(1) An insurer may defend itself against allegations of bad faith and malice in claims handling with evidence the insurer relied on the advice of competent counsel. ( Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 872 [ 110 Cal.Rptr. 511]; Davy v. Public National Ins. Co. (1960) 181 Cal.App.2d 387, 396 [ 5 Cal.Rptr. 488]; Fox v. Aced (1957) 49 Cal.2d 381, 385 [ 317 P.2d 608]; Beck v. State Farm Mut. Auto. Ins. Co. (1976) 54 Cal.App.3d 347, 355-356 [ 126 Cal.Rptr. 602].) The defense of advice of counsel is offered to show the insurer had "proper cause" for its actions even if the advice it received is ultimately unsound or erroneous.
Rather, the advice of counsel was relevant only to Sears' conduct upon default of URS and the bonding company; conduct which was consistent with its fraudulent scheme previously devised without the assistance of counsel. The cases relied upon by appellant — Fox v. Aced (1957) 49 Cal.2d 381, 385 [ 317 P.2d 608]; Wolfsen v. Hathaway (1948) 32 Cal.2d 632, 649 [ 198 P.2d 1] — involved fraudulent conduct which was directly based upon the advice of counsel. While, as previously noted, appellant's reliance upon the advice of its attorneys tends to mitigate the reprehensibility of its overall conduct, and for that reason constitutes a factor which favors a reduction of the punitive damage award, it was not sufficiently related to the fraud to require the jury instruction requested by appellant.
(3) Releases are construed against releasers (see Hayes v. Wetherbee (1882) 60 Cal. 396, 399) and ambiguities in instruments are construed against those who cause them to exist — in this case, inferentially, the releasers. (See Civ. Code, § 1654; Fox v. Aced (1957) 49 Cal.2d 381, 384 [ 317 P.2d 608]; Hellman v. Great American Ins. Co. (1977) 66 Cal.App.3d 298, 303-304 [ 136 Cal.Rptr. 24].) (2b) Properly construed then, Winifred and her two coholders of the general power of appointment could withdraw, following the execution of the release, not over $90,000 per year jointly ($30,000 apiece) of the trust property.
State Farm went to arbitration on the advice of counsel. ( Fox v. Aced, 49 Cal.2d 381, 386 [ 317 P.2d 608]; see Templeton Feed Grain v. Ralston Purina Co., 69 Cal.2d 461, 472, fn. 7 [ 72 Cal.Rptr. 344, 446 P.2d 152].) The order denying motion for judgment notwithstanding the verdict is affirmed.
[7] Moreover, when she entered the stipulated judgment in favor of her niece, Doctor Wilson acted on the advice of counsel, thus preserving her good faith and integrity therein. ( Fox v. Aced, 49 Cal.2d 381, 386 [ 317 P.2d 608].) And ultimately, the good faith of her error renders her not only impervious to a specific performance decree but immune from incidental damages.
Trust Co., 39 Cal.2d 253, 259 [4] [ 246 P.2d 632]; Carberry v. Trentham, 143 Cal.App.2d 83, 89 [2] [ 299 P.2d 966]; Pease v. Brown, 186 Cal.App.2d 425, 428 [1-2] [ 8 Cal.Rptr. 917]. Defendants now contend that they acted on the advice of counsel, citing Fox v. Aced, 49 Cal.2d 381 [ 317 P.2d 608]. The assertion is not supported by any transcript reference and we have not been able, after searching the record carefully, to find any evidence to support the statement.
The same rule obtains when there is a failure to convey a part of the property, McCowen v. Pew, 147 Cal. 299 [ 81 P. 958], and when damages alone (without specific performance) are sought. ( Romero v. Rainey, 138 Cal.App.2d 139 [ 291 P.2d 38]; Nelson v. Fernando Nelson Sons, 5 Cal.2d 511 [ 55 P.2d 859]; Fox v. Aced, 49 Cal.2d 381 [ 317 P.2d 608].) Since we have decided that the instant case is not controlled by Civil Code, section 3306, the question whether or not that section prohibits the recovery of special damages not therein mentioned (when within the contemplation of the parties) is one which we are not called upon to decide and which we do not decide.
American retained the $10 million in this case under a tenable claim of right strong enough to convince the district court. Although we reverse, we acknowledge that this is a close case and that the key issue is one of first impression. Punitive damages are inappropriate in this case. See Hollender v. Trump Village Cooperative, 97 A.D.2d 812, 468 N.Y.S.2d 683, 685 (1983) (punitive damages inappropriate where no showing of moral culpability or evil motive); Fox v. Aced, 49 Cal.2d 381, 317 P.2d 608, 610 (1957) (punitive damages not recoverable against party who acts in good faith under advice of counsel). In the absence of a viable claim for punitive damages, Morgan's conversion claim is superfluous and we need not address it.
In determining Astra's motive, we would think that a jury might consider why Astra did what it did, including whether the company acted on advice of counsel. Pennsylvania courts do not appear specifically to have addressed the question whether advice of counsel may be raised as a defense (albeit not an absolute one) to a claim for punitive damages, but a number of courts have held that "good faith reliance upon advice of counsel may prevent imposition of punitive damages," Henderson v. United States Fidelity Guaranty Co., 695 F.2d 109, 113 (5th Cir. 1983); accord Fox v. Aced, 49 Cal.2d 381, 317 P.2d 608, 610-11 (1957); see also 22 Am.Jur.2d Damages § 253 (1965) (citing cases). We are persuaded by these decisions, and we predict that Pennsylvania law would allow a jury considering punitive damages to take into account the fact that Astra's lawyer told the company that there was no need to file with the FDA the reports specified in 21 C.F.R. § 130.35. Counsel's testimony to that effect thus was properly admitted as relevant to the claim for punitive damages.
We agree that good faith reliance upon advice of counsel may prevent imposition of punitive damages. Fox v. Aced, 49 Cal.2d 381, 317 P.2d 608 (1957); 22 Am.Jur.2d, Damages § 253 (1965). This defense might have succeeded if USF G had produced the policy and then refused to pay, relying on advice of counsel that the policy had been cancelled.