Court Opinion

ID: 9721064
Source: CourtListenerOpinion
Date Created: 2023-08-26 08:47:41.665436+00
Date Added: 2024-06-11T18:24:22.200929
License: Public Domain

MORRIS, P. J., Concurring and Dissenting.
I agree with the majority that there is substantial evidence to support the award of punitive damages and that the damages awarded for emotional distress should be stricken. However, I respectfully dissent from that portion of the majority opinion which strikes the damages awarded for attorney’s fees. Ignoring one statute and misapplying another, the majority frustrates the very purpose of tort law—compensation.
The pertinent rule on the issue of attorney’s fees in this case is that, “[f]or the breach of an obligation not arising from contract, the measure of damages, ... is the amount which will compensate for all the detriment proximately caused thereby, ...” (Civ. Code, § 3333.) The attorney’s fees incurred by plaintiffs in recovering the benefits due under the insurance policies was “detriment proximately caused” by defendant’s tortious conduct and plaintiffs should be compensated for those attorney’s fees. The general rule of section 1021 of the Code of Civil Procedure, that attorney’s fees are not recoverable absent statutory authorization or agreement between the parties, does not require a contrary conclusion. Like the insurance company in Mustachio v. Ohio Farmers Ins. Co. (1975) 44 Cal.App.3d 358 [118 Cal.Rptr. 581], the majority’s “reliance on the general rule misinterprets the nature of this action.” (Id., at p. 363.)
It is well settled that if an insurer, in discharging its contractual responsibilities, “fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss cov*420ered 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.” (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 574 [108 Cal.Rptr. 480, 510 P.2d 1032], original italics.) When such a breach occurs, the insurer is “liable for any damages which are the proximate result of that breach.” (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 925 [148 Cal.Rptr. 389, 582 P.2d 980].)
In the present case, there is no dispute that defendant is liable in tort for its bad faith refusal to pay plaintiffs for expenses covered by the policies. It is equally clear that defendant’s breach of its duty to deal fairly and in good faith caused plaintiffs to incur legal expenses. If defendant had timely paid Austero’s claims, plaintiffs would have had no reason to seek the assistance of an attorney. Instead, plaintiffs were forced to retain attorneys to obtain the benefits under the policies. Defendant did not pay the policy benefits until after the jury returned an unfavorable verdict in the second trial of this action.1 These facts lead to the same conclusion reached by Justice Kaus writing for a unanimous court in Mustachio, “If the insurer, instead of bargaining with the insured in good faith, tortiously violates its covenant of good faith and fair dealing and thereby makes it reasonable for the insured to seek the protection of counsel, plain justice [and, I would add, Civ. Code, § 3333] demands that the insurer be financially responsible for an expense which but for its tortious conduct would not have been incurred.” (44 Cal.App.3d, at p. 364.)
The majority’s reliance on Code of Civil Procedure section 1021 and cases interpreting that section is misplaced. Section 1021 leaves to the agreement of the parties “the measure and mode of compensation of attorneys.” However, here, as in the third party tort situation, “we are not dealing with ‘the measure and mode of compensation of attorneys’ but with damages wrongfully caused by defendant’s improper actions.” (Prentice v. North Amer. Title Guar. Corp. (1963) 59 Cal.2d 618, 621 [30 Cal.Rptr. 821, 381 P.2d 645].) The majority recognizes that in the third party tort context, “the attorney fees incurred in litigating with the third person are recoverable as damages, like any other damages, in the action against the wrongdoer. [Citations.] In such cases there is no recovery of attorney fees qua attorney fees.” (Majority opn., ante, *421p. 412.) The majority fails to realize that the same is true of the attorney’s fees that were recovered in the instant action.
When a pedestrian is struck by a car, he goes to a physician for treatment of his injuries, ánd the motorist, if liable in tort, must pay the pedestrian’s medical fees. Similarly, in the present case, an insurance company’s refusal to pay benefits has required the insured to seek the services of an attorney to obtain those benefits, and the insurer, because its conduct was tortious, should pay the insured’s legal fees.
What seems to confuse the majority is that the plaintiffs are attempting to recover attorney’s fees in the same action in which the fees were incurred. But, although this circumstance would preclude the recovery of attorney’s fees in most cases, it should not operate as a bar in this case. Uncommonly, the present action has two distinct parts; indeed it should be viewed as two separate suits. Viewed in this manner, the dichotomy is clear. In the first suit, plaintiffs seek benefits due them under the insurance policies, while in the second suit, they seek to recover damages proximately caused by defendant’s tortious conduct. The jury awarded as damages in the second suit those attorney’s fees incurred in the prosecution of the first. No attorney’s fees have been sought or awarded in either suit for prosecution of that very suit. Nor could they, for it is that type of attorney’s fees award that is proscribed by Code of Civil Procedure section 1021.
The dual nature of the present action distinguishes this case from the Lowell, Patterson, and Carroll2 cases and explains why those cases are improperly relied on by the majority and by Twentieth Century-Fox Film Corp. v. Harbor Ins. Co. (1978) 85 Cal.App.3d 105 [149 Cal.Rptr. 313]. Lowell, Patterson, and Carroll were not bad faith cases. The plaintiffs’ entire actions there were comparable only to the first part of the present action, i.e., for benefits due under insurance policies. In none of those cases was any allegation of bad faith made, which is the gravamen of the second part of the present action. Thus, plaintiffs in Lowell, Patterson, and Carroll sought attorney’s fees in an action for prosecution of that very action, or, as the majority states it, attorney’s fees qua attorney’s fees. Plaintiffs here, however, seek recovery of attor*422ney’s fees as damages, like any other damages, proximately caused by defendant’s breach of its duty to deal in good faith.
By relying on Lowell, Patterson, and Carroll in the present case, the majority blurs the distinction between bad faith conduct and nontortious but erroneous withholding of benefits, a distinction that this court has scrupulously attempted to preserve in the past. We have clearly stated that an erroneous interpretation of an insurance contract by an insurer does not necessarily make the insurer liable in tort for violating the covenant of good faith and fair dealing; to be liable in tort, the insurer’s conduct must also have been unreasonable.3 (Blake v. Aetna Life Ins. Co. (1979) 99 Cal.App.3d 901, 918 [160 Cal.Rptr. 528]; Austero v. National Cas. Co. (1978) 84 Cal.App.3d 1 [148 Cal.Rptr. 653], disapproved on other grounds in Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 824, fn. 7 [169 Cal.Rptr. 691, 620 P.2d 141].) When no bad faith has been alleged and proved, Lowell, Patterson, and Carroll preclude the award of attorney’s fees incurred in obtaining benefits that the insurer erroneously, but in good faith, withheld from the insured. However, when the insurer’s conduct is unreasonable, a plaintiff is allowed to recover for all detriment proximately resulting from the insurer’s bad faith, which detriment Mustachio has correctly held includes those attorney’s fees that were incurred to obtain the policy benefits and that would not have been incurred but for the insurer’s tortious conduct.
To the extent that the majority attempts to distinguish this case from Mustachio, the distinction is artificial. The only difference is that the insured’s attorney was able to recover the benefits due under the policy by way of settlement in Mustachio, while here plaintiffs’ lawyers were unable to recover the benefits without resorting to litigation. But, in both cases, the plaintiff is seeking recovery of those attorney’s fees incurred in obtaining policy benefits which were tortiously withheld by the insurer. Whether or not litigation is required to obtain those benefits should not be material. Nor should it be of significance that the policy benefits are recovered in the same litigation that also adjudicates the plaintiffs’ allegation of bad faith conduct on the part of the insurer.
In short, I believe that the correct law for this case was that which was recently summarized in Biundo v. Old Equity Life Ins. Co. (9th *423Cir. 1981) 662 F.2d 1297, 1299, “Under California law, an insurer who wrongly refuses to pay a claim must compensate the insured for all damages caused by the refusal. When that refusal forces the insured to litigate when he ought not to have been required to go to court, necessary and reasonable counsel fees are part of his compensatory damages. Mustachio v. Ohio Farmers Insurance Co., supra, 44 Cal.App.3d 358, 364, 118 Cal.Rptr. 581, 584 (1975); Dinkins v. American National Insurance Co., 92 Cal.App.3d 222, 234-35, 154 Cal.Rptr. 775, 782-83 (1979); Leslie Salt Co. v. St. Paul Mercury Insurance Co., 637 F.2d 657, 662 (9th Cir. 1981). However, recovery of counsel fees may not exceed the amount attributable to the attorney’s efforts to obtain the rejected payment due on the insurance contract. The insured may not collect attorney’s fees incurred in pursuit of a bad faith claim or a claim for other damages. ‘California [cjases ... foreclose an award of [attorney’s fees] for legal services attributable to any portion of plaintiff’s recovery which exceeds the amount due under the policy.’ Leslie Salt, supra, 637 F.2d at 662, quoting Dinkins, supra.”
I would affirm the award of attorney’s fees.
A petition for a rehearing was denied June 23, 1982, and respondents’ petition for a hearing by the Supreme Court was denied August 4, 1982. Bird, C. J, Mosk, J., and Broussard, J., were of the opinion that the petition should be granted.

It is not without significance that the insurance company’s bad faith conduct forced plaintiffs to incur $200,000 in attorney’s fees in order to collect the less than $25,000 in policy benefits that was owed them.

Lowell v. Maryland Casualty Co. (1966) 65 Cal.2d 298 [54 Cal.Rptr. 116, 419 P.2d 180]; Patterson v. Insurance Co. of North America (1970) 6 Cal.App.3d 310 [85 Cal.Rptr. 665]; Carroll v. Hanover Insurance Co. (1968) 266 Cal.App.2d 47 [71 Cal.Rptr. 868].

Indeed, the failure of the jury instructions to distinguish between an erroneous denial of coverage and unreasonable conduct is the very reason that we reversed the judgment in the first trial of this case.