Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from the Superior Court of Riverside County. Bernard Schwartz, Judge. Super.Ct.No. RIC448589
Grant, Genovese & Baratta, James M. Baratta and Lance D. Orloff for Plaintiff and Appellant.
Robinson DiLando, Michael C. Robinson, Mark T. Kane, and Cynthia A. Goodman for Defendant and Respondent.
OPINION
King, J.
I. INTRODUCTION
TIG Insurance Company (TIG) sued Professional Claims Services, Inc. (PCS) for breach of contract and other claims. The subject contract is a “Claims Administration Agreement” (the agreement), pursuant to which PCS agreed to administer claims made under TIG insurance policies “in accordance with the terms and conditions of the Policies . . . and every applicable code, statute, law, rule, or regulation.” The agreement included a requirement that PCS “defend, indemnify, and hold [TIG] harmless from and against all claims, actions, causes of action, liability, or loss which result from any real or alleged negligent or willful acts, or errors or omissions of [PCS] . . . .”
When PCS failed to settle a claim against one of TIG’s insureds for the policy limits, the plaintiffs in that case threatened to sue TIG for “bad faith.” TIG took over the handling of the case and demanded that PCS defend and indemnify it against any loss in excess of the policy limits for that claim. PCS refused. TIG then paid the plaintiffs an amount in excess of the policy limits to settle the case and sued PCS to recover the difference.
PCS moved for summary judgment, which the court granted. Because there are no triable issues of material fact and PCS is entitled to judgment as a matter of law, we affirm.
II. SUMMARY OF UNDISPUTED FACTS
TIG issued an automobile insurance policy to Dolores Portillo with liability limits of $15,000 per person and $30,000 per occurrence. On October 19, 2001, Portillo allowed Alma Gonzalez to drive her car. Portillo and Teresa Munoz were passengers in the car. The car was struck by another vehicle, and Portillo and Munoz were killed. Gonzalez denied that she was at fault.
PCS opened a claim file concerning the incident and settled claims made by passengers in the vehicle that hit Portillo’s car for $15,000. In October 2002, Munoz’s children (the Munoz children) sued Gonzalez (the insured) for wrongful death. PCS retained the law firm of Beck and Sirna (Beck) to represent the insured. In May 2003, PCS instructed Beck to quickly settle the wrongful death suit for the remaining $15,000 available under the policy.
Beck learned that Munoz had been married at the time of the incident and that her estranged husband refused to participate in any settlement. Beck was concerned that a settlement with the Munoz children that exhausted the policy limits could expose the insured to a suit by the husband without any insurance proceeds available to resolve his claim. The Munoz children refused to indemnify and hold the insured harmless from a claim asserted by the estranged husband against the insured. Settling the case was further complicated by the fact that the insured was in Mexico during this time and could not be located to obtain her consent to settle.
In February 2004, the Munoz children served a joint offer to compromise pursuant to Code of Civil Procedure section 998 for $15,000 and costs (the 998 offer). Beck served a written objection to the 998 offer on the ground that “all potential plaintiffs have not been identified . . . [and] issues pertaining to the decedent’s estranged husband remain.” He further objected on the ground that the demand was vague and ambiguous as to the amount of the costs sought and the amount sought by each plaintiff. Through their counsel, the Munoz children responded to the objections in a letter by offering to waive costs and apportion the $15,000 equally among the three children. The Munoz children’s counsel characterized Beck’s objection regarding the absent husband as a concern “about a potential bogus claim by [the Munoz children’s] father who has had no relationship whatsoever with the deceased for the past twenty years.” The Munoz children continued to refuse to indemnify the insured or hold her harmless against an action by the father.
Under these circumstances, Beck felt it was not in the insured’s best interests to settle the Munoz children’s claims for an amount that would exhaust policy limits. He advised PCS that the best course of action would be to file an interpleader action. The interpleader complaint was filed and TIG, a party in that action, deposited a check for $30,000 with the court. Another law firm was retained to represent TIG.
The record does not disclose why the interpleader proceeding failed to resolve the case and remove TIG from the action.
Some time later, counsel for the Munoz children began to assert that the insured’s policy limits could be disregarded because TIG had acted in bad faith by not accepting the settlement offer. In September 2004, PCS again tried to resolve the matter, but the Munoz children refused to accept the policy limits or sign a hold harmless and indemnity agreement to protect the insured. Around this time, TIG took direct control of the handling of the claim. TIG demanded that PCS hold harmless and indemnify TIG for any excess exposure resulting from PCS’s handling of the claim. PCS refused. TIG eventually paid the Munoz children $600,000.
TIG filed the complaint in the present action in April 2006. TIG alleged six causes of action in its complaint, designated as: equitable indemnity, express indemnity, apportionment, negligence, breach of contract, and declaratory relief. It sought to recover from PCS $585,000—the excess of the $600,000 it paid to the Munoz children over the $15,000 remaining policy limits.
PCS filed a motion for summary judgment. The court granted the motion on the ground, among others, that TIG’s payment to the Munoz children was a “voluntary payment” when there was no cause of action pending against TIG. Judgment was entered for PCS.
III. ANALYSIS
We review a ruling granting summary judgment de novo. (Zavala v. Arce (1997) 58 Cal.App.4th 915, 925.) We thus stand in the shoes of the trial court, applying the same rules and standards governing a trial court’s resolution of a summary judgment motion. (Ibid.) Under these rules and standards, summary judgment is granted where there exists no triable issue of material fact, and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437 subd. (c).) We use the same three-step analysis employed by the trial court in ruling on a summary judgment motion. (Dawson v. Toledano (2003) 109 Cal.App.4th 387, 392.) We “identify issues framed by the pleadings; determine whether the moving party’s showing established facts that negate the opponent’s claim and justify a judgment in the moving party’s favor; and if it does, we finally determine whether the opposition demonstrates the existence of a triable, material factual issue. [Citations.]” (Tsemetzin v. Coast Federal Savings & Loan Assn. (1997) 57 Cal.App.4th 1334, 1342.) In conducting this review, we view the evidence in a light most favorable to the losing party, liberally construing its submission of evidence while strictly scrutinizing that of defendant, resolving any evidentiary doubts or ambiguities in plaintiff’s favor. (Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 768-769.)
A. PCS Did Not Breach a Duty of Indemnity
In any breach of contract action, plaintiff must establish four basic elements: (1) the existence of a contract, (2) plaintiff’s performance, (3) defendant’s breach, and (4) damages to plaintiff resulting from the breach. (Acoustics, Inc. v. Trepte Constr. Co. (1971) 14 Cal.App.3d 887, 913.) The parties do not dispute the satisfaction of the first two elements. TIG argues that PCS breached the agreement by “exposing TIG and its insured to a verdict in excess of $15,000, and . . . not holding TIG harmless from the underlying plaintiffs’ claim . . . .” TIG directs our attention to the following indemnity provision in the agreement: “[PCS] hereby agrees to, at all times hereafter, defend, indemnify, and hold [TIG] harmless from and against all claims, actions, causes of action, liability, or loss which result from any real or alleged negligent or willful acts, or errors or omissions of [PCS] . . . .” TIG contends that this provision applies when a third party alleges that PCS’s claims handling was improper. PCS contends that this duty to defend, indemnify, and hold TIG harmless never arose in this case because none of the triggering events—a claim, action, cause of action, liability, or loss—ever occurred. We must therefore first determine the meaning of these words as they appear in the indemnity provision.
The interpretation of a contract is a question of law. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) The interpretation must be “‘fair and reasonable, not leading to absurd conclusions.’” (Kashmiri v. Regents of University of California (2007) 156 Cal.App.4th 809, 842.) A contract must be interpreted so as to be “lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.” (Civ. Code, § 1643.) “The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other.” (Id., § 1641.) Terms in a contract are normally to be understood according to their ordinary and popular sense, unless used by the parties in a technical sense. (Id., § 1644.) “A contract may be explained by reference to the . . . matter to which it relates.” (Id., § 1647.)
The agreement provides that it “shall be governed by and construed in accordance with the laws of the State of Texas, without regard to its rules regarding conflict of laws.” Neither party mentions this provision, argues that we should apply Texas law, or refers us to any Texas authority to aid our interpretation of the agreement. Any argument that Texas law regarding interpretation of the agreement differs materially from California law is thus waived. (See Tisher v. California Horse Racing Bd. (1991) 231 Cal.App.3d 349, 361.) We have thus limited our efforts to interpreting the contract under our state principles of contract interpretation.
We first address the terms “action” and “causes of action” as used in the indemnity provision. An action is defined by statute as “an ordinary proceeding in a court of justice by which one party prosecutes another for the declaration, enforcement, or protection of a right, the redress or prevention of a wrong, or the punishment of a public offense.” (Code Civ. Proc., § 22.) A cause of action is closely related to action, but distinct. As our state Supreme Court explained more than 100 years ago: “[A]n action is simply the right or power to enforce an obligation. ‘An action is nothing else than the right or power of prosecuting in a judicial proceeding what is owed to one,’—which is but to say, an obligation. . . . The action therefore springs from the obligation, and hence the ‘cause of action’ is simply the obligation.” (Frost v. Witter (1901) 132 Cal. 421, 426.) More recently, this distinction between the cause of action (as the obligation) and the action (as the right to enforce the obligation) has been blurred such that the terms are often used interchangeably: “The term ‘cause of action’ is subject to different meanings dependent on its usage in a given context. [Citation.] ‘A cause of action is the right to relief in court.’ [Citation.] It is the right to enforce an obligation. [Citation.] [¶] A ‘cause of action’ is simply ‘“the obligation sought to be enforced.”’ [Citations.]” (Abatti v. Eldridge (1980) 103 Cal.App.3d 484, 487-488; see also DeMonbrun v. Sheet Metal Workers (1956) 140 Cal.App.2d 546, 553 [“A cause of action is the right to secure redress for violation of an obligation owing to the claimant”].) For our purposes, a necessary characteristic of both terms is the existence of an obligation owed by TIG. The relevant obligation in this case, if any, is an obligation by TIG to pay more than the limits on the subject insurance policy to the Munoz children.
TIG asserts that this obligation arises by statute; specifically, Insurance Code section 790.03, subdivision (h)(5), which defines “unfair and deceptive acts or practices in the business of insurance” to include: “Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.” Determining whether TIG owed this obligation to the Munoz children, or whether the Munoz children had the right to enforce this obligation, requires a brief review of the requirements of an action for an insurer’s bad faith refusal to settle.
In Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 (Royal Globe), the California Supreme Court interpreted Insurance Code section 790.03 to allow a third party claimant to sue an insurer directly for violations of subdivision (h). (Royal Globe, supra, at p. 884.) However, this suit could not be brought until the action between the third party claimant and the insured had been concluded. (Ibid.) This requirement created confusion as lower courts subsequently attempted to determine what constituted the “conclusion” of an action under Royal Globe.
Nine years later, the court overruled Royal Globe, holding that a third party claimant has no rights of recovery against an insurer for bad faith refusal to settle without a judicial determination of the insured’s liability. (See Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 (Moradi-Shalal).) In Moradi-Shalal, the plaintiff was injured in an automobile accident negligently caused by the insured. The plaintiff settled her action against the insured, and the action was dismissed with prejudice. The plaintiff then brought suit against the insurer for bad faith refusal to settle under Insurance Code section 790.03. The Moradi-Shalal court criticized Royal Globe, noting that it tended to encourage unwarranted, inflated settlement demands. (Moradi-Shalal, supra, at p. 301.) The court agreed with some scholars’ observations that under Royal Globe a settlement demand “‘now carries the threat that, unless settlement is immediate, a separate suit will be filed for violation of the Unfair Practices Act.’” (Moradi-Shalal, supra, at p. 301.) The court further noted that another “unfortunate consequence” of Royal Globe was that it tended “to create a serious conflict of interest for the insurer, who must not only protect the interests of its insured, but also must safeguard its own interests from the adverse claims of the third party claimant. This conflict disrupts the settlement process and may disadvantage the insured.” (Moradi-Shalal, supra, at p. 302.) Furthermore, the court found that, based upon the legislative history of Insurance Code section 790.03, there was never any intent by the drafters of the statute to create a private right of action. (Moradi-Shalal, supra, at pp. 300-301.) The court further held that mere “settlement” is an “insufficient conclusion of the underlying action: there must be a conclusive judicial determination of the insured’s liability before the third party can succeed in an action against the insurer under [Insurance Code] section 790.03.” (Id. at p. 306.) An admission does not constitute a judicial determination of liability. (Id. at p. 310.)
While Moradi-Shalal construed Insurance Code section 790.03 to allow only for administrative remedies enforced by the Insurance Commissioner, it also made clear that insureds retain remedies against the insurer in terms of breach of contract or breach of the implied covenant of good faith and fair dealing. (Moradi-Shalal, supra, 46 Cal.3d at pp. 304-305.)
Subsequent case law has confirmed the holding in Moradi-Shalal. An insurer that breaches its duty of reasonable settlement by unreasonably refusing to settle within policy limits is liable to its insured for the entire amount of any judgment awarded at trial, regardless of policy limits. (Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718, 725.) The insured can assign to the third party any rights he or she may have against the insurer for bad faith refusal to settle. (See Brown v. Guarantee Ins. Co. (1957) 155 Cal.App.2d 679, 695-696; Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 661-662.) However, “[s]uch an 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.” (Hamilton v. Maryland Casualty Co., supra, at p. 725, italics added.)
Therefore, two conditions must exist before an injured plaintiff has a cause of action against a defendant’s insurer for bad faith: a judgment against the insured in excess of the policy limits and an assignment of rights from the insured to the plaintiff. Neither of these conditions occurred prior to TIG’s $600,000 payment to the Munoz children. Without an excess judgment, TIG’s insured had no rights to assign to plaintiffs. Thus, as a matter of law, the Munoz children never had a cause of action against TIG for bad faith refusal to settle. To the extent that TIG had an obligation to its insured to attempt to settle in good faith, such obligation cannot support a duty on the part of PCS to defend, indemnify, or hold TIG harmless in this case because the insured never asserted any allegation against TIG that called for a defense and TIG never made a payment to the insured to settle a bad faith claim asserted by the insured.
PCS’s duties under the indemnity provision are also triggered when TIG incurs a “liability” caused by PCS’s acts, errors, or omissions. In the context of the agreement, a “liability” also denotes an existing legal obligation or duty. (See, e.g., Webster’s 3d New Internat. Dict. (1993) p. 1302 [liability is the quality or state of being “bound or obligated according to law or equity”]; Union Oil Co., Inc. v. Basalt Rock Co., Inc. (1939) 30 Cal.App.2d 317, 319-320 [liability is “a condition which creates a duty to perform an act”].) For the same reasons that the Munoz children did not have a cause of action against TIG, TIG had no liability to the Munoz children.
Next, we discuss the meaning of the term “claims” as it appears in the indemnity provision. One meaning of this word is a “cause of action.” (Black’s Law Dict. (7th ed. 1999) p. 240.) Another meaning of the word is more expansive, encompassing demands for payment from TIG on obligations not actually owed. We reject such a broad construction of the term here because it would conflict with another provision of the agreement and frustrate the apparent intentions of the parties. (See Civ. Code, § 1641 [“The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other”].) Paragraph 4.10 of the agreement expressly states: “[PCS] shall not: [¶] . . . Act as an insurer for any insureds, and this Agreement shall not be construed as an insurance policy or any contract or agreement of indemnity . . . .” In construing PCS’s duty, TIG again refers us to Insurance Code section 790.03, subdivision (h)(5), which requires an insurer to attempt “in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.” TIG also relies upon the implied covenant of good faith and fair dealing, which imposes a duty upon an insurer to accept a “reasonable” offer to settle a claim against its insured within policy limits when there is a substantial likelihood of a recovery in excess of those limits. (Strauss v. Farmers Ins. Exchange (1994) 26 Cal.App.4th 1017, 1021.) However, an insurer may refuse to settle a case for policy limits in good faith when, despite the settlement, the insured remains exposed to liability to others. (Cf. ibid.) Indeed, acceptance of such an offer may constitute a breach of the implied covenant of good faith and fair dealing as to the insured. (Coe v. State Farm Mut. Auto. Ins. Co. (1977) 66 Cal.App.3d 981, 994.) Significantly, “[b]ad-faith refusal to accept a settlement offer cannot occur where ‘acceptance’ would itself be bad faith.” (Ibid.)
The words “Claim” and “Claims” are defined in the definitions section of the agreement as certain events “arising out of or in connection with a Policy.” It appears to us that this definition was intended to apply to claims made against an insured, not against TIG. The word “claim” in the indemnity provision, by contrast, clearly refers to claims made directly against TIG. In all instances in the agreement where the word “Claim” is used with respect to a claim made under a TIG policy, the first letter is capitalized. In the indemnification provision, the word is used without capitalization. Moreover, neither party contends that this definition applies to the indemnity provision.
The primary reason that PCS did not accept the Munoz children’s offer to settle was because of Beck’s concern that settling with the Munoz children would expose TIG’s insured to another action by Munoz’s estranged husband. The concern was well-founded: a wrongful death defendant aware of an heir who is not made a party to the action may be sued in a subsequent action by that heir. (Valdez v. Smith (1985) 166 Cal.App.3d 723, 731; Gonzales v. Southern Cal. Edison Co. (1999) 77 Cal.App.4th 485, 490-491.) Thus, so long as the possibility of a second action by the estranged husband remained, PCS was justified in refusing to settle with the Munoz children.
TIG argues that any action by the insured’s husband would have been barred by the two-year statute of limitations, which had passed by the time the Munoz children’s 998 offer was made. (See Code Civ. Proc., § 335.1.) However, the insured was living in Mexico when the 998 offer was made, and the statute of limitations was arguably tolled while she was abroad. (See id., § 351 [limitations period is tolled during time defendant is outside the state].) There thus remained the possibility that settling the Munoz children’s action would have exposed the insured to a subsequent action by Munoz’s husband without any available insurance. Because Beck was also unable to communicate with the insured during this time, he could not obtain her consent to such a settlement. TIG’s approval of such a settlement would thus have potentially exposed the insurer to a claim of bad faith by Gonzalez. (See Coe v. State Farm Mut. Auto. Ins. Co., supra, 66 Cal.App.3d at p. 994.) Under these circumstances, the refusal to accept the 998 offer cannot constitute a breach of either the covenant of good faith and fair dealing implied in the insurance policy or the statutory requirement of attempting to effectuate a good faith and fair settlement.
In its complaint, TIG alleged six causes of action. Its brief on appeal, however, addresses only the allegations of its breach of contract and negligent breach of contractual claims. We therefore consider the remaining causes of action to be abandoned. (See Reyes v. Kosha (1998) 65 Cal.App.4th 451, 466, fn. 6.)
Based on the evidence submitted by the parties and the arguments presented, we hold that PCS has carried its burden of establishing the absence of any triable issue of material fact and that it is entitled to judgment as a matter of law.
IV. DISPOSITION
The judgment is affirmed. PCS shall recover its costs on appeal.
We concur: Hollenhorst, Acting P.J., Miller, J.