Summary
rejecting claim of error where trial court's evidentiary "rulings simply precluded certain arguments or discrete items of evidence," but "none of the challenged rulings . . . foreclosed [the plaintiff's] essential theory of liability"
Summary of this case from Lave v. Charter Commc'ns, LLCOpinion
E018614 (Super.Ct.No. 212065)
Filed August 11, 1998 Certified for Partial Publication
Pursuant to California Rules of Court, rules 976(b) and 976.1, this opinion is certified for publication with the exception of parts II.B.2 through II.B.12.
APPEAL from the Superior Court of Riverside County. Gloria Connor Trask, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) Affirmed.
Roxborough, Pomerance Gallegos, Nicholas P. Roxborough, Drew E. Pomerance, Esteban G. Gallegos, Shernoff, Bidart, Darras Arkin, and Michael J. Bidart, for Plaintiff and Appellant.
Jody A. Carr, Horvitz Levy, Christina J. Imre, Stephanie Rae Williams, Sheppard, Mullin, Richter Hampton, Finley L. Taylor, and Justine M. Casey, for Defendant and Respondent.
Tudor Ranches, Inc. (Tudor) stipulated to judgment in favor of State Compensation Insurance Fund (SCIF) in order to seek immediate appellate review of numerous in limine rulings. While we conclude the judgment is appealable, on the record before us we cannot conclude the court abused its discretion in making the rulings. Accordingly, we affirm.
OPINION
FACTUAL AND PROCEDURAL BACKGROUND
A. Nature of the Present Dispute
SCIF is a public enterprise fund created for the purpose of transacting workers' compensation insurance. (Ins. Code, §§ 11770, 11773.) It was established to ensure that affordable workers' compensation insurance would be available to employers when coverage became mandatory. ( Courtesy Ambulance Service v. Superior Court (1992) 8 Cal.App.4th 1504, 1511.)
SCIF "may transact workers' compensation insurance required or authorized by law of this state to the same extent as any other insurer." (Ins. Code, § 11778.) It is directed by statute to be "fairly competitive with other insurers," and ultimately to become "neither more nor less than self-supporting." (Ins. Code, § 11775.) If SCIF accumulates an excess of assets over liabilities, necessary reserves, and a reasonable surplus for a given year, it may declare a dividend or credit to each employer whom it insures. (Ins. Code, § 11776.)
Tudor is a California corporation which grows and ships grapes and citrus fruit. From 1970 through 1991, Tudor purchased workers' compensation insurance from SCIF. In 1991, Tudor brought this action against SCIF for breach of implied covenant of good faith and fair dealing, interference with contractual relations, fraud, negligent misrepresentation, negligence, accounting, declaratory relief, and breach of contract. In essence, Tudor contends SCIF established excessive reserves on, and otherwise mismanaged, Tudor's claims files, so that SCIF would receive higher premiums from and pay lower dividends to Tudor.
Apparently, Tudor amended its complaint in late 1994 or early 1995 to add a claim for spoliation of evidence, but the record does not contain a copy of the amended complaint.
Reserves are estimates of the amounts required to pay claims for which the insurer may be liable. ( Lipton v. Superior Court (1996) 48 Cal.App.4th 1599, 1613.) In the workers' compensation context, reserve levels directly affect the insured's premiums and dividends. ( Id., at p. 1614, fn. 16.)
B. Lower Court Rulings Sought to be Reviewed
Prior to trial, Tudor filed nine motions in limine, and SCIF filed fourteen. Most of the parties' motions sought to exclude various items of evidence. The lower court granted some of Tudor's motions and denied others. It granted, in whole or in part, all of SCIF's motions, though, as noted, post, it stated all of its rulings were subject to reconsideration. Tudor challenges the following rulings on SCIF's motions:
1. Restricting the parties to the language of the relevant Insurance Code sections in describing SCIF (Motion No. 1);
2. Excluding testimony of Tudor's claims expert that SCIF's method of setting reserves was not standard in the industry, unless the expert produced the manuals of other companies he used for comparison (Motion No. 2);
3. Excluding or deferring evidence of SCIF's reserving practices with respect to insureds other than Tudor (Motion No. 5);
4. Excluding reference to the Unfair Insurance Practices Act (Ins. Code, §§ 790-790.10) (Motion No. 6);
5.Excluding or deferring evidence of attorney fees and consultants' costs incurred by Tudor (Motion No. 7); 6. Excluding evidence of SCIF's practices in administering workers' compensation insurance for public employers, absent a showing that SCIF followed the same practices with respect to Tudor (Motion No. 8);
7. Excluding evidence of alleged misreporting by SCIF of medical/legal costs (Motion No. 10);
8. Excluding reference to a trade journal article concerning SCIF's reserving practices, unless a hearsay exception was established (Motion No. 11);
9. Excluding reference to an SCIF internal memorandum concerning sales techniques, absent a sufficient foundation (Motion No. 12);
10.Excluding evidence of nonfinal judgments against SCIF in other cases involving similar claims by insureds (Motion No. 13); and
11. Excluding reference to an internal SCIF memorandum concerning requests by insureds to examine claim files, absent a sufficient foundation (Motion No. 14).
C. The Parties' Stipulation for Judgment
After the court made its rulings, counsel for Tudor proposed to enter into a stipulation for judgment in favor of SCIF so that Tudor could file an immediate appeal. Counsel asserted that, due to the court's rulings, "we can't put into evidence and present the kind of trial that we feel we need to and that we believe the law allows us to." It appears one or both parties then prepared a stipulation for entry of judgment in favor of SCIF and against Tudor on Tudor's claims for breach of implied covenant of good faith and fair dealing, fraud, negligence, and breach of contract. The stipulation stated Tudor's remaining claims had been dismissed voluntarily, without prejudice, and the parties had stipulated to toll the statute of limitations on those claims pending an appeal of the judgment.
Before the court signed the judgment, however, the stipulation and judgment were modified by interlineation. As modified, the stipulation stated the parties had stipulated on the record to entry of a judgment in the form attached. The attached form of judgment awarded judgment in favor of SCIF and against Tudor on Tudor's claims for breach of implied covenant of good faith and fair dealing, negligence, breach of contract, and spoliation of evidence. It further recited that Tudor's remaining claims "have been dismissed," and deleted the provision that the dismissal was without prejudice. The court signed the modified document, entitled, "Final Judgment," and Tudor appealed.
II
DISCUSSION
A. Appealability
As a preliminary matter, SCIF argues the appeal should be dismissed because the judgment from which Tudor appeals is not appealable. Ordinarily, a judgment entered pursuant to a stipulation is not appealable. ( Adoption of Matthew B. (1991) 232 Cal.App.3d 1239, 1267.) In Building Industry Assn. v. City of Camarillo (1986) 41 Cal.3d 810 (cited hereafter as Building Industry), however, the Supreme Court stated, "there is an exception to the rule that a party may not appeal a consent judgment. If consent was merely given to facilitate an appeal following adverse determination of a critical issue, the party will not lose his right to be heard on appeal." ( Id., at p. 817.)
The court reiterated the exception in a subsequent opinion ( Connolly v. County of Orange (1992) 1 Cal.4th 1105, 1111), and numerous Court of Appeal decisions have cited and relied on it. (See, e.g., County of San Bernardino v. Pacific Indemnity Co. (1997) 56 Cal.App.4th 666, 678, fn. 7; Edwards v. Centex Real Estate Corp. (1997) 53 Cal.App.4th 15, 26, fn. 6; Holmes v. Roth (1992) 11 Cal.App.4th 931, 934, fn. 1; Boothby v. Atlas Mechanical, Inc. (1992) 6 Cal.App.4th 1595, 1598.) The justification offered for the exception is that it would be "`wasteful of trial court time' to require the plaintiff to undergo a probably unsuccessful court trial merely to obtain an appealable judgment." ( Building Industry, supra, 41 Cal.3d at p. 817.)
Tudor argues the Building Industry exception authorizes its appeal in this case. In response, SCIF first suggests the exception is no longer viable after Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725. Second, SCIF argues the exception does not apply here because the rulings Tudor seeks to have reviewed were not adverse final determinations. We consider each argument in turn.
1. Viability of Building Industry Exception
In Morehart v. County of Santa Barbara, supra, 7 Cal.4th 725, the Supreme Court, disapproving a line of Court of Appeal authority, held that, under the "one final judgment" rule, "an appeal cannot be taken from a judgment that fails to complete the disposition of all the causes of action between the parties even if the causes of action disposed of by the judgment have been ordered to be tried separately, or may be characterized as `separate and independent' from those remaining." ( Id., at p. 743.) As SCIF notes, the Court of Appeal in Four Point Entertainment, Inc. v. New World Entertainment, Ltd. (1997) 60 Cal.App.4th 79, read Morehart as "implicitly overruling" Building Industry's conclusion that an appeal from a consent judgment following adverse determination of a critical issue is proper. ( Four Point, supra, at p. 83, fn. 5.)
The statement of the court in Four Point, however, should be considered in light of the context in which the appealability issue was raised in that case. In Four Point, the trial court summarily adjudicated some, but not all, of the plaintiff's claims in favor of the defendant. The parties then stipulated to the entry of a "final judgment" which recited their intent that the remaining claims be dismissed without prejudice to their later prosecution. The court concluded the judgment was nonappealable because it did not dispose of all claims between the parties as required by Morehart. ( Four Point, supra, 60 Cal.App.4th at p. 83; see also Don Jose's Restaurant, Inc. v. Truck Ins. Exchange (1997) 53 Cal.App.4th 115; Jackson v. Wells Fargo Bank (1997) 54 Cal.App.4th 240; Hill v. City of Clovis (1998) 63 Cal.App.4th 434.)
We agree with the Four Point court that, notwithstanding Building Industry, Morehart precludes a party from obtaining immediate review of an adverse ruling on some of its claims by dismissing the remaining claims without prejudice. However, it is not apparent to us that Morehart precludes a party from stipulating to an adverse judgment with prejudice on all of its claims, in order to appeal from that judgment. In such a case, there would be no claims left unresolved and, hence, no violation of Morehart. Indeed, one of the decisions on which the Four Point court relied stated, albeit in dictum, that a stipulation for a judgment dismissing all remaining causes of action with prejudice "would have solved the appealability problem." ( Don Jose's Restaurant, Inc. v. Truck Ins. Exchange, supra, 53 Cal.App.4th at p. 118, fn. 3.) We also note that at least two decisions after Morehart have applied the Building Industry exception to allow appeals from stipulated judgments which (apparently) did dispose of all of the claims between the parties. ( Edwards v. Centex Real Estate Corp., supra, 53 Cal.App.4th 15, 26, fn. 6; Huntley v. Foster (1995) 35 Cal.App.4th 753, 755.)
In the absence of further guidance from the Supreme Court, we construe Morehart as abrogating the Building Industry exception only to the extent that exception might be applied to permit an appeal from a stipulated judgment which does not dispose of all claims between the parties. We therefore must determine whether the judgment in this case did dispose of all of Tudor's claims.
The judgment as signed by the court stated the unadjudicated claims had been dismissed but did not specify whether the dismissal was with or without prejudice. We recently concluded that a dismissal which failed to specify whether it was with or without prejudice should be deemed to be with prejudice absent a contrary contention by the plaintiff. ( Arciniega v. Bank of San Bernardino (1997) 52 Cal.App.4th 213, 216, fn. 1.) Tudor makes no contention here that the dismissal was without prejudice. Rather, Tudor states in arguing the judgment is appealable: "The remaining five causes of action were completely dismissed. There is no provision that the dismissal was `without prejudice.'"
Moreover, even a judgment that ordinarily would not be appealable will support an appeal where the appellant waives its right to litigate any unresolved cause of action. ( Sullivan v. Delta Air Lines, Inc. (1997) 15 Cal.4th 288, 309.) By taking the position that the stipulated judgment was a final, appealable disposition of all of its claims, Tudor unequivocally confirmed its consent to the dismissal of the unadjudicated claims with prejudice. Thus, the judgment, both on its face and in practical effect, constituted a final disposition of all claims.
2. Applicability of Building Industry to In Limine Rulings
SCIF points out that the Building Industry exception, as stated by the Supreme Court, contemplates an appeal from a consent judgment "following adverse determination of a critical issue." SCIF asserts the judgment in this case was not an adverse determination because the court specified that "[a]ll of these [rulings] . . . are without prejudice and subject to renewal."
In limine rulings are by their nature tentative. ( Johnson v. Tosco Corp. (1991) 1 Cal.App.4th 123, 141.) However, no decision of which we are aware has held that a stipulated final judgment was not appealable because it followed an in limine ruling. To the contrary, at least four decisions have permitted appeals under Building Industry from stipulated judgments following in limine rulings. ( Edwards v. Centex Real Estate Corp., supra, 53 Cal.App.4th at p. 26, fn. 6 [ in limine ruling excluding all evidence of oral and written communications leading to execution of settlement and releases appellants sought to challenge]; Huntley v. Foster, supra, 35 Cal.App.4th at p. 755 [ in limine ruling precluding treating physicians from testifying as experts]; Esbensen v. Userware Internat., Inc. (1992) 11 Cal.App.4th 631, 635 [ in limine ruling excluding evidence of implied "good cause" requirement for termination of employment]; Dong v. Board of Trustees (1987) 191 Cal.App.3d 1572, 1576-1577 [ in limine ruling excluding documentary evidence].) None of these decisions states or implies a requirement that an in limine ruling not be subject to further consideration before the parties may stipulate to an appealable final judgment.
We recognize that, without some limitation on the Building Industry exception, a party theoretically could obtain immediate appellate review of any in limine ruling, no matter how inconsequential, provided both parties were willing to stipulate to a judgment finally disposing of all claims. It might be argued that an appeal under Building Industry should be allowed only where the ruling at issue truly makes it impossible as a practical matter for the plaintiff to proceed with the case. However, we are unaware of any authority imposing such a requirement, and to do so would require the reviewing court to make an assessment of the feasibility of the plaintiff's case without the benefit of a trial record. Without guidance from precedent, we conclude that, if the Building Industry exception is to be thus limited, the limitation should come from the Supreme Court. Since the judgment in this case met the criteria for finality as stated by the court in Morehart, we will consider the appeal on its merits.
B. Merits
1. Standard of Review
The parties disagree sharply as to the appropriate standard of review. Because of the importance of that issue to our determination of Tudor's claims of error, we discuss it in some detail.
The trial court is "vested with broad discretion in ruling on the admissibility of evidence." ( Smith v. Brown-Forman Distillers Corp. (1987) 196 Cal.App.3d 503, 519.) "[T]he court's ruling will be upset only if there is a clear showing of an abuse of discretion." ( Id., at p. 520.) "`The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason. When two or more inferences can reasonably be deduced from the facts, the reviewing court has no authority to substitute its decision for that of the trial court.' [Citation.]" ( Walker v. Superior Court (1991) 53 Cal.3d 257, 272.) Moreover, even where evidence is improperly excluded, the error is not reversible unless "`it is reasonably probable a result more favorable to the appellant would have been reached absent the error. [Citations.]' [Citation.]" ( Vorse v. Sarasy (1997) 53 Cal.App.4th 998, 1013; accord Castaneda v. Bornstein (1995) 36 Cal.App.4th 1818, 1830.)
Tudor acknowledges these general principles but argues different standards should apply here. Tudor first cites City of Sacramento v. Drew (1989) 207 Cal.App.3d 1287 for the proposition that, where the trial court "is mistaken about the scope of its discretion," the error is one of law. ( Id., at pp. 1297-1298.) Tudor notes that, at one point during the hearing on the in limine motions, the lower court stated: "What you're required to show and what's permissible by the evidence and relevant in this trial may be two different things. And just because you're required to show it doesn't mean I'm going to allow you to put it on." According to Tudor, the court's suggestion that it could exclude "evidence that a party is required by law to establish" shows it used an erroneous legal standard which is subject to de novo review.
We read the court's comment differently than Tudor does. In our view, the court merely observed that, even though the law might require Tudor to prove a given matter, Tudor still had to do so with admissible evidence. In other words, Tudor could not establish admissibility merely by showing the evidence might be helpful in proving its case. Nothing in this unremarkable observation, nor anything else in the record, indicates the court misunderstood the extent of its discretion. We therefore reject Tudor's argument for de novo review.
Tudor also contends the lower court's rulings, if erroneous, are reversible per se. Tudor cites Kelly v. New West Federal Savings (1996) 49 Cal.App.4th 659, in which the court held that, where the effect of the trial court's abuse of its discretion in granting in limine motions "was to prevent plaintiffs from offering evidence to establish their case," the error was reversible per se. ( Id., at p. 677.) In Kelly, however, the trial court completely foreclosed the plaintiffs from pursuing the only factual theory of liability supported by the evidence. ( Id., at pp. 667-668, 675.)
In contrast, none of the challenged rulings in this case foreclosed Tudor's essential theory of liability. The great majority of the rulings simply precluded certain arguments or discrete items of evidence (e.g., Motions No. 1, 6, 7, 8, 10, 11, 12, 13, 14). The remaining rulings merely precluded Tudor's claims expert from testifying to industry standards unless the materials on which he had relied were produced (Motion No. 2), and excluded evidence of SCIF's reserving standards with respect to other insureds (Motion No. 5). Tudor's essential theory of liability was that SCIF had mishandled claims against Tudor. The court did nothing to interfere with Tudor's ability to pursue that theory.
Moreover, Kelly's application of a standard of reversibility per se was based on its observation that, in many cases, a court cannot intelligently rule on admissibility at the in limine stage because the record is not sufficiently developed to determine relevance, probative value, and potential for prejudice. (49 Cal.App.4th at p. 671.) In such cases, it cannot reasonably be determined on appeal what the outcome would have been absent the erroneous ruling, and reversal should be automatic.
In Kelly, however, the court, not the plaintiffs, was responsible for the undeveloped evidentiary record, because, after the court excluded the bulk of the plaintiffs' evidence, it granted a nonsuit based on the remaining evidence. (49 Cal.App.4th at p. 669.) Here, the lower court not only did not grant a nonsuit, it expressly invited Tudor to present its evidence to the jury and to request reconsideration at that time of any in limine rulings with which it was dissatisfied. Instead, Tudor made a tactical decision to force immediate review by stipulating to an adverse judgment.
At oral argument, Tudor asserted that, even if the court was willing to reconsider its rulings during the evidence phase, it effectively prevented Tudor from presenting its case by precluding reference to the disputed evidence in its opening statement. We do not deny the importance of a party's opening statement in its trial presentation. But it is neither uncommon nor unreasonable for a court to exclude evidence from an opening statement where its ultimate admissibility is uncertain. As we have said, the excluded evidence was not so vital to Tudor's case as to preclude it from proceeding on its essential theory of liability, and there is no reason to believe the court would have granted a nonsuit had Tudor presented its opening statement without the evidence. Had the court done so, of course, Tudor could have appealed that ruling and would have been entitled to de novo review and the benefit of every legitimate factual inference. (See Adkins v . State of California (1996) 50 Cal.App.4th 1802, 1809.) But we will not apply that standard of review to discretionary in limine rulings which, at most, may have unduly restricted Tudor's opening statement.
By appealing, Tudor assumed "the burden of showing reversible error by an adequate record." ( Ballard v. Uribe (1986) 41 Cal.3d 564, 574.) One aspect of that burden requires that the appellant develop the fullest possible evidentiary record before seeking review. Thus, an appellant must make an offer of proof in the trial court in order to claim on appeal that evidence was wrongly excluded. ( Castaneda v. Bornstein, supra, 36 Cal.App.4th 1818, 1827.) Similarly, if an appellant wishes to argue a point on appeal, it must first make a record by raising the point in the trial court. ( North Coast Business Park v. Nielsen Construction Co. (1993) 17 Cal.App.4th 22, 28-29; In re Marriage of Moschetta (1994) 25 Cal.App.4th 1218, 1227.)
If Tudor believed, as it now argues, that the record when the court ruled was not sufficiently developed to permit meaningful consideration of the issues, it had at least two alternatives. First, it could have requested a hearing, pursuant to Evidence Code section 402, at which it could have presented foundational evidence to establish the admissibility of the evidence SCIF sought to exclude. Second, it could have proceeded to trial, presented the appropriate foundational evidence there, and asked the court to reconsider its exclusionary rulings in light of the more complete record. It did neither.
An analogous situation exists where a demurrer is sustained with leave to amend and the plaintiff elects to appeal immediately rather than amend. In that case, the reviewing court will "presume the plaintiff has stated as strong a case as he can" and "resolve all ambiguities and uncertainties raised by the demurrer against the plaintiff." ( Setliff v. E. I. Du Pont de Nemours Co. (1995) 32 Cal.App.4th 1525, 1533; accord Casella v. City of Morgan Hill (1991) 230 Cal.App.3d 43, 48.) Similarly, where a plaintiff elects to stipulate to an adverse judgment after evidence is excluded at a preliminary stage, it should be presumed the plaintiff made the strongest foundational showing it was prepared to make, and any uncertainty in the record should be resolved in favor of the court's ruling. It would be ironic indeed to hold that a plaintiff, after deliberately forcing review on an incomplete record, may invoke a standard of reversibility per se on the basis that the record was not sufficiently developed when the court made its rulings.
2. Profit Status of SCIF
SCIF's Motion No. 1 sought to exclude evidence that SCIF is not a nonprofit public entity. The court ruled that both sides in referring to SCIF were to use the language of the Insurance Code, which provides that SCIF "shall be organized as a public enterprise fund." (Ins. Code, § 11773.) Tudor contends this ruling improperly precluded it from showing that SCIF had an incentive to mishandle Tudor's claims because, contrary to the Legislature's intent that it "become neither more nor less than self-supporting" (Ins. Code, § 11775), SCIF wanted to make a profit.
Tudor contends the court ruled Tudor could not refer to SCIF as a "public enterprise fund." Although the court did at one point say, "You can't say that they're a public enterprise," it is apparent from the context that the court meant SCIF could not refer to itself as a nonprofit public entity. Moreover, one wonders why Tudor would have wanted to refer to SCIF as a public enterprise fund in any event, when Tudor's whole point was that IF improperly operated on a for-profit basis.
First, it should be noted that Tudor's position is contrary to the position expressed in its written opposition to SCIF's motion. There, Tudor said it had "no intention of describing SCIF as a `for profit' insurance company."
Moreover, Tudor ignores the court's actual ruling. The court expressly stated, "You can argue anything you want. The definition — The definition we will start with is the code language. And you can say, while State Compensation is this and thus and so, we are going to attempt to prove to you that they are not; and here's why." (Italics added.) The court then asked, "Is everybody happy with that?" Counsel for Tudor responded, "Yes."
Thus, it is apparent the court did not rule Tudor could not prove or argue that SCIF, contrary to its statutory description, sought to make a profit. The court did not abuse its discretion, nor could any error in restricting the parties to the code language in describing SCIF have affected the outcome of the case.
3. Production of Materials Relied on by Tudor's Claims Expert
SCIF's Motion No. 2 sought to preclude the testimony of one of Tudor's experts, Sam Smith. SCIF argued that Smith planned to testify SCIF's reserving practices did not comply with the industry standard but based his opinion largely on manuals of other companies whose names he would not reveal and whose manuals he would not produce. The court granted the motion "unless and until State Comp receives the information upon which the expert is relying." Tudor argues this was an abuse of discretion, because Smith had confidentiality arrangements with three of the other insurers which precluded him from providing their manuals to SCIF. At most, Tudor argues, the court should have reviewed the manuals in camera to determine whether they supported Smith's opinion or precluded Smith from testifying about the reserving practices of those three companies.
Again, Tudor ignores what the court actually did. In its opposition to SCIF's motion, and again at the in limine hearing, Tudor stated Smith would produce the manuals, subject to a protective order limiting their use to SCIF's attorneys and experts, if the court so ordered. The court then stated, "I don't have a problem with ordering it," and invited Tudor to make an expedited motion for a protective order, to be heard the following day or as soon as possible. Tudor, of course, made no motion, because it stipulated to judgment to pursue the present appeal.
In People v. Price (1991) 1 Cal.4th 324, the Supreme Court held it was not an abuse of discretion to exclude testimony of an expert who refused to reveal the names of persons upon whose statements he had relied in forming his opinions. ( Id., at pp. 420-421.) The court in this case made a reasonable effort to accommodate any legitimate confidentiality problems Smith may have had, and its refusal to admit his testimony absent disclosure of the information on which it was based was not an abuse of discretion.
4. SCIF's Practices in Setting Reserves
SCIF's Motion No. 5 sought to exclude evidence of any alleged impropriety in SCIF's reserving standards or negligence of SCIF in setting reserves. The basis of the motion was that SCIF's reserving practices were regulated by the insurance commissioner and not subject to evaluation by a jury.
The court rejected SCIF's contention that its reserving practices were not subject to jury scrutiny. It told counsel for Tudor, "You can obviously introduce evidence of the standard and the reserve for individual — for individual cases." The court also made it clear Tudor could present evidence of "what is the standard in the industry for doing this and for doing that," as long as the evidence related to "[c]ompanies of this size with this many such and such . . ., in conformance with your complaint." The court stated, however, that SCIF's "overall how they do their business" was not relevant.
Counsel for Tudor replied that, under Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, Tudor was required to prove a pattern of misconduct in order to recover punitive damages. Counsel stated: "We have evidence in this case that not only were the files of Tudor handled . . . consistent with that standard, . . . but we also could show that they were doing this statewide to everyone." The court told counsel, "You may renew your motion when it becomes appropriate. It might be clearer to me how it's relevant at that time." The court reiterated, "I tailored this to allow you to introduce evidence of the reserving standards and negligence in estimating in individual case files subject to a renewal to broaden it if it appears to be relevant in this case."
Tudor argues the court's ruling "deprived Tudor of its right to present its case," and asserts it would have been subject to nonsuit "without the ability to talk about SCIF's departure from the industry custom and practice and its negligent handling of Tudor's claims." The record plainly does not support Tudor's assertion. As the court expressly stated, it was prepared to admit evidence of the reserving standards SCIF employed in handling Tudor's claims and the industry standards for comparable companies.
The remaining question is whether Tudor was entitled to present evidence of SCIF's handling of other insureds' claims. Several decisions have noted that "a central theme common to those [bad faith] cases which have sustained punitive awards is the existence of established policies or practices in claims handling which are harmful to insureds." ( Mock v. Michigan Millers Mutual Ins. Co. (1992) 4 Cal.App.4th 306, 329; accord Tomaselli v. Transamerica Ins. Co., supra, 25 Cal.App.4th 1269, 1287.) In Tomaselli, the court found no evidence supporting punitive damages where "there was no showing that the inadequacy of [the insurer's] claims administration was part of a course of conduct" and "[n]o evidence was introduced as to [the insurer's] handling of other claims." ( Id., at p. 1288.)
Neither Tomaselli nor Mock, however, can be read to hold that an insured is required, or even entitled, to put on evidence of the insurer's handling of claims of other insureds in every case in which punitive damages are sought. Significantly, Tomaselli and Mock each involved a single claim by individual insureds under their homeowner's policy. Thus, as a practical matter, the insureds could not establish a policy or practice of bad faith handling of claims without evidence of claims by other insureds.
Here, in contrast, Tudor's claims of bad faith arose from coverage extending over 21 years, during which period, according to Tudor, its claim frequency was "considerably higher than the anticipated claim frequency calculated for it based on the [California Workers' Compensation Insurance Bureau's] standardized formula." Given the duration of coverage and volume of claims, the court reasonably could conclude it might not prove necessary for Tudor to present evidence relating to claims against other insureds to establish a course of conduct to support punitive damages.
Additionally, whether to admit evidence of other claims is a matter for the court's discretion under Evidence Code section 352 ( Moore v. American United Life Ins. Co. (1984) 150 Cal.App.3d 610, 627-628.) Tudor simply proposed to show SCIF handled other insureds' claims the same as it did Tudor's. If there was sufficient evidence of claims against Tudor itself to establish a course of conduct, evidence concerning other insureds' claims would have been cumulative and, hence, subject to exclusion under section 352
Such evidence also carried a significant potential for undue consumption of time. "[I]n order to establish `a pattern of unfair claims practices' the antecedent practice must be substantially similar." ( Moore v. American United Life Ins. Co., supra, 150 Cal.App.3d at p. 625.) Tudor proposed to show "that SCIF has overreserved claim files on a statewide basis in the amount of approximately $800 million . . . ." To determine whether SCIF's setting of reserves on other insureds' claims was substantially similar to its reserving on claims against Tudor, evidence of the underlying facts and probable exposure on each claim would have been required. Given that Tudor itself claimed to have suffered damages of only about $300,000, introduction of evidence to prove overreserving on claims in the amount of $800 million would have expanded the trial considerably, probably for minimal probative value.
It is possible, of course, that evidence of other insureds' claims might ultimately have proved to be appropriate, either to establish a course of conduct or for some other reason, such as to show SCIF's profits for purposes of assessing punitive damages. But the record makes clear that the court was entirely willing to reconsider its ruling as the case developed. And since SCIF moved to bifurcate the punitive damage issue, the court was required to defer any evidence of SCIF's profits until a prima facie case of liability had been established. (Civ. Code, § 3295, subd. (d).) Given the uncertain probative value and potential for undue consumption of time, it was not an abuse of discretion for the court to limit the evidence on a provisional basis, nor can we conclude Tudor was materially prejudiced by the ruling.
5. Reference to Unfair Insurance Practices Act
SCIF's Motion No. 6 sought to exclude any reference to Insurance Code sections 790 through 790.10, also referred to as the Unfair Insurance Practices Act, on the ground there was no private right of action under the act. In its written opposition, Tudor conceded there was no private right of action but argued SCIF was improperly trying to exclude evidence of conduct which not only violated the act but also constituted bad faith under common law and therefore did support a private action. Tudor additionally argued reference to the act was relevant to show SCIF inadequately trained its personnel, because the evidence would show SCIF failed to inform its employees of the act's provisions.
The parties refer to these sections as the "Unfair Trade Practices Act." Although some decisions refer to the sections by that name (see, e.g., American Internat. Group, Inc. v. Superior Court (1991) 234 Cal.App.3d 749, 766), more recently the Supreme Court and other courts have referred to them as the "Unfair Insurance Practices Act." (See Manufacturers Life Ins. Co. v. Superior Court (1995) 10 Cal.4th 257, 264; Wolfe v. State Farm Fire Casualty Ins. Co. (1996) 46 Cal.App.4th 554, 559, fn. 6; Hadland v. NN Investors Life Ins. Co. (1994) 24 Cal.App.4th 1578, 1583.)
At the in limine hearing, the court stated its tentative intention to grant the motion and asked if Tudor wished to be heard. Counsel for Tudor said, "No, Your Honor," and there was no further discussion of the matter. On appeal, Tudor simply reiterates, almost verbatim, its written opposition in the lower court.
We find no abuse of discretion or prejudice. Precluding specific reference to the Insurance Code sections included in the act did nothing to prevent Tudor from arguing or proving that SCIF committed conduct amounting to bad faith under the common law. Similarly, Tudor easily could have shown SCIF failed to inform its personnel of their obligations to process claims fairly and promptly (see Ins. Code, § 790.03, subd. (h)) without referring to the act by name or the sections by number.
6. Attorney Fees and Consultant Costs
Although the record does not contain a copy of SCIF's Motion No. 7, it appears SCIF sought to preclude evidence of attorney fees and consultant costs incurred by Tudor. Tudor argued the fees and costs were recoverable under Brandt v. Superior Court (1985) 37 Cal.3d 813, in which the Supreme Court held an insured may recover attorney fees incurred "to obtain the benefits due under a policy . . . ." ( Id., at p. 817.) The court in Brandt distinguished such fees from "those attributable to the bringing of the bad faith action itself." ( Ibid.) It stated: "The fees recoverable, however, may not exceed the amount attributable to the attorney's efforts to obtain the rejected payment due on the insurance contract. Fees attributable to obtaining any portion of the plaintiff's award which exceeds the amount due under the policy are not recoverable." ( Id., at p. 819, italics added.)
At the in limine hearing, SCIF argued Tudor did not incur attorney fees to obtain any "benefits" under the policy, because SCIF paid benefits to the injured workers as required by the policy. The court asked counsel for Tudor "what were the benefits that were owed under the terms of the policy that had been denied and that they must sue for?" Counsel did not directly answer the question but stated, "the appropriate procedure that we've stated in our opposition is to have this issue handled after the evidence comes in." Counsel further stated: "So either their motion should be denied, or it should simply be taken up again at the end of the case. And the court will have more evidence to decide whether or not there's a benefit or not." The court then granted the motion without prejudice, leaving the matter "to be renewed at the appropriate time."
We find no prejudicial abuse of discretion. Tudor argues that good faith claims handling and dividends were "benefits" under the policy which it had to retain legal counsel to obtain. Tudor's argument that dividends are benefits to which Brandt applies was not raised in the lower court. Moreover, Tudor cites no authority holding that Brandt, which involved unpaid disability benefits, applies to a claim for nonmonetary "benefits" such as fair claims handling.
In any event, it was not unreasonable for the court to exclude the evidence temporarily, deferring a final ruling until it became apparent what benefits, if any, actually were withheld. As the record indicates, even counsel for Tudor agreed this was appropriate.
7. State of California Contract and Study
SCIF's Motion No. 8 sought to exclude evidence regarding a Master Services Contract, under which SCIF served as a third-party administrator of workers' compensation claims against certain self-insured state agencies, and a study prepared by the Department of Personnel Administration which reported certain deficiencies in SCIF's performance of the contract. According to the motion, because SCIF's only role under the contract was that of claims adjuster, not insurer, its performance was not relevant to Tudor's claim that SCIF as insurer improperly reserved claims in order to inflate premiums.
The court granted the motion without prejudice, stating it appeared SCIF's function as third-party administrator for the agencies was different from its role as insurer of Tudor. The court permitted Tudor to renew its opposition if the evidence showed that, in fact, SCIF's functions were substantially similar in both contexts.
Tudor argues the evidence was admissible to show, first, that SCIF discriminated by allowing government employers access to claims information while denying access to Tudor; and, second, that SCIF engaged in a pattern or practice of improper claims handling. We conclude the court did not abuse its discretion given the state of the record when it ruled. Absent a showing of substantial similarity between SCIF's duties with respect to the state and to Tudor, evidence that SCIF allowed government employers access to claims information did not show discrimination. Similarly, without a showing that SCIF performed a substantially similar function in both contexts, evidence that the state was critical of SCIF's performance under the contract was of questionable relevance.
The Master Services Contract provided that the State Insurance Office could review disability claims adjusted under the contract. Tudor does not state whether its policy with SCIF contained a similar provision.
Tudor argues the fact SCIF provided claims information to government employers was relevant to impeach SCIF's contention that it could not provide such information to Tudor because it had to protect injured workers' privacy. It is not clear from the record whether SCIF in fact planned to rely on that defense at trial; if it did, Tudor was free under the court's ruling to seek reconsideration of the matter.
Finally, as SCIF pointed out in its motion, the study contained hearsay, at least to the extent it was based on observations of others. The study itself may have qualified as a public record (Evid. Code, § 1280), but it included "[c]ommon complaints" voiced by unidentified individuals which were not shown to be covered by a hearsay exception. Without further foundation, the court did not act improperly in excluding the study.
8. Misreporting of Medical Costs
SCIF's Motion No. 10 sought to exclude evidence that SCIF misreported costs of medical examinations in workers' compensation cases in statistical reports to the Workers' Compensation Insurance Rating Bureau. Alternatively, SCIF moved to stay the action pending the conclusion of administrative proceedings in which the misreporting claim was being litigated. Those proceedings were in the appeal stage when SCIF made its motion.
The court excluded the evidence, concluding that if there was an administrative remedy Tudor should exhaust that remedy before asserting the misreporting claim in the present action. Tudor argues this was error, because the exhaustion requirement does not apply where the aggrieved party can positively state what the administrative agency's decision would be. Tudor asserts the administrative outcome was clear, because the Rating Bureau and Department of Insurance already had ruled SCIF did, in fact, misreport the expenses.
The exception to the exhaustion requirement cited by Tudor applies where "it can be demonstrated that an agency's decision is certain to be adverse" to the aggrieved party, so that it would be futile to require resort to the agency before proceeding to court. ( George Arakelian Farms, Inc. v. Agricultural Labor Relations Bd. (1985) 40 Cal.3d 654, 662, italics added; accord Economic Empowerment Foundation v. Quackenbush (1997) 57 Cal.App.4th 677, 684.) Tudor does not claim that was the case here; quite to the contrary, Tudor's position apparently prevailed in the administrative proceeding, subject to the pending appeal.
Since the administrative proceedings were not final, the agency findings in those proceedings were not admissible as collateral estoppel. ( Brosterhous v. State Bar (1995) 12 Cal.4th 315, 324.)
Moreover, even where the exhaustion requirement does not apply, a court in its discretion may defer to an administrative agency's determination of "`issues which, under a regulatory scheme, have been placed within the special competence of an administrative body . . . .'" ( Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 390.) Deference in such circumstances "enhances court decisionmaking and efficiency by allowing courts to take advantage of administrative expertise, and it helps assure uniform application of regulatory laws." ( Id., at p. 391.) Given the technical nature of the cost-reporting dispute, the court reasonably could conclude it was preferable to await the result of the pending administrative proceeding before litigating the dispute in court. (See Farmers Ins. Exchange v. Superior Court, supra, 2 Cal.4th at p. 398 [determination of whether insurers employed an unfairly discriminatory rate "mandates exercise of expertise presumably possessed by the Insurance Commissioner, and poses a risk of inconsistent application of the regulatory statutes if courts are forced to rule on such matters without benefit of the views of the agency charged with regulating the insurance industry."].)
9. Trade Journal Article
SCIF's Motion No. 11 sought to exclude reference to an October 1988 article in a publication, the "Weekly Insider," published by the Independent Insurance Agents and Brokers of California. The article was entitled, "State Fund Slashes Dividends — Carriers Question Motives." According to the article, SCIF had "drastically increased its retention rates, . . . ." resulting in reduced dividends to its insureds. The article stated that Jack Webb, president of SCIF, "says he is increasing retentions because he believes the State Fund will need stronger reserves in the future." It also quoted the president of a competitor company, who said SCIF was "stealing from present clients who are expecting a large dividend, to build a future war chest to subsidize a rate war when and if open rating occurs in California." The court excluded the article on the ground it was hearsay but stated it would be admissible if the proper foundations were laid.
Retentions are the amounts an insurer retains, out of funds available for dividends, to cover business expenses.
The ruling was correct. The article was hearsay, as it was evidence of the author's out-of-court statement offered to prove the truth of the matter stated. (Evid. Code, § 1200.) Tudor did not show the article came within any exception. Although Tudor submitted copies of pages from the deposition of the article's author, at which she confirmed certain of the statements in the article, the deposition testimony was itself inadmissible unless the author was unavailable as a trial witness. (Code Civ. Proc., § 2025, subd. (u)(3); Evid. Code, § 1291.) Tudor made no showing the author was unavailable.
Tudor argues the statements attributed to Webb were admissible as admissions of a party, adoptive admissions, authorized admissions, or declarations against interest under Evidence Code sections 1220, 1221, 1222, and 1230. This argument fails to recognize that the author's accounts of Webb's statements were multiple hearsay, since they involved out-of-court statements of two declarants. Thus, two hearsay exceptions were required. The cited Evidence Code sections applied, if at all, only to Webb's statements and did nothing to overcome the hearsay problem with the article itself. Additionally, section 1230 requires that the declarant be unavailable as a witness, and Tudor made no showing Webb was unavailable.
Tudor also argues that, even if the article was hearsay, its experts should have been allowed to rely on it. Experts may base their opinions on inadmissible material, but only if it is reasonably reliable. (Evid. Code, § 801, subd. (b).) Tudor made no such showing. In fact, the author of the article admitted during her deposition that "my articles would have been a compilation of what people reported to me," introducing yet another level of hearsay and potential unreliability. Moreover, even where hearsay material is sufficiently reliable for an expert to base an opinion on it, the material itself may not be related to the jury. ( Korsak v. Atlas Hotels, Inc. (1992) 2 Cal.App.4th 1516, 1524.)
In any event, since the court did nothing to prevent Tudor from proving SCIF overreserved on Tudor's claims, the additional probative value of the article to show that SCIF generally wanted to increase its reserves and decrease dividends was minimal. The potential prejudice, in particular from the allegation that SCIF was "stealing" from its clients, was considerable.
10. Sales Techniques Memorandum_
SCIF's Motion No. 12 sought to exclude reference to an undated SCIF memorandum entitled "Sales Techniques." The memorandum suggested appropriate responses if a potential insured stated, "I've heard that the State Fund over-reserves its claims," such as studies showing SCIF adjusters actually estimated reserves at less than actual case costs. The memorandum also suggested a salesperson should stress the dangers of underreserving. The court commented that the memorandum seemed like hearsay but ruled that, if Tudor called a witness who was familiar with the memorandum to lay a foundation, Tudor could refer to the memorandum at trial.
The memorandum was not hearsay unless it was offered for the truth of the matters stated. (Evid. Code, § 1200.) It appears Tudor offered the memorandum to show SCIF attempted to conceal its practice of overreserving, not for the truth of anything stated in it. However, the court did not abuse its discretion in requiring Tudor to lay a foundation.
A writing must be authenticated before it may be received in evidence. (Evid. Code, § 1401, subd. (a).) The memorandum bore no date or author, and there was no evidence as to what, if any, use SCIF actually made of it. We reject Tudor's contention that SCIF should have been required to explain the origin and significance of the memorandum. Rather, the burden is on the proponent of evidence to provide the necessary authentication. ( Downey Savings Loan Assn. v. Ohio Casualty Ins. Co. (1987) 189 Cal.App.3d 1072, 1094.)
In any event, even with a proper foundation, the memorandum's probative value was minimal. At most, it suggested SCIF was aware some potential insureds might be concerned about reserving practices. The connection between that fact and the inference Tudor sought to draw — that SCIF knowingly engaged in a practice of overreserving — was tenuous at best.
11. Nonfinal Judgments
SCIF's Motion No. 13 sought to exclude reference to other proceedings against SCIF in which no final judgments had been rendered. Specifically, SCIF sought to exclude reference to three matters in which trial court judgments against SCIF had been rendered, but appeals had been taken. The court granted the motion on the ground the nonfinal judgments were hearsay.
Tudor asserts that in each matter the trier of fact found SCIF was guilty of improper reserving. Tudor argues these findings were admissible as specific instances of misconduct to prove a plan and design under Evidence Code section 1101, subdivision (b), and to show SCIF's customary practice under Evidence Code section 1105
Section 1105, however, specifically requires that evidence offered pursuant to its provisions be "otherwise admissible." An identical requirement is implicit in section 1101, subdivision (b). That provision does not affirmatively make evidence of misconduct admissible but merely provides it is not made inadmissible by the provisions of section 1101, subdivision (a), excluding such evidence when offered to prove conduct on a specified occasion.
Here, the judgments and findings SCIF sought to exclude were not "otherwise admissible." First, they were not final. "[I]n order for a separate judgment to be admissible in evidence in a new cause for the purpose of proving facts therein recited, the judgment must be a final judgment in the cause." ( Laird v. Blacker (1992) 2 Cal.4th 606, 617.) Under California law, however, a judgment is not final while it is on appeal. (Code Civ. Proc., § 1049; Abelson v. National Union Fire Ins. Co. (1994) 28 Cal.App.4th 776, 787.)
Second, even final judgments are hearsay. "Analytically, a judgment that is offered to prove the matters determined by the judgment is hearsay evidence. . . . Therefore, unless an exception to the hearsay rule is provided, a judgment would be inadmissible if offered in a subsequent action to prove the matters determined." (Cal. Law Revision Com. com., 29B West's Ann. Evid. Code (1995 ed.) § 1300, p. 396; see also People v. Wheeler (1992) 4 Cal.4th 284, 298.)
Finally, even if the judgments were not otherwise inadmissible, it would not have been an abuse of discretion for the court to exclude them. Tudor made no showing that the circumstances of this matter and the matters which resulted in the judgments were substantially similar, so as to reflect a pattern or practice of misconduct. (See Moore v. American United Life Ins. Co., supra, 150 Cal.App.3d at p. 625.) Additionally, admitting the judgments posed a significant risk the jury would improperly consider them as evidence of bad character or propensity. (Evid. Code, §§ 1100, 1101, subd. (a).)
12. Other Insureds' Requests to Examine Claim Files
SCIF's Motion No. 14 sought to exclude reference to an undated memorandum from SCIF employee Diane Darling to two other employees, relating a conversation between Darling and an attorney for SCIF. The memorandum stated the attorney had advised Darling that several SCIF districts had recently received requests from representatives of insureds to examine claims and policy files, "possibly looking for evidence of bad faith, improper reserving, etc." Darling added that SCIF's legal department believed SCIF might need to develop a uniform policy for dealing with such requests.
The court commented that the memorandum was hearsay but ruled Tudor could introduce it if it called Darling as a witness and "she comes in and authenticates that she did it and it's admissible under the regular rules of evidence . . . ." However, the court directed counsel for Tudor not to mention the memorandum in his opening statement.
Entirely ignoring the court's actual ruling, Tudor argues the court "[e]rroneously [e]xcluded" the memorandum. As stated, the court ruled Tudor could introduce the memorandum if it laid the proper foundation. The ruling was correct; the memorandum, like any other writing, had to be authenticated before it could be introduced. (Evid. Code, § 1401, subd. (a).) Precluding Tudor from mentioning the unauthenticated memorandum in its opening statement was not an abuse of discretion and in any event could not possibly have prejudiced Tudor's case.
III
DISPOSITION
The judgment in favor of SCIF on Tudor's first, fifth, eighth and ninth causes of action, and dismissing Tudor's remaining causes of action with prejudice, is affirmed. Costs to respondent.
___________________________ Richli, J.
We concur:
____________________________ Ramirez, P.J.
______________________________ Hollenhorst, J.