Robie & Matthai, James R. Robie, Steven S. Fleischman and David J. Weinman for Defendant and Appellant. Shernoff Bidart Echeverria, Michael J. Bidart and Ricardo Echeverria; The Erlich Law Firm and Jeffrey Isaac Ehrlich for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(a). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115(a).
(Los Angeles County Super. Ct. No. BC412007)
APPEAL and alternative petition for writ of mandate from an order of the Superior Court of Los Angeles County, Edward A. Ferns, Judge. Order denying special motion to strike is affirmed. Petition is granted with directions.
Robie & Matthai, James R. Robie, Steven S. Fleischman and David J. Weinman for Defendant and Appellant.
Shernoff Bidart Echeverria, Michael J. Bidart and Ricardo Echeverria; The Erlich Law Firm and Jeffrey Isaac Ehrlich for Plaintiff and Respondent.
State Farm General Insurance Company (State Farm) appeals from the order of the trial court denying its special motion to strike the first amended complaint of the plaintiff insured pursuant to Code of Civil Procedure section 425.16 (section 425.16), California's anti-SLAPP statute.
At the same time that it filed its anti-SLAPP motion, State Farm also filed a demurrer and motion to strike plaintiff's first amended complaint, both of which the court rejected. As we discuss below, State Farm alternatively argues that, in the event we affirm the trial court's denial of the anti-SLAPP motion, its appeal should be treated as a petition for a writ of mandate seeking an order compelling the trial court to vacate its orders with respect to the demurrer and motion to strike and to enter a new order sustaining the demurrer and granting the motion to strike. Such orders are not appealable but we have the discretion to treat an appeal therefrom as a petition for a writ of mandate. (Olson v. Cory (1983) 35 Cal.3d 390, 400-401; Black Diamond Asphalt, Inc. v. Superior Court (2003) 114 Cal.App.4th 109, 114-115.)
This case presents the difficult question as to whether and to what extent an insurer may be subject to bad faith liability for conduct in the discovery phase of a mandated arbitration proceeding. We conclude that it may not, as such activity is privileged. But, since in this case plaintiff has alleged other conduct by State Farm that did not occur in a litigation context, we will affirm the trial court's order denying the anti-SLAPP motion. We will also, however, grant State Farm's alternative request to treat its appeal in part as a petition for a writ of mandate (see fn. 1, ante) directing the trial court to sustain State Farm's demurrer with leave to amend and to grant its motion to strike in part.
The facts that we recite are taken primarily from the plaintiff's complaint. The procedural history is based on the trial court documents reflected in the record before us.
The plaintiff, Brian Novack, M.D. (plaintiff), is a plastic surgeon who, on December 10, 2002, was seriously injured in an automobile accident. Plaintiff alleged in his first amended complaint that, as a result of his injuries, he sustained substantial damages due to medical expenses and a reduction in income from his surgical practice, as well as general damages.
Plaintiff filed suit against the driver of the other vehicle on November 14, 2003. The total liability insurance coverage that the other driver carried was $250,000. After litigating that action for over a year, plaintiff settled it for the $250,000 policy limit. Plaintiff then turned to State Farm to recover the additional damages that he contends that he had actually sustained. His claim was based on the uninsured/underinsured motorist (UM/UIM) provisions in his own State Farm policy. That policy provided for $3,000,000 in UM/UIM coverage.
On March 11, 2005, plaintiff submitted a UIM claim to State Farm, asserting that his total damages were "in excess of $1,000,000." State Farm responded to plaintiff's claim with a letter dated March 18, 2005 which stated, in part: " . . . [State Farm] records indicate that uninsured motorist coverage was not included in [plaintiff's] Personal Liability Umbrella Policy. State Farm is investigating this matter under a full and completion [sic] Reservation of Rights Regarding Coverage."
Over the next ten months, State Farm sent monthly form letters to plaintiff's counsel advising that the "[w]e are continuing our investigation of coverage for the accident of December 10, 2002. Once we complete our investigation, we will inform you of our decision. [¶] . . . We need additional time to consider your claim for the following reason[s]: The coverage determination is pending management review. [¶] We will continue to keep you advised of the status of our investigation."
Without any indication of why it took ten months to discover the fact, on January 24, 2006, counsel for State Farm wrote to plaintiff's counsel stating: "As a consequence of the investigation, State Farm has learned that State Farm has been sending [plaintiff] Renewal Certificates that refer to form FE-7655.1 [a State Farm form that described UM/UIM coverage]. The reference to that form was wrong because the premium charged [plaintiff] did not include a premium for uninsured motor vehicle coverage for any [Personal Liability Umbrella Policy] issued to him. However, under these circumstances, we are pleased to advise you that State Farm has agreed to adjust [plaintiff's] underinsured motor vehicle claim subject to the terms, conditions, limitations and exclusions of the [Personal Liability Umbrella Policy], on the merits." (Italics added.)
In this letter, State Farm reserved the right to review the plaintiff's umbrella policy to ascertain the appropriate premium charge.
During this same ten month period, plaintiff's counsel had provided medical and loss of income documentation to State Farm and plaintiff had participated in a medical examination by a physician selected by State Farm. On January 30, 2006, plaintiff's counsel submitted additional documentation on these matters to State Farm's counsel and demanded a full policy limit settlement.
As noted, the policy limit was $3,000,000. Thus, the settlement demand was for $2,750,000, taking into account the $250,000 settlement that plaintiff had already made with the other driver tortfeasor.
Thereafter, plaintiff provided additional documentation and evidence in support of his policy limit demand. In addition, the deposition of plaintiff was taken on April 10 and May 10, 2006. On November 1, 2006, plaintiff's counsel again wrote to State Farm's counsel, stating in relevant part:
"It has been over a year since State Farm accepted UIM coverage for Dr. Novack's accident of December 10, 2002. [¶] Since that time your office did a great deal of discovery and it is now time to settle Dr. Novack's claim for the UIM coverage of $3,000,000 less $250,000 already paid by the third party carrier. [¶] Because of his injuries from the accident, Dr. Novack is limited to working only two days a week instead of his usual four days. Such limitation resulted in Dr. Novack having to refer many surgeries to other plastic surgeons. Because Dr. Novack raised his surgery fees, his loss of income is not clearly reflected on his books but it is still a fact that Dr. Novack is only performing surgeries two days a week and but for the accident his income would be greater by one third to fifty percent which would translate to approximately $1,000,000 to $1,500,000 a year. [¶] As of this date, Dr. Novack is still limited to operating only one or two days a week which results in a continuing loss of income and the ability to generate a great deal more. [¶] From the information our office provided your office, Dr. Novack's answers to the interrogatories propounded [by] your office, his testimony at his deposition and the information obtained by your office it is clear that Dr. Novack's damages exceeds the policy limits. [¶] In view of the above I hereby demand that State Farm tender the policy limits of $3,000,000 less the $250,000.00 already paid by the third party carrier. The offer to settle for the policy limits shall remain open until December 1, 2006."
State Farm's counsel responded to this demand on November 10, 2006 and asserted that "the investigation and discovery into [plaintiff's] loss of earning capacity claim is still ongoing and we are currently unable to either reject or accept your demand at this time."
On January 30, 2007, plaintiff's counsel made a demand for arbitration. Nearly six months later, on July 6, 2007, a second demand for arbitration was made by plaintiff together with another demand for a policy limits settlement of plaintiff's claim.
On October 19, 2007, plaintiff's counsel served special interrogatories and document demands on State Farm seeking, particularly, information relating to the alleged bias of the medical experts on whom State Farm was relying to support its contention that plaintiff's claim did not justify a policy limit settlement. Specifically, plaintiff sought information as to all income received by those experts from State Farm over the preceding ten (10) years, including copies of all IRS Form 1099's issued to them by State Farm for that period.
During December 2007 and January 2008, counsel for plaintiff and State Farm exchanged a series of "meet and confer" letters concerning plaintiff's discovery demands. State Farm contended that disclosure of such private financial information would improperly invade the privacy of State Farm's medical experts who were not parties to the case and had not been served with the discovery requests or had any opportunity to object. State Farm also argued that the IRS Form 1099's were subject to a taxpayer's privilege. (Brown v. Superior Court (1977) 71 Cal.App.3d 141, 142.) Finally, State Farm contended that there was no reason why the plaintiff could not obtain that information directly from the experts themselves by serving a deposition notice and a subpoena duces tecum.
On January 24, 2008, as a result of this dispute, plaintiff filed a formal petition to commence discovery with the trial court. In that petition, plaintiff expressly requested that the trial court assume jurisdiction over the discovery dispute pursuant to the provisions of Insurance Code, section 11580.2, subdivisions (f)(1) and (f)(2). In his petition plaintiff described the dispute as one over whether State Farm was "required to disclose information regarding how much money it paid to experts in the case." In a letter to State Farm's counsel, dated January 31, 2008, plaintiff's attorney rejected State Farm's objections that the plaintiff's production request was (1) unduly burdensome and (2) constituted an improper invasion of a third party's privacy interests.
Insurance Code section 11580.2, subdivision (f)(1) and (2) provides for the mandatory arbitration of a dispute between the insurer and the insured with respect to a claim for recovery of damages under the uninsured motorist provisions of a liability policy. The relevant portions thereof read as follows: "(f) The policy or an endorsement added thereto shall provide that the determination as to whether the insured shall be legally entitled to recover damages, and if so entitled, the amount thereof, shall be made by agreement between the insured and the insurer or, in the event of disagreement, by arbitration. The arbitration shall be conducted by a single neutral arbitrator. An award or a judgment confirming an award shall not be conclusive on any party in any action or proceeding between (i) the insured, his or her insurer, his or her legal representative, or his or her heirs and (ii) the uninsured motorist to recover damages arising out of the accident upon which the award is based. . . . [¶] The arbitration shall be deemed to be a proceeding and the hearing before the arbitrator shall be deemed to be the trial of an issue therein for purposes of issuance of a subpoena by an attorney of a party to the arbitration under Section 1985 of the Code of Civil Procedure. Title 4 (commencing with Section 2016.010) of Part 4 of the Code of Civil Procedure (hereafter Title 4 provisions) shall be applicable to these determinations, and all rights, remedies, obligations, liabilities and procedures set forth in [the Title 4 provisions] shall be available to both the insured and the insurer at any time after the accident, both before and after the commencement of arbitration, if any, with the following limitations: [¶] (1) Whenever in [the Title 4 provisions] reference is made to the court in which the action is pending, or provision is made for application to the court or obtaining leave of court or approval by the court, the court that shall have jurisdiction for the purposes of this section shall be the superior court of the State of California, in and for any county that is a proper county for the filing of a suit for bodily injury arising out of the accident, against the uninsured motorist, or any county specified in the policy or an endorsement added thereto as a proper county for arbitration or action thereon. [¶] (2) Any proper court to which application is first made by either the insured or the insurer under [the Title 4 provisions] for any discovery or other relief or remedy, shall thereafter be the only court to which either of the parties shall make any applications under [the Title 4 provisions] with respect to the same accident, subject, however, to the right of the court to grant a change of venue after a hearing upon notice, upon any of the grounds upon which change of venue might be granted in an action filed in the superior court."
On February 1, 2008, plaintiff moved to compel production of the requested information by State Farm. On March 4, 2008, the trial court granted the motion and issued an order which required production by State Farm within 10 days (later, at State Farm's request, extended to 30 days). After that 30 day period had expired, State Farm's counsel, on April 8, 2008, proposed that plaintiff and State Farm enter into a confidentiality agreement regarding the requested expert financial information. Plaintiff rejected this proposal and filed an ex parte motion on April 10, 2008, to compel the ordered discovery and to impose sanctions. The trial court granted the motion on the same day, ordering State Farm to comply by April 14, 2008. Claiming that it had not received notice of the April 10 ex parte hearing, State Farm noticed its own ex parte hearing for April 15, 2008. At the hearing, State Farm requested issuance of a protective order limiting dissemination of the experts' financial information to plaintiff's counsel in order to prevent it from being disseminated to the "plaintiff's bar." While the record is not entirely clear on the point, it appears that the trial court rejected State Farm's request for a protective order. The next day, April 16, 2008, State Farm filed a petition for a writ of mandate with this court in which it alleged that it did not object to the scope of the trial court's ordered disclosure, but requested that we issue a protective order limiting the dissemination of the financial information to members of the law firm representing plaintiff. We issued a temporary stay and set a briefing schedule.
Also on April 8, 2008, plaintiff sent to State Farm his third request to set an arbitration date and explaining the extreme financial hardship that plaintiff was undergoing as a result of the delay by State Farm in moving forward to resolve plaintiff's claim.
At this hearing, the trial court stated that it presumed that such dissemination was probably one of the reasons that plaintiff wanted such information.
At the April 15, 2008 hearing, counsel for State Farm acknowledged on the record that she had the requested financial information with her at the time but had been instructed not to produce it in the absence of the requested protective order.
In the meantime, the parties continued an exchange of correspondence which discussed a possible negotiated resolution of plaintiff's claim. For example, on April 15, 2008, plaintiff's counsel wrote a letter to State Farm objecting to its continuing delay in reaching a settlement and describing the problems this had created for plaintiff. In addition, plaintiff's counsel accused State Farm of engaging in such conduct simply to avoid responding to plaintiff's discovery request. Counsel for State Farm responded to this letter on April 18, 2008 with two letters. The first noted that "[w]e will have to simply disagree regarding your assertion that this accident is the cause of the problems for [plaintiff] as outlined in your letter." This letter also outlined the further authorizations for release of additional medical information.
The April 15, 2008 letter from plaintiff's counsel stated, in relevant part: "State Farm's willful and intentional disobedience of now the third court order (and admission of it on the record) continues to shock and amaze me. This is a first party case where State Farm owes - at a minimum - the same obligation and duties to its insured as it does to itself. Clearly, State Farm is placing its interests over its insured's by unnecessarily delaying paying policy limits in this case, in an attempt to avoid responding to discovery. [¶] Unfortunately, the damage to Dr. Novack from State Farm's continued failure to tender its policy limits continues to get worse and worse. Dr. Novack's neck is very unstable. He has lost an inch in height. His most recent MRI report (which is attached) shows a further 2 mm bulge superimposed on his 3 mm bulge, which is significantly impinging on the spinal cord. This is not surprising, as I have been telling you for several weeks about his continued and increasing pain and complaints. [¶] Dr. Novack's continued medical problems are having a catastrophic effect on his medical practice. In short, he's not able to practice medicine the way he has always been able to. . . . [¶] . . . . The refusal of State Farm to tender its policy limits has caused Dr. Novack an extraordinary amount of emotional distress. He is caught in a continuing cycle of having to work to pay his large overhead, at the expense of his never being able to fully attempt to recuperate. If he had money from State Farm, he would at least have the ability to take a short step back . . . . "
The second letter from State Farm's counsel tendered a check for $1,250,000 as "a good faith payment" towards the total amount of plaintiff's damages, the full amount of which was yet to be negotiated. On May 7, 2008, plaintiff's counsel responded to this letter by expressing appreciation for the unconditional partial payment but strongly suggesting that State Farm had only done so to avoid providing the expert financial information ordered by the court. State Farm's counsel responded to this letter on May 16, 2008, denying there was any connection whatever between the parties' discovery dispute and State Farm's evaluation of plaintiff's UIM claim.
This second April 18, 2008 letter from State Farm's counsel states, in relevant part: "We continue our efforts to assist State Farm's ongoing evaluation of Dr. Novack's condition and its efforts to find an amicable resolution to his claim. His situation presents complex issues of causation and valuation, leading to a wide range of valuation, depending on how genuinely disputed issues will be resolved at arbitration. [¶] Based on the most current information, in light of the unusually wide range of value this matter presents, State Farm's believes $1,500,000 is within the fair range of value and we enclose State Farm's check for $1,250,000 ($1,500,000 minus the underlying liability payment of $250,000) payable to Dr. Novack, your office and his prior attorney, as a good faith payment. You are all free to negotiate this check without prejudice to seeking additional policy benefits. This payment is made in advance without prejudicing Dr. Novack's right to receive a higher amount in the future through continuing negotiation or alternative means of resolution. [¶] The remaining coverage available will be reduced by the amount of this payment and this amount will also be credited against any final determination of damages. This offer or your acceptance thereof, does not waive any defenses, we may have now or in the future, under the policy and the claim remains open subject to a final determination of damage."
Plaintiff's counsel letter of May 7, 2008, in relevant part, states: "I have received State Farm's $1,250,000 partial payment for Dr. Brian Novack. While I appreciate that State Farm finally has decided to make this partial payment toward Dr. Novack's claim, the timing of this payment is suspicious, to say the least. Your abrupt reversal of course, the very same day you sent me a letter stating that '[w]e will have to simply agree to disagree regarding your assertions that this accident is the cause of the problems for Dr. Novack outlined in your letter,' came fresh on the heels of the April 15th and 17th, 2008 discovery proceedings. There, as you will recall, the Superior Court noted that State Farm's refusal to produce discovery in the face of three court orders was 'unique' and unprecedented.
"The only conclusion that may be drawn from State Farm's sudden change of course and partial payment is that State Farm is playing games. It seems implausible that between the time of your first letter of April 18th (denying causation) and your second letter (enclosing the partial payment), State Farm suddenly came to believe that the accident actually was 'the cause of the problems for Dr. Novack,' rather, State Farm was at risk of being caught redhanded abusing the discovery process in a proceeding with its insured, having refused to make any reasonable offer to pay Dr. Novack's claim. This partial payment represents nothing more than a further calculated attempt to save money on this claim. . . . [¶] . . . .
"Aside from the recent legal proceedings having come out against State Farm, nothing has changed regarding the substantial information you have on Dr. Novack's injuries and damages that would suggest a legitimate reason for State Farm's belated offer. . . . [¶]
"It is clear to me that State Farm only now is attempting to settle this claim because it wants to conceal from my client the information that it was ordered to produce by the Superior Court, such order that will likely remain after the writ proceeding. State Farm has gone to unprecedented lengths to keep that information a secret, cavalierly ignoring numerous orders of the Superior Court. State Farm must realize that it is not above the law, and not entitled to abuse the discovery process, particularly in litigation wherein it owes at least the same duties of fairness and equality to Dr. Novackas State Farm's insuredas it does to itself. Does it really think that it can start offering a mere portion of the true value of this claim to get my client to walk away? The only conclusion that can been [sic] drawn from the recent payment is that it actually took a theat [sic] of sanctions and contempt from the Superior Court to get State Farm to start paying on this claim. . . . "
The parties' concurrent discussions about trying to use mediation to resolve the dispute over the value of plaintiff's claim failed because they could not agree on the question of a waiver of the statutory rule on mediation confidentiality. Plaintiff's counsel, for all of the reasons summarized in the exchanged correspondence that we have set out in the footnotes above, continued to demand that State Farm pay the full policy limits. State Farm did so on July 18, 2008 when it sent a check to plaintiff's counsel for $1,500,000. This effectively settled the arbitration and rendered further proceedings moot.
An insurer's payment of full policy limits renders moot the pending arbitration proceeding. (State Farm Mutual Automobile Ins. Co. v. Superior Court (2004) 123 Cal.App.4th 1424, 1434.)
On April 16, 2009, plaintiff filed this action against State Farm for breach of the implied covenant of good faith and fair dealing. After the case was removed to federal court and then remanded on stipulation of the parties, plaintiff, on August 6, 2009, filed this first amended complaint which is the operative pleading before us. In that pleading, plaintiff alleges, in considerable more detail, the chronological history of this case that we have summarized above. While there are clearly a number of allegations asserting that State Farm had unreasonably delayed investigating and fairly adjusting plaintiff's claim, it is also true that over thirty paragraphs in the first amended complaint are devoted to State Farm's alleged refusal to respond to arbitration discovery demands by plaintiff. Indeed, paragraphs 64 through 96 of that pleading are captioned and devoted to the subject of "State Farm Refuses To Respond To Proper Discovery."
In paragraph 101 of the complaint, plaintiff alleged 12 conclusionary sub-paragraphs describing State Farm's alleged bad faith activity. Three of them were devoted to the arbitration discovery dispute. It is alleged that State Farm breached its duty of good faith and fair dealing by: "(j) Unreasonably and in bad faith refusing to disclose and concealing the potential financial bias of the experts retained by STATE FARM; (k) Unreasonably and in bad faith failing to reasonably respond to discovery propounded by Plaintiff who sought information as to the potential financial bias of experts hired by STATE FARM; (l) Unreasonably and in bad faith refusing to comply with Court ordered discovery in an effort to conceal information from their insured as to the financial bias of the experts retained by STATE FARM."
State Farm's response was to file an anti-SLAPP motion based on the ground that plaintiff's first amended complaint arises from acts of State Farm that were done in furtherance of its right of petition (i.e., its defense of the arbitration demanded by plaintiff pursuant to Ins. Code § 11580.2, subd. (f)). State Farm also argued that since its alleged bad faith acts were done in its defense of the arbitration, the litigation privilege (Civ. Code, § 47, subd. (b)) precluded recovery by plaintiff. Plaintiff opposed the motion and, on November 10, 2009, the trial court denied it.
As already mentioned, State Farm also filed a demurrer and motion to strike with respect to plaintiff's first amended complaint.
At the same time, the trial court overruled State Farm's demurrer and denied its motion to strike.
State Farm filed a timely appeal. (Code Civ. Proc., §§ 425.16, subd. (i) and 904.1, subd. (a)(13).) Alternatively, State Farm requests that we treat its appeal as a petition for writ of mandate challenging the overruling of its demurrer and the denial of the motion to strike.
State Farm's principal argument is that plaintiff's claim is based on actions taken by State Farm in defense of the plaintiff's arbitration claim under Insurance Code, section 11580.2, subdivision (f) and therefore such actions were in furtherance of its right of petition. Since the litigation privilege (Civ. Code, § 47, subd. (b)) applies, plaintiff may not recover on his claim for bad faith. State Farm therefore asks that we reverse the order denying its anti-SLAPP motion. Alternatively, State Farm argues that its appeal should be treated as a petition for a writ of mandate and that we should issue such a writ directing the trial court to grant State Farm's motion to strike the allegations relating to State Farm's litigation activities and to sustain State Farm's demurrer with leave to amend the complaint so that it omits the allegations relating to litigation activities.
Plaintiff, in response, argues that the trial court properly denied State Farm's anti-SLAPP motion because of the application of Code of Civil Procedure section 425.17, subdivision (c) and, in any event, State Farm's alleged bad faith actions did not constitute constitutionally protected activity. Plaintiff further contends that even if the first two arguments are rejected (1) the litigation privilege does not preclude plaintiff from establishing a prima facie case and (2) even if there is constitutionally protected conduct alleged in the first amended complaint, it does not constitute the gravamen of plaintiff's action.
Code of Civil Procedure, section 425.17, subdivision (c), provides in pertinent part, "(c) Section 425.16 does not apply to any cause of action brought against a person primarily engaged in the business of selling or leasing goods or services, including, but not limited to, insurance, securities, or financial instruments, arising from any statement or conduct by that person if both of the following conditions exist: [¶] (1) The statement or conduct consists of representations of fact about that person's or a business competitor's business operations, goods, or services, that is made for the purpose of obtaining approval for, promoting, or securing sales or leases of, or commercial transactions in, the person's goods or services, or the statement or conduct was made in the course of delivering the person's goods or services. [¶] (2) The intended audience is an actual or potential buyer or customer, or a person likely to repeat the statement to, or otherwise influence, an actual or potential buyer or customer. . . . "
The parties are in agreement that an order denying an anti-SLAPP motion is immediately appealable (Code of Civ. Proc., §§ 425.16, subd. (i) and 904.1, subd. (a)(13) and that the standard of review is de novo. (Marijanovic v. Gray, York & Duffy (2006) 137 Cal.App.4th 1262, 1270.)
1. First Party Bad Faith
The Supreme Court, in Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, summarized the principles applicable to a bad faith claim against an insurer. It noted that the "law implies in every contract, including insurance policies, a covenant of good faith and fair dealing. 'The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement's benefits. To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.' [Citation.]" (Id. at p. 720.) To hold an insurer liable in bad faith it must be shown that it acted in denying or delaying policy benefits, " ' "prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement." ' [Citation.]" (Id. at p. 726.)
Since unreasonable conduct by an insurer is required in order to demonstrate a claim for bad faith, the conjunctive use of these terms may be somewhat redundant. In addition, the term "unreasonable" does not refer to negligent behavior, but rather to actions taken (or omitted) by an insurer without a reasonable basis therefore. (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1073.)
In a first party case, an insurer that unreasonably or without proper cause denies or delays the payment of benefits due under the policy may be liable in tort for that breach of the policy contract. (Jordan v. Allstate Ins. Co., supra, 148 Cal.App.4th at pp. 1072-1073.) An unreasonable delay in the payment of policy benefits is sufficient even if the insurer ultimately pays the claim in full. " '[D]elayed payment based on inadequate or tardy investigations, oppressive conduct by claims adjusters seeking to reduce the amounts legitimately payable and numerous other tactics may breach the implied covenant because' " they frustrate the insured's right to receive the benefits of the contract in "prompt compensation for losses." (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36, 44; see also Major v. Western Home Ins. Co. (2009) 169 Cal.App.4th 1197, 1209.)
In this case, plaintiff's single cause of action for bad faith against State Farm is based on State Farm's allegedly unreasonable actions in delaying the payment of what State Farm ultimately conceded was a valid claim under plaintiff's policy. As we have already noted in the foregoing summary of the circumstances leading up to this action, plaintiff first submitted his claim to State Farm on March 11, 2005. Over ten months later on, January 24, 2006, State Farm conceded coverage but continued to dispute the amount of damages to which plaintiff was entitled. Finally, on January 30, 2007, nearly two years after plaintiff had filed his UIM claim, plaintiff made a demand for arbitration and thereafter the parties engaged in discovery activities, discovery disputes and extensive correspondence and negotiation. Ultimately, on July 18, 2008, after the trial court supervising the arbitration discovery disputes had ordered disclosure by State Farm of certain financial information concerning its paid experts, State Farm tendered the full amount demanded by plaintiff. Plaintiff's complaint alleges all of these circumstances, in exhaustive detail, as we have noted in our discussion of the factual background, and alleges that such conduct constituted, in its totality, an unreasonable delay in the payment of policy benefits.
As already noted, such full policy limit payment rendered moot plaintiff's demand for arbitration. (State Farm Mutual Automobile Ins. Co. v. Superior Court, supra, 123 Cal.App.4th at pp. 1428-1429, fn. 2.)
Before we consider the attack made on plaintiff's complaint by State Farm, it is worth summarizing the principles of uninsured motorist insurance coverage which was the basis for plaintiff's underlying claim against State Farm.
2. Relevant General Principles Relating to Uninsured Motorist Coverage
The essence of this case clearly is a claim for damages for State Farm's alleged unreasonable delay in the payment of benefits due under the uninsured motorist coverage provisions of the State Farm policy issued to plaintiff. The Uninsured Motorist Act (UM Act) is codified in Insurance Code section 11580.2 et seq., and is to be construed liberally. (Mercury Ins. Co. v. Ayala (2004) 116 Cal.App.4th 1198, 1203; Mercury Ins. Co. v. Enterprise Rent-A-Car Co. of Los Angeles (2000) 80 Cal.App.4th 41, 48 "[i]n interpreting the UM statutes, courts temper the general rule of strict construction of statutes"].)
The UM Act mandates two distinct types of coverage: (1) uninsured motorist coverage which requires all insured motorists to be covered by their own insurer for all damages that they would be entitled to recover, for bodily injury or wrongful death, from the uninsured tortfeasor up to the amount provided in the UM policy provisions (which must be at least equal to the statutory minimum of liability insurance) (Hartford Casualty Ins. Co. v. Cancilla (1994) 28 Cal.App.4th 1305, 1311) and (2) underinsured motorist coverage which provides coverage to the insured where the tortfeasor does have liability insurance, but in an amount less than the amount of UM coverage purchased by the insured from his or her own insurer.
In this case, we are concerned with the latter category of UM coverage. Underinsured motorist coverage is provided for in Insurance Code section 11580.2, subdivision (p) and its fundamental purpose is " 'to provide the insured with the same insurance protections he would have enjoyed' had the 'tortfeasor carried liability limits equal to [the] insured's underinsured motorist limits.' " (Viking Ins. Co. v. State Farm Mut. Auto. Ins. Co. (1993) 17 Cal.App.4th 540, 548.) Put another way, this coverage permits the insured to recover from his or her own insured the difference between the amount of liability coverage carried by the tortfeasor and the amount of UM coverage specified in the insured's policy (up to the total amount of the damages that the insured has sustained). The insurer thus is entitled to a credit against its underinsured motorist policy benefits for any amount received by the insured from the tortfeasor or his insurer. (Hartford Fire Ins. Co. v. Macri (1992) 4 Cal.4th 318, 328 [" 'the underinsured motorist carrier gets a dollar-for-dollar credit for all payments by third party tortfeasors to the insureds, whether the insureds are made whole or not' "].)
The UM Act also calls for a mandatory arbitration in the event of a dispute between the insured and the insurer. "[T]he determination as to whether the insured shall be legally entitled to recover damages, and if so entitled, the amount thereof, shall be made by agreement between the insured and the insurer or, in the event of disagreement, by arbitration." (Ins. Code, § 11580.2, subd. (f); see fn. 5, ante.) The provisions of the statute make it clear, however, that only two issues are subject to arbitration: (1) whether the insured is entitled to recover against the uninsured motorist and (2) if so, the amount of the damages. (Bouton v. USAA Casualty Ins. Co. (2008) 43 Cal.4th 1190, 1200.) Thus, for example, a dispute as to whether there was any coverage under the policy would have to be resolved first by the court before the two arbitrable issues could be resolved by arbitration. (Id. at p. 1193.)
Finally, UM coverage is not "third party" coverage, but rather is "first party." That is, it involves the duty of the insurer to compensate the insured for his or her own loss rather than to indemnify the insured against the liability claims asserted against the insured by others. (See Weston Reid, LLC v. American Ins. Group, Inc. (2009) 174 Cal.App.4th 940, 950.) Moreover, because the insurer is liable for the insured's damages only to the extent that the uninsured (or underinsured) motorist was liable, the insurer may properly take a position adverse to its own insured and may assert whatever defenses the tortfeasor could have asserted to defeat or diminish the insured's claim. (Id. at pp. 946-948.)
With these principles in mind, we now turn to an examination of the issues presented by State Farm's attack upon plaintiff's bad faith complaint by its anti-SLAPP motion, demurrer and Motion to Strike certain allegations.
3. The Litigation Privilege Applicable to Judicial Proceedings Is Applicable to Arbitration
Civil Code section 47, subdivision (b) (hereafter, section 47(b)) provides that a publication or broadcast is privileged when made "[i]n any (1) legislative proceeding, (2) judicial proceeding, (3) in any other official proceeding authorized by law . . . . " The principal purpose of section 47(b) is to afford litigants and witnesses the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions. (Silberg v. Anderson (1990) 50 Cal.3d 205 (Silberg).) "Section 47[(b)] promotes the effectiveness of judicial proceedings by encouraging 'open channels of communication and the presentation of evidence' in judicial proceedings. [Citation.] . . . Such open communication is 'a fundamental adjunct to the right of access to judicial and quasi-judicial proceedings.' [Citation.] Since the 'external threat of liability is destructive of this fundamental right and inconsistent with the effective administration of justice' [citation], courts have applied the privilege to eliminate the threat of liability for communications made during all kinds of truth-seeking proceedings: judicial, quasi-judicial, legislative and other official proceedings." (Id. at p. 213.)
In Moore v. Conliffe (1994) 7 Cal.4th 634 (Moore), the Supreme Court considered the question of whether the litigation privilege articulated in section 47(b) also applied to protect from a subsequent tort action a witness who had testified (allegedly falsely) in a private contractual arbitration proceeding. The court held that it did. Citing Silberg, the Moore court noted that "the litigation privilege serves a very important additional purpose, namely, ensuring the integrity and the finality of the ultimate resolution of the controversy that has been reached through the litigation process. We explained in this regard: '[I]n immunizing participants from liability for torts arising from communications made during judicial proceedings, the law places upon litigants the burden of exposing during trial the bias of witnesses and the falsity of evidence, thereby enhancing the finality of judgments and avoiding an unending roundelay of litigation, an evil far worse than an occasional unfair result. [Citations.] . . . [¶] For our judicial system to function, it is necessary that litigants assume responsibility for the complete litigation of their cause [of action] during the proceedings. To allow a litigant to attack the integrity of evidence after the proceedings have concluded, except in the most narrowly circumscribed situations, such as extrinsic fraud, would impermissibly burden, if not inundate, our justice system. [Citations.]' (Silberg, supra, 50 Cal.3d at p. 214.)" (Moore, supra, 7 Cal.4th at pp. 642-643.)
Although UM arbitrations are, as we have discussed, mandated by the Insurance Code, they are nonetheless considered to be contractual arbitrations. (Pilimai v. Farmers Ins. Exchange Co. (2006) 39 Cal.4th 133.)
The Moore court concluded that it was "apparent, upon even brief reflection, that the purposes of the litigation privilege, as described in Silberg, strongly support application of the privilege to a witness who testifies in the course of a private, contractual arbitration proceeding. Because such a proceeding is designed to serve a function analogous to—and typically to eliminate the need to resort to-the court system [citation], the need for an absolute privilege to foster the giving of complete and truthful testimony is as vital in the private contractual arbitration setting as it is in a court proceeding. . . . [¶] Finally, the fundamental interest in protecting the integrity and finality of dispute resolution from 'an unending roundelay of litigation' (Silberg, supra, 50 Cal.3d at p. 214) unquestionably is as applicable in the arbitration context as in a court proceeding. Indeed, as we emphasized in our recent decision in Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10 , the importance of ensuring the finality of the arbitrator's decision frequently is a principal impetus for 'the parties' choice of an arbitral forum over a judicial one. The arbitrator's decision should be the end, not the beginning, of the dispute.' . . . [¶] . . . [A]s is made clear in Silberg's summary of the essential components of the litigation privilege, the reference to 'any judicial proceeding' in section 47 has been interpreted in past California cases to apply, not only to court proceedings, but also to those 'quasi-judicial' proceedings, such as private arbitration proceedings, that are functionally equivalent to court proceedings. [citation] 'The usual formulation [of the litigation privilege] is that the privilege applies to any communication (1) made in judicial or quasi-judicial proceedings . . . . ' " (Moore, supra, 7 Cal.4th at pp. 643-645.)
Thus, the UM arbitration proceedings commenced on January 30, 2007 by plaintiff's demand for arbitration would constitute "judicial proceedings" within the meaning of section 47(b).
4. The Allegations of Plaintiff's Complaint Relating to State Farm's Arbitration Discovery Conduct Is Protected Activity Within the Meaning of Code of Civil Procedure Section 425.16
State Farm filed an anti-SLAPP special motion to strike under section 425.16 which provides, in pertinent part: "(a) The Legislature finds and declares that there has been a disturbing increase in lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances. The Legislature finds and declares that it is in the public interest to encourage continued participation in matters of public significance, and that this participation should not be chilled through abuse of the judicial process. To this end, this section shall be construed broadly. [¶] (b)(1) A cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim. . . . [¶] . . . . (e) As used in this section, 'act in furtherance of a person's right of petition or free speech under the United States or California Constitution in connection with a public issue' includes: (1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law, (2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law, (3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or (4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest." (Italics added.)
State Farm relies upon subdivision (e)(1) and (2) of section 425.16. It points out that those subdivisions are co-extensive with the litigation privilege in section 47(b). (Ruiz v. Harbor View Community Assn. (2005) 134 Cal.App.4th 1456, 1467.) "Communications ' "within the protection of the litigation privilege of Civil Code section 47, subdivision (b) [citation], . . . are equally entitled to the benefits of section 425.16." [Citations.]' [Citation.]" (Sylmar Air Conditioning v. Pueblo Contracting Services, Inc. (2004) 122 Cal.App.4th 1049, 1058.) State Farm's actions in defending itself after the demand for arbitration and the petition to the court for supervision of discovery activity, by, for example, resisting what State Farm believed was inappropriate or burdensome discovery demands by plaintiff, fall within its right of petition under section 425.16. Since it was entitled to resist plaintiff's claim, as we have explained above, State Farm had every right to oppose plaintiff's discovery demands subject only to such limitations and penalties that might be imposed on any other litigant under the Discovery Act.
While the right to petition includes the act of filing litigation, it is not a one-way right. A defendant, when responding to the litigation, is exercising the same constitutional right. (Beach v. Harco National Ins. Co. (2003) 110 Cal.App.4th 82, 93-94.) In Beach, the court rejected the insurer's anti-SLAPP motion on the ground that the insured's claim was based entirely on the insurer's delay in responding to his claim which did not constitute petitioning activities within the meaning of section 425.16, subdivision (e). In language which has relevance here, the Beach court reasoned: "While communications preparatory to bringing (or responding to) an action or arbitration might, under the proper circumstances, be deemed to fall within the scope of section 425.16 [citations], the conduct complained of here does not cross this threshold. The outlined actions (or nonactions) occurred as part of a coverage dispute between an insurer and its insured, and occurred long before any arbitration or other proceeding commenced. [Citation.] Nothing had yet happened to which a right to petition attached. While we have no quarrel with Harco's claim that an insurer is entitled to defend itself against unmeritorious claims, the fact that a dispute exists that might ultimately lead to arbitration does not make every step in that dispute part of a right to petition. Just as plaintiff could not claim that his petitioning rights were invoked the moment he submitted a claim to Harco [citation], Harco cannot claim that the submission of plaintiff's claim immediately gave rise to Harco's own petitioning activities." (Beach v. Harco National Ins. Co., supra, 110 Cal.App.4th at pp. 94-95.)
In this case, however, we have a significantly different situation. While the gravamen of plaintiff's complaint can be accurately characterized, when read as a whole, as being based on State Farm's unreasonable delay in resolving his UIM claim that State Farm ultimately conceded was meritorious, the complaint is also factually based, at least in substantial part, upon State Farm's arbitration discovery activities. It contains detailed allegations of the discovery history and those allegations are expressly set forth under the title "State Farm Refuses To Respond To Proper Discovery."
It seems clear to us that State Farm's litigation activity before the trial court assigned to supervise and resolve discovery issues was clearly protected under section 425.16, subdivision (e) and privileged under section 47(b). State Farm's litigation conduct in defending against an insured's claim cannot be made the basis for a claim of bad faith. A number of cases support this conclusion.
In White v. Western Title Ins. Co. (1985) 40 Cal.3d 870 (White), our Supreme Court considered whether a trial court erred in admitting, as evidence of bad faith, an insurer's low settlement offers made during litigation. The insurer argued that the settlement offers were absolutely privileged by the litigation privilege in Civil Code section 47, former subdivision (2), the precursor to section 47(b). The Supreme Court acknowledged case law indicating that liability could not be founded upon judicial communications, but argued that, in the case before it, the communications (i.e., settlement offers) could be used as evidence of the insurer's bad faith. (White, supra, 40 Cal.3d at p. 888.) To the extent that the Supreme Court went even that far, however, the decision has been criticized by commentators and limited by subsequent authority. (See California Physicians' Service v. Superior Court (1992) 9 Cal.App.4th 1321, 1328-1330.)
In Palmer v. Ted Stevens Honda, Inc. (1987) 193 Cal.App.3d 530 (Palmer), a large judgment for punitive damages was reversed because of the introduction in evidence, in the jury trial, of "defendant's litigation tactics." The Palmer court distinguished the Supreme Court's earlier decision in White by noting the context of that case was "a special relationship between insurer and insured" (while the Palmer action was for breach of contract in the sale of an automobile). (Palmer, supra, 193 Cal.App.3d at p. 538.) The court rejected "the suggestion White be extended beyond the insurance setting," saying "once litigation has commenced, the actions taken in . . . defense are not, in our view, probative of whether defendant in bad faith denied the contractual obligation prior to the lawsuit." (Palmer, supra, at p. 539.)
In DuBarry Internal., Inc. v. Southwest Forest Industries, Inc. (1991) 231 Cal.App.3d 552, we had before us a judgment for bad faith denial of the existence of a brokerage contract. We held that once litigation has commenced, actions taken in defense are not probative of the alleged previous bad faith. The court summed up: "to permit a plaintiff to impose tort liability upon a defendant for positions asserted in pleadings not only imposes an unfair burden on the conduct of a defense but conflicts with the well-accepted rule which permits the assertion of two or more inconsistent pleas. . . . " (Id. at p. 575.) But, as is obvious, Palmer and DuBarry were not insurance cases.
In Nies v. National Auto. & Casualty Ins. Co. (1988) 199 Cal.App.3d 1192, there was an appeal by an insurance company of a judgment for bad faith refusal to pay a claim based upon uninsured motorist coverage. At trial, the plaintiff was permitted, over objection, to introduce, as evidence of the bad faith, the responsive pleadings of the insurer, which had denied the plaintiff's claim. The judgment was reversed, the court holding that the use of defensive pleadings to show bad faith in the insurer's previous failure promptly to pay the claim was inappropriate and prejudicial. The court distinguished White as follows: "The [Supreme Court] decided only that the initiation of litigation was not the controlling factor in determining admissibility. The court did not decide specifically what types of postlitigation activity would or would not be relevant or admissible on the issue of bad faith, nor did it address the policy issues involved in permitting a lay jury to impute improper motives to the imposition of a legally proper defense. Thus, White is not authority for declaring that the disputed evidence in this case was relevant." (Nies v. National Auto. & Casualty Ins. Co., supra, 199 Cal.App.3d at p. 1202.)
In California Physicians' Service v. Superior Court, supra, 9 Cal.App.4th 1321, also an insurance case, after discussing the foregoing authorities, the court concluded, "[d]efensive pleading, including the assertion of affirmative defenses, is communication protected by the absolute litigation privilege. Such pleading, even though allegedly false, interposed in bad faith, or even asserted for inappropriate purposes, cannot be used as the basis for allegations of ongoing bad faith. No complaint can be grounded upon such pleading." (Id. at p. 1330.)
The broad privilege established by section 47(b), would also preclude the use of State Farm's conduct in resisting plaintiff's discovery requests as evidence of bad faith. (California Physicians' Service v. Superior Court, supra, 9 Cal.App.4th at p. 1330, fn. 7.) Unlike White, which dealt with the communication of low settlement offers, we have here actual litigation activity in "judicial proceedings" upon which plaintiffs seek to base their claim of bad faith: These are matters that are "literally the subject of immunity under Civil Code section 47, subdivision (b), rather than [ ] communication[s] somewhat ancillary to documents filed in the court file, as are settlement communications." (Id. at p. 1330.)
Plaintiff, however, has also alleged substantial allegations not involving State Farm's litigation activities that, if proved, would support the conclusion that State Farm had unreasonably delayed the payment of benefits that were due under its policy. State Farm argues that the allegations regarding its discovery activity are the actual basis for plaintiff's claim and therefore the trial court erroneously denied its anti-SLAPP motion. We disagree. Plaintiff is correct in his argument that, reading the complaint as a whole, the gravamen of his bad faith claim is State Farm's unreasonable claims handling conduct. He argues that he should be permitted to go forward on those allegations. In order to analyze that argument, one must first consider the impact of the anti-SLAPP procedures applicable in the context of a "mixed action" claim.
5. Procedure on an Anti-SLAPP Motion
"Code of Civil Procedure section 425.16 ' "is designed to protect citizens in the exercise of their First Amendment constitutional rights of free speech and petition. It is California's response to the problems created by meritless lawsuits brought to harass those who have exercised these rights." ' [Citation.] A defendant against whom a SLAPP suit has been brought may file a special motion to strike, which will result in the complaint's dismissal unless the plaintiff can establish a probability of prevailing on the claim. (Code Civ. Proc., § 425.16, subd. (b).)
"Adjudication of an anti-SLAPP motion involves a two-part process. First, the moving party bears the burden of establishing a prima facie showing that the plaintiff's cause of action does, in fact, arise from the defendant's free speech or petition activity. Second, if the moving defendant meets that burden then the burden shifts to the plaintiff to establish a probability of prevailing. In order to establish such probability the plaintiff is required to make a prima facie showing of facts which would, if proven at trial, support a judgment in plaintiff's favor. [Citation.] 'The burden on the plaintiff is similar to the standard used in determining motions for nonsuit, directed verdict, or summary judgment.' [Citation.]." (Marijanovic v. Gray, York & Duffy, supra, 137 Cal.App.4th at pp. 1269-1270.)
In establishing a probability of prevailing, the plaintiff may not rely on its complaint, even if verified; " 'instead, its proof must be made upon competent admissible evidence. [Citation.] In reviewing the plaintiff's evidence, the court does not weigh it; rather, it simply determines whether the plaintiff has made a prima facie showing of facts necessary to establish its claim at trial.' " (Paiva v. Nichols (2008) 168 Cal.App.4th 1007, 1017.) Whether a prima facie case has been established is a question of law. (Zamos v. Stroud (2004) 32 Cal.4th 958, 965.) In deciding whether a prima facie case has been established, the court considers the pleading and evidentiary submissions of both parties. Although the court does not weigh the credibility or comparative strength of competing evidence, the court should grant the motion if, as a matter of law, the defendant's evidence defeats the plaintiff's attempt to establish evidentiary support for the claim. (Ibid.) The court accepts as "true all evidence favorable to the plaintiff and assess[es] the defendant's evidence only to determine if it defeats the plaintiff's submission as a matter of law." ( Overstock.com , Inc. v. Gradient Analytics, Inc. (2007) 151 Cal.App.4th 688, 699-700.)
On appeal, we review the trial court's decision de novo, engaging in the same two-step process to determine, as a matter of law, whether the defendant made its threshold showing the action was a SLAPP suit and whether the plaintiff established a probability of prevailing. (Marijanovic v. Gray, York & Duffy, supra, 137 Cal.App.4th at p. 1270.)
a. The First Prong in a Mixed Cause of Action
"Where, as here, a cause of action is based on both protected activity and unprotected activity, it is subject to section 425.16 ' "unless the protected conduct is 'merely incidental' to the unprotected conduct." ' [Citations.]" (Haight Ashbury Free Clinics, Inc. v. Happening House Ventures (2010) 184 Cal.App.4th 1539, 1551.)
Plaintiff argues that this rule governs the instant case. We disagree. The allegations before us do not reflect that the protected activities are merely incidental to plaintiff's claim. Far from it; the allegations of bad faith in this case seem equally based on protected arbitration conduct and unprotected pre-arbitration denials of coverage and unreasonable delay in payment of a claim. Thus, this case presents a true "mixed" cause of action, based on both protected and unprotected conduct. We therefore turn to the second prong of the anti-SLAPP analysis.
b. The Second Prong in a Mixed Cause of Action
Once the defendant has established that a cause of action is based, in part, on protected activity, the question arises as to the scope of the burden placed on the plaintiff. As discussed above, once a moving anti-SLAPP defendant has established that a cause of action is based on protected activity, the burden shifts to the plaintiff to establish a probability of prevailing on the cause of action. But, when, as here, the cause of action is a mixed cause of action, based in part on protected activity and in part on unprotected activity, can a plaintiff satisfy its burden by establishing a probability of prevailing only on its allegations of unprotected activity, or must it establish a probability of prevailing on its allegations of protected activity? Moreover, if the plaintiff establishes a probability of prevailing on its allegations of unprotected activity, but not on its allegations of protected activity, can the anti-SLAPP motion be granted only with respect to the allegations of protected activity?
This is a complex issue; its resolution should be determined by an analysis of statutory interpretation, legislative history, policy concerns, and governing case law. Three courts have considered the issue, and no consensus has been reached as to what the governing rule ought to be. However, there is agreement as to what the applicable rule presently is. In Mann v. Quality Old Time Service, Inc. (2004) 120 Cal.App.4th 90, 106, the court concluded that, "[w]here a cause of action refers to both protected and unprotected activity and a plaintiff can show a probability of prevailing on any part of its claim, the cause of action is not meritless and will not be subject to the anti-SLAPP procedure. [¶] Stated differently, the anti-SLAPP procedure may not be used like a motion to strike under [Code of Civil Procedure] section 436, eliminating those parts of a cause of action that a plaintiff cannot substantiate. Rather, once a plaintiff shows a probability of prevailing on any part of its claim, the plaintiff has established that its cause of action has some merit and the entire cause of action stands." (Italics in original.)
In Haight Ashbury Free Clinics, Inc. v. Happening House Ventures, supra, 184 Cal.App.4th at p. 1554, the court followed Mann. However, a dissenting opinion disagreed with the Mann analysis, and concluded that, when a mixed cause of action is presented, the anti-SLAPP motion is directed only to that part of the mixed cause of action which is based on protected activity, and the plaintiff must establish a probability of prevailing on those allegations only, or have those allegations stricken. (Id. at pp. 1556-1559 (conc. & dis. opn. of Needham, J.).)
Recently, the issue was raised again in Wallace v. McCubbin (2011) 196 Cal.App.4th 1169, 1195-1210, which, in a lengthy analysis, challenged the Mann rule. However, the Wallace court ultimately followed the Mann rule, on the basis that our Supreme Court recently appeared to have embraced it in Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820. (Wallace v. McCubbin, supra, 196 Cal.App.4th at pp. 1210-1212.) Presiding Justice Jones concurred in the Wallace opinion, agreeing with the majority's result, but not its criticism of Mann. (Id. at pp. 1216-1220 (conc. opn. of Jones, P.J.).) A petition for review has been filed in Wallace.
Petition for review filed August 8, 2011. (Wallace v. McCubbin, S195503). On September 26, 2011, the Supreme Court extended the time to grant or deny review to November 4, 2011.
In any event, while there is substantial criticism of Mann rule, each court to have considered it has followed it, and we do the same. Thus, a plaintiff can defeat an anti-SLAPP motion directed at a mixed cause of action by showing a probability of prevailing on that part of the cause of action alleging only unprotected activity. If that probability of prevailing has been established, the entire cause of action survives the anti-SLAPP motion.
In this case, it is patently clear that plaintiff has met this burden. Plaintiff's bad faith cause of action is based, in part, on State Farm's unexplained ten month delay in concluding that plaintiff's umbrella policy provided for UIM coverage as well as continuing delay in claim settlement for another twelve months before the arbitration demand was made. This delay alone, if found by a jury to have been unreasonable, would be sufficient to establish a bad faith cause of action regardless of any conduct of State Farm in the course of the arbitration. Thus, the trial court did not err in denying the anti-SLAPP motion in its entirety.
In view of our affirmance of that ruling, we have no need to reach or discuss plaintiffs argument regarding the application of Code of Civil Procedure section 425.17.
However, the Mann rule itself is based on the premise that a defendant has other procedural tools available to challenge that portion of a cause of action that is meritless because it is based on protected conduct. (Mann v. Quality Old Time Service, Inc., supra, 120 Cal.App.4th at p. 106 [suggesting a motion to strike or a summary judgment motion].) State Farm, in fact, pursued such a motion to strike. We now turn to a consideration of that motion.
6. The Trial Court Should Have Granted State Farm's Motion to Strike And/Or Sustained Its Demurrer With Leave to Amend
For all of the reasons discussed above, we conclude that while the trial court was essentially justified in denying State Farm's anti-SLAPP motion, it does not follow that plaintiff may proceed against State Farm based on allegations that include protected and privileged litigation conduct. Indeed, as we have explained, State Farm's litigation conduct is absolutely privileged and is totally inadmissible (see fn. 20, ante).
Nonetheless, plaintiff should be entitled to proceed on its allegations of State Farm's nonprotected bad faith conduct. We thus agree with State Farm's alternative contention that the proper way to have handled this matter, after denying the anti-SLAPP motion, was to (1) sustain State Farm's demurrer with leave to amend so that plaintiff could file a new pleading which eliminated that portion of the first amended complaint that depended upon State Farm's conduct in resisting plaintiff's arbitration discovery demands and (2) striking from plaintiff's first amended complaint those allegations which rely on such conduct.
For this reason, and in the interest of judicial economy and fairness and justice, we elect to treat State Farm's appeal as a petition for writ of mandate seeking relief with respect to two nonappealable orders. (See fn. 1, ante.) We will grant such writ relief compelling the trial court to vacate its ruling with respect to State Farm's demurrer and motion to strike and to enter a new and different order granting such requested relief.
The order denying State Farm's special anti-SLAPP motion to strike is affirmed. State Farm's alternative petition for writ of mandate is granted. Upon remand, the trial court is directed to (1) grant State Farm's separate motion to strike from the first amended complaint those allegations which are based on protected and privileged litigation conduct, (2) sustain State Farm's demurrer with leave to amend and (3) conduct such further proceedings as are appropriate and consistent with the views expressed herein. Each party shall bear its own costs in these appellate proceedings.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
KLEIN, P. J.