Opinion
NOT TO BE PUBLISHED
San Francisco County Super. Ct. No. CGC-06-457985
Retired judge of the Superior Court of Marin County, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Plaintiff brings this appeal from a judgment entered after the trial court sustained a demurrer to a declaratory relief complaint and plaintiff elected not to amend. We conclude that the trial court did not abuse its discretion in apparently finding under Code of Civil Procedure section 1061 that the court’s declaration or determination was not necessary or proper at the time under all of the circumstances. Except insofar as it is entered against Lap K. Wong, the judgment is affirmed.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
For purposes of this appeal, we accept as true the properly pleaded factual allegations of plaintiff’s complaint. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6; Thompson v. County of Alameda (1980) 27 Cal.3d 741, 746; Buller v. Sutter Health (2008) 160 Cal.App.4th 981, 985–986.)
Plaintiff State Farm Mutual Automobile Insurance Company (State Farm) issued an automobile liability policy (the policy) to Lap K. Wong (Wong). The policy was in effect when Wong “was involved in an automobile accident with a vehicle driven by... Edward Powell,” defendant in the instant declaratory relief action. The automobile accident occurred on July 1, 2005, and defendant Powell subsequently made a claim with State Farm for damages he attributes to the accident. Following unsuccessful negotiations, defendant Powell, through his counsel, sent a demand letter to State Farm on October 25, 2005, offering to settle his claims against Wong “for the limits of [Wong’s] insurance policy,” $15,000. The letter stated that if the offer “is not accepted by 5:00 p.m. November 11, 2005, it will automatically expire.” On November 3, 2005, plaintiff State Farm acknowledged receipt of defendant Powell’s settlement offer.
According to the complaint in the declaratory relief action from which this appeal is brought, State Farm’s representatives intended to evaluate and accept the settlement offer by the deadline specified in the letter. However, through “innocent mistake of the handling claims representative,” plaintiff failed to contact defendant’s counsel to accept the offer until a telephone conversation on November 21, 2005, ten days after the letter’s specified expiration date, followed by a letter sent the next day. At that time counsel for defendant refused to release Wong in exchange for payment of the $15,000 policy limits. On December 12, 2005, defendant Powell filed a personal injury action against Wong in San Francisco City and County Superior Court.
In the declaratory relief action plaintiff State Farm alleges that an “actual and present controversy” between the parties exists, in that: the policy limits settlement offer by defendant “would have been accepted but for the innocent mistake” of the claims representative; plaintiff did not reject the offer, but rather accepted it “within a reasonable time” under the circumstances; and therefore, the policy limits “remain applicable in this case” despite defendant’s rejection of plaintiff’s attempted acceptance of the offer. The pleading, which names Powell as a defendant and Wong as “Real Party in Interest,” seeks a declaration that plaintiff did not become obligated to pay defendant Powell an amount in excess of the $15,000 policy limits due to the “innocent mistake of the claims representatives” or the failure of plaintiff to respond to the settlement offer by the “arbitrary deadline” set by defendant Powell’s counsel, so the policy limits provision remains applicable, and the personal injury action of defendant Powell “is resolved in exchange for payment of the policy limits” by plaintiff.
See page 7, post.
Defendant Powell filed a general demurrer to the declaratory relief complaint. The trial court sustained the demurrer with 10 days’ leave to amend. Plaintiff did not amend within the time granted, the declaratory relief action was dismissed, and judgment was “entered in favor of Defendant EDWARD POWELL against Plaintiff STATE FARM... and Real Party in Interest LAP KONG WONG....” This appeal followed.
DISCUSSION
Plaintiff claims that the trial court erred in sustaining defendant’s demurrer to the declaratory relief complaint. Plaintiff submits that the declaratory relief action properly seeks to resolve “a present and actual controversy” between the sides and obtain “a declaration of its rights and obligations under the insurance contract and under the implied covenant of good faith and fair dealing.” Plaintiff defines the “actual controversy” to include the following questions: (1) what is the nature of the “settlement duties” owed by State Farm to its insured Wong; (2) “whether State Farm breached its duty to settle” by mistakenly and inadvertently failing to accept the settlement demand within the “arbitrary time period” imposed by defendant Powell; and (3) whether, as a result of a breach by plaintiff of the duty of good faith and fair dealing in failing to accept the settlement offer, the “State Farm insurance policy has no limits.” Plaintiff also contends that not only are the issues “ripe,” but all the pertinent “facts are set and confined to a discrete time period.”
“ ‘On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, the standard of review is well settled. The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be affirmed “if any one of the several grounds of demurrer is well taken. [Citations.]” [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.]’ [Citation.]” (Bagatti v. Department of Rehabilitation (2002) 97 Cal.App.4th 344, 352; see also Lee v. Blue Shield of California (2007) 154 Cal.App.4th 1369, 1377–1378.) “The properly pleaded material allegations in the declaratory relief cause of action” filed by plaintiff “must be accepted as true. [Citations.] In addition, the Supreme Court has held: ‘ “[T]he allegations of the complaint must be liberally construed with a view to attaining substantial justice among the parties.” [Citations.]’ [Citations.]” (C.J.L. Construction, Inc. v. Universal Plumbing (1993) 18 Cal.App.4th 376, 382–383 (C.J.L.).) Our task as a “reviewing court, therefore, ‘is to determine whether the pleaded facts state a cause of action on any available legal theory.’ [Citation.]” (Richelle L. v. Roman Catholic Archbishop (2003) 106 Cal.App.4th 257, 266.)
Looking specifically at plaintiff’s action for declaratory relief, “The existence of an ‘actual controversy relating to the legal rights and duties of the respective parties,’ suffices to maintain an action for declaratory relief. (Code Civ. Proc., § 1060.) Code of Civil Procedure section 1060 is clear: ‘Any person interested under a written instrument,... or under a contract, or who desires a declaration of his or her rights or duties with respect to another, or in respect to, in, over or upon property,... may, in cases of actual controversy relating to the legal rights and duties of the respective parties, bring an original action or cross-complaint in the superior court... for a declaration of his or her rights and duties in the premises, including a determination of any question of construction or validity arising under the instrument or contract.’ ” (Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 605.) “Declaratory relief is not available unless there is a real dispute between parties, ‘involving justiciable questions relating to their rights and obligations.’ [Citation.] ‘The fundamental basis of declaratory relief is an actual, present controversy.’ [Citation.] An actual controversy is ‘one which admits of definitive and conclusive relief by judgment within the field of judicial administration, as distinguished from an advisory opinion upon a particular or hypothetical state of facts. The judgment must decree, not suggest, what the parties may or may not do.’ [Citation.]” (In re Claudia E. (2008) 163 Cal.App.4th 627, 638.)
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
Thus, a “complaint for declaratory relief is legally sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and liabilities of the respective parties and requests that these rights and liabilities be adjudged by the court.” (Rimington v. General Accident Group of Ins. Cos. (1962) 205 Cal.App.2d 394, 397; see also Venice Town Council, Inc. v. City of Los Angeles (1996) 47 Cal.App.4th 1547, 1565–1566.) “As stated in Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 947 [148 Cal.Rptr. 379, 582 P.2d 970]: ‘A complaint for declaratory relief is legally sufficient if it sets forth facts showing the existence of an actual controversy relating to the legal rights and duties of the parties under a written instrument or with respect to property and requests that the rights and duties of the parties be adjudged by the court. [Citations.] If these requirements are met and no basis for declining declaratory relief appears, the court should declare the rights of the parties whether or not the facts alleged establish that the plaintiff is entitled to favorable declaration. [Citations.]’ ” (Ludgate Ins. Co. v. Lockheed Martin Corp., supra, 82 Cal.App.4th 592, 606.) “Whether a case is founded upon an ‘actual controversy’ centers on whether the controversy is justiciable. ‘The principle that courts will not entertain an action which is not founded on an actual controversy is a tenet of common law jurisprudence, the precise content of which is difficult to define and hard to apply. The concept of justiciability involves the intertwined criteria of ripeness and standing. A controversy is “ripe” when it has reached, but has not passed, the point that the facts have sufficiently congealed to permit an intelligent and useful decision to be made.’ [Citations.]” (Stonehouse Homes LLC v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 540.)
Defendant does not dispute that the complaint alleges the existence of an actual controversy between the parties, at least in part. Plaintiff’s insured collided with a vehicle driven by defendant, and defendant made a claim for damages with plaintiff, followed by a policy limits settlement demand. Plaintiff sought to accept the demand after expiration of the time limit imposed by defendant. Defendant’s rejection of plaintiff’s settlement offer and his subsequent filing of the underlying personal injury action created an actual controversy that implicates issues regarding the ultimate liability of plaintiff’s insured Wong to defendant, plaintiff’s liability under the provisions of the policy, and perhaps plaintiff’s potential liability for breach of the implied covenant of good faith. (See Rimington v. General Accident Group of Ins. Cos., supra, 205 Cal.App.2d 394, 397–398.) The requirement that an actual controversy be alleged has been satisfied by the complaint.
“It is well established that an insurance company is liable to an insured when the insurer unreasonably refuses to settle the case within the insured’s policy limits and a ‘judgment’ in excess of those limits is ultimately rendered against the insured.” (Finkelstein v. 20th Century Ins. Co. (1992) 11 Cal.App.4th 926, 929.)
“However, Code of Civil Procedure section 1061 provides an exception to the broad language in Code of Civil Procedure section 1060 as follows, ‘The court may refuse to exercise the power granted by this chapter in any case where its declaration or determination is not necessary or proper at the time under all the circumstances.’ ” (C.J.L., supra, 18 Cal.App.4th 376, 389–390; see also Stonehouse Homes LLC v. City of Sierra Madre, supra, 167 Cal.App.4th 531, 539.) “This section vests a high degree of discretion in the trial court. Its determination to refuse to grant declaratory relief will not be disturbed on appeal unless a clear abuse of discretion is shown. The discretionary power of the trial court to deny declaratory relief may be invoked by general demurrer.” (Farmers Ins. Exchange v. Adams (1985) 170 Cal.App.3d 712, 723, overruled on other grounds in Garvey v. State Farm Fire & Casualty Co. (1989) 48 Cal.3d 395, 399, fn. 1; see also Otay Land Co. v. Royal Indemnity Co. (2008) 169 Cal.App.4th 556, 562–563; Turlock Irrigation Dist. v. Zanker (2006) 140 Cal.App.4th 1047, 1064; Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881, 892–893.) “Undeserving cases should be disposed of in a summary manner, as upon demurrer.” (Travers v. Louden (1967) 254 Cal.App.2d 926, 932.)
Here, the complaint for declaratory relief somewhat circuitously seeks a declaration of rights and obligations essentially as follows: (1) that the policy’s $15,000 limit is applicable; (2) that plaintiff State Farm’s failure to respond to defendant’s demand letter within its specified time limit does not constitute bad faith which would abrogate the $15,000 policy limit; and (3) that, in spite of the fact that the demand letter’s explicit time limit expired 10 days before, plaintiff State Farm successfully accepted defendant Powell’s offer of settlement and resolved the personal injury claim. Although not all aspects of the brief litigation comport with the notion, apparently plaintiff State Farm is seeking a declaration of rights and obligations with respect to defendant Powell, whose interest or prospective interest is or may be a derivative of the contractual relationship between State Farm and Wong. In seeking such a declaration, however, State Farm seeks a judgment which could have substantial, even catastrophic, implications for Wong. Wong appeared in the caption of each of the pleadings and appears to have been served with all of them, including a summons served both by mail and personally. However, he never appeared in person, by pleading or by counsel. The record nowhere reflects that State Farm ever suggested to Wong that he might want separate counsel in connection with the declaratory relief action. Yet, if plaintiff State Farm had obtained only a declaration that its failure to accept Powell’s offer of settlement and release within the time limit did not constitute bad faith, and if the pending automobile accident litigation against Wong resulted in a judgment over the $15,000 policy limits, then Wong’s inability to obtain excess participation by State Farm would have been preordained in a suit in which he never participated. As it is, the appealed judgment is incorrectly awarded against Wong who actually, without lifting a finger, is at least partially a prevailing party, if he is a party at all. The effect of his appearing in the caption of the pleadings below the “v.” as a “Real Party in Interest” is not entirely clear to us and may not have been to him but, whatever his status, Wong is not a plaintiff and is not a losing party. Thus, the record below must be corrected in this regard to remove Wong as a party adversely affected by the judgment.
In the complaint, the action is styled by plaintiff thus:
Additionally because of the confusion of the parties’ respective interests, the present action fails to carry out some of the fundamental aims of a declaratory judgment, one of which is to “ ‘ “serve some practical end in quieting or stabilizing an uncertain or disputed jural relation.” ’ [Citation.] ‘Another purpose is to liquidate doubts with respect to uncertainties or controversies which might otherwise result in subsequent litigation....’ [Citation.]” (In re Claudia E., supra, 163 Cal.App.4th 627, 633.) An action for declaratory relief intends to “settle actual controversies before they have ripened into a violation of a contractual obligation.” (Rimington v. General Accident Group of Ins. Cos., supra, 205 Cal.App.2d 394, 397–398.) Sections 1060 and 1061 “provide for declaratory relief in advance of breach. This salutary relief is procurable so that parties may know their rights and obligations where a controversy arises before a breach or violation occurs.” (Kessloff v. Pearson (1951) 37 Cal.2d 609, 613, italics added.) Not only has any conduct by plaintiff that may constitute bad faith already occurred, but plaintiff has contributed uncertainty to the dispute by adding its insured Wong as a party of ambiguous and unrepresented status in the action.
“Moreover, ‘[d]eclaratory relief operates prospectively to declare future rights, rather than to redress past wrongs. [Citation.]’ [Citations.] A declaratory judgment ‘ “serves to set controversies at rest before they lead to repudiation of obligations, invasion of rights or commission of wrongs; in short, the remedy is to be used in the interests of preventive justice, to declare rights rather than execute them.” [Citations.]’ [Citation.]” (County of San Diego v. State of California (2008) 164 Cal.App.4th 580, 607–608; see also Canova v. Trustees of Imperial Irrigation Dist. Employee Pension Plan (2007) 150 Cal.App.4th 1487, 1497; Baxter Healthcare Corp. v. Denton (2004) 120 Cal.App.4th 333, 360.)
Any action for redress of the harm caused by the prior conduct of plaintiff’s insured related to the vehicle accident and the claim filed by defendant has accrued and may be adjudicated as part of the underlying complaint for personal injuries filed by defendant. Plaintiff has the opportunity to defend the underlying personal injury action, and as a result of that litigation may entirely avoid liability to defendant, and any possible exposure to liability above the policy limits. “[C]ourts have held that if a plaintiff or cross-complainant has other means of seeking a determination of their rights, then a trial judge may sustain a general demurrer to a declaratory relief claim.” (C.J.L., supra, 18 Cal.App.4th 376, 390.) “ ‘ “The availability of another form of relief that is adequate will usually justify refusal to grant declaratory relief.” ’ For example,... the California Supreme Court has held: ‘When, as here, the cause of action has already accrued and the only question for determination is the ultimate liability of one party on account of consequential relief to which another is shown to be entitled, it has been held that the nature of the action is not a cause for declaratory relief but is defined by the subject matter of the accrued cause of action. [Citations.]’ [Citations.]” (Id. at pp. 390–391, quoting California Ins. Guarantee Assn. v. Superior Court (1991) 231 Cal.App.3d 1617, 1624, and Standard Brands of California v. Bryce (1934) 1 Cal.2d 718, 721; see also General of America Ins. Co. v. Lilly (1968) 258 Cal.App.2d 465, 470–472.) As the California Supreme Court observed of the dismissal of a cause of action for declaratory relief following the sustaining of a demurrer in Orloff v. Metropolitan Trust Co. (1941) 17 Cal.2d 484, 489: “The appellant alleges that a controversy exists between him and the defendants as to their respective rights and obligations under the agreements which have been particularly pleaded. But all of the acts of which he complains were concluded before his suit was commenced and the relief he seeks is for the court to review them and declare that he is entitled to a judgment for $2,500. These allegations do not measure up to the requirements of an action for declaratory relief, and the superior court properly refused to exercise its power to entertain the complaint upon that count. (Code Civ. Proc., §§ 1060, 1061.)”
We realize that a cause of action based on plaintiff’s alleged breach of the implied covenant has not yet accrued, and may never accrue. “No cause of action for breach of contract based on an insurer’s failure to settle a claim exists until a judgment in excess of policy limits has been rendered against the insured. [Citations.] A breach of the duty to settle within policy limits while the action is pending in the trial court presents only the possibility that a judgment might be rendered in excess of policy limits. Even if the insurer rejects a settlement offer within policy limits, it is not subject to liability if it successfully defends the litigation and obtains a complete defense verdict or a judgment is rendered that is below the settlement offer or within policy limits. The cause of action arises only upon entry of a judgment in excess of policy limits.” (Archdale v. American Internat. Specialty Lines Ins. Co. (2007) 154 Cal.App.4th 449, 474; see also Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718, 725–728.) “Until judgment is actually entered, the mere possibility or probability of an excess judgment does not render the refusal to settle actionable.” (Safeco Ins. Co. v. Superior Court (1999) 71 Cal.App.4th 782, 788.)
The cause of action will not definitively accrue until the underlying personal injury action has been concluded. But to the extent that plaintiff seeks a determination of potential liability for its failure to respond to defendant’s policy limits settlement offer within the time granted, a declaratory judgment is inappropriate for another reason: that part of the controversy between the parties is not ripe for adjudication. “ ‘The ripeness requirement... prevents courts from issuing purely advisory opinions. [Citation.] It is rooted in the fundamental concept that the proper role of the judiciary does not extend to the resolution of abstract differences of legal opinion....’ [Citations.] [¶] To determine if a controversy is ripe, we employ a two-pronged test: (1) whether the dispute is sufficiently concrete that declaratory relief is appropriate; and (2) whether withholding judicial consideration will result in the parties suffering hardship. [Citations.] ‘Under the first prong, the courts will decline to adjudicate a dispute if “the abstract posture of [the] proceeding makes it difficult to evaluate... the issues” [citation], if the court is asked to speculate on the resolution of hypothetical situations [citation], or if the case presents a “contrived inquiry” [citation]. Under the second prong, the courts will not intervene merely to settle a difference of opinion; there must be an imminent and significant hardship inherent in further delay. [Citation.]’ [Citations.]” (Stonehouse Homes LLC v. City of Sierra Madre, supra, 167 Cal.App.4th 531, 540, italics added.) Plaintiff’s liability for conduct that has already occurred is speculative, and contingent upon the outcome of the underlying litigation. (See Royal Indemnity Co. v. United Enterprises, Inc. (2008) 162 Cal.App.4th 194, 209.) If the underlying litigation is resolved in favor of plaintiff or for an amount less than the policy limits, any pronouncement of the court in a declaratory judgment will be of no consequence. The legal issues posed in a declaratory relief action “must be framed with sufficient concreteness and immediacy so that the court can render a conclusive and definitive judgment rather than a purely advisory opinion based on hypothetical facts or speculative future events.” (Hayward Area Planning Assn. v. Alameda County Transportation Authority (1999) 72 Cal.App.4th 95, 102.)
We also realize that a declaratory judgment in the present case, if the case were properly joined, with all affected parties being properly denominated and present in the litigation, might clarify the legal positions of the parties with respect to the underlying personal injury action. Plaintiff would understand the nature of its duties in the case and the limits of liability to its insured – or directly to defendant in the event he has received an assignment of rights from Wong. In that respect, a declaratory judgment would conceivably serve the objective of promoting judicial economy by limiting the issues that remain to be litigated, giving the parties an appreciation of the legal obligations involved, or even facilitating settlement of the underlying action thereby saving resources of the litigants and the court. We thus do not conclude that trial courts are foreclosed from entertaining declaratory relief actions to resolve issues of the timeliness of an insurer’s response to a settlement demand and an insurer’s breach of the duty to settle within policy limits. There may be many such cases in which the objectives that declaratory relief actions seek to promote will, on balance, more be served than disserved, and thus should be adjudicated.
“An insured who suffers a loss in the form of an excess judgment has an assignable cause of action against the primary insurer. ‘The insured’s action for breach of the contractual duty to settle may be assigned... regardless of whether assignments are permitted by the policy. [Citation.] Such an assignment may be made before trial, but the assignment does not become operative, and the claimant’s action against the insurer does not mature, until a judgment in excess of the policy limits has been entered against the insured.’ [Citations.]” (RLI Ins. Co. v. CNA Casualty of California (2006) 141 Cal.App.4th 75, 81; see also Hamilton v. Maryland Casualty Co., supra, 27 Cal.4th 718, 725; Finkelstein v. 20th Century Ins. Co., supra, 11 Cal.App.4th 926, 929.)
Under the facts presented in the case before us, however, we cannot conclude that the trial court abused its discretion under section 1061 by finding the declaratory relief action improper and sustaining the demurrer. Trial courts enjoy “broad discretion” in declaratory relief actions, and “ ‘the court’s decision to grant or deny relief will not be disturbed on appeal unless it be clearly shown... that the discretion was abused.’ [Citation.]” (Pellegrini v. Weiss (2008) 165 Cal.App.4th 515, 529.) The abuse of discretion test is not whether the trial court could have ruled differently or “ ‘whether we would have made a different decision had the matter been submitted to us in the first instance. Rather, the discretion is that of the trial court, and we will only interfere with its ruling if we find that under all the evidence, viewed most favorably in support of the trial court’s action, no judge reasonably could have reached the challenged result.’ [Citation.]” (Estate of Hammer (1993) 19 Cal.App.4th 1621, 1634; see also Haraguchi v. Superior Court (2008) 43 Cal.4th 706, 717.) We will reverse the trial court’s ruling for abuse of discretion only where there is no reasonable basis for its action. (City National Bank v. Adams (2002) 96 Cal.App.4th 315, 323.) Here, we discern justifiable reasons for the trial court’s ruling that declaratory relief is not necessary and proper under the circumstances, and therefore cannot disturb the decision to sustain the demurrer and dismiss the declaratory relief action. (Fagerstedt v. Continental Ins. Co. (1968) 266 Cal.App.2d 370, 373; General of America Ins. Co. v. Lilly, supra, 258 Cal.App.2d 465, 472; Travers v. Louden, supra, 254 Cal.App.2d 926, 932; Leach v. Leach (1959) 172 Cal.App.2d 330, 333; Pacific Electric Ry. Co. v. Dewey (1949) 95 Cal.App.2d 69, 71–72.)
Accordingly, the case is remanded for correction of the orders and records of the trial court so there remains no suggestion that judgment is awarded against Mr. Wong in this matter. In all other respects the judgment is affirmed. Costs on appeal are awarded only against plaintiff State Farm to defendant Powell.
In light of our conclusion we need not proceed to the merits of the declaratory relief pleading to resolve plaintiff’s claims that it properly accepted defendant’s settlement within a reasonable time and did not breach the implied covenant of fair dealing. We express no views on those issues.
We concur: Marchiano, P. J., Margulies, J.
“STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
“Plaintiff,
“v.
“Edward Powell, and DOES 1 through 25, inclusive,
“Defendants.
“Lap Kong Wong
“Real Party in Interest”