Court Opinion

ID: 9624174
Source: CourtListenerOpinion
Date Created: 2023-08-22 06:53:17.288998+00
Date Added: 2024-06-11T18:05:40.418551
License: Public Domain

RICHARDSON, J., Concurring and Dissenting.
I concur in the judgment, but not in the majority’s analysis of the case. The majority, relying solely upon two inapposite provisions of the Insurance Code, would permit an unprecedented civil action against an insurance carrier by a third person injured through the alleged negligence of the insured. The majority finds the present action “premature,” because plaintiff has not yet established the insured’s liability. In my view, not only is the action premature, but it is squarely contrary to prior law, and accomplishes a result which is clearly violative of legislative intent.
The complaint herein alleges, among other things, that defendant Royal Globe refused “to attempt in good faith to effectuate a prompt, fair, and equitable settlement” of plaintiff’s negligence claim against the insured (Raleys, a food market chain) despite the fact that the insured’s liability to plaintiff had become “reasonably clear.” Plaintiff’s theory of recovery is that an insurance company may be held directly liable to the injured party for refusing in bad faith to settle his claim against the insured.
Only three years ago we unanimously held, in Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937 [132 Cal.Rptr. 424, 553 P.2d 584], that the *893insurer’s duty to settle runs to the insured and not to the injured party, and that, accordingly, the latter may not recover from the insurer for breach of that duty in the absence of a proper formal assignment of the insured’s cause of action. In carefully describing the relationship of insured-carrier-third-party claimant, we said in Murphy: “The duty to settle is implied in law to protect the insured from exposure to liability in excess of coverage as a result of the insurer’s gamble—on which only the insured might lose. (See Shapero v. Allstate Ins. Co. (1971) 14 Cal.App.3d 433 [92 Cal.Rptr. 244].) [If] The insurer’s duty to settle does not directly benefit the injured claimant. In fact, he usually benefits from the duty’s breach. Instead of receiving an award near policy limits, he stands to obtain judgment exceeding policy coverage. For instance, in the present case plaintiff has already received an amount equal to her highest settlement demand, holding an unsatisfied judgment for an additional $17,500. [If] The insurer’s duty to settle—running to the insured and not to the injured claimant—is also demonstrated by Shapero v. Allstate Ins. Co., supra, 14 Cal.App.3d 433. The insured died leaving no asset other than the insurance policy. Thus, a judgment in excess of policy limits presenting no risk to the insured or to his heirs, the insurer had no duty to settle within policy limits.” (Italics added, p. 941.)
The majority herein does not purport directly to disapprove Murphy. Its approach is more oblique. Instead, it depends upon the carrier’s supposed statutory duty to third persons such as plaintiff to achieve good faith settlements of claims against an insured. As will appear, however, the applicable statutory duty runs only to the insured and will not support a direct, third party action against the insurer.
The majority relies upon Insurance Code sections 790.03, subdivision (h)(5), and 790.09. The former section describes various unfair and deceptive insurance business practices, including a carrier’s frequent refusal to settle, while the latter section preserves any- preexisting civil or criminal liability which the insurer might face under other statutory or decisional law. Contrary to the majority view, neither provision creates or authorizes the direct action against the insurer by the injured party which the majority has conjured.
1. Section 790.03, Subdivision (h)
As a basis for its creation of this new cause of action, the majority seizes upon section 790.03 which lists various unfair and deceptive practices, including “(h) Knowingly committing or performing with such *894frequency as to indicate a general business practice any of the following unfair claims settlement practices: [If] . . . (5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.” (Italics added.) The majority holds that henceforth a third party such as plaintiff may directly sue the insurer to recover damages arising from a single act of refusal to settle under the foregoing section. Yet, under the clear and very express language of subdivision (h), the conduct specified therein does not become unfair or unlawful until those acts are repeated with such frequency as to constitute a “general business practice.”
The majority attempts to circumvent the plain meaning of section 790.03, subdivision (h), by purporting to find an “ambiguity” in that language. According to the majority, “The language of the subdivision is ambiguous .... It prohibits ‘Knowingly committing or performing with such frequency as to indicate a general business practice’ any of the unfair claims settlement practices set forth. It is unclear whether the words ‘with such frequency as to indicate a general business practice’ were intended to modify both the terms ‘Knowingly committing’ and ‘performing.’ ” (Ante, p. 890.)
I respectfully suggest that the majority’s analysis is erroneous in its labored attempt to find an ambiguity where none whatever exists. Under this strained interpretation, the majority reads subdivision (h) as distinguishing between acts “knowingly committed” and acts “performed,” limiting to the latter class the qualifying phrase “with such frequency” etc. In essence, the majority’s reading simply deletes the “frequency” requirement' of the act. This is strange parsing. First, it will be noted that no comma separates the words—“committing or performing,” suggesting that they are to be read together. Furthermore, the majority would split the two present participles “committing” and “performing,” applying the modifying “frequency” clause to the “performing” but not to the “committing” function. It seems obvious, however, that one could not unknowingly either “commit” or “perform” a prohibited act under the statute, thus strongly suggesting that the term “knowingly” applies to both “committing” and “performing” and that they are to be read together. Similarly, if they are to be read together for purposes of the adverb,, “knowingly,” in consistent fashion they should be read together for purposes of the “frequency” clause.
The analytical fault of the majority becomes even more glaring with its further conclusion that “. . . it is inconceivable that the Legislature *895intended that such a [third party] litigant would be required to show that the insurer committed the acts prohibited by [subd. (h)] ‘with such frequency as to indicate a general business practice.’ There would be no rational reason why an insured or a third party claimant injured by an insurer’s unfair conduct, knowingly performed, should be required to demonstrate that the insurer had frequently been guilty of the same type of misconduct involving other victims in the past.” (Ante, p. 891.) Such a contention ignores the simple, and I suggest much more accurate, explanation for the “frequency” requirement, an explanation which is neither “inconceivable” nor irrational: By adopting subdivision (h) of section 790.03, the Legislature had no intent to create any civil liability to anyone for the acts specified in that subdivision. Rather, such acts were to be considered unfair practices subject to administrative regulation and discipline and then only if committed with the requisite frequency.
Section 790.03 appears in an article denominated “Unfair Practices.” The purpose of the article is regulation of trade practices (§ 790). The proscribed acts are defined as unfair competition or unfair practices, subject to specific administrative action (§ 790.04). The remedies for these administrative infractions are clearly defined in sections 790.05-790.09. For purposes of administering the “Unfair Practices” article, the commissioner is authorized to issue reasonable rules and regulations under section 790.10.
Properly construed the section proscribes several types of conduct when they are carried out with sufficient frequency to demonstrate that they have become a general business practice. If the conduct is occasional only and has not occurred often enough to ripen into a general practice, it is not the subject of examination, investigation, order to show cause, and injunctive or cease and desist functions of the commissioner which are described in the immediately ensuing code sections commencing with section 790.04. It follows that if a single, isolated act is asserted it is not the subject of discipline. A fortiori, it is not the basis for creation of an even more onerous burden than administrative sanction, namely, a new civil cause of action in favor of each third party who may have a tort claim against the carrier’s insured.
Thus, as I amplify below, the majority’s major premise is unsound. Nothing in the Insurance Code provisions supports any theory that a bad faith refusal to settle (or any other asserted unfair practice) is either actionable by, or creates any new civil remedy in favor of, a third party. As we recently explained in Murphy, supra, California has consistently *896held that the duty to settle runs to the insured. Section 790.03, subdivision (h), creates neither a new independent duty nor civil liability which may be extended beyond the insured to third parties.
2. Section 790.09
Sensing the inadequacy of its section 790.03 argument, and looking for an alternative legal basis, the majority settles upon section 790.09. This section provides that “No order to cease and desist issued under this article directed to any person or subsequent administrative or judicial proceeding to enforce the same shall in any way relieve or absolve such person from any administrative action against the license or certificate of such person, civil liability or criminal penalty under the laws of this State arising out of the methods, acts or practices found unfair or deceptive.”
It would seem obvious that the foregoing provision was intended to preserve any civil or criminal liability already provided for under state law, rather than to create new liability thereby changing preexisting state law. Yet despite the apparently clear intent of the section the majority, in my view unconvincingly, states that “This provision [§ 790.09] appears to afford to private litigants a cause of action against insurers which commit the unfair acts or practices defined in subdivision (h).” {Ante, p. 885.) With due respect, I suggest that by the seizure of such straws the majority graphically underscores the vacuity of its argument.
If, as the majority asserts, the Legislature had intended to change the course of California law 180 degrees and thereafter to impose upon carriers civil liability to injured third persons for failing to settle claims against their insured, then surely much more direct and precise language would have been selected. Instead of merely providing that administrative proceedings under the act would not “relieve or absolve” an insurer from civil liability “under the laws of this State,” one would reasonably have expected that the Legislature simply would have directly imposed such liability in clear, understandable, unmistakable terms, as it has done in numerous other statutes.
For example, the Unfair Practices Act of 1941 (Bus. & Prof. Code, § 17000 et seq.) describes various unfair trade practices and then expressly provides that “Any person . . . may bring an action to enjoin and restrain any violation of this chapter and, in addition thereto, for the recovery of damages.” {Id., § 17070.) I find it revealing that in 1941 the Legislature was fully capable of writing an unambiguous statute creating *897civil liability for particular unfair business practices. In my view, the wide disparity in clarity of language between Insurance Code section 790.09 and Business and Professions Code section 17070 is conclusive evidence of the legislative intent to preclude third party civil actions unless and until such actions are expressly authorized. The legislative tools were at hand. They were not used.
Moreover, it is highly significant, I suggest, that the California Insurance Commissioner, who is charged with the responsibility of administering and implementing the act in question (see Ins. Code, §§ 790.04-790.10), fully supports the foregoing analysis. The commissioner’s amicus curiae brief herein explains that he has reviewed the available legislative history and has determined that the act’s framers had no intent to create a private cause of action. “Rather,” according to the commissioner, “care was taken . . . not to preclude any civil or criminal actions which might exist for the same act or practice.” The commissioner further concluded, consistent with the analysis advanced in section 1 of this dissent, that “the question of whether a civil cause of action is created by a single act [as opposed to a frequent business practice] in violation of § 790.03(h) was apparently considered by neither the insurance regulators nor the insurance industry at the time that Section was enacted. Since its enactment, the Department has consistently construed that Section to require a general business practice in order to establish a violation.” (Italics added.) Focusing on a claimed single act, the majority imposes onerous civil liability for conduct that is not even subject to administrative discipline.
As we have frequently emphasized, the contemporaneous construction of agencies charged with administering legislation is entitled to great weight. (Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 245-246 [149 Cal.Rptr. 239, 583 P.2d 1281].) Nonetheless, the majority wholly ignores this well established interpretive principle.
The majority relies primarily upon Greenberg v. Equitable Life Assur. Society (1973) 34 Cal.App.3d 994 [110 Cal.Rptr. 470], and upon two subsequent cases which have repeated its language without further analysis. Greenberg is not controlling, for that case involved a suit by the insured to recover against the insurer for its unfair practice, an illegal “tie-in” agreement. The court reviewed the language of section 790.09, and concluded without extensive discussion that the section “contemplates a private suit to impose civil liability irrespective of governmental *898action against the insurer,” and that “The fair construction is that the person to whom the civil liability runs may enforce it by án appropriate action.” (Italics added, p. 1001, fn. omitted.) In a footnote, the court explained its reasoning: “Any other construction would overturn by implication the rule of Crisci v. Security Ins. Co., 66 Cal.2d 425 . . . .” (Ibid., fn. 5.)
It thus becomes very clear that Greenberg assumed that it was necessary to construe section 790.09 as “contemplating” a private action in order to preserve the Crisci rule. In Crisci we were concerned exclusively with an insurer’s liability to the insured (i.e., “the person to whom the civil liability runs”) for a bad faith refusal to settle claims. The Crisci rule was founded on the duty included within an implied covenant of good faith and fair dealing between contracting parties. Neither Greenberg nor Crisci involved a third party action, nor did the Greenberg court even remotely suggest that such an action would be appropriate, under section 790.09 or otherwise, in a refusal-to-settle situation. Furthermore, the Greenberg analysis regarding section 790.09 is dubious in any event. No compelling reason is given for concluding that our Crisci decision, involving the carrier’s liability to the insured, would be affected in any way by holding that section 790.09 preserves, but does not create, new civil liability for the single commission of an act falling within the unfair practices described in the section.
In conclusion, neither the statutory nor decisional law supports the majority’s holding herein. It seems predictable that in almost every case in which an insurer hereafter declines a settlement offer the injured third party claimant will be tempted to file an independent action against the carrier despite the clear admonition in our recent unanimous Murphy decision that the insurer’s duty to settle runs to the insured and not to the injured party.
The gratuitous creation of such a new remedy is wholly inconsistent both with our own firmly established California precedent, and with a fair and reasoned analysis of the applicable legislation.
For all the foregoing reasons, I would grant the peremptory writ.
Clark, J., and Manuel, J., concurred.
Petitioner’s application for a rehearing was denied May 16, 1979. Clark, J., Richardson, J., and Manuel, J., were of the opinion that the application should be granted.