer to
compromise, and had the judgment been more favorable to defendant than the offer,
Allstate would have been able to recover its litigation costs. Such asymmetry is contrary
to section 998’s language and purpose. (Scott Co. v. Blount, Inc. (1999) 20 Cal. 4th 1103,
1115.)
         Defendant’s position is completely contrary to the purpose of section 998.
“Ordinarily, if the statutory language is clear and unambiguous, there is no need for
judicial construction. [Citation.] Nonetheless, a court may determine whether the literal
meaning of a statute comports with its purpose. [Citation.] We need not follow the plain
meaning of a statute when to do so would ‘frustrate[] the manifest purposes of the
legislation as a whole or [lead] to absurd results.’ ” (California School Employees Assn.
v. Governing Board (1994) 8 Cal. 4th 333, 340.) We conclude that a narrow reading of
the term “party” under these circumstances to exclude Allstate would frustrate the
manifest purpose of section 998 and lead to absurd results. Accordingly, Allstate is a
party for the purpose of section 998.
                                              II
         Probate Code Section 554 Does Not Limit Recovery of Costs from Insurer
         Probate Code section 554, subdivision (a) provides in pertinent part: “[E]ither the
damages sought in an action under this chapter shall be within the limits and coverage of
the insurance, or recovery of damages outside the limits or coverage of the insurance
shall be waived. A judgment in favor of the plaintiff in the action is enforceable only
from the insurance coverage and not against property in the estate.” Defendant argues
this section means that the judgment is limited to the policy limits. We disagree.
         Probate Code section 554 limits the amount of damages that can be recovered to
the policy limits. It further provides that none of the judgment can be recovered from the
property of the estate. It does not provide that a plaintiff may not recover costs in excess

                                              9
of the policy limits from the insurer for failure to accept a reasonable offer of
compromise.
       Probate Code section 554 limits damages to the amount of the policy limit. But,
costs are not damages. “It is established that the right to costs is statutory and that costs
‘are allowed solely as an incident of the judgment given upon the issues in the action.
[Citation.] . . . They constitute no part of a judgment at the moment of its rendition . . . .’
[Citations.]” (Folsom v. Butte County Assn. of Governments, supra, 32 Cal.3d at p. 677.)
       Costs recoverable under section 998 are set forth in section 1033.5. They include,
inter alia, filing, motion, service, ordinary witness and jury fees. These costs are
recoverable by a prevailing party “as a matter of right” unless “otherwise expressly
provided by statute.” (§ 1032, subd. (b).) “Thus, the requirements for recovery of costs
and fees under section 998 must be read in conjunction with section 1032[, subdivision]
(b), including the requirement that section 998 costs and fees are available to the
prevailing party ‘[e]xcept as otherwise expressly provided by statute.’ (§ 1032[, subd.]
(b), italics added.)” (Murillo v. Fleetwood Enterprises, Inc. (1998) 17 Cal. 4th 985,
1000.) Probate Code sections 550 through 555 do not expressly provide that a prevailing
plaintiff is not entitled to recover costs. In addition, section 998 provides the court may
require a defendant who fails to obtain a more favorable judgment to pay postoffer costs
of the services of expert witnesses. (§ 998, subd. (d).) Consequently, Meleski is entitled
to these amounts in addition to damages as the plaintiff whose offer was not accepted by
the opposition that failed to obtain a more favorable judgment. (§ 998, subd. (d).)
       Citing Probate Code section 554, defendant argues that the judgment is
enforceable only from the insurance policy. Thus, even if costs are not damages for
purposes of Probate Code section 554, the “judgment in favor of the plaintiff in the action
is enforceable only from the insurance coverage and not against property in the estate.”
(Prob. Code, § 554, subd. (a).)

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        The important qualification of Probate Code section 554, subdivision (a) is “and
not against property in the estate.” Evidently, Probate Code sections 550 through 555 are
concerned with limiting the estate’s liability to the policy of insurance, where a plaintiff
chooses to bring a lawsuit under its provisions. The statute does not, however, limit the
liability of the insurance company litigating the matter for its failure to accept a
reasonable offer of compromise.
        The Supreme Court has similarly held that Insurance Code section 11580.2,
subdivision (p)(4), which provided that “the maximum liability of the insurer . . . shall
not exceed the insured’s . . . coverage limits” does not preclude an award of costs under
section 998 in excess of the policy limits.3 (Pilimai v. Farmers Ins. Exchange Co. (2006)
39 Cal. 4th 133, 137.) There, the plaintiff’s uninsured motorist coverage was $250,000,
but the plaintiff, after making a section 998 offer for $85,000, received an award of
damages in the amount of $556,972. (Pilimai, at p. 137.) The insured claimed he was
entitled to recover his costs based on section 998 in addition to the coverage limit.
(Pilimai, at pp. 137-138.) The Supreme Court agreed.
        The court held that the Insurance Code section’s “ ‘maximum liability’ ” provision
did not expressly provide that the costs pursuant to section 998 were not recoverable.
(Pilimai v. Farmers Ins. Exchange Co., supra, 39 Cal.4th at p. 144.) The court reasoned
that the “ ‘maximum liability’ ” provision was intended to limit the insurer’s liability
arising out of the insured’s ownership of a motor vehicle, but not to exempt the insurer
from the obligation to pay costs arising out of its behavior as a litigant. (Ibid.) This
reasoning applies to the facts before us. Even though the named defendant in this case is
the estate, the litigant is undeniably Allstate, and Allstate is responsible for its own
litigation tactics.

3   Insurance Code section 11580.2 is an uninsured/underinsured motorist provision.

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       Allstate could have protected itself from liability for costs by accepting Meleski’s
reasonable offer. By requiring Allstate to pay the amounts specified under section 998,
we are upholding the purpose of that section without offending the objective of Probate
Code sections 550 through 555 to protect the estate from obligations in excess of the
insurance policy limits.
       Because the trial court found that Meleski was the prevailing party, that her total
damage award exceeded her last offer to compromise, that she negotiated in good faith,
and that the amount of costs she requested were reasonable and appropriate, we need not
remand the matter to the trial court but will order the judgment modified.
                                      DISPOSITION
       The order denying an award of costs from Allstate is reversed, and the judgment is
modified to include an award of costs in the amount of $66,017.08 in addition to
$100,000 in damages, consistent with the views expressed in this opinion. Meleski shall
recover her costs on appeal from Allstate. (Cal. Rules of Court, rule 8.278 (a)(1), (2).)

                                                       /s/
                                                 Blease, Acting P. J.

We concur:

     /s/
Robie, J.

     /s/
Mauro, J.

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