Opinion
As Modified March 18, 1988.
Review Granted May 2, 1988.
Previously published at 198 Cal.App.3d 1207
Gil Todd Siegel, Beverly Hills, for plaintiff and appellant.
Demler, Armstrong & Rowland and Michaela O'Brien and James G. Boedecker, Long Beach, for defendant and respondent.
CROSKEY, Associate Justice.
Plaintiff and appellant Kimberly Parry ("Parry") appeals from the summary judgment entered in favor of defendant and respondent 20th Century Insurance Company ("20th Century") in a statutory bad faith action. (Ins. Code, § 790.03, subd. (h).)
In her notice of appeal, Parry purports to appeal from the order granting 20th Century's motion for summary judgment. We construe the document as a notice of appeal from the judgment. (Code Civ., Proc., § 904.)
All references are to the Insurance Code unless otherwise specified.
All further statutory references are to the Insurance Code, unless otherwise specified.
In Royal Globe our Supreme Court pointed out that six of the fifteen subdivisions of subdivision (h) of section 790.03 identify and define unfair settlement practices by insurers which are directed against claimants alone or against claimants and insureds separately. ( Royal Globe 23 Cal.3d at p. 888, 153 Cal.Rptr. 842, 592 P.2d 329.)
FACTS AND PROCEDURAL BACKGROUND
The facts essential to a determination of this appeal are not in dispute. On December 17, 1986, 20th Century filed a motion for summary judgment in which it made a showing as to the following matters which were not contested by Parry:
1. That on April 19, 1983, Parry was involved in a automobile accident with a vehicle driven by Staci Parker ("Parker") who was insured by 20th Century;
2. That on February 15, 1984, Parry filed an action against Parker to recover damages for the injuries which she allegedly suffered in the accident;
3. That on July 11, 1984, Parry agreed to accept in full settlement of her lawsuit against Parker the sum of $100,000 which 20th Century agreed to and did in fact pay;
4. That in exchange for such payment Parry executed a "Release of All Claims ", printed on a form submitted by 20th Century, which contained the following language: "It is further understood and agreed that this settlement is the compromise of a doubtful and disputed claim, and that the payment is not to be construed as an admission of liability on the part of Staci
5. That as a result of such settlement there was no judicial determination of the liability of Parker for the accident involving Parry, nor was there any admission by Parker that she was in any way liable for the accident. No such determination was ever made and Parry's action against Parker was dismissed with prejudice on July 18, 1984 in accordance with the settlement;
6. That Parry concedes that 20th Century did not commit fraud in its handling of the underlying claim, but rather that the claim against 20th Century is based upon alleged violations of section 790.03, subdivision (h).
The relevant subsections of section 790.03, subdivision (h), upon which Parry relies in her complaint provide as follows:
Based upon such record of undisputed facts, the trial court granted 20th Century's motion for summary judgment on March 10, 1987. Parry prosecutes this appeal.
As there is no triable issue of material fact with respect to the dispositive question raised by 20th Century's motion, resolution of the case by summary judgment is appropriate. (Stationers Corp. v. Dun & Bradstreet, Inc. (1965) 62 Cal.2d 412, 417, 42 Cal.Rptr. 449, 398 P.2d 785.)
ISSUE PRESENTED
The specific issue presented by Parry's appeal is whether or not a third party claimant may prosecute an action under section 790.03, subdivision (h), against an insurer after the claimant's action for damages against the insured has been settled and concluded by (1) the payment of an agreed consideration to the claimant, (2) the execution by the claimant of a release which recites that liability was in dispute and is not admitted and (3) a dismissal without a judgment or other determination of the insured's liability. We conclude that a claimant may not, as a matter of law, prosecute the action under such circumstances and therefore affirm the judgment. DISCUSSION
This issue arises from, but is not expressly resolved by, the Supreme Court's opinion in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329. In that case, it was established that a third party claimant, injured by the negligence of an insured, may sue an insurer for violating section 790.03, subdivision (h). However, the Court imposed the limitation "that the third party's suit may not be brought until the action between the injured party and the insured is concluded." ( Id. at p. 884, 153 Cal.Rptr. 842, 592 P.2d 329.) The Court stated: "[P]laintiff may not sue both the insurer and the insured in the same lawsuit. Section 1155 of the Evidence Code provides that evidence of insurance is inadmissible to prove negligence or wrongdoing. The obvious purpose of the provision is to prevent the prejudicial use of evidence of liability insurance in an action against an insured. [Citations.] A joint trial against the insured for negligence and against the insurer for violations of its duties under subdivision (h) would obviously violate both the letter and spirit of the section.
"Moreover, unless the trial against the insurer is postponed until the liability of the insured is first determined, the defense of the insured may be seriously hampered by discovery initiated by the injured claimant against the insurer. In addition, damages suffered by the injured party as a result of the insurer's violation of subdivisions (h)(5) and (h)(14) may best be determined after the conclusion of the action by the third party claimant against the insured." (Royal Globe Ins. Co. v. Superior Court, supra, 23 Cal.3d at pp. 891-892, 153 Cal.Rptr. 842, 592 P.2d 329, fn. omitted, emphasis supplied.)
A number of appellate courts have struggled with the question of the extent to which the prior determination of the insured's liability is a necessary prerequisite for a statutory bad faith action against an insurer. The issue has been discussed primarily in the Royal Globe terms of the need for the conclusion of the underlying action by the third party claimant against the insured and to what extent, if at all, such conclusion either includes, or must be accompanied by, the predetermination of the insured's liability.
There are presently 12 cases pending before the Supreme Court which deal with this issue. Of these, seven involved published opinions. They are Pacific National Ins. Co. v. Superior Court (1986) 188 Cal.App.3d 481, 233 Cal.Rptr. 189, review granted March 18, 1987 (S000011); Murphy v. State Farm Mut. Auto. Ins. Co. (1986) 194 Cal.App.3d 1118, 229 Cal.Rptr. 633, review granted Nov. 26, 1986 (L.A. 32279); Cranston v. Insurance Co. of North America (1986) 193 Cal.App.3d 668, 229 Cal.Rptr. 560, review granted Dec. 11, 1986 (L.A. 32285); Phillips v. Southern Cal. Physicians Ins. Exchange (1986) 193 Cal.App.3d 561, 229 Cal.Rptr. 527, review granted Nov. 13, 1986 (L.A. 32273); Moradi-Shalal v. Fireman's Fund Ins. Companies (1986) 190 Cal.App.3d 1162, 226 Cal.Rptr. 333, review granted July 31, 1986 (L.A. 32222); Nelson v. GAB Business Services, Inc. (1986) 188 Cal.App.3d 83, 224 Cal.Rptr. 595, review granted July 31, 1986 (L.A. 32223); and Isaacson v. California Ins. Guarantee Assn. (1985) 193 Cal.App.3d 93, 215 Cal.Rptr. 652, review granted October 17, 1985 (L.A. 32116). Of these seven cases, six held that no prior determination of the insured's liability was required (or that the issue had been conceded by demurrer) and one (Pacific National ) concluded that such liability was a prerequisite. The remaining five cases involve unpublished opinions. (Garcia v. State Farm Mutual Auto. Ins. Co., review granted Nov. 30, 1987 (S002754); Lowe v. State Farm Mutual Auto. Ins. Co., review granted June 15, 1987 (S000858); Deramo v. Farmers Insurance Exchange, review granted March 16, 1987 (S000034); Bean v. Interinsurance Exchange of the Automobile Club of Southern California, review granted Mar. 2, 1987 (L.A. 32309); Appleton v. Chubb Group of Ins. Companies, review granted July 28, 1986 (L.A. 32221). Of these, four held that liability had to be established and one (Lowe ) concluded that it did not. In addition, the Supreme Court ordered depublished another opinion which had held that liability need not be established. (Interinsurance Exchange v. Superior Court (1986) 187 Cal.App.3d 526, 231 Cal.Rptr. 885 (depublication order, Feb. 26, 1987).)
In Nationwide Ins. Co. v. Superior Court (1982) 128 Cal.App.3d 711, 180 Cal.Rptr. 464, the injured claimant sued the insured. A trial resulted in a jury verdict in favor of the claimant. While an appeal by the insured was pending in that action, the claimant sued the insurer for violating provisions of section 790.03, subdivision (h). The appellate court issued a peremptory
In Williams v. Transport Indemnity Co. (1984) 157 Cal.App.3d 953, 203 Cal.Rptr. 868, the widow of a decedent involved in an accident with the insured brought a bad faith action against the insurer. The decedent had never initiated any legal action to establish the liability of the insured, nor did his estate. The appellate court affirmed the granting of summary judgment in favor of the insurer, citing Nationwide.
The widow in Williams argued that the concerns motivating the holding in Royal Globe that the underlying action must be concluded were not present in her case since the statute of limitations barred any action against the insured. She asserted that the issue was whether the insurer failed promptly to attempt settlement at the time liability became reasonably clear and not whether the insured was liable for the injuries to her husband. The court disagreed. In addition, it also rejected her claim that settlement is an admission of liability so as to satisfy the Royal Globe criteria: "Plaintiff intimates that defendants' prompt settlement of the decedent's property damage claim may be deemed an admission of the insured's liability, but as noted, ante, a settlement does not act as an admission of liability with respect to any other claim arising from the same incident. ( Rodriguez v. Fireman's Fund Ins. Companies, Inc., supra, 142 Cal.App.3d 46, 55, 190 Cal.Rptr. 705.) Hence, the record contains no admission of the insured's liability. Absent such an admission or a legal determination of liability, the liability of the insured remains in issue and the concerns addressed by Royal Globe Ins. Co. v. Superior Court, supra, 23 Cal.3d 880 [153 Cal.Rptr. 842, 592 P.2d 329] retain vitality...." ( Williams v. Transport Indemnity Co., supra, 157 Cal.App.3d at p. 960, 203 Cal.Rptr. 868.)
In Sych v. Insurance Co. of North America (1985) 173 Cal.App.3d 321, 220 Cal.Rptr. 692, trial of the underlying action resulted in a judgment for the insured which was affirmed on appeal. The third party then brought an action against the insurer alleging violations of various provisions of section 790.03, subdivision (h), but focusing primarily on a violation of subdivision (h)(5). Affirming the dismissal of the action by the trial court after it sustained the insurer's demurrer without leave to amend, the appeals court stated: "Since, appellant's complaint admits that a jury had determined Doctor Innes was not liable for appellant's injury, it lacks an essential element of a prima facie case for violation of section 790.03, subdivision (h)(5), and fails to state facts sufficient to constitute a cause of action. [Citation.]" (Id. at pp. 327-328, 220 Cal.Rptr. 692.)
In Heninger v. Foremost Ins. Co., supra, 175 Cal.App.3d 830, 221 Cal.Rptr. 303, a mobile home park resident's trailer and contents were damaged by one of the park's trees. The resident presented a claim to the park's insurer. The claim was settled for a sum that the resident alleged was less than to which he was entitled. The resident signed a release of all claims striking out all references to the insurer. No action was filed against the insured park owner. The resident later filed a complaint against the insurer; a demurrer to the complaint was sustained and the action In Taylor v. California State Auto. Assn. (1987) 194 Cal.App.3d 1214, 240 Cal.Rptr. 107, a pedestrian injured in an automobile accident brought an action against the driver's insurer for bad faith conduct in violation of section 790.03, subdivision (h)(5). The third party claimant had settled and signed a release which provided that she understood that liability was disputed. The appellate court affirmed the summary judgment granted in favor of the insurer on the ground that there had been no admission or final determination of the insured's liability in the underlying action, a prerequisite to maintaining a third party action under section 790.03, subdivision (h).
In Green v. Travelers Indemnity Co. (1986) 185 Cal.App.3d 544, 230 Cal.Rptr. 13, the court affirmed a judgment of dismissal after the trial court had sustained a demurrer without leave to amend. The third party claimant had sued the insurers of a bankrupt asbestos manufacturer and argued that the initiation of bankruptcy proceedings and the removal of the case from civil litigation should be deemed the equivalent of a final judgment or settlement in the case. Citing Williams v. Transport Indemnity Co., supra, 157 Cal.App.3d 953, 203 Cal.Rptr. 868, the court noted that a third party claimant had to "demonstrate that the underlying suit against the insured has been concluded by either final judgment or settlement which determines the liability of the insured." (Id. 185 Cal.App.3d at pp. 553-554, 230 Cal.Rptr. 13.) The court concluded that "The idea expressed in Williams is unmistakable: if an entire loss of opportunity to establish the insured's liability [by the running of the statute of limitations] is not sufficient to carve out an exception to the Royal Globe rule, a fortiori, mere temporary delay to bring a claim against the insured ... cannot give rise to an exception either." (Id. at p. 554, 230 Cal.Rptr. 13.)
While these six cases each held that the claimant, as a prerequisite to bringing a statutory bad faith action, must show that the liability of the insured has first been determined, that is not to say that there has been total unanimity with respect to that conclusion. In fact, the contrary is true.
See ante, footnote 6; in addition, there are three cases, distinguishable on their facts, which did permit the claimant to go forward with a bad faith action without requiring that the insured's liability first be established. Rodriquez v. Fireman's Fund Ins. Co., supra, 142 Cal.App.3d 46, 50, 55, 190 Cal.Rptr. 705 involved a claimant who alleged a settlement with the insured with an express reservation of the bad faith claim against the insurer and an admission by the insurer of the insured's liability. Since the insured demurred to the complaint, the "truth of such liability allegation was admitted" and a specific finding of the insured's liability was therefore unnecessary. In Afuso v. United States Fid. & Guar. Co. (1985) 169 Cal.App.3d 859, 863, 215 Cal.Rptr. 490 the court held that a claimant's settlement with and release of the insured was, for pleading purposes, sufficient to meet "the minimum requirements for establishing her action was concluded within the meaning of Royal Globe." The issue of the predetermination of the insured's liability was neither raised nor discussed. In Vega v. Western Employers Ins. Co. (1985) 170 Cal.App.3d 922, 216 Cal.Rptr. 592 the claimant recovered a judgment against the insured but while an appeal was pending, the case was settled and the claimant executed a release naming both the insured and the insurer. The court reversed a summary judgment in favor of the insurer by concluding that an issue of fact existed as to the intent of the parties with respect to the scope of the release; as with Afuso, the issue of liability predetermination was not raised or considered. Thus, these cases, which are the only ones cited by Parry which have not been depublished or accepted for review by the Supreme Court, provide her with no support. "[A]n opinion is not authority for a proposition not therein considered. [Citation.]" (Ginns v. Savage (1964) 61 Cal.2d 520, 524, fn. 2, 39 Cal.Rptr. 377, 393 P.2d 689, accord, Taylor v. California State Auto. Assn., supra, 194 Cal.App.3d 1214, 1222, 240 Cal.Rptr. 107; Valentine v. City of Oakland (1983) 148 Cal.App.3d 139, 149, 196 Cal.Rptr. 59.)
However, we believe that the view expressed in the cases summarized above is clearly the correct one and that a third party claimant should be required to show that the insured's liability has been determined, before a statutory bad faith action can be pursued against the insurer. There First, the insurer who has by contract undertaken certain obligations should not be held to answer for circumstances which are unrelated to its liability under that contract. "It is fundamental that an insurance contract is, by nature, an indemnity contract; no enforceable claim accrues against the insurer until the insured's liability is in fact established. (See, e.g., Ins. Code, § 11580, subd. (b)(2); Mathews Cadillac, Inc. v. Phoenix of Hartford Ins. Co. (1979) 90 Cal.App.3d 393, 397 [153 Cal.Rptr. 267].) Therefore, however well isolated facts may seem to indicate a time when liability had become reasonably clear to the insurer, if the insured had no liability in actual fact, the insurer can have breached no duty to settle a third party claim." ( Williams v. Transport Indemnity Co., supra, 157 Cal.App.3d 953, 960, 203 Cal.Rptr. 868.) To hold otherwise would impose upon the insurer a statutory liability to take action with respect to claims against its insured that are far more onerous than those called for in the insurance contract and would effectively give the claimant greater rights against the insurer than the insured enjoys. "There cannot be unfair claims settlement practices in vacuo.... 'It is fundamental that an insurance contract is, by nature, an indemnity contract....' " ( Williams v. Transport Indemnity Co., supra, 157 Cal.App.3d at p. 960, 203 Cal.Rptr. 868.) The general rule of indemnity is that no liability accrues as an enforceable claim against an insurer until recovery of a final judgment against the indemnitee. [Citation.]
"... Royal Globe causes of action may arise under circumstances other than upon determination by a final judgment, but the cases do not support nor can we perceive any legislative intent to create rights of action totally divorced from ultimate legal liability." ( Heninger v. Foremost Ins. Co., supra, 175 Cal.App.3d 830, 834, 221 Cal.Rptr. 303.) As another court put it, "The policy reason for [such a] rule is obvious: the insurance carrier's liability toward a third party is derivative in nature, that is, the insurer cannot be found liable toward third persons unless the insured itself is liable." ( Green v. Travelers Indemnity Co. supra, 185 Cal.App.3d 544, 553-554, 230 Cal.Rptr. 13.)
Second, if section 790.03, subdivision (h), is construed to create an obligation enforceable in tort which is unrelated to, and separate from, the liability of the insured, then it must follow that the insurer's burden can exist even in that circumstance where the insured has established the absence of liability by judgment. However, such a construction of the Unfair Practices Act would necessarily impose upon insurers a form of statutory liability without fault and would, as already noted, create signficant burdens well beyond those anticipated by the insurance contract. It would also offend the principles of res judicata and collateral estoppel. If the outcome of the claimant's action against the insured is truly irrelevant then the claimant "would be allowed to relitigate the issue of [the insured's] alleged negligence and liability to establish damages. It is a rational inference, in a third party action against an insurer, that the value of plaintiff's claim is equivalent to the amount of judgment entered against the insured. [Citation.]" ( Sych v. Insurance Co. of North America, supra, 173 Cal.App.3d 321, 328, 220 Cal.Rptr. 692.)
Third, in Royal Globe, the court emphasized that the damages suffered by the claimant as a result of the insurer's alleged violations of section 790.03, subdivision (h) could be best determined after the conclusion of the claimant's action against the insured. That was one of the reasons cited by the court for postponing the bad faith action "until the liability of the insured is first determined." ( Royal Globe Ins. Co. v. Superior Court, supra, 23 Cal.3d 880, 891-892, 153 Cal.Rptr. 842, 592 P.2d 329.) "The reason for the court's view is obvious. The conclusion of the action against the insured provides some means of assessing the extent of the insured's liability and, hence, the damaging effect of the insurer's violation of its statutory duty." (Williams Finally, to permit a claimant to proceed without a predetermination of the insured's liability serves to create a serious and unnecessary conflict of interest between the insurer and its insured. If the liability of the insured did not have to be established as a prerequisite to a subsequent bad faith action then the insurer has a serious disincentive to agree to the settlement of the underlying action. Obviously, it could be anticipated that such settlement would likely be followed by another lawsuit in which the insured would have little interest or motive to participate but which would involve the same factual issues surrounding the insured's alleged misconduct upon which the settlement negotiations had already placed a value. Under such circumstances, the interests of the insurer are in sharp conflict with the understandable desire of the insured to achieve a negotiated resolution of the claimant's action. On the other hand, if a predetermination of the insured's liability is required, the claimant will have a disincentive to settle unless he can obtain an admission of such liability. It seems to us that a consideration of these competing interests, when examined and balanced in light of the need (1) to put an end to litigation rather than have one case serve routinely as the prologue for another, (2) to encourage all parties to negotiate a final settlement which reasonably values the damages allegedly suffered and (3) to discourage the "settle and sue" syndrome of filing statutory bad faith cases irrespective of merit, compels the conclusion that the better rule is to require that liability of the insured be determined before a statutory bad faith action may be prosecuted.
If the claimant can not obtain (or is unable to prove) such an admission, but nonetheless believes that the bad faith claim is sufficiently strong to pursue, then he should not enter into the settlement. The argument that forcing such a decision, by adopting a liability predetermination rule, would simply increase litigation is, in our view, overblown. For all of those cases which are not settled in order to preserve the opportunity to pursue the bad faith claim, there will be a far greater number in which the marginal nature of the bad faith claim is candidly recognized and the entire dispute is resolved.
We therefore conclude that a third party claimant may not state a cause of action or recover damages for a violation of section 790.03, subdivision (h), without alleging and proving that there has been a determination, by judgment, admission or stipulation, of the insured's liability to the claimant for the damages allegedly sustained as a proximate result of the insured's DISPOSITION
Beyond noting that a settlement, of itself, does not constitute an admission of liability ( Rodriguez v. Fireman's Fund Ins. Co., supra, 142 Cal.App.3d 46, 55, 190 Cal.Rptr. 705), we do not here attempt to deal with the various evidentiary circumstances by which such an admission, whether express or implied, might be proven; nor do we consider the extent to which the liability of the insured might be expressly or implicitly admitted by not only the insured but also by the acts or omissions of the insurer or its agents. It is sufficient in this case to note, under the facts here presented, that no triable issue of the making of such an admission has been shown. (See fn. 3.)
As the liability of 20th Century's insured in the underlying action was not determined, Parry may not, as a matter of law, prosecute this action. Entry of summary judgment was therefore proper. The judgment in favor of 20th Century is affirmed and 20th Century shall recover its costs.
ARABIAN, J., concurs.
DANIELSON, Acting Presiding Justice.
I respectfully dissent from the foregoing opinion and decision.
The Issues Presented
The essential question of law presented by this appeal is whether an admission or final determination of the liability of an insured to an injured third person is a condition precedent to that third person's statutory bad faith action against the insurer under Insurance Code section 790.03, subdivision (h)(5). 1 I hold that it is not.
In the context of this appeal, the specific question of law is whether a third person claimant may prosecute such a statutory bad faith action against the insurer when the injured person's action for damages against the insured has been settled and concluded by (1) the payment of consideration to the injured party, (2) the execution by the claimant of a release which recites that liability is disputed and not admitted, and (3) the injured third person's dismissal of her action against the insured.
I hold that the third person may prosecute such an action under those circumstances.
The majority decision is founded on the misunderstanding that section 790.03, subdivision (h)(5), and the opinion of our Supreme Court in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329 require that such an action may not be prosecuted by a third party claimant unless there has been a prior final determination, or admission, of the insured's liability to the third party claimant for the damages sustained by the third party as a proximate result of the insured's acts or omissions. A careful reading of each discloses that such is not the case.
The Statute
Section 790.03, a part of the Unfair Practices Act, provides, in pertinent part, "The following are hereby defined as ... unfair and deceptive acts or practices in the business of insurance.... (h) Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices: ... (5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear".
The Statutory Tort
The unfair practice defined in section 790.03, subdivision (h)(5) is a tort. It is not a derivative tort, rooted in the insurance contract; it is a separate, independent, discrete statutory tort. It derives its life from the statute itself,--not from the common law, and not from the insurance contract sold and issued by the insurer. By its
2Our Legislature had the right and the jurisdiction to create this statutory tort.
"It is well settled that the Legislature possesses a broad authority both to establish and to abolish tort causes of action. As former Chief Justice Gibson put it over 30 years ago, 'Except as the Constitution otherwise provides, the Legislature has complete power to determine the rights of individuals. [Citation.] It may create new rights or provide that rights which have previously existed shall no longer arise....' (Modern Barber Col. v. Cal. Emp. Stab. Com. (1948) 31 Cal.2d 720, 726 [192 P.2d 916] ...; accord, Werner v. Southern Cal. etc. Newspapers [ (1950) ] 35 Cal.2d 121, 125 [216 P.2d 825]; Ferreira v. Barham (1964) 230 Cal.App.2d 128, 130 [40 Cal.Rptr. 739] ...; Lowman v. Stafford (1964) 226 Cal.App.2d 31, 38-39 [37 Cal.Rptr. 681]....)" (Cory v. Shierloh (1981) 29 Cal.3d 430, 439, 174 Cal.Rptr. 500, 629 P.2d 8; see also, Werner v. Southern Cal. etc. Newspapers, supra, 35 Cal.2d 121, 129-130, 216 P.2d 825.)
The majority hold that the admission, or final determination, of the liability of the insured is a condition precedent to a third party's statutory bad faith action against the insurer. That interpretation defies the very language of the statute which created the tort. Section 790.03, subdivision (h)(5) contains no such requirement. The statute requires only that the insurer attempt, in good faith, fairly and equitably to settle claims in which liability has become reasonably clear. Liability which has become "reasonably clear" cannot be equated with liability which has been "admitted or finally determined"; they are two different standards.
The Scope of Royal Globe
In Royal Globe our Supreme Court interpreted subdivision (h)(5) of section 790.03. The court stated that "the language of subdivision (h) demonstrates that it was intended to prohibit unfair settlement practices by insurers directed against both claimants and insureds ... [and] that it is an unfair practice to fail to attempt 'in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear'...." (23 Cal.3d at p. 888, 153 Cal.Rptr. 842, 592 P.2d 329).
The precise holdings of our Supreme Court in Royal Globe, which relate to statutory bad faith actions, are: (1) "that a third party claimant may sue an insurer for violating subdivision[ ] (h)(5) ... but that the third party's suit may not be brought until the action between the injured party and the insured is concluded" (23 Cal.3d at p. 884, 153 Cal.Rptr. 842, 592 P.2d 329); (2) the "plaintiff may not sue both the insurer and the insured in the same lawsuit [citing section 1155 of the Evidence Code]. The obvious purpose of [section 1155 being] to prevent the prejudicial use of evidence of liability insurance in an action against the insured" ( id. at p. 891, 153 Cal.Rptr. 842, 592 P.2d 329); and (3) "unless the trial against the insurer is postponed until the Following the latter, third holding, the court observed that, "In addition, the damages suffered by the injured party as a result of the insurer's violation of subdivision (h)(5) ... may best be determined after the conclusion of the action by the third party claimant against the insured." ( Id. at p. 892, 153 Cal.Rptr. 842, 592 P.2d 329). That observation recognizes, and invites the inference, that although the damages suffered by the injured party as a result of the insurer's delict may best be determined after the conclusion of the third party's action, those damages may, nevertheless, be determined at another time.
The Impact of Royal Globe On This Appeal
None of the three above holdings applies to the case at bench.
(1) As to the first holding, the record reflects that the third party's action against the insured was settled and dismissed, and therefor concluded, on July 18, 1984. The action against the insurer was commenced on February 21, 1985. Thus it is clear that the third party's suit against the insurer was commenced after her action against the insured had been concluded.
(2) As to the second holding of Royal Globe, it is undisputed that the plaintiff injured party did not sue both the insurer and the insured in the same lawsuit.
(3) There remains to be addressed the third holding of our Supreme Court in Royal Globe, that "unless the trial against the insurer is postponed until the liability of the insured is first determined, the defense of the insured may be seriously hampered by discovery initiated by the injured claimant against the insurer." (23 Cal.3d at p. 892, 153 Cal.Rptr. 842, 592 P.2d 329; emphasis added.)
It is obvious that this third holding is not at all relevant to the case at bench. There was no need to postpone the trial against the insurer; that civil action had been concluded, as specified above. And the defense of the insured could no longer be "hampered"; it, too, had been completed, a release of all claims against the insured had been obtained from the plaintiff and the civil action had been concluded. Although this third holding may be of compelling importance in some cases it is meaningless, without reason, and not relevant to the case at bench. "When the reason of a rule ceases, so should the rule itself." (Civ.Code, § 3510).
The Statutory Bad Faith Tort Is A Reasonable Means By Which The State Can Exercise Its Compelling Interest In Protecting The Rights Of Its Citizens
The unique elements of the statutory bad faith tort created by section 790.03, subdivision (h)(5) are: (1) that an insurer fail to attempt, in good faith, to effectuate prompt, fair, and equitable settlements of claims, (2) in which liability has become reasonably clear. These elements are not overly broad, and they are not so vague or ambiguous as not to pass constitutional muster.
In a given case, it would pose no great problem to a trier of fact to determine when, and whether, liability has become reasonably clear. 3 The standard of reasonableness is no stranger to the law, nor to lawyers or the courts; it is an essential and ever-present part of the fabric of our law; it can be equated with what people everywhere know as common sense. The term "reasonable" has a common and generally accepted meaning, it evokes the understanding that the persons affected will use common sense in making their decisions and acting upon them. The measure of The standard of reasonableness is also well established in the more strict discipline of the criminal law. (Pen.Code, §§ 836, subds. 1 and 3, 844; People v. Terry (1970) 2 Cal.3d 362, 393, 85 Cal.Rptr. 409, 466 P.2d 961 (cert. dismd. 406 U.S. 912, 92 S.Ct. 1619, 32 L.Ed.2d 112); People v. Ingle (1960) 53 Cal.2d 407, 412-413, 2 Cal.Rptr. 14, 348 P.2d 577.) The measure of liability prescribed by section 790.03, subdivision (h)(5), "reasonably clear", is close kindred to and not less certain than the measure "reasonably probable" which has long been the standard applied by our Supreme Court in criminal cases in which the claim of ineffective assistance of counsel has been asserted. For example, "We conclude that in cases in which the claim of ineffective assistance of counsel is [asserted] ... a defendant may prove such ineffectiveness if he establishes that his counsel failed to perform with reasonable competence and that it is reasonably probable a determination more favorable to the defendant would have resulted in the absence of counsel's failings. ( [People v.] Pope, [1979] 23 Cal.3d at p. 425, 152 Cal.Rptr. 732, 590 P.2d 859; People v. Watson (1956) 46 Cal.2d 818, 836 [299 P.2d 243]....)" (People v. Fosselman (1983) 33 Cal.3d 572, 584, 189 Cal.Rptr. 855, 659 P.2d 1144; emphasis added; see, also, People v. Marquez (1986) 188 Cal.App.3d 363, 367, 369-370, 232 Cal.Rptr. 577.)
" '[T]he Constitution does not forbid the creation of new rights, or the abolition of old ones recognized by the common law, to attain a permissible legislative object.' ( Silver v. Silver, 280 U.S. 117, 122 [50 S.Ct. 57, 58, 74 L.Ed. 221] ...; Langdon v. Sayre, 74 Cal.App.2d 41 [168 P.2d 57]....)" ( Werner v. Southern Cal. etc. Newspapers, supra, 35 Cal.2d 121, 125-126, 216 P.2d 825.)
The State of California has a compelling interest in protecting and bettering the rights and remedies of its citizens who suffer injuries and losses as the results of the tortious acts of others; that is a permissible legislative object.
It is common knowledge that, today, such an injured person must often wait five years or more before receiving compensation for losses suffered; and that result is only after years of agonizing, expensive and long-drawn-out litigation which has become an oppressive burden on the injured persons, the taxpayers and the judicial system. Legislation, designed to correct that problem, which is reasonable in its impact, is clearly in the public interest. It is a proper subject to be addressed by the policy making branch of our government, the Legislature. The statutory bad faith tort is a reasonable limitation placed upon the settlement practices of insurers by the Legislature.
CONCLUSION
I would reverse the judgment and remand the cause to the superior court for further proceedings consistent with this dissenting opinion.
"The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance.
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"(h) Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices:
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"(2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.
"(3) Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurance policies.
"(4) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured.
"(5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.
"(6) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds, when such insureds have made claims for amounts reasonably similar to the amounts ultimately recovered.
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"(13) Failing to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement."
The legal remedy used to redress the wrong described in section 790.03, subdivision (h)(5) is commonly known as a statutory bad faith action, and that designation is used here.