Opinion
2-17-1958
Anthony J. COMUNALE, Plaintiff and Appellant, v. TRADERS & GENERAL INSURANCE COMPANY, a corporation, Defendant and Respondent. * Civ. 22343.
Newlin, Tackabury & Johnston and Frank R. Johnston, Los Angeles, for appellant. W. P. Smith and Henry F. Walker, Los Angeles, for respondent.
Anthony J. COMUNALE, Plaintiff and Appellant,
v.
TRADERS & GENERAL INSURANCE COMPANY, a corporation, Defendant and Respondent.
Newlin, Tackabury & Johnston and Frank R. Johnston, Los Angeles, for appellant.
W. P. Smith and Henry F. Walker, Los Angeles, for respondent.
VALLEE, Justice.
Appeal from a judgment for defendant, referred to as Traders, notwithstanding the verdict.
The principal question to be decided is whether an insurance company which denied coverage when there was coverage, refused to defend its insured and declined to consider an offer of settlement, is liable to the assignee of the insured for damages sustained in excess of the policy limit. There are other subsidiary questions.
In June 1947 Traders issued its automobile liability policy to Felie Sloan. The term of the policy was from July 9, 1947 to July 9, 1948. Germane provisions of the policy are these: 'Item 3. The insurance afforded is only with respect to such and so many of the following coverages as are indicated by specific premium charge or charges. The limit of each company's liability against each such coverage shall be as stated herein, subject to all the terms of this policy having reference thereto. 'Coverages. A. Bodily Injury Liability. Limits of Liability $10,000.00 each person $20,000.00 each accident.' 'Insuring Agreements 'I Coverage A--Bodily Injury Liability 'To pay on behalf of the insured all sums which the insured shall become obligated to pay by reason of the liability imposed upon him by law for damages, including damages for care and loss of services, because of bodily injury, including death at any time resulting therefrom, sustained by any person or persons, caused by accident and arising out of the ownership, maintenance or use of the automobile.' 'II Defense, Settlement, Supplementary Payments 'As respects such insurance as is afforded by the other terms of this policy '(a) under coverages A and B the company shall '1. defend in his name and behalf any suit against the insured alleging such injury or destruction and seeking damages on account thereof; even if such suit is groundless, false or fraudulent; but the company shall have the right to make such investigation, negotiation and settlement of any claim or suit as may be deemed expedient by the company; * * * 'The company agrees to pay the amounts incurred under this insuring agreement, except settlements of claims and suits, in addition to the applicable limit of liability of this policy.' 'Conditions * * * '3. Limits of Liability--Coverage A. The limit of bodily injury liability stated in the declarations as applicable to 'each person' is the limit of the company's liability for all damages, including damages for care and loss of services, arising out of bodily injury, including death at any time resulting therefrom, sustained by one person in any one accident; the limit of such liability stated in the declarations as applicable to 'each accident' is, subject to the above provision respecting each person, the total limit of the company's liability for all damages, including damages for care and loss of services, arising out of bodily injury, including death at any time resulting therefrom, sustained by two or more persons in any one accident.' 'The insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense other than for such immediate medical and surgical relief to others as shall be imperative at the time of accident.'
The same coverage existed under the policy in favor of Percy Sloan, husband of Felie Sloan, as that of his wife.
On March 27, 1948 Percy Sloan, while driving his brother John's truck to his aunt's home for a social visit, struck Anthony Comunale and Carmela Comunale who were crossing Olympic Boulevard in a marked crosswalk on foot. Anthony Comunale was severely injured.
On March 29, 1948 Percy Sloan telephoned Frank Sloan, Traders' duly appointed and authorized agent (who is not related to Felie or Percy Sloan), through whom he had purchased the policy, and told him the facts about the accident. He asked Frank if he was covered. Frank told him that since he was driving someone else's truck he was not covered and that Traders was not responsible under the policy. Frank for some time.
On November 1948 the Comunales filed
In November 1948 the Comunales filed suit against Percy Sloan. On February 3, 1950 Mr. Leppek, attorney for Percy Sloan, tendered the defense of the accident to Traders, informing if of the trial date. On February 8, 1950 Mr. Leppek delivered copies of the complaint and answer in the action to Traders. Traders requested its local counsel to secure time for investigation, and on February 14, 1950 its local counsel advised it that Mr. Leppek had agreed to let the case go 'off calendar.' On February 24 Traders decided to deny coverage and to refuse to take any part in the defense of the action. On May 15, 1950 Mr. Leppek again tendered the defense of the action to Traders. On May 18, 1950 defendant advised Mr. Leppek there was no coverage for the accident in question; that Percy Sloan had not complied with the terms of the policy by giving immediate notice of the accident; and that it declined to defend or to pay any expense of the defense or to pay any judgment that might be rendered.
Mr. Allport was substituted for Mr. Leppek as attorney for Percy Sloan and conducted the defense at the trial which began on June 7, 1950. During the trial Mr. Allport informed Traders' local counsel the plaintiffs in the personal injury action would accept $4,000 in settlement of the case. Traders declined to consider the offer of compromise which was within the policy limit.
Anthony Comunale recovered judgment in the personal injury action against Percy Sloan in the amount of $25,000. The judgment became final. Comunale, pursuant to the provisions of the policy and section 11580(b)(2) of the Insurance Code, then brought suit against Traders for the policy limit for bodily injuries of $10,000. He recovered judgment against Traders in the amount prayed. The court in that action found that Percy Sloan was covered and protected by the policy with respect to his liability arising out of the accident. The judgment was affirmed on appeal. Comunale v. Traders & General Ins. Co., 116 Cal.App.2d 198, 253 P.2d 495. Traders paid the amount of the judgment in that action. The judgment in favor of Comunale in the personal injury action was thus left unsatisfied to the extent of the difference between the amount paid by Traders and the total amount of the judgment which--in May 1954, with interest--was $19,198. In a second cause of action it was sought to recover $800 as the reasonable amount of attorneys' fees incurred in the defense of the original action. Under stipulation entered into at the opening of the trial this amount was paid by Traders. Percy Sloan's rights under the policy were assigned to Anthony Comunale, who then brought this action against Traders for the excess above the policy limit.
The jury rendered a verdict in favor of plaintiff in the amount prayed for. On motion of Traders the court rendered judgment notwithstanding the verdict that plaintiff take nothing and that Traders have judgment for its costs. Plaintiff appeals.
The assignments of error are: 1. Having breached its contract by refusing to defend, and having declined to consider the offer of compromise, Traders is liable for the amount of the judgment in the personal injury action in excess of the bodily injury limit of the policy. 2. The court erred in granting the motion for judgment notwithstanding the verdict. Traders contends: 1. The action is ex delicto in nature. 2. The claim sued on was not assignable. 3. If the action is in contract, the provisions of the policy with respect to assignment were not complied with. 4. The action is barred by the statute of limitations. 5. The mere failure or refusal to defend the bodily injury action does not impose on an insurer a liability in excess of the policy limit for or on account of an award in excess of the policy limit for such bodily injury damage. 6. There was no proof of bad faith or negligence. 7. There was no proof of damage.
The action is in contract. The refusal to defend constitutes a breach of contract. Traders argues that the covenant to defend is not severable from the agreement to indemnify. We deem this construction of the policy entirely untenable. The understanding of an ordinary person is the standard used in construing a contract of insurance, and any ambiguity in the language must be resolved against the insurer. Construing a similar policy in Financial Indemnity Co. v. Colonial Ins. Co., 132 Cal.App.2d 207, at page 210, 281 P.2d 883, at page 885, the court stated: '[T]he duty to defend was an absolute one by each insurer and is severable and independent of the undertaking for payment of damages. (See 3 Richards on Insurance, 5th ed., § 421, p. 1390.) * * * '[132 Cal.App.2d at page 211, 281 P.2d at page 885.] * * * [T]he agreement to defend is not only completely independent of and severable from the indemnity provisions of the policy, but is completely different. Indemnity contemplates merely the payment of money. The agreement to defend contemplates the rendering of services. The insurer must investigate, and conduct the defense, and may if it deems it expedient, negotiate and make a settlement of the suit.'
In Grand Union Co. v. General Accident, etc., Assur. Corp., 254 App.Div. 274, 4 N.Y.S.2d 704, affirmed 279 N.Y. 638, 18 N.E.2d 38, the insurer refused to defend the personal injury action on the ground there was no coverage. The court stated (4 N.Y.S.2d 711): 'The accident being within the coverage defendant was obligated to defend and having refused to do so is liable to plaintiff for damages caused by its failure to defend. In considering the quantum of damages it must be kept in mind that plaintiff's right of action herein is not founded on defendant's agreement to indemnify nor on its additional agreement to pay the costs taxed against plaintiff in actions defended by the insured. Plaintiff here is suing for defendant's breach of an entirely separate agreement, viz., the express covenant to defend.'
'The principle that 'the duty to defend is broader than the duty to pay' is now beyond cavil.' The agreement to defend is not a covenant subordinate to or dependent on the agreement to indemify; it is distinct from, different from, independent of, and broader than the insurer's promise to pay on behalf of the insured all sums which the insured shall become obligated to pay by reason of the liability imposed upon him by law for damages because of bodily injury. There is no language in the policy making the defense covenant dependent on the amount of liability for bodily injury. The defense covenant is clear, positive, and unambiguous, and should be accorded its plain and ordinary meaning.
The contention that the cause of action sued on is not assignable cannot be sustained. In the recent case of Brown v. Guarantee Ins. Co., 155 Cal.App.2d 679, 319 P.2d 69, it was expressly held that an insured's cause of action against his insurer for its wrongful refusal to accept a compromise offer to settle an automobile accident personal injury claim against the insured is assignable. Traders claims this provision of the policy controls, 'Assignment of interest under this policy shall not bind the company until its consent is endorsed hereon; * * *', and that no such consent was ever given or had. Appleman says, 'after a loss has occurred and rights under the policy have accurred an assignment may be made without the consent of the insurer, even though the policy prohibits assignments. Under such circumstances, the assignment of a right under the policy is not regarded as a transfer of the policy itself, but rather of a chose in action. This rule has been set forth and followed in cases involving * * * automoble liability insurance.' Southwestern Bell Tel. Co. v. Ocean Acc. & Guar. Corp., D.C., 22 F.Supp. 686, 687, says it is uniformly ruled that a right of action arising out of a contract may generally be assigned; and holds that a provision in a policy against assignment does not apply to assignment after loss, and a specific provision against such assignment is null and void as inconsistent with the covenant of indemity and contrary to public policy.
Traders' contention that the action is barred by the statute of limitations is without merit. The policy provides that no action shall lie against Traders until the amount of the insured's obligation to pay shall have been finally determined against the insured after actual trial. There is no liability under the policy until a final judgment is recovered against the insured. Linkenhoger v. American Fid. & Cas. Co., 152 Tex. 534, 260 S.W.2d 884, holds that the statute of limitations begins to run as of the date the judgment against the insured becomes final. The judgment in the personal injury action became final on August 13 or 14, 1950. The cause of action did not accrue until that date. The complaint in the present action was filed May 28, 1954, within four years from the date the cause of action accrued. An action on any contract, obligation, or liability founded on an instrument in writing may be commenced within four years after the cause of action shall have accrued. The action is not barred by the statute of limitations.
The principal question is: When the insurer refuses to undertake the defense of an action brought against the insured and explicitly bases its refusal on the ground that the claim on which the action is based is not within the coverage of the policy, what is the legal effect of its refusal to defend when in fact the claim is within the coverage of the policy?
The obligation of a liability insurer to defend an action brought against the insured by a third party is to be determined by the allegations of the complaint in the action. If there is potentially a case within the policy coverage under the negligence complaint, it is the duty of the insurer to defend. The complaint in the personal injury action against Percy Sloan clearly showed a claim within the coverage of the policy. Traders was obligated to defend, regardless of its ultimate liability.
'When the company accepted the premium charged for the policy, it impliedly undertook to use this control and management [of any suit that might be brought against the insured for any claim that would show liability on the part of the insurer] for the mutual benefit of the parties to the contract. Their relations became mutually fiduciary; and each owed the other the duty of the utmost good faith in their dealings together, and in exercising the privileges and discharging the duties specified in and incident to the policy contract.'
It is held that the positive obligations of the insurer created by its unjustified refusal to defend are: 1. Liability for the amount of the judgment rendered against the insured or of the settlement made by him. 2. Liability for the expenses incurred by the insured in defending the suit. 3. Liability for any additional damage traceable to its refusal to defend. If the insurer desires to show that the claim against the insured is based on facts excluded from the policy coverage, and under those circumstances refuses to defend and decides to await the determination of its obligation in a later suit against it, it does so at its peril; and if it guesses wrong, it must bear the legal consequences of its breach of contract.
The mere rejection of an offer of compromise within the policy limitdoes not render the insurer liable for the amount of a judgment in excess of the policy limit. The decisions split on the question whether the insured's obligation is to act in good faith in considering such an offer or whether it is required to exercise due care only and is liable for the negligent rejection of the compromise. The majority of the courts follow the former rule--good faith. In Brown v. Guarantee Ins. Co., 155 Cal.App.2d 679, 319 P.2d 69, it was held that the good faith rule is applicable in this state.
'The mere rejection of a settlement offer does not suffice to save the insurer harmless, nor is it sufficient to show that the insurer, in rejecting a settlement offer, had no evil purposes. Negative elements do not meet the demands of good faith. A decision by one who is ignorant of the controlling facts is worthless. Only a decision made by one who exercised due diligence in apprising himself of the material facts is entitled to respect as made in good faith.'
'The phrase 'good faith' in common usage has a well-defined and generally understood meaning, being ordinarily used to describe that state of mind denoting honesty of purpose, freedom from intention to defraud, and, generally speaking, means being faithful to one's duty or obligation.' 'When a liability insurance company by the terms of its policy obtains from the insured a power, irrevocable during the continuance of its liability under the policy, to determine whether an offer of compromise of a claim shall be accepted or rejected, it creates a fiduciary relationship between it and the insured with the resulting duties that grow out of such a relationship. Under policies like those here involved, the insurer and the insured owe to each other the duty to exercise the utmost good faith. While the insurance company, in determining whether to accept or reject an offer of compromise, may properly give consideration to its own interests, it must, in good faith, give at least equal consideration to the interests of the insured and if it fails so to do it acts in bad faith.'
The decisions which follow the good faith rule seem to agree that the insurer's negligence is a relevant consideration in determining whether the insurer exercised the requisite good faith. The fact that the evidence as to liability and damages was strongly against the insured in the personal injury action and that a recovery might be had in excess of the insurer's liability is an element to be considered as indicative of a want of good faith. The fact that the insurer failed to investigate the claim properly so as to be able to assess the probabilities intelligently is an element to be considered as indicative of a want of good faith.
The refusal of the insurer to defend an action based on a claim actually within the coverage of the policy because of its erroneous assumption that such claim is outside policy coverage, even though based on an honest mistake of the insurer, constitutes an unjustified refusal and a breach of contract which renders it liable to the insured for all damages resulting to him as a result of such breach. The author of an annotation in 49 A.L.R.2d 711 says all the cases agree that this is the law. In Brown v. Guarantee Ins. Co., 155 Cal.App.2d 679, 319 P.2d 69, 74, the court stated: 'An action for wrongful refusal to settle is to be distinguished from one for wrongful failure to defend the action against the insured, where mere negligence is held sufficient to justify recovery. [Citation.] The insurer's duty to defend any action against the insured is clearly expressed in the insurance policy, whereas the policy provision concerning settlement by the insurer is usually permissive in form. The mandatory duty to defend justifies the implication of a requirement that the insurer exercise ordinary care in conducting such defense.' While these statements were dicta in that case, they are correct statements of the law and in accord with the great weight of authority. A fortiori, a recovery may be had against the insurer by a third party over the amount payable under the policy where the insurer has not acted in good faith in connection with its contract to defend. The normal recovery where the insurer's actionable bad faith is established and an excess judgment is recovered is the amount for which the insured becomes charged in excess of his policy coverage. The damage proximately caused by Traders' breach of its contract is not measured by the policy limit. The measure of damages for the breach of an obligation arising from contract 'is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.' The detriment proximately caused by Traders' breach of its contract by refusing to defend is the excess of the judgment in the personal injury action above the policy limit. These damages are clearly ascertainable in both their nature and origin.
It is well settled that one of the obligations created by the insurer's unjustified refusal to defend an action against the insured on the ground the claim is outside policy coverage, is to pay the insured all the expenses he incurred in making such defense himself. Such expenses may include attorney's fees, court costs, witness' and stenographer's fees, costs of appeal and appeal bonds, and investigation expenses. Traders concedes that 'if the reasonable expenses of the insured in defending the accident action (after insurer breached its contract by refusal to defend) exceeds the policy limits for bodily injury damage, the insured is entitled to recover the same.' We see no difference in principle between the reasonable expenses of the insured in defending the accident action which exceed the policy limit and the excess of the judgment in the accident action above the policy limit.
The policy limit of bodily injury liability in the present case is $10,000. This is not a limit of Traders' liability for breach of the covenant to defend. The damages sought in this action are not bodily injury damages nor do they arise out of bodily injury. They are damages proximately caused by Traders' refusal to defend and to compromise.
Traders says the good faith rule requires that the insurer actually has taken over the complete control of the defense of the personal injury action; and where this is lacking, the insurer cannot be held beyond the policy limit. It would be an anomalous situation if the law permitted an insurer, at the expense of the insured, to secure a more favorable position by a complete denial of coverage and a refusal to consider an offer of compromise rather than by assuming the defense and in bad faith rejecting an offer of compromise. Traders will not be permitted to profit by its own wrong.
Traders argues that Percy Sloan must pay the excess over the policy coverage as a condition precedent to recovering damages resulting from its refusal to defend and its refusal to consider the offer of compromise. This point needs no discussion. It was decided contrary to Traders' contention in Brown v. Guarantee Ins. Co., 155 Cal.App.2d 679, 319 P.2d 69. No purpose would be served in repeating what is said in that opinion.
It seems necessary to repeat the rule governing the granting of a judgment notwithstanding the verdict. The rule does not seem to have acquired any degree of authority from its repetition--it tends to be forgotten. It is axiomatic that neither the trial court nor the reviewing court may weigh the evidence or judge the credibility of the witnesses. 'A defendant's motion for judgment notwithstanding the verdict '* * * may properly be granted only when, disregarding conflicting evidence and indulging in every legitimate inference which may be drawn from plaintiff's evidence, the result is a determination that there is no evidence sufficiently substantial to support the verdict.'' Viewing the evidence in the light most favorable to plaintiff, disregarding all conflicts and inconsistencies, we are of the opinion the record is permeated with evidence from which the jury could conclude that Traders did not exercise good faith toward its insured in refusing to assume the defense of the personal injury action and in declining to consider the offer of compromise.
The defense of the personal injury action was tendered to Traders in ample time for it to make a complete investigation before trial. Relying on the statement of Traders' agent that he was not covered and that it was not necessary to take any further steps, Percy Sloan did not produce the policy for his attorney's inspection until February 3, 1950. The statement to Traders' agent was in strict compliance with the policy. On February 3 Mr. Leppek, counsel for Percy Sloan, by letter told Traders the Comunales claimed very serious injuries; Percy Sloan had informed its agent of the accident and had been told by the agent he was not covered under the policy and that it was not necessary for him to take any further steps; that the case was set for trial for February 15, 1950; up to that time Percy Sloan had relied on the agent's statements; that he (Mr. Leppek) had read the policy and in his opinion there was coverage; and he tendered the defense of the action to Traders. Mr. Leppek further stated he was willing to substitute any attorney Traders chose; the Comunales' attorneys had not been informed of the policy; and 'If you refuse to defend this action we will, in the event of a judgment against us, look to you for reembursement [sic] of any judgment, costs and expenses.' On February 8, 1950 Mr. Leppek delivered to one of Traders' adjusters two copies of the complaint and two copies of the answer of Percy Sloan in the personal injury action. The complaint showed the severity and seriousness of Mr. Comunale's injuries and on its face it was the duty of Traders to defend. Mr. Leppek had investigated the circumstances surrounding the accident including the place where it occurred, caused photographs to be made of the scene, secured the names of witnesses, interviewed them and prepared statements of the interviews. He tendered all of this material to Traders. Between February 8 and 14, 1950, Mr. Leppek told Traders' local counsel that paragraph V of the policy provided coverage. On February 14, 1950 he sent Traders' local counsel a copy of a stipulation in which it was agreed between counsel for the plaintiffs in the personal injury action and himself that the case go off calendar. On February 14 its local counsel wrote Traders, 'The interpretation of this policy is puzzling to me,' and 'The whole thing sounds screwy to me but I must confess that the language of Paragraph V above quoted looks very much like we may be stuck for our defense and coverage of Percy Sloan on this accident.' Traders completely disregarded this advice. On February 24, 1950 the manager of Traders' claims department wrote its local counsel that 'it is the general concensus [sic] of opinion that since we feel so definitely that we have no coverage for this accident and resulting claims, we should refuse to take and part in the defense of this lawsuit. Percy Sloan is represented by attorneys and it seems that the case will be defended and a default judgment will not be permitted. We think, therefore, that we can safely refuse to take any part in this suit and assert our policy defenses if and when we are sued on the policy.' On the same day the claims manager sent a communication to Traders' reinsurer in which he said that 'Percy Sloan struck and severely injured two pedestrians who were crossing in a designated crosswalk. We do not have any medical information but the allegations indicate serious injuries. The accident was reported to out agent two or three days after it happened, but he advised our assured that our policy did not cover the accident and did not report the matter to us. Percy Sloan has employed his own attorneys and we are refusing to defend this accident and are denying coverage.' On March 8, 1950 Traders wrote Felie Sloan, stating the first notice it had of the accident was the letter of February 3, 1950 from Mr. Leppek; it had not been notified as required by the policy; it denied coverage; and it 'declines to assume the defense of this action, and further declines to assume any liability for payment of any judgment that may be rendered against Mr. Percy Sloan.' Of course, notice to the agent was notice to Traders. On May 15, 1950 Mr. Leppek notified Traders the personal injury action was set for trial for June 7, 1950, again tendered the defense to Traders, and stated, 'That at this time we have awaiting your instructions copies of all pleadings, medical reports and depositions.' On May 18 Traders replied to Mr. Leppek, reiterating its denial of coverage, stating the required notice had not been given to it, and that it declined the defense of the action.
On May 31, 1950 the manager of Traders' claims department in Dallas, Texas, wrote to the manager of its Los Angeles claims department saying, 'We, of course, do not want to involve ourselves in this case but possibly by discreet inquiries you can find out what happens to it when it comes up for trial.' Trial of the action began on June 7, 1950. All of the witnesses to the accident who were available at the time it occurred were available at the time of the trial. Traders did not defend the action. Mr. Allport, who was substituted for Mr. Leppek, conducted the trial on behalf of Percy Sloan.
On June 8, 1950, during the trial, Mr. Allport wrote Traders, stating that on June 7 and 8 he had endeavored to effect settlement of the personal injury action and had discussed it with all parties concerned, including Traders' local counsel, requesting that he endeavor to secure Traders' cooperation in effectuating it; that he had again called its local counsel at noon that day by telephone and told him that the plaintiffs in the action had informed him they would accept $4,000 in settlement of the case; that his clients did not have the money with which to effect the settlement; and in view of the fact that Traders had consistently refused the defense of the action and the settlement thereof, his clients were advised to proceed with the trial. On behalf of his clients Mr. Allport demanded that Traders immediately assume the defense and settlement of the action. He stated that in his opinion it was highly probable a verdict would be rendered in excess of Traders' policy limit and in that event his clients would expect Traders to pay any excess judgment above the policy limit as well as the policy limit.
On June 9, 1950 Traders replied to Mr. Allport, stating that, as it had previously advised the defendants in the personal injury action and Mr. Leppek, it was its opinion the policy did not cover the accident; it was not given notice as the policy required; and it declined to take any part in the defense or to pay anything by way of settlement. On June 15, 1950 Mr. Allport wrote Traders advising that the jury had returned a verdict in favor of Mr. Comunale against Percy Sloan for $25,000.
In the accident Anthony Comunale suffered an extensive fracture of the skull, going completely around the skull, with severe brain injury. The physician who attended him testified it was the most extensive fracture he had ever seen in one who was living. The brain injury prevented him from carrying on his work as a plumbing contractor because he was unable to recognize the tools of his trade. He also sustained three fractures of the ankle which required an open reduction and the insertion of metal screws to replace the fragments of the bones.
Traders had knowledge of the severity and seriousness of Comunale's injuries about four months prior to the trial of the personal injury action. Mr. Allport, an experienced lawyer in the field of personal injury litigation, testified in this action that settlement of the personal injury action for $4,000 would have been wise and prudent, and gave detailed and convincing reasons for his opinion. Mr. Allport's testimony was not contradicted or challenged. The result of the personal injury action confirmed the soundness of his advice to Traders. The evidence is uncontradicted that plaintiffs in the personal injury action would have accepted $4,000 in settlement.
This is not merely a case of rejection of an offer of compromise, nor is it a case in which the insurer assumed the defense and then declined an offer of compromise. It was Traders' duty to defend. Traders, without justification, absolutely and unequivocally refused to assume the defense of the personal injury action and then refused to even consider an offer of compromise. It is inferable from the evidence that denial of coverage resulted from the fact that Traders' general counsel either failed to read the policy or read it erroneously. He persisted in his erroneous conclusion that 'the policy afforded no coverage * * * for the use of a non-owned commercial vehicle,' which was contrary to the express provisions of the policy, until June 11, 1951, during the pendency of the action by Comunale against Traders, when Traders' local counsel advised him that he could not find the language he (general counsel) relied on and that the significant element was the use to which the vehicle was being put and not its type, and that being true he was 'not so certain of our position.' A cursory examination of the policy would have revealed there was coverage. Traders did not provide its local counsel with an exact copy of the policy until after June 11, 1951, and it is inferable that its general counsel had not had a copy up to that time. It was not until August 3, 1951 that any California authority on construction of the policy was referred to in correspondence between Traders and its counsel. On that date its local counsel called Traders' attention to a California case which definitely showed there was coverage. So far as appears, Traders did not even offer to defend under a unilateral reservation of rights nor did it seek an adjudication of nonliability by way of a declaratory judgment.
The offer of $4,000 to compromise was for a figure within the policy limit. Traders knew the insured was unable to pay that amount. It refused to consider or weigh the wisdom of accepting the offer. The fact that Traders, although there was coverage, made a firm decision not to consider any offer of compromise is a circumstance indicative of a want of good faith. Traders thrust all the risk on the insured. It forced the insured to incur a hazard in excess of the coverage of the policy.
Traders persisted in the wholly unsupportable position that it did not receive immediate notice. Even as late as the trial of the present action it disclaimed the agency of Frank Sloan notwithstanding that prior to the accident it had duly designated him as its agent in California with the Insurance Commissioner.
The facts of the personal injury action were either well known to Traders or should have been well known to it had it investigated the facts and the law fully. It is a fair inference from the record that Traders, when it refused to defend, gave no consideration whatsoever to the interests of its insured. On March 10, 1952 Traders' reinsurer wrote it that according to the information it had from Traders, Percy Sloan 'was involved in an accident under circumstances indicating liability.' A reasonable inference from the evidence is that Traders was looking solely after its own interests and wholly disregarding the interests of Percy Sloan when it cast aside the offer of compromise. Traders' attitude throughout is manifest from a letter of November 25, 1953 from its general counsel to its local counsel, after the decision in Comunale v. Traders & General Ins. Co., 116 Cal.App.2d 198, 253 P.2d 495, reading in part: 'In view of the decision of the Appellate Court, we are exposed to liability for the amount expended for attorney's fees in the defense of this case. The additional insureds under the policy, however, have presented no such bill and we see no particular reason for educating them.' (Emphasis added.)
The cumulative effect of the evidence and the reasonable inferences which may be drawn therefrom is such as to preclude a holding as a matter of law that there is no evidence tending to show a lack of good faith on the part of Traders. The bone of contention is merely the significance of facts. As said of Traders in Traders & General Ins. Co. v. Rudco Oil & Gas Co., 10 Cir., 129 F.2d 621, at page 628, 142 A.L.R. 799: 'Under the peculiar facts, shown here to exist, we hold that the course of conduct pursued by the Traders & General does not square with the standard of good faith and fair dealing which underlies the contract between the parties, and it is therefore without standing to assert its only defense.' The question of good faith is one of fact. The jury by their verdict, have in effect said that Traders did not act in good faith. That finding should not have been disturbed by the granting of Traders' motion for judgment notwithstanding the verdict.
The judgment is reversed with directions to the superior court to enter judgment for plaintiff on the verdict.
PARKER WOOD, J., concurs.
SHINN, Presiding Justice.
I concur in the judgment. In my opinion the question of defendant's liability is a narrow one, namely, whether there was substantial evidence to support a finding by the jury that defendant acted in bad faith either in refusing to defend the action or in refusing to settle it. We have learned arguments in the briefs with respect to situations in which defendant could be found liable for the full amount of the judgment in favor of the Comunales. In my opinion these arguments are irrelevant. They are not available to defendant.
At the request of the defendant the court gave the following instructions: 'There is no duty on the part of an insurance company to settle a personal injury damage action for an amount which is within or less than the policy limits where the insurance company is not in bad faith refusing and continuing to refuse to assume defense of the personal injury action.' 'There is no duty on the part of an insurance company to settle a personal injury action for an amount which is within or less than the policy limits where the insurance company is not in bad faith asserting that no coverage is provided by the insurance policy.' 'If it has not been established by a preponderance of the evidence that defendant acted in bad faith either in its refusal to defend the personal injury damage action or in continuing so to refuse, then you are instructed that defendant is not liable for any excess of policy limits.' At the request of the defendant the jury was instructed further that the burden rested upon the plaintiff to prove by a preponderance of the evidence that defendant acted in bad faith. There were other instructions given at defendant's request of the same tenor and the effect of them was to instruct the jury that plaintiff was entitled to recover the amount of the unpaid balance of the judgment if it was found that defendant acted in bad faith, either in refusing to defend the action or in refusing to settle it. These were the issues that were submitted to the jury and they were decided against the defendant. The 'liability' to which the instructions related was for the unpaid balance of the judgment. That was the only remaining issue.
How then can defendant argue here that its bad faith either in refusing to defend or in refusing to settle would not subject it to liability? It cannot submit its case to a jury on one theory of nonliability and, after it has lost, contend on appeal that it was an erroneous theory and switch to another one. It cannot be heard to say that its instructions did not state the law correctly.
We must presume in support of the judgment that the jury found defendant to have acted in bad faith in the refusal to defend and also in the refusal to settle. I agree that there was ample evidence to justify a finding by the jury that it acted in bad faith with respect to each of its duties. The implied finding is, therefore, conclusive as to liability. --------------- * Opinion vacated 328 P.2d 198. 1 Henkel v. Pacific Employers Ins. Co., 140 Cal.App.2d 301, 305-306, 295 P.2d 80; Lamb v. Belt Casualty Co., 3 Cal.App.2d 624, 630, 40 P.2d 311; Liberty Mut. Ins. Co. v. Atlantic Coast L. R. Co., 66 Ga.App. 826, 19 S.E.2d 377, 382; Butler Bros. v. American Fidelity Co., 120 Minn. 157, 139 N.W. 355, 357, 44 L.R.A.N.S., 609; South Knoxville Brick Co. v. Empire State Surety Co., 44 L.R.A.,N.S., 609; South Knoxville Thresh, etc. Ins. Co. v. Messenger, 181 Md. 295, 29 A.2d 653, 656; 45 C.J.S. Insurance § 933 b, p. 1059. 2 Artukovich v. St. Paul-Mercury Indem. Co., 150 Cal.App.2d 312, 324, 310 P.2d 461. 3 Also see City Poultry & Egg Co. v. Hawkeye Cas. Co., 297 Mich. 509, 298 N.W. 114, 115; Union Indemnity Co. v. Mostov, 41 Ohio App. 518, 181 N.E. 495, 496; American Cas. Co. of Reading, Pa. v. Howard, 4 Cir., 187 F.2d 322, 326; Hoosier Cas. Co. v. Chimes, Inc., D.C., 95 F.Supp. 879, 883-884. 4 American Employers Ins. Co. v. Goble Aircraft SP, 205 Misc. 1066, 131 N.Y.S..2d 393, 399. 5 7 Appleman, Insurance Law and Practice, 45, § 4269. See Civ.Code, §§ 953, 954, 1458. 6 See 6 C.J.S. Assignments § 31, p. 1080. 7 Code Civ.Proc. §§ 312, 337. 8 28 Cal.Jur.2d 213, § 495. 9 Boutwell v. Employers' Liability Assur.Corp., 5 Cir., 175 F.2d 597, 600; Saragan v. Bousquet, 322 Mass. 14, 75 N.E.2d 649, 651-652; Pow-Well Plumbing & Heating Co. v. Merchants' Mut. Cas. Co., 195 Misc. 251, 89 N.Y.S.2d 469, 474. 10 Johnson v. Hardware Mut. Casualty Co., 109 Vt. 481, 1 A.2d 817, 820. 11 Arenson v. National Automobile & Cas.Ins. Co., 45 Cal.2d 81, 286 P.2d 816; Ritchie v. Anchor Cas. Co., 135 Cal.App.2d 245, 286 P.2d 1000; Lamb v. Belt Cas. Co., 3 Cal.App.2d 624, 631, 40 P.2d 311; Hully v. Aluminum Co. of America, D.C., 143 F.Supp. 508, 514; see cases collected 49 A.L.R.2d 717. 12 See cases collected 41 A.L.R.2d 434; 49 A.L.R.2d 700. 13 See cases collected 40 A.L.R.2d 168; XXVI Journal of the State Bar of California, 355. 14 See cases collected 40 A.L.R.2d 178. 15 Radcliffe v. Franklin National Ins. Co. of New York, 208 Or. 1, 298 P.2d 1002, 1024. 16 People v. Nunn, 46 Cal.2d 460, 468, 296 P.2d 813, 818, citing 18 Words and Phrases, Good Faith; 35 C.J.S. (1943), p. 488; 1 Bouv., Law Dict., Rawle's Third Revision 1914, p. 1359. 17 American Fidelity & Cas. Co. v. G. A. Nichols Co., 10 Cir., 173 F.2d 830, 832; Johnson v. Hardware Mut. Casualty Co., 109 Vt. 481, 1 A.2d 817, 820; Hilker v. Western Auto. Ins. Co., 204 Wis. 1, 231 N.W. 257, 235 N.W. 413, 415; American Mut. Liability Ins. Co. of Boston, Mass. v. Cooper, 5 Cir., 61 F.2d 446, 448; American Fidelity & Cas. Co. v. All American Bus Lines, 10 Cir., 190 F.2d 234, 238; National Mutual Casualty Co. v. Britt, 203 Okl. 175, 200 P.2d 407, 411, 218 P.2d 1039; Southern Fire & Casualty Co. v. Norris, 35 Tenn.App. 657, 250 S.W.2d 785, 790; Tyger River Pine Co. v. Maryland Cas. Co., 170 S.C. 286, 170 S.E. 346, 348. 18 Brown v. Guarantee Ins. Co., 155 Cal.App.2d 679, 319 P.2d 69; Traders & General Ins. Co. v. Rudco Oil & Gas Co., 10 Cir., 129 F.2d 621, 626-627, 142 A.L.R. 799; Royal Transit v. Central Surety & Ins. Corp., 7 Cir., 168 F.2d 345, 348-349; Hart v. Republic Mut. Ins. Co., 152 Ohio St. 185, 87 N.E.2d 347, 349-350; Boling v. New Amsterdam Cas. Co., 173 Okl. 160, 46 P.2d 916, 919; National Mutual Casualty Co. v. Britt, 203 Okl. 175, 200 P.2d 407, 413, 218 P.2d 1039; Hilker v. Western Auto. Ins. Co., 204 Wis. 1, 231 N.W. 257, 260, on rehearing 204 Wis. 12, 235 N.W. 413. 19 Ballard v. Citizens Cas. Co. of N. Y., 7 Cir., 196 F.2d 96, 101; Hart v. Republic Mut. Ins. Co., 152 Ohio St. 185, 87 N.E.2d 347, 349; McCombs v. Fidelity & Cas. Co. of N. Y., 231 Mo.App. 1206, 89 S.W.2d 114, 121-122; National Mutual Casualty Co. v. Britt, 203 Okl. 175, 200 P.2d 407, 412, 218 P.2d 1039; American Fidelity & Casualty Co. v. G. A. Nichols Co., 10 Cir., 173 F.2d 830, 832-833; Mendota Electric Co. v. New York Indem. Co., 169 Minn. 377, 211 N.W. 317, 319; Noshey v. American Auto. Ins. Co., 6 Cir., 68 F.2d 808, 810; annotation: 40 A.L.R.2d 196. 20 Johnson v. Hardware Mut. Cas. Co., 109 Vt. 481, 1 A.2d 817, 822-823; Royal Transit v. Central Surety & Ins. Corp., 7 Cir., 168 F.2d 345, 348; Ballard v. Citizens Cas. Co. of N. Y., 7 Cir., 196 F.2d 96, 102; Southern Fire & Casualty Co. v. Norris, 35 Tenn.App. 657, 250 S.W.2d 785, 790-791; Hilker v. Western Auto. Ins. Co., 204 Wis. 1, 231 N.W. 257, 260, on rehearing 204 Wis. 12, 235 N.W. 413, 415. 'The following have been held indicative of bad faith: 'Serious injuries and large special damages indicating that a verdict for the plaintiff will be in excess of the policy limits. 'Refusal to follow the advice of trial counsel. 'Failure to advise the assured of possible excess liability and to disclose the status of settlement negotiations. 'Failure to make an offer or counter-offer to settle. 'Clear liability on the part of the assured. 'Failure of the home office to give adequate consideration to all the facts.' XXVI Journal of the State Bar of California 355, 358. 21 St. Louis Dressed Beef & Provision Co. v. Maryland Cas. Co., 201 U.S. 173, 26 S.Ct. 400, 50 L.Ed. 712, 717; Arenson v. National Auto. & Cas. Ins. Co., 45 Cal.2d 81, 84, 286 P.2d 816; Greer-Robbins Co. v. Pacific Surety Co., 37 Cal.App. 540, 542, 174 P. 110; O'Morrow v. Borad, 27 Cal.2d 794, 801, 167 P.2d 483, 163 A.L.R. 894; Lamb v. Belt Casualty Co., 3 Cal.App.2d 624, 631, 40 P.2d 311; American Casualty Co. of Reading, Pa. v. Glorfield, 9 Cir., 216 F.2d 250; 8 Appleman, Insurance Law and Practice 32, § 4689. 22 See cases collected 131 A.L.R. 1499, 1510. 23 45 C.J.S. Insurance § 933 b, p. 1059; 5A Am.Jur. 119, § 115. 24 Civ.Code, § 3300. 25 Arenson v. National Automobile & Cas. Ins. Co., 45 Cal.2d 81, 84, 286 P.2d 816; American Casualty Co. of Reading, Pa. v. Glorfield, 9 Cir., 216 F.2d 250, 253. Cf. Henkel v. Pacific Employers Ins. Co., 140 Cal.App.2d 301, 305, 295 P.2d 80. 26 Civ.Code, § 3301. 27 See cases collected 49 A.L.R.2d 721. 28 Arenson v. National Automobile & Cas. Ins. Co., 45 Cal.2d 81, 84, 286 P.2d 816; O'Morrow v. Borad, 27 Cal.2d 794, 167 P.2d 483, 163 A.L.R. 894; Mercer Casualty Co. v. Lewis, 41 Cal.App.2d 918, 923, 108 P.2d 65; Ritchie v. Anchor Casualty Co., 135 Cal.App.2d 245, 258, 286 P.2d 1000. 29 Arenson v. National Automobile & Cas. Ins. Co., 45 Cal.2d 81, 286 P.2d 816; Greer-Robbins Co. v. Pacific Surety Co., 37 Cal.App. 540, 174 P. 110. 30 Murphy v. Hopkins, 68 S.D. 494, 4 N.W.2d 801, 805; Buquo v. Title Guar. & T. Co., 20 Tenn.App. 479, 100 S.W.2d 997, 999. 31 Grand Union Co. v. General Acc. etc. Corp., 254 App.Div. 274, 4 N.Y.S.2d 704, 711, affirmed 279 N.Y. 638, 18 N.E.2d 38. 32 Commercial Casualty Ins. Co. v. Tri-State Transit Co., 190 Miss. 560, 1 So.2d 221, 225, 133 A.L.R. 1510; Southwestern Bell Tel. Co. v. Ocean Ace. & G. Corp., D.C., 22 F.Supp. 686, 688. 33 Hacker Pipe & Supply Co. v. Chapman V. Mfg. Co., 17 Cal.App.2d 265, 271, 61 P.2d 944. 34 Also see cases collected 49 A.L.R.2d 735. 35 Champion v. Bennetts, 37 Cal.2d 815, 820, 236 P.2d 155, 158. 36 See Tully v. Travelers Ins. Co., D.C., 118 F.Supp. 568, in which a similar letter was written. 37 See Bear Film Co. v. Indemnity Ins. Co., 22 Cal.App.2d 520, 71 P.2d 603; 8 Appleman, Insurance Law and Practice, 62, § 4694. 38 Tully v. Travelers Ins. Co., D.C., 118 F.Supp. 568, 570. 39 See cases collected 40 A.L.R.2d 220. 40 Traders now concedes Frank Sloan was its authorized agent. 41 Johnson v. Goldberg, 130 Cal.App.2d 571, 578, 279 P.2d 131; Brown v. Guarantee Ins. Co., 155 Cal.App.2d 679, 319 P.2d 69.