Opinion
No. CV 00-7856 FMC (Mcx)
May 21, 2001
ATTORNEY PRESENT FOR PLAINTIFFS: William A. Daniels.
ATTORNEY PRESENT FOR DEFENDANTS: Peter H. Klee.
ORDER GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT
This matter is before the Court on Defendant's Motion for Partial Summary Judgment filed on April 27, 2001. For the reasons stated below, Defendant's Motion is hereby GRANTED.
I. Undisputed Facts
The facts necessary to resolve Defendant's Motion for Partial Summary Judgment are undisputed: On March 8, 1998, Plaintiff was involved in an automobile accident with an uninsured motorist. At the time, he was insured through Allstate Insurance Company. Plaintiff demanded arbitration of his uninsured-motorist claim. About one month prior to arbitration, Plaintiff demanded that Allstate pay him $65,000 to settle his claim. The arbitrator awarded Plaintiff $100,000 (the policy limits) less $5,813 previously paid by Allstate for Plaintiffs medical expenses. Allstate paid the arbitration award in full.
Defendant contends that Plaintiff cannot maintain a cause of action for breach of the covenant of good faith and fair dealing, because he sustained no economic loss as a result of Defendant's conduct. The following additional facts are relevant to this issue: Plaintiffs obligation to compensate his attorney, under the terms of his contingency-fee agreement, increased from 30% of his recovery to 35% of his recovery, (an additional $4,709) because he went to arbitration, and Plaintiff paid $835 in arbitration-related costs. Plaintiff argues that these sums, as well as the loss of the use of the funds, satisfies the "economic loss" element of a bad-faith cause of action.
II. Summary Judgment Standard
Summary judgment is proper only where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. Rule Civ. Pro. 56(c); see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Whether a fact is material is determined by looking to the governing substantive law; if the fact may affect the outcome, it is material. Id. at 248, 106 S.Ct. 2505.
If the moving party meets its initial burden, the "adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). Mere disagreement or the bald assertion that a genuine issue of material fact exists does not preclude the use of summary judgment. Harper v. Wallingford, 877 F.2d 728 (9th Cir. 1989).
The Court construes all evidence and reasonable inferences drawn therefrom in favor of the non-moving party. Anderson, 477 U.S. at 255; Brookside Assocs. v. Rifkin, 49 F.3d 490, 492-93 (9th Cir. 1995).
III. Analysis
Analysis of this issue requires an understanding of the rationale for the rule. In 1967, the California Supreme Court held, in Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, that rejection of a reasonable settlement offer subjects a carrier to liability for a judgment in excess of the policy limits and further held: "We are satisfied that a plaintiff who as a result of a defendant's tortious conduct loses his property and suffers mental distress may recover not only for the pecuniary loss but also for his mental distress." Id. at 433-434 (Italics added).
In Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 579, the California Supreme Court reiterated the foregoing rule: "We conclude, therefore, that since [the insured] has alleged substantial damages for loss of property apart from damages for mental distress, the complaint is sufficiently pleaded with respect to the latter element of damages."
In Gourley v. State Farm Mut. Auto Ins. Co. (1991) 53 Cal.3d 121, 123, the Court explained that prejudgment interest under Civil Code § 3291 is "not available in insurance bad faith actions because such actions are brought primarily to recover economic loss caused by the tortious interference with a property right, and any damages recovered for actual personal injury, including emotional distress, are incidental to the award of economic damages." The Gourley court later observed: . . . ". . . both Crisci and Gruenberg emphasize that the nature of an insurance bad faith action is one seeking recovery of a property right, not personal injury." Id. at 127. At page 128, the court "recognized that the bad faith action is not a suit for personal injury, but rather `relates to financial damages.'" Finally, the Court cited Richardson v. Allstate Ins. Co. (1981) 117 Cal.App.3d 8, 12, for the rule that bad-faith actions are not limited by the one-year statute applied to infringements of personal rights, but rather the two-year statute, because such actions are based on the infringement of property rights. "Breach of the implied covenant of good faith is actionable because such conduct causes financial loss to the insured, and it is the financial loss or risk of financial loss which defines the cause of action. Mental distress is compensable as an aggravation of the financial damages, not as a separate cause of action. [citation]" Gourley v. State Farm Mut. Auto Ins. Co., 53 Cal.3d. At 128-9
To the same effect, see Waters v. United Services Auto. Assn. (1996) 41 Cal.App.4th 1063; Maxwell v. Fire Ins. Exchange (1998) 60 Cal.App.4th 1446; Continental Ins. Co. v. Superior Court (1995) 37 Cal.App.4th 69.
Two fundamental principles emerge from a reading of these cases: first, the cause of action is one grounded in property loss, not personal injury; and second, the plaintiff must demonstrate financial loss. The Court finds it significant that the cases do not hold that a plaintiff must have experienced some out-of-pocket expenditure, or must have incurred a liability. The cases require a loss.
Plaintiff cannot here meet that requirement. Had Defendant accepted his highest settlement demand, Plaintiff would have obtained a net recovery of $39,340 ($65,000 less $19,500 in fees, $103 in costs and $5,057 in medical expenses). Plaintiffs net recovery after the arbitration was $55,226. Even considering interest that could have been earned on his settlement award, Plaintiff did not incur financial loss as a result of Defendant's refusal to settle the case. Accordingly, summary judgment in favor of Defendant as to Plaintiffs first cause of action is appropriate.
IV. Conclusion
For the reasons stated herein, the Court hereby GRANTS Defendant's Motion for Partial Summary Judgment and hereby DISMISSES WITH PREJUDICE Plaintiffs first cause of action for breach of the covenant of good faith and fair dealing.