California Shoppers, Inc. v. Royal Globe Insurance Co.

Dist., Nos. [Civ. 27496. Fourth Div. Two. Nov. 1985.] SHOPPERS, INC., CALIFORNIA Plaintiff and v. Appellant, COMPANY, ROYAL GLOBE INSURANCE Defendant and Appellant. Counsel Hafif J. for Plaintiff and Wayne Appellant.

Herbert Austero Taira, Grace, Otto, M. Mercer & Richard A. Eric Neumeyer Neumeyer, Appellant. & and J. III for Defendant and Gallagher Gallagher Hugh Opinion

McDANIEL, J. upon based money here is from a appeal judgment The awards, of an six for breach both specific jury damages contract including of covenant insurance contract and tort for breach of the damages implied court’s post- The from the trial good faith fair is dealing. cross-appeal damages. order the award of judgment (exemplary) striking punitive Inc., (Cali- The action was by Shoppers, California underlying brought in- its insured) against fornia and four shareholders or of its Shoppers carrier, in- Globe or the surance Royal (Royal Insurance Company du- of two surer) to recover the breaches from damages allegedly resulting indemnify ties refusal to arising under the One such breach was the policy. (the in a action insured for it against third-party a awarded judgment to de- action) the failure Uneedus The other was by competitor. brought wilful fend a count for the Uneedus action. main action also included The dealing allegedly breach covenant of faith fair good implied defend, for in well as count connection with the failure as occurring fraud time the insurance was allegedly occurring purchased. trial, were shareholder plaintiffs the individual In course of the for negligent noted as well those reference to the counts nonsuited with distress.1 infliction of emotional and intentional (1) of: expenses itemized damages in a verdict awarding

The trial resulted the judgment $86,500 satisfying Shoppers of incurred California action; $39,000 incurred (2) expenses it the Uneedus against awarded action; (3) so-called defense of the Uneedus $59,493 $50,000; necessarily (4) fees of inflation loss of attorney’s past here) benefits to procure in the (by litigation expended loss, million; $3 (5) for or business due under the economic policy; damages million; (7) interest $2 (6) prejudgment damages punitive (exemplary) $21,963. trial; notwith- (2) for new judgment Globe moved: for a denied, only granted and the second the verdict. The first was

standing motion, the re- court the latter as to the exemplary ruling damages. insufficient entirety legally is cited that “the evidence considered the defendant damages or an award justify punitive against support of oppression, was guilty that the defendant Globe. There no showing vex, or malice, injure with intent defendant acted or or that the fraud rights.” with a conscious annoy, disregard plaintiff’s acted stricken, and, “as be of exemplary court ordered that the award that judg- damages, of plaintiff punitive to the claim and cause action (Italics the plaintiff.” . . and against ment be entered in favor defendant. added.) its denying order from the from the Globe

Royal judgment, appealed than other the issues verdict as to for motion judgment notwithstanding denying order order), and from (a exemplary damages nonappealable cross-appealed part, for its tax costs.2 Shoppers, its motion to California award, damage the exemplary from the order which struck postjudgment and judgments orders rulings, adverse and from “all other appellable [sic] orders.3 two specific and rulings,” not limited to including evidentiary but shield the so-called on of particularly Based the policy, interpretation the refusal clause, for we damages shall affirm the award of contract for intentional Shoppers by California 1The first counts complaint amended did not include Shoppers California by alleged negligent of distress. The torts infliction emotional good of faith implied covenant against Royal breach of the Globe were an intentional dealing fair and fraud. issue, abandoned. to have been we deem it Royal 2Because Globe has not briefed the costs issue, not will we damages only exemplary Shoppers has briefed 3Because California cross-appeal. consider the’remainder contract dam- we shall also affirm the indemnify. infra, For reasons recited for failure to defend. ages

Otherwise, in- evidence does not support permissible undisputed award compensa- necessary uphold ferences tortious behavior of its speculative so-called bad faith. because Additionally, for tory damages insufficient, nature, was the evidence offered to tort prove damages On these three on bad faith were erroneous. certain of the instructions given economic alleged award of tort for grounds, alternatively, tort also liability be establishing loss will stricken. The absence evidence no Finally, with evidence eliminates the basis for fees. awarding attorney’s tort, dam- a fortiori the exemplary support compensatory damages were stricken the trial court. ages properly by here Globe’s Royal to the triggering litigation event leading Califor- failure to a defense for the Uneedus action provide brought against Globe’s Royal nia failure Shoppers. solely consequence Such belief, to uncon- according mistaken to California Shoppers, contributed by had been tendered tradicted defense of the Uneedus action testimony, that (Adco), one entity not by corporate but another action. actually even named as a defendant in the Uneedus awarding of the judgment attempting uphold appeal portion in this court an continues tort compensatory damages, court, effort it where it characterized successfully the trial pursued faith good Globe as defined having grossly violated some vaguely inflammatory if not and fair and where it dealing, urged polemic in the form of terms that behavior should be punished commensurately large award sufficiently large compensatory justify to obscure in this court award That fails exemplary damages. vagueness the manifold errors which record. abound this prejudicial in Merlo v. Standard

As observed in vein Justice Kaufman 416], “Never (1976) & Acc. Ins. Co. 59 5 Cal.App.3d Cal.Rptr. [130 Life ‘ excessive, theless, or where the award as a matter of law appears “[w]hen that it the is a recovery presumption so as to raise grossly disproportionate the upon is the result or then imposed the passion prejudice, ” ’ 301, 308-309 1 reviewing court to act. v. Cal.3d (Cunningham Simpson, 855, General v. National 39]; P.2d Bertero Cal.Rptr. 461 accord: [81 Corp., supra, 13 Cal.3d ^[43] at p. 64 [118 Cal.Rptr. 184, 529 P.2d 608, 688 at 878]; p. 65 A.L.R.3d v. Forte 25 Nolfi, supra, Cal.App.3d [656] 17, added.) 455].)” (Id., at italics Cal.Rptr. p. [102

15 issue, theOn tort the failure to defend as liability even accepting contract, been a fairly breach of an insurer’s to act having responsibility and in faith in an claim not the good insured’s “is handling requirement defend, settle, mandated the of the It is by terms policy pay. itself—to . .. which and in faith obligation fairly under the insurer must act good in its contractual v. Aetna Ins. discharging (Gruenberg responsibilities.” 566, 480, Co. 9 1032], Cal.3d P.2d italics Cal.Rptr. added.) words, In other per of the tort cannot be elements Gruenberg, defined terms of the be for there to a breach policy; implied covenant, the failure to bestow benefits must have been under circumstances or for reasons which law defines tortious. As confirmed in Hanson as (9th v. The Prudential Ins. Co. 1985) America Cir. F.2d “[t]he (Id., benefits, however, mere denial of bad faith.” at does demonstrate 584.) record, faith, On this p. with all reference bad that is shown alleged is a denial of benefits in the form of a because of a mistake failure defend induced the insured. there

Finally, was no what showing whatsoever entitlement to any loss,” characterized for inflation and “past so too will they be stricken.

Synopsis Facts noted, Code, As there (Evid. 410) was no in direct dispute evidence § trial; presented (Adco), here is what it shows. Adco Inc. Advertising, not a to these a party proceedings, publisher “Pennysaver,” was the very successful “give-away” type, advertising newspaper published in distributed of Adco Orange County. Some of decided principals and, launch similar in they venture Riverside with County, objective, $35,000 invested or- the venture caused California to be ganized as with the that certain of Adco corporation, result these principals event, mode, were also principals Shoppers. California Shoppers commenced of the “Cali- distribution publication fornia Shopper” Riverside County. Globe, which, through Jay and Renfro agency Newport

Beach, had written Adco’s liability business insurance otherwise coverage years, several upon overtures from California issued a similar Shoppers, (the insurance policy to California same policy) Shoppers, also through an agency, with effective date of March here policy, 1975. That the one sued recited in upon, pertinent part: Coverage Liability Injury Advertising Personal Offense

“1. which the all sums “(A) on of insured will behalf company pay of because per- become as pay insured shall legally obligated or organization or by person offense sustained injury any sonal advertising . . . and the business out of of the named arising conduct insured’s suit insured against shall have defend any company right the allegations or if of account of such even seeking damages injury any . . suit are false or fraudulent . groundless, of the . . . “(B) This insurance does apply: the wilful of “(2) to out or offense personal injury advertising arising with the knowl- violation of a statute or ordinance or penal committed any or consent of . . . insured. edge

“ named of the offense’ the course ‘advertising injury means occurring libel, slander, activities, out of injury insured’s if such arises advertising defamation, or competition, violation unfair piracy, of of right privacy, or infringement copyright, slogan.” title 5, 1975, first edition

On March California distributed Shoppers The follow- County. “California communities Shopper” five Riverside week, ads,” “for a limited “California offered free “reader ing Shopper” below, (the ad), basis for the which, time as became the only” explained have been within third-party litigation, alleged the risk its policy Royal Globe. coverage by time, the “Hi- At this same called another such give-away newspaper type (Uneedus) Liter” was and distrib- being published by Corporation Uneedus was “California uted in the same five County Riverside communities ad, against On filed Uneedus Shopper.” May because noted, that Cali- alleging action above Shoppers the third-party Act, as con- fornia had particularly violated the Unfair Practices 17043,4 it was tained in Business and in that sell- Professions Code section (Italics below-cost ing injure “with the intent advertising [Uneedus].”5 added.) within any engaged 4Section 17043 reads as business person follows: “It is unlawful for vendor, or any article such product

this State to sell at than the thereof to or less cost any product, destroying or give away competitors article or purpose injuring for the competition.” brought 5Business and Professions “In all actions Code section 17071 reads as follows: product or chapter proof selling giving away under this or article one or more acts of discriminatory proof injurious below cost with effect of such prices, together acts, destroy presumptive competitors or com purpose injure evidence or intent to added.) petition(Italics The named Shop- defendants the Uneedus were California complaint individuals, Sutton, and five the 100 pers Herb who was percent including Adco, stockholder and also was a 21 stockholder percent Shoppers. served,

After California sent summons and com- Shoppers Sutton the Renfro, plaint and Jay sold to California agency which had however, noted. policy and were Inexplicably, complaint the summons sent by Sutton to Jay and without a cover letter and explanation, Renfro Gibson, in an Adco envelope bearing Adco’s return address. imprinted Roy Renfro, the office at and manager Jay then sent the summons and complaint on to a and, Royal Globe claims office because he assumed that this service of process had been (Gibson I upon Adco testified: “When received [the Sutton, Adco, summons Iall saw was Herb Sutton. Herb and Uneedus] ‘Pennysaver’ were all I because we synonymous far as was concerned had a few quite claims with them”), Gibson Adco’s num- referred to policy ber in his covering correspondence to Globe’s Royal manager claims Tustin. That claims sent the and manager litigation correspondence papers toon Royal Globe’s Riverside claims office.

On Scott, June R. S. Globe’s claims River Royal manager side, letter, wrote the Inc.[,] dba following Advertising addressed to “Adco Pennysaver[,] Road[,] 27742 Forbes Ca. Laguna Niguel, 92677[.] Re: Summons and #112236 Uneedus Gentlemen: Complaint [the [¶] action]. Attached find Summons and We re Case number 112236. have Complaint viewed the allegations and we have also plaintiff contentions reviewed your It our no policy. that there would be opinion coverage we, therefore, suit return it to so that obtain counsel you you may you handle as see fit. Should you have further questions, please [¶] do not Scott[,] hesitate to Very call. R.S. truly, Insurance!,] Claims Manager[,] (Italics Claims Dept.[,] RSS/pw, cc/Jay and Renfro[.]” added.) The record is not clear how this letter were just the contents of actually transmitted Adco to California if at all. Shoppers,

Necessarily anticipating disagreement among concerning panel significance what Scott did or of June did not do before the letter writing 6, 1975, record, we deem it imperative set forth pertinent excerpts first, Gibson, testimony from who person Jay and Renfro received from California the summons and covering without complaint, letter, in an Adco and who later on to claims envelope, sent it Globe’s Tustin, Fred manager Pelosi in and then from Scott. testimony Austero, Mr. By to Mr. Gibson:

“Q. Did you read the names of the that were sued on persons being complaint? Yes,

“A. I did. “Q. Did see you that California sued? being “A. They—the name I saw was Herb Sutton.

“Q. So I take it you didn’t recognize that California being sued? Well,

“A. name, their Ibut never heard of them. “Q. Did you make an if investigation your office determine Jay Renfro had ever sold insurance California Shoppers?

“A. I didn’t. “Q. And did you at any time after this letter to sending have a conversation with Riverside, Dick Scott claims manager [defendant’s supra]1?

“A. Several. “Q. And did you send the summons and directly to Dick Scott? complaint “A. I did not.

“Q. Who did you send it to? “A. I sent it to Fred Pelosi in Tustin. We have instructions to send all of our claims to the Tustin office since moved down they here from Los Angeles.

“Q. And then did Fred Pelosi ever you contact about the summons and complaint you had sent to them?

“A. He did. He said he was it to sending Dick Scott in Riverside. “Q. Did you have a conversation with Dick Scott as to whether Globe was going accept the—with reject coverage respect under complaint you sent them?

“A. I don’t remember. “Q. taken, At the time a con- your deposition was do recall you having versation with Mr. Scott as to or whether there was not? coverage Well, did, recall, sure,

“A. I if I probably yes, ’cause he wasn’t he wasn’t sure there was coverage.

“Q. And he did—didn’t tell that was review it you he to have to going to determine if there was coverage?

“A. Yes. fact, “Q. sir, And isn’t it a that he in fact that there was no told you under— coverage

“A. you Later mean? Well,

“Q. on the to June 3rd ’75? telephone prior “A. That there was no coverage?

“Q. Yes.

“A. I’ve I can’t got remember. say

“Q. Some time after?

“A. I Because don’t. really

“Q. Sometime June did he on the telephone after 3rd ’75 tell you conversation with no personal him that there was coverage?

“A. I’m sure he contact Adco’s attorneys. did because he was going “Q. time, sir, And that the reason Globe your Royal at that impression wasn’t within encompassed because the claim denying coverage the policy provisions; isn’t that true?

“A. Yes. true, sir, “Q. it in no at And was your impression, you way isn’t that time understood be Globe’s position was not an insured under a isn’t that true? policy;

“A. It was never brought up. “Q. Did ever you have with from California anybody Shop- conversation all? pers

“A. Yes.

“Q. Who was that with?

“A. Not California no. Adco. Shoppers, “Q. Sir, Mr. (By Austero) understood you Royal Globe denying to Adco coverage Advertising, right?

“A. Right. “Q. You have no recollection as to whether Globe ever told Royal you what the reasons for were? denying coverage No.

“A. “Q. Do I understand you you have no recollection if ever say they told you what the reasons for denial were? coverage

“A. All I know is they said there was no under the coverage policy. Sir, was, “Q. your knowledge, California insured fact an Shoppers with Globe Royal on of—in May May ’75? us,

“A. With Ino. had never heard of California Shoppers. “Q. Prior to time you received the in the [the summons present case] you had no knowledge insured Shoppers Globe? I

“A. really don’t think I did. “Q. When advised you you that there was no did coverage, call anybody behalf of Adco or Herb Sutton for the of investi- purpose gating who determining was?

“A. California had never even been mentioned.

“Q. Their name was on the cover of the complaint.

“A. It was on the cover. When I received that summons all I saw was Sutton, Herb Sutton. Herb Adco and the were all ‘Pennysaver’ synonymous far I as was concerned because we had a few claims with them. quite “Q. Gibson, Now Mr. when were advised Globe that you by Royal they were denying did coverage, you coverage own mind question your why was being denied? I

“A. turned over to Mac Renfro. And he told to send that’s when me it to Fireman’s Fund which had their umbrella policy. evidence,

After the Scott letter of June was into (supra), read questioning proceeded:

“Q. . . . first time Herb Sutton you were aware of the complaint against was when you actually May received it office about ’75? your Adco. Yeah. We it from received

“[A.] they? “Q. complaint, Adco was not on a were named day? “A. The one we other looked yes. “Q. company, that forwarded complaint you “A. I don’t believe so.” trial, answers to the in the extensively, including

Later Scott testified by Mr. Hafif. following questions defend- of the named any

“Did make as to whether you any investigation under pol- ants in were listed as insureds complaint [the [Adco’s] Uneedus] icy? It been

“A. ... I cannot on case. has tell that you specific specifically That it too but I routine was: my can tell what many years, you again would have sent strange struck me as probably very policy defendant. My me as Adco were not a named they Advertising yet individuals under routine would have been and see if to check any insured, the Adco were assuming an additional named policy reason it was sent to me.

“Q. But denied you everybody? coverage “A. I denied it to Adco.

“Q. ... without to whether of these individuals had checking whoever, under the denied as to didn’t coverage you Adco policy, coverage you? me,

“A. never I never suit They got made a demand counselor. from an individual. I a Adco. No indi- got a suit from called corporation has ever me to vidual said had been served for demand cover they upon them or them with a defense. provide Well,

“Q. asked to you were handle got complaint you copy the claim?

“A. That’s correct. “Q. From that tell been you couldn’t whether the individual had served served, not could you? “A. That’s correct.

“Q. out, But didn’t you make did any you? find inquiry “A. That’s correct.

“Q. You didn’t make to find out whether some of those any inquiry individuals be might covered under an Adco did policy, you?

“A. Say again?

“Q. You didn’t make those individuals to determine whether inquiry named in there might you also be covered under the Adco policy, assuming were misunderstanding which claimed? policy being fact,

“A. I don’t I believe I that I think said just made statement.

contrary. Q. Scott’s Did you specifically read Mr. deposition,

‘“[From Hafif] best of reason were your you recollection tell Mr. Gibson that the to be able that was not a named going to handle the matter is Adco defendant? Well, it,

“‘A. if that was sent to you specifics realize the policy me was under Adco. claim under Adco’s obviously And I could not set aup therefore, all I can they say since were So policy not a action. party I is that “Since Adco and in most likelihood said to Mr. Gibson probably ’ ”6 isn’t a I named can’t set it under party, Shoppers.” up Otherwise, Scott he “no knowledge testified that had [Globe] also, insured he “had to have named California anybody Shoppers”; answers, suppositions testimony, qualification of his were 6Portions Scott’s his own words, In other Scott “probably” customary procedures. as what he did in of his terms occurred in things had no actual The events recollection of certain of the he testified to. 1975; the trial inwas 1981. insured, number an policy in order to regarding obtain information specific because there was no at that time.” alphabetical listing

Affording an into insight background aspects litigation, certain counsel, Michael Feb- California testified that on Harding, house Shopper’s 4, 1976, ruary he denial of coverage, was told about Globe’s Royal and that he proceeded to undertake a “fact mission California finding” (1) on it to Shoppers by: without names a showing copy any its policy friend in the insurance as to business and for the friend’s asking opinion suit; his, whether Royal Globe (2) should defend the Hard- having people himself; Code; ing’s, office research (3) the Insurance reading policy (one attorneys to of California sending policy Shopper’s Odgers suit) in this for an he contacted be- Odgers testified that opinion. Harding “I cause knew he . did a lot of . . did a lot of research work and appellate in the area bad faith.” also

Harding testified that he a financial interest in the outcome had suit, and that he had an where- present with California agreement Shoppers he, “25 get was is recovered Harding, attorney whatever percent fees . . . .” event, California any handed over the defense the Uneedus Shoppers Anderson,

action to attorneys, Adco’s Kindel and retained firm Odger’s 8, to file the suit On present Royal Globe on June 1976.7 June against day filed, his suit here was made first Harding attempt after contact Royal Globe “I asked by calling Gibson. testified: Harding [Gibson] did what Globe tell so I him were on could they relying policy well, said, show to . my client . . and he the letter and you they just got said there’s no And he ahold of is a named get guy said the coverage. guy Scott. IAnd could never find Mr. Scott. And until I heard from Mr. Ibold attorney, only that was the contact I’d August, infra], [defendant’s had with Royal Globe.” 7, 1976,

On July month after the here filed about complaint two months before the Uneedus California begin, trial was scheduled for the first time original served Globe a copy upon summons and in this complaint action.

Quite noted, 28, 1976, from Califor- apart July thus far on litigation theories, nia in- otherwise Adco no less on several sued original part 7The version of Shopper’s complaint is not a the record We appeal. complaint, shall refer which was Shopper’s below amended first complaint at issue on which the case went to trial. defamation eluding unfair and this that Cali- competition, notwithstanding fornia and had Shoppers Adco several common the fact Despite principals. that California house “could Mr. Shopper’s counsel never find Harding Scott” the Uneedus processing action California this against Shoppers, same did attorney report any transmitting difficulties defendant the summons and filed the Adco California complaint action against Shop- with pers, a cover along letter to California num- referring Shoppers’ policy ber insured,” and to California as “your and that requesting Royal action, Globe a provide defense to the Adco all in marked contrast to how the Uneedus summons and California complaint served on had Moreover, been earlier handled. Royal Globe did undertake defense of the Adco action against California Shoppers. noted, counsel, California

Harding, house at the Shoppers’ request as Ibold, Charles on Royal Globe’s a attorney, meeting August arranged 1976, with Stephen who California Odgers, attorney handling Shop- office, suit pers’ against Globe. It was Royal held in and the Harding’s of the was to discuss of this purpose settlement here meeting litigation well as California tender of the action for defense. Ibold Shoppers’ Adco testified, contradiction, offered, without that at on actually that he meeting behalf, Globe’s Unee- Royal to assume California defense of the Shoppers’ action, the dus trial of which was then a week. Ibold set to about begin also testified that to this that Globe could Odgers’ response Royal offer was “defend control the then suit” condition that California Shoppers’ in that case be attorneys would retained Globe and would continue by Royal defense, to handle the Globe indemnify Shop- that agree Shop- that pers pay judgment, forthwith $100,000, in the pers in addition to the fees incurred then up attorney’s Uneedus action. 30, 1976,

With reference to testified that August meeting, Harding were firm that very anything litigation] that resolved got [in “[w]e be with Then the took be- would fees.” attorney exchange place following tween and Mr. Hafif: Harding

“Q. Now did of a letter from meeting copy that receive following you you Mr. to Mr. don’t take Odgers outlining Why Ibold itself? meeting time to read that? Yes,

“A. I letter. received this “Q. And did it outline—the the discussions Okay. circumstances recall conform to that letter? you

“A. Yes.” Coffran, present Shoppers, of California James one of the principals on direct examination he testified during part meeting, exactly, More Uneedus action. Ibold had offered to the defense handle know, would, testified, you out that they he I it came way think the “[a]nd us if a case, judgment cover but wouldn’t they would take over the they that know, And down, of, work. know, their defense you came because you that.” I comfortable with wouldn’t be obviously action, sum, the Uneedus offer to defend Globe’s responding Royal demanded, continued defense be that the only California Shoppers then Unee- coverage of the that choice and with counsel California Shoppers’ Shoppers Globe California dus risk be that Royal pay but also accepted, plus Uneedus action in defense incurred legal expenses actually $100,000 against had Shoppers settlement the action filed California Royal Globe here. with later, reference to Ibold primarily

Four sent a letter days Odgers as follows: of this here settlement litigation 3, 1976

“September Ibold, Jr. “Mr. Charles R.

Ibold, Anderson, Mercer & Gallagher at Law

Attorneys Blvd.,

2600 Wilshire Suite

Los California 90057 Angeles, Ins., al, et al Royal et vs. Shoppers,

“RE: California alet Shoppers, Uneedus vs. California Shoppers ADCO vs. California

“Dear Mr. Ibold: follow it I I would thought August on Monday,

“After our meeting it to the so send you might extra copy with this letter. I enclose an up headquarters. Globe at the Royal officials of appropriate is such here under litigation] one of this lawsuit “The potentiality [the the top management factual situation to bring I’m sure wish to you Globe. Globe, in order I think that meeting, at our you “As I indicated worse, assume immediately definitely should to avoid a bad situation making recently lawsuit brought by on the defense of California ADCO, and also lawsuit is that it coverage. My understanding falls squarely within of the California coverages bought by Shoppers. policy “I reiterate that our on the demand settlement at this time lawsuit brought by Shoppers against Royal Globe Insurance Company as follows:

“1. Pay attorneys’ fees thus far expended by amount; full

“2. lawsuit; Pay attorneys’ fees for the remainder the defense “3. Pay for any returned and judgment California against Shoppers; $100,000 “4. Offer for settlement of claims for emotional distress general and damages alleged on behalf four five complaint plaintiffs against Royal Globe.

“I’m sure you realize the above are and that failure things separable to remedy the situation is from which going a situation put Royal it will be even more difficult to than one it is now in. extricate itself

“I’m sure you not appreciate the fact that California does desire Shoppers Anderson, to have any other counsel substituted in of Kindel & as place Royal Globe told California own which it attorneys, to hire its Shoppers At did. this late it would stage, attorneys be most difficult for other have, acquire thorough of the case that Kindel & Anderson knowledge and would be difficult on equally to ask the for a continuance judge trial, set for day since the would become most judge undoubtedly upset. I would like “Again, to take this understand- my reiterate opportunity ing Royal Globe’s position that it did not know California Shoppers was involved in a lawsuit and the first to be you treating are going notice as of about the date of our as untenable. meeting being completely

Yours truly, Law Offices of Herbert Hafif By L.

Stephen Odgers SLO:dl

Enc.

P.S. This offer will (Italics added.) 1976.” expire September did not Odgers or the intend- testify trial about either the meeting event, Ibold, ments of the letter. In as a result of the between meeting Globe, and Odgers and the Harding Royal letter from quoted Odgers, earlier, noted actually did undertake of the Adco action against defense Otherwise, California Shoppers. Odgers’ Globe did respond solicitation of an offer to the to settle the action here under As litigation. letter, i.e., third feature of the only implied the next to last paragraph, action, Royal Globe’s noth- possible of the defense of the Uneedus handling ever ing in this means of this developed California regard, Shoppers, letter, never made defense of really a demand that Globe take over the Uneedus action. As Globe did not Obviously, Royal accept coverage.8 consequence, Shoppers’ Uneedus action went forward with California defense the hands of June of counsel it had soon after the letter retained 6, 1975. 6, 1977,

On June action decision in the Uneedus after intended announced, $1.5 million. sold its assets for Otherwise, with of eco- theory reference to alleged California Shoppers’ (from nomic loss “defendant arising consciously knowingly” because the Uneedus ac- infra) refused to defend Shoppers’ complaint, tion, California “immediately” proxi- contends that it was show that mately The facts related injured by just such refusal to defend. two years the sale of until California assets did take Shoppers’ place letter. after Scott’s letter of June the Odgers and nine months after event, noted, In was entered two months judgment after sale $25,000 the Uneedus action in damages favor of Uneedus for general $10,000 in was denied damages fees. Uneedus’ for treble attorney’s request court, “were not acts trial on the that California ground Shoppers’ of such they done with nor were malice or towards oppression [Uneedus] Uneedus magnitude appealed, warrant the of treble imposition damages.” was error. the failure to award treble claiming damages debtor did the judgment counsel to provide represent in its to the response judgment. Uneedus appeal Cal.App.3d

In v. Inc. Shoppers, Uneedus who has (Uneedus), this court held that “a Cal.Rptr. private plaintiff 956] Act is entitled Practices actual under the California Unfair proved “the issue of whether treble and that mandatory damages,” [California such magni- ‘were ... of acted or whether its acts Shoppers] maliciously 8Royal contesting coverage. Globe is still the issue of tude to warrant the imposition of treble is not in the case.” damages’ present (Id., 936.) at p. We ordered modified to treble judgment the damages accordingly. 2, 1979,

On April about a month after the California Supreme Court Uneedus, denied a hearing Royal Globe wrote a letter to California Shop- which pers recited in “We part: have now been instructed by our client to inform your office that they are formally refusing indemnify your client for settlement monies expended. It’s clear from a reading Business and Professions Code Section 17043 that the law which your clients were ac- cused of willfully violating constitutes a statute. The penal decision Court in Appellate determining treble law penalty provision mandatory application, confirms the nature of penal the law. And as aware, you’re shield special endorsement for the ex- policy specifically cliides willful violations of a penal statute an involving offense. advertising And this is what exactly your clients have been found liable for. above, we

“Notwithstanding recognize that faint exists possibility defense, have Royal may owed your client a although not indemnifi- cation.” later,

About two years case here under review proceeded to trial with the results earlier noted.

Issues, Contentions and Discussion Globe has pursuing appeal, Royal made numerous assignments Moreover, error. besides appealing from the judgment, Royal Globe has asked we the review trial court’s order after to the extent that judgment it did not Globe’s grant Royal motion for judgment notwithstanding the verdict.

This of the procedural posture case provides convenient to deal way with certain of the of error assignments as to the tort damages, including words, the fees. In other attorney’s we shall address these items of the verdict in terms of the the trial propriety court’s on the for motion ruling verdict, so, course, the notwithstanding judgment doing conformity with the standard of review thereto Treatment applicable. of the cross-ap- will also for the peal proceed similarly, motion was ex- granted as emplary damages.

30

The standard of recitation. review noted is the subject frequent 681, In 534 Zogarts (1975) Hauter v. 14 104 P.2d Cal.Rptr. Cal.3d [120 377, 1282], 74 A.L.R.3d from v. Brandenburg Court Supreme quotes that, 909], Pac. Gas Elec. (1946) & Co. 28 Cal.2d P.2d [169 “ motion for of a jury may prop the verdict judgment notwithstanding ‘[a] evidence, be if viewed in the erly granted it from only light appears verdict, most favorable to the that there is no substantial party securing evidence, evidence to support the verdict. If there is substantial verdict, therefrom, reasonable inferences to be drawn in support (Id., 110.) motion should be denied.’” at p. at issue The first is whether liability. are three areas of asserted

Broadly there was a breach of the contractual duty indemnify Shoppers (the for the awarded in an earlier action Uneedus or judgment against action), insurance policy such from the third-party duty allegedly arising written Globe. second is whether there was breach of the by Royal action, also duty contractual to defend California the Uneedus from the The third is the of the tort award- arising propriety damages policy. issues, (1) subsidiary namely: ed. Its resolution in turn on several depends occurred, defend, if it was for duty whether the breach of contractual such breach also the tort of bad being reasons which could characterize faith; (2) nature on whether the instructions bad faith misleading error; (3) measure of amounted to damages prejudicial addition, of such with damages the evidence speculative. whether of whether there there is the issue is any reference to cross-appeal, in the record of additional circumstances connection present evidence defend, malice, fraud or breach of the to show so oppression, with liability exemplary damages. as to expose view, noted, the record jury’s findings In our as earlier supports duties, and that there were were breaches of both contractual there thereto, i.e., the of the final judgment attributable amount awarded suffered in which it was in the Uneedus action defend- against here, ant, with interest the cost other plus retaining together prejudgment the Uneedus action. counsel to defend noted, $3

However, we hold that the award the million also as earlier fees now otherwise recoverable the attorney’s per in tort damages, plus Cal.3d 813 Cal.Rptr. Court Brandt v. Superior record), (under circumstances not present improper: P.2d 796] to were no inferences be drawn from the (1) there permissible because could establish for factually liability evidence such as direct undisputed, (2) nature of and hence because of the insufficient speculative such damages; evidence offered to prove such damages; because of prejudicial errors in the jury instructions.

More as to specifically, impropriety tort because of damages, No. above, based hold, facts, the analysis we infra, on these solely that there was no evidence of behavior attending Royal Globe’s breach of its to duty defend showing any tortious behavior by Royal to amounting a breach of the implied covenant of faith and fair good We do not dealing. hold that breach of never, duty circumstances, defend can under be accompanied other behavior such as would constitute tort of bad faith in addition to the breach of contract. Such a is not holding necessary here, to our decision Likewise, and we expressly disclaim it. we do not hold, if such a disclaimer be for necessary, tort breach of liability the implied covenant of faith and good fair can be dealing only proved by direct evidence.

Otherwise, on the we cross-appeal, hold that the trial court properly because, struck the observed, exemplary as the damages trial court in light evidence, the undisputed and the only inferences be permissible drawn therefrom, Globe, that there was no egregious conduct within the by Royal ambit of Civil Code section for which the could have properly awarded such damages.

I Duty Indemnify Breach of the Contractual contention, It is Royal Globe’s under the terms of the policy, the undisputed facts do not the occasion for it to Cali provide indemnify fornia for the Uneedus reason that Califor judgment, nia Shoppers engaged certain trade which led statutory unfair practices to that judgment.

Stated in the I language Royal Globe’s black-letter in its point opening brief, “Plaintiff’s willful violation of a statute with penal injure intent brief, competitor precludes it from insurance benefits.” In its receiving any continues, Royal Globe of these authorities to the “Applying reasoning action, instant evident that has no plainly indemnify for the in the awarded Uneedus action. Cali- fornia Shoppers’ away below cost and its selling advertising space giving advertisements, of free reader with the intent to the busi- destroy injure Uneedus, ness of fall within the definition of a ‘willful’ act.” squarely 32 Code

Otherwise, the Insurance 533 of Globe to section Royal points wilful that, caused which is liable for a loss provides “An insurer not insured, insured; of the of the but he not negligence act exonerated either of the Globe under Royal argues, or insured’s or others.” agents 533, legal that it has no terms of the or the of section policy provisions sat- to the latter paid for what obligation indemnify to California Shoppers the Uneedus isfy judgment. Califor against

Both The Uneedus action contentions are unmeritorious. brought pursuant nia was in the nature of civil action a antitrust imposed the judgment to Business and Professions Code section 17043 and i.e., fact the Unfair that remedy, damages. nature a civil Code, (Bus. & Practices Act as well Prof. provides sanctions penal here as 17100) underlying action underscores the characterization § nor with civil rather than neither charged penal. made no has under court convicted statute or ordinance” “penal within any exculpa such a finding. burden of itself bringing “[T]he As (American Home tory clause contained is on the insurer policy 19, (Execu 586]).” surance Co. v. Essy, 179 23 Cal.App.2d Cal.Rptr. [3 799, Aviation, (1971) 16 tive Inc. v. Ins. Cal.App.3d National Underwriters burden 806 347].) carry Globe has failed Cal.Rptr. [94 terms, and to to its demonstrate that the literal language, according policy’s excludes of the treble coverage damages. 533, “clear

As for Insurance Code ignores section line of act which is ‘inten authority in this to the that even an state effect tional’ will or ‘willful’ of traditional tort principles within meaning unless exonerate the insurer Code section 533 liability from under Insurance (Clemmer v. Hart it is done with a inflict ‘preconceived injury.’” design 285, 865, 587 Co. (1978) Insurance 22 887 Cal.Rptr. Cal.3d [151 ford 1098], (1960) P.2d v. 185 citing Cal.App.2d Walters Ins. Co. American v. 665].) 783 Capachi More as the court in Cal.Rptr. specifically, [8 (1963) Cal.Rptr. Glens Falls Ins. Co. 849 Cal.App.2d Supp. [30 out, 323], word be said pointed may “the ‘wilful’ as used in 533] [§ connote done have suggested an act with malevolence.” Other courts within the term “wilful tort” as used section culpability contemplated i.e., vex, fact,” 533 is annoy, with “malice in synonymous wish Indemnity (See, another Products v. injure person. e.g., City Corp. Globe 31, 36, 494].) Co. fn. 3 Cal.Rptr. Cal.App.3d with the the courts injure, Consistent intent requirement specific to the coverage have an rule section 533 exception precludes recognized in- where to the prohibited acts are attributable exemplary (See sured vicariously. (1955) Arenson v. Nat. Automobile & Cas. Ins. Co. 81, 45 Cal.2d 816].) 84 P.2d A similar has been made where exception [286 Thus, the insured acts intentionally but without malice. in Capachi v. Glens Co., 843, Falls Ins. supra, 215 Cal.App.2d the insured was found Supp. arrest, liable for false but the also found that the insured had acted i.e., without ill will or intent to injure, without malice. Accordingly, Capachi court ruled that section 533 did not exclude for the dam- coverage (Id., ages. 849.) at p.

The rule which from the emerges cited cases is: Insurance Code section 533 clearly excludes coverage those “wilful” acts committed with the specific intent but not injure, those nonmalicious acts committed with the sole intent to do the act which caused the harm. of the light it is foregoing, evident that section 533 does not

exclude of the treble coverage damages here. The trial court in imposed Uneedus action found that “the specifically acts of the defendants [Califor nia were not Shoppers] done with malice or towards oppression [Uneedus] nor were of such they magnitude warrant the of treble dam imposition ages.”

This court later ruled that the trial court had erred in to award failing treble because damages such are damages under Business mandatory 17082, Professions Code section of whether California irrespective Shop- acted pers with malice.

However, award of mandatory treble under Business and damages Professions Code section 17082 is an issue from the separate apart question whether California acted with Shoppers malice to requisite invoke the exclusion of section 533. was found Shoppers to be liable for the treble be- damages,

cause the to harm” “purpose under section 17043 be requirement may pre- sumed from solely the act of below cost with of the selling together proof 17071; (Bus. Code, injurious Tri-Q, effect such act. & Prof. Inc. v. § 199, (1965) 878, Sta-Hi 63 Corp. 486].) Cal.2d 208 404 P.2d Cal.Rptr. Liability attaches when the evidence shows that a defendant intended do customers, act of below selling cost order to attract and in the process caused an (See effect to his injurious Whatever competitors. McCarthy, Happened to the Small Businessman? The Practices Act California Unfair 192-193.) U.S.F.L.Rev.

Although was found to be Shoppers responsible for statute, under the the absence-of-malice the court in the Uneedus finding by did conclusively action established that California pursue (Clemmer to inflict v. Insurance “preconceived design injury” Hartford Co., Therefore, 887). did not exclude Cal.3d section 533 supra, for which California was assessed treble coverage exposure damages. 533, however, exclusion contained in section

Beyond statutory state, in numerous that the of this as articulated argues public policy decisions, has court insurance for It exemplary damages. prohibits coverage been to for exem liability observed that to allow offenders shift frequently to their insurers would undermine the theoretical plary damages purposes i.e., from en damages, of such to the offender and to deter others punish 147, (Peterson (1982) in like conduct. v. Court 31 Cal.3d gaging Superior 784, 1305]; 155 642 P.2d Fletcher v. Western National Cal.Rptr. [181 Life 376, 78, Ins. Co. 10 47 A.L.R.3d Cal.Rptr. 409 Cal.App.3d [89 Co., 286]; Products v. City Corp. Indemnity Globe 88 supra, Cal.App.3d 31, 41.)

However, is where the of to primary purpose multiplying damages pro- vide to additional to the victim rather than the offend- compensation punish er, it can be maintained that insurance to such hardly coverage extending of multiple undermines the theoretical damages exemplary damages purpose or offends public policy.

Because neither the itself nor the statutes and insurance policy public it necessarily of this state for the treble policy preclude damages, coverage have to duty follows that Globe had and continues to indemnify California for the full of the Uneedus judgment. amount Shoppers law, of we hold there is defined the to an issue

Having duty indemnify, no of breach here as fact. Globe has not indem- question an issue of so, nified for to do of declining California the Uneedus Shoppers judgment, course, on the that it has no to do so. ground duty legal breach, Coffran, from the James damages arising already iden-

Turning he tified as a California testified that Uneedus principal Shoppers, paid $89,000. The here total of under the coverage applicable policy provided $2,500 We for a deductible. assume that this was reason the award- $86,500 actually ed here instead of what California paid satisfy the Uneedus judgment. sum, indemnify, for breach of the jury rightly

In as $86,500, interest of plus prejudgment awarded

35 $21,963, calculated from the time the should have been indemnity paid up to the date of the judgment. consider,

Before this it leaving is point, applies appropriate here, Royal Globe’s contention that it was error the trial court submit to the jury the task Such provisions insurance interpreting policy. contention, Code, based section well taken. the Evidence That reads, section in pertinent “All of law but not part, questions (including limited to other questions construction statutes and writ concerning .) statute, . . be ings are to decided it is court.” well Applying contracts, established that the of written insurance interpretation including policies, is an issue of be not the law to decided the court and jury. (Parsons 861, v. Bristol (1965) 62 Development Co. Cal.2d 767, Cal.Rptr. 839].) P.2d on the issue light foregoing, in coverage, Royal propriety Shoppers’ challenges 10, structions No. No. No. No. No. 20. Academically, 19 and Royal Globe is in its right challenge.

However, no from On the prejudice resulted the erroneous instructions. uncontradicted, evidence, direct there is no about dispute happened. what conduct was and in the Uneedus Shoppers’ fully exposed litigated action and the was trial court. As a subject findings by consequence, law, issue, Royal Globe’s an should liability solely on the issue of coverage verdict, or, have been subject of a for a more logically, motion directed of a motion for trial for in advance of the partial summary adjudication reasons set already coverage. forth our legal interpretation policy words, facts, other to the jury, instructions applying undisputed reached the same result as the dictated anyway. law-imposed duty

In view of our discussion on issue of neces- and holding coverage, sarily that the not- follows trial court’s denial motion for judgment of the correct, the verdict on was and the thereon withstanding point judgment will be affirmed.

II Duty Breach of to Defend the Contractual Now, as such duty we take Globe’s that this contention up Royal “(A) was not breached. The reads provision policy applicable company will which the insured shall behalf of insured all sums pay become or obligated injury to because legally pay personal offense sustained and out advertising any organization arising person of the conduct of the . shall named insured’s business . . and the company have the dam- to defend suit the insured right duty any against seeking on account of such if of the suit ages or even injury allegations are false or .” groundless, fraudulent . . . the nature of the to defend first a

Defining ordinarily requires legal duty of the interpretation In this the usual regard, applicable policy provision. observation, result, as a is broader than the duty duty that the defend here, however, to cover. In the case Globe never reached point to make having this differential evaluation. It declined tender accept defense, Adco, fact that Adco was based on the ostensibly by solely noted, testified, not a defendant in Scott the Uneedus action. As earlier “Well, if realize the under you of it. . .1 could not set claim specifics up Adco’s since were the action.” policy they not a party defend,

Actually, Royal Globe that it argues duty did not breach urging and/or Cali- particular that an absence of notice to fornia failure to as to exercise due Shoppers’ diligence making inquiry denied, why even Globe’s coverage operated raising Royal to preclude defend. We do not agree. We have of how trans- already variously noted that the direct evidence mittal of the Uneedus undisput- summons and was handled went complaint served, ed. After California were the summons complaint Renfro, mailed to the insurance with no letter of agent, covering Jay with explanation and in an corner in the left-hand envelope imprinted upper the name “Adco” above of summons and its return address. Upon receipt transmitted, thus the conclusion that the complaint Jay and Renfro reached Adco, and, mailing had been from in to the Tustin the forwarding papers Globe, claims office of letter that Royal covering stated a affirmatively Adco, the defense num- had been tendered Adco’s policy and referenced ber.

As a result of his the Scott wrote to Adco under checking Adco policy, i.e., 6, 1975, facts, date of June as quoted synopsis earlier our that such not no have policy provided meaning you coverage, implicitly: sued, Thus, been and California by your is not covered Shoppers policy. evidence, as a matter of direct undisputed, plus only permissible therefrom, inferences to be drawn Globe’s claims did Royal manager 6, 1975, by means the letter of June refuse to Cal- actually provide action; ifornia a defense to the Uneedus he declined to provide Adco such on belief that it had such sought defense based the mistaken However, defense. on that is not the issue. dispositive remains as question to whether the contractual duty imposed by terms California Shoppers’ policy called Scott to do more upon than he did. A clue can be found in Scott’s own testimony also earlier At quoted. trial, answer, to trying when he had no recollection of how specific he had handled this matter but could recall the routine generally followed instances, in such he testified that “it would have struck me probably very that the strange was sent to me policy as Adco Advertising yet were not they a named defendant.”

We hold that the facts confronting claims Scott manager were such as to him on put notice of the contractual to make a further duty If he inquiry. had made this further he inquiry, would have discovered that it was actually who had tendered the summons and for de- complaint fense, and then Royal Globe would have offered to defend as it did finally a or so year later when it was served in this action. In the aggregate, a classic represents case of constructive notice which raised the contractual words, duty defend. In circumstances, other given appropriate law will a charge with party notice of all those facts which he have might ascertained had he diligently (See Code, pursued requisite Civ. inquiry. notice, 19 defining § constructive Sterling v. Title Ins. & Trust Co. 53 Cal.App.2d 31], P.2d 748-749 cases in citing which are parties with charged constructive notice because their situations impose short, duty defend, pursue inquiry suggested.) ordi- duty so, narily after arising receipt actual notice to do arose here upon receipt of constructive notice. further,

This contractual duty inquire framework provided legal within which the found that Globe had breached its defend, for, course, there was no but that the evidence question Globe did not provide defense to the Uneedus action June of 1975. however,

Notably, issue, as will in our figure analysis the bad faith infra, evidence, we observe that there was no direct parenthetically includ- therefrom, ing permissible inferences to be drawn of a conscious decision on Royal Globe’s to part its to defend California repudiate duty Shoppers, a party identified to Scott the one a defense. The seeking mixup, evidence, to undisputed according arose as a result of solely Royal Globe’s mistaken belief that Adco had no the Uneedus action. More- exposure over, this mistake had been induced California by because of the Shoppers it had way forwarded the summons and to complaint Jay Renfro. They defendants, were also named as but the here exonerated and Renfro jury Jay as the cause of any damages. why

As for had duty inquire coverage to Shoppers’ supposed denied, been contract a Royal imposes Globe that “the insurance argues insured, insurer,” of faith and fair on the as well as duty good dealing 220, (1981) (citing Samson v. Transamerica Ins. Co. 30 Cal.3d 32]), for 636 P.2d and that reason Cal.Rptr. only logical plain “[t]he tiff not to to was its desire to the letter from choosing respond [defendant] However, to bad attempt create a faith scenario this case.” Royal to no had authority its that California points argument supporting denied, a to that this duty was and it fact inquire why coverage ignores because, instance, it never duty only inquired arose first alleged event, Adco defense were In why any and coverage sought. prin to any notice which an insured owes insurer ciple, duty provide Co., (Samson when ceases the insurer denies v. Transamerica Ins. coverage 220, 238), removed, one supra, though Cal.3d here even applies step i.e., even the denial of was as to Adco and not California though coverage of the claim to Shoppers, Royal basis for constructive notice providing Globe. sum, Globe, notice,

In breached Royal because after constructive its contractual would have led duty make the which necessary inquiries action, it to its offer to defend as offered in the Uneedus issue, (that verdict August regardless the coverage jury’s Globe was not excused from of Califor Royal duty performing notice) nia the fact of must acts omissions with reference to Shoppers’ stand.

Here it is address again, by way necessary digression, (here, Globe’s contention that of the contract as to interpretation insurance defend) duty As jury. submitted to the noted under improperly I, is not a of fact to be decided point interpretation policy question jury; is of law. As a Globe’s con question consequence, tention that is also well taken portions instruction No. 30 were improper on the contractual duty-to-defend issue.

However, instruction, no resulted from prejudice faulty giving there no as a matter of that the terms policy question, legal interpretation, plus duty constructive notice California tender raised a Shoppers’ words, defend the to Royal Uneedus action. other it was not prejudicial Globe that the afforded find to defend duty an opportunity which we hold was under the terms of the present anyway policy. are forth in breach of the to defend set consequences Comunale v. & General Ins. P.2d Traders Co. 50 Cal.2d 654 [328 198, 68 the A.L.R.2d “Where is no to compromise there opportunity 883]. defend, claim and the is the to the only act of the insurer refusal wrongful the liability the insurer is limited to the amount of ordinarily policy plus attorneys’ (Id., 659.) fees and costs.” p.

There settle with the was no afforded Globe to opportunity Thus, trial, claimant limits. the third-party before and there were no policy application of the rule to here is so evident proposition the facts foregoing conceded, that Royal Globe has a breach of the if fact there were defend, to that it is to the fees California obligated attorney’s pay incurred in The shows without dis the Uneedus action. evidence defending $39,000, that such trial denial of pute fees amounted to and so the court’s Royal Globe’s motion for verdict on this point notwithstanding judgment thus, correct; will be affirmed. thereon also judgment

Ill Damages Awarded Other This to a awarded damage us discussion the latter three items brings numbers, award- damages verdict. to the verdict such other Referring ed, verdict, notwithstanding order the motion for judgment after loss, $50,000; (3) (4) were: fees incurred so-called inflation attorney’s past $59,493; by California benefits due under procuring policy, loss, $3 for economic or million. business $50,000 A. The Past Loss Inflation Shop

With to indemnify reference to its possible liability it, for leading the Uneedus for of the defense pers the cost judgment recovery allow past contends that to California Shoppers loss, interest, re inflation to a double in addition to amounts prejudgment hand, that these two On the other covery. argues California Shoppers awards urges do not constitute a double More recovery. particularly, for the of an award for inflation loss is purpose compensate past decline in the breach the value of the interval between money during It obligation judgment. and when that breach is translated into pay interest, argues, compen that such interest is awarded prejudgment use of sate for the loss of the use of for so as it denied money long course, are differ these money. purposes is that two implication ent. We of inflation exceeds agree at least as to when the rate periods legal interest rate. 7,No. which connection, instruction

In this a of California part Shoppers’ a included indemnify, duty with reference to Globe’s to Royal was given reflect loss that, any for such loss shall to the award “your direction No of the dollar.” to a in the power attributable diminution purchasing in view and our quoted, was cited the court for the instruction authority to wholly inappropriate. whole plaintilf It is awarded to make a damages axiomatic that are The a defendant. it has the hands recoverable losses incurred at legally is that a plaintiff, theory quoted behind the of the instruction seeming giving it, had suffered have in hand when it should money legally by having during power measured in the dollar’s a loss the decline by purchasing was re- payment interval between arose and when when pay However, economic a true actually has incurred ceived. prove plaintiff show, reason, dollars had been be if the necessary loss for such it would them, that it have received received the time a was entitled to plaintiff skills, acumen to man- investment possessed requisite opportunities, at least would have in such a as to age money way produce yield with the rate inflation. kept pace that California argue such a there is no basis to logical

Without showing, money inflation. Suppose had suffered a loss attributable to due, the mon- Shoppers just put had been when California paid suppose its bank. Time account at in a safe or in a noninterest ey bearing checking on; decline it be said that the marched the rate of inflation soared. Can Globe? the value of California was “caused” money Shoppers’ Thus, loss attributable not. there can be asserted Certainly any before factor, op- of a plus the so-called inflation the investment skill plaintiff inflation, skill, must be with so to keep pace exercise that portunities ad- theory damages demonstrated. If we here the orthodox are to apply centuries, to for hered demands less. simple logic nothing re- an obvious entirely instruction on this neglected given subject event, no absolutely evi- More there was quirement. importantly, elements indispensable dence offered to demonstrate the of these presence evidence, this item of the such If there had been such proving damages. however, none. As a conse- might verdict have been there was salvaged; incorrect, judgment and the order on this item quence, postjudgment must be modified to delete such item. accordingly $59,493 Policy

B. The Fees to Procure Attorney’s Benefits as requested, which was given instruction No. Shoppers’ included the “If find defendant you liability following: against on the of breach theory implied covenant faith and fair good dealing in addition to the above you must award plaintiff attorneys’ fees necessarily incurred re- plaintiff Shoppers reasonably quired to secure any benefits under the insurance owing policy.” for

Assuming purposes of discussion entitlement to for only, bad damages faith, after tort, sufficient proof for such a liability until recently there had been a conflict of in authority California as to whether attorney’s fees to obtain policy benefits were also recoverable the insured as an item of by in in damages actions which there had been a that the insurer finding had also incurred tort liability. That conflict now has been resolved the Su- by preme Court, Court in Brandt v. Superior supra, Cal.3d in which the court held that insured may recover fees parties to win expended policy benefits, insurer, where there has been tortious an conduct because such by fees are deemed to be a of the part from damages proximately resulting tort of bad faith. rule,

Under this because Shoppers, was seeking policy benefits, would have been entitled to recover such as attorney’s fees tort had there damages However, also been sufficient of tort liability. as proof we shall soon law, explain, as a matter of on the basis of the undisputed, evidence, direct plus permissible therefrom, inferences to be drawn Cali fornia Shoppers failed to prove Royal Globe had tortious engaged behavior in connection with its failure to defend the action on Uneedus behalf of California As a Shoppers. trial court’s denial consequence, the postjudgment incorrect, motion on this item was and the must judgment be modified to delete accordingly fees item attorney’s damages.

C. $3 The million in Damages Economic Loss scrutinizing award, of this propriety item the the task jury’s breaks down into at least six major areas of is analysis. identify first with particularity theories of liability which California has invoked, purportedly both by of its allegations complaint arguments in support thereof.

The next is step to review the evidence adduced each of the prove theories, and, in connection with this of the because the phase opinion, direct evidence was such undisputed, review will include an necessarily exposition of the law governing resort to inferences aid the factfinding process.

The third will step be to marshal the authorities legal properly applicable evidence, to the more evidence, particularly, identify of the light which California under the theories duties actually imposed legal Globe. undertook to invoke against of the evi- sufficiency of an analysis

The fourth will consist step has been liability to whether regard offered to without damages, dence prove no recov- be proved, if liability for even necessarily, This follows proved. of actual evidence there is proof competent unless ery permissible suffered, damages. opposed speculative For instructions. consider the will be to step analysis The fifth framed theory viable legal must reflect they such instructions be proper, developed factual record to the and logically applicable the by pleadings trial. the during other errors on whether be to comment

The final will consider and step at the trial were occurring prejudicial. ’ Liability Tort

1. Theories Shoppers of California lia- broad, of terms, theory fundamental In Shoppers’ California general contractual Globe, of its in breach in tort is connection with bility Royal that it also defend, a that way to act in such to or omitted duty otherwise acted upon dealing imposed the of faith and fair breached covenant implied good insurer. of as and the insured by relationship parties VIII, count of California first found in the More explicitly, paragraph to when with reference alleged first amended it is Shoppers’ complaint, 6, 1975, Globe Insur- Scott wrote the of that “defendant letter June of defense tender at the time of denial Company accept ance [to involved, and Uneedus knew the Uneedus defendants actually action] went then Shoppers and California charges allegations complaint.” wilfully Company Globe Insurance allege to that “the defendant that California determine do to intentionally any investigation and refused to entitled to a defense and policy was an insured covered under Shoppers [its] X, in the first count of added.) also (Italics In by Royal Globe.” paragraph continued, “Defendants the first amended California complaint, defense, and tender a to obligation failure to adhere to its contractual [.sic] of Unee- Complaint to the aforesaid regard to provide coverage, plaintiff said defense entitled to is dus for unfair that knowing plaintiff competition, (at a time when Policy Insurance under the terms of its Multi-Peril Special unable to financially is new business defendant knows a plaintiff that compe- said unfair afford fees to defend attorneys’ against payment due benefits lawsuit) provide tition an unreasonable failure constitutes under the subject policy, and constitutes a breach defendant’s Further, treat plaintiff fairly and in faith. defendant has good intentionally refused to reasonably involved in Unnedus claims investigate [sic] Defendant Complaint. has a plaintiff refused accord the ten- intentionally defense, der of and/or for a unfair provide coverage, involving lawsuit competition Multi-Peril provided by Policy Insurance here Special issue, defense, that knowing plaintiff’s claim for tender coverage, valid. completely consciously Defendant said knowingly wrongful conduct has (and caused incur fees and plaintiff attorneys’ costs thereby save itself these in defense of for making expenditures) said action unfair competition, has inflicted upon financial and burden said hardship plain- tiff, all to plaintiff’s general in a sum excess of damage required jurisdiction in the Superior Court of the State of as shown proof at (Italics added.) time of trial.” sum, instance, i.e., in the Shoppers’ theory liability, first here, what was tortious was that Scott knew actually plaintiff Cali- action,

fornia Uneedus but seeking defense neverthe- less wilfully declined to such defense. provide noted,

As a of kind alternative theory to the just Shoppers California argues that it was unreasonable for to sort of Scott not conduct some inves- tigation which would have to discovery led his that it was California actually Shoppers and not Adco defense of Uneedus action. other seeking words, although California has that Scott con- Shoppers alleged argued sciously realized that California had defense but tendered the Shoppers otherwise, defense, nevertheless refused to such it even if accept argues, Scott defense, did not know that California had tendered the and, circumstances were such that he should have made a few inquiries, because of failure this to make such that there investigation, thereby basis provided another for find a of the tort to breach implied covenant.

California Shoppers’ third of is based of theory liability upon meeting Ibold, Coffran, counsel Odgers and with Harding, James along August 1976 and letter Odgers’ to Ibold of 1976. September It is suggested that Royal Globe’s reaction to the letter in September 1976, i.e., it, a failure to or either was itself confirmed respond tortious Scott’s tortious behavior allegedly a earlier. As we read year Shoppers’ contention on this amounts to that Royal an point, argument Globe, time, for a second tender of defense. What refused to accept is points to in of such that neither argument support view, In our Globe Ibold letter. Odger’s nor its counsel responded required (infra). was not answer

2. Evidence Tort Liability evidence of tort

Before analysis Shoppers’ an of California undertaking main, out, “evi it is that this is an liability, in the appropriate point will not be dence” case in the we mean we sense. this that ordinary By evidence; are for direct there routinely in a search conflicts in the engaged connection, none. In this that we have turned the dissent has charged into to take charge substantial evidence rule “on its Such a fails head.” is undisput account a the direct evidence routine function. When appellate ed, court, here, as it is of the as a matter it then becomes the function law, from that drawn determine what inferences may permissibly be direct evidence and that is we have done. (infra), what assessing analytical

Because kind of exercise task characterizes basis of tort commentary legal the award a propriety damages, rules resort to and a of the inferences in the citation factfinding process in the discus- review thereof at this governing appellate point are order sion. noted, Section

As earlier so-called is undisputed. direct evidence states, ‘direct evidence’ the Evidence Code “As in this chapter, used fact, or a pre means evidence without an inference directly proves itself, true, fact.” sumption, conclusively which in if establishes states, (b) “An inference Section Code subdivision Evidence be from another may reasonably deduction fact that drawn logically and fact or in the action.” of facts found established group otherwise course, definition, in re is as “deduction” referred to in the of probative words, “If In other an issue of fact as is direct evidence. solving of the reason admit an inference drawn the existence logic to be issue, evidence material facts adduced sufficient has proponent (1976) Co. (Dimond his Tractor Caterpillar case to the v. present jury.” 173, 895].) 65 Cal.App.3d 181 Cal.Rptr. [134 inferences, Otherwise, resort to by of fact undertaking resolve issues an infer- which in that states question the definition implicit part . ...” is: reasonably ence of fact is be drawn may one “that logically aIn or be drawn? who is to decide a can cannot whether inference given court, 650 (1960) 181 Cal.App.2d case decided Parkes by this Marshall v. inferences, said, we 657], in connection with a discussion Cal.Rptr. [5 is a evidence a from certain particular inference drawn can be “[w]hether 45 court, of law for question but whether inference by determination drawn, case, shall be in a is a of fact for given question determination 655, (Id., trier of fact.” 20 (1942) at v. Cal.2d Blank p. citing Coffrin 457, 868].) 461 P.2d [126 Marshall stated further “. .. where the uncontradicted evidence ‘estab lishes the the un- impropriety inferences drawn from [jury] facts,’ controverted the evi based thereon is not finding supported by Parkes, 650, (Marshall 655, dence.” v. Es supra, 181 Cal.App.2d citing (1951) 42, 505, tate 419].) Tarrant 38 Cal.2d 51 28 P.2d A.L.R.2d [237 Finally, as a on matter of character general commentary rules izing availability of inferences in the court in factfinding process, said, v. Brautigam 784], Brooks 227 547 Cal.App.2d Cal.Rptr. [38 “In 189, Estate of Kuttler, 160], 185 we stated Cal.App.2d 204 Cal.Rptr. [8 that an inference ‘cannot be based mere upon possibility,’ citing among others, Eramdjian v. 153 Bakery Interstate Corp., Cal.App.2d [315 19], P.2d and continued:

“ case, 602, ‘The Eramdjian “A inference supra, says: page legal fact; cannot flow from the be from a only nonexistence of a it can drawn Proc., fact (Code 1960.) established. Civ. It axiomatic actually is §§ alone, that ‘an inference not based on or may imagination, be on suspicion surmise, (18 speculation, work.’ supposition, or conjecture, guess 480.) Cal.Jur.2d ...” Smith, v.

“'Reese existence 9 Cal.2d P.2d ‘“If the [70 933]: of an essential fact uncertainty, which relies left doubt or upon party suffer, whom the party upon burden rests to establish that fact should Co., (Patterson Ry. his v. etc. 147 Cal. adversary. San Francisco 531].) P. A judgment conjectures. cannot be based guesses (Puckhaber Co., And, also, 480].) v. Southern Pac. P. 132 Cal. 363 [64 “A fact must from rather than be an inference drawn evidence finding on a mere majority as to evidence. A speculation without probabilities fact, chances can never suffice since the alone establish a proposition (23 C.J. slightest real evidence contrary would all outweigh probabilities.” 1750, Brooks, 547, 18.)’”’” v. p, (Brautigam supra, § Cal.App.2d 556-557.)

We turn now several the evidence offered at trial prove theories of liability noted.

(a) Royal Alleged Globe’s Defend Wilful Refusal Of without contradiction Scott testified Royal Globe’s claims manager defense of the Uneedus he believed that it was which had tendered that Adco evidence, counsel for California Shop action. Notwithstanding direct the claim was served.” notice from the date that defendant “had pers argued was bombast. pure effort to convince the of the foregoing Counsel’s jury was to the effect that defies His logic credulity. argument His purported a file on had sold insurance to California Shoppers, opened Royal insured, of a premium. as an and accepted payment California Shoppers they you’ve know say got This recitation led to his statement “this seems to sig discount the He went on to complaint against Shoppers.” Scott had received nificance the evidence that the claims manager office, from the Tustin claims summons via Globe’s complaint, Royal seeking that Adco was and Renfro with a letter agents Jay covering stating “red her evidence a Plaintiff’s counsel called this coverage. defense ring.”

The direct It is a significant part evidence noted was not a “red herring.” be drawn of the for could permissibly what inferences predicate determining view, there was no occasion the factfinder. our as we later explain, man- to infer Globe’s claims Royal that presented jury permissibly Scott, actually he realized ager at the time wrote the letter of June in the Adco enve- that the summons and sent to and Renfro Jay complaint Cali- without a cover letter of had in fact been sent lope, explanation, fornia and not Adco. Shoppers dissent

This is one from the dissent. The of the our points divergence claims manager into California Globe’s buys Shoppers’ theory Royal knew, letter, in fact it was California at the time he wrote the actually for the Uneedus action. who had a defense and Shoppers sought coverage have disbe- The even so that the could dissent far as goes speculate to believe that Scott had reason lieved and thus concluded that he knew or A fair reading was insured Globe. by Royal Renfro’s, Gibson, already quoted, testimony Roy Jay and manager about conver- leads to inférence. When Gibson was asked just opposite reject sations with Scott as to whether Globe was going accept on, Gibson was Gibson’s remember.” Later coverage, answer was “I don’t that California about again any understanding whether there was questioned answered, “It was never brought insured Globe. He by Royal whether California up.” Shop- Gibson was asked questioning persisted. answered, “With an He pers insured of Globe’s in of 1975. May us, no. would not give I had never heard of Counsel California Shoppers.” later, He up. asked a few again “When pages advised you there nowas did coverage, you call on behalf of Adco or Herb anybody Sutton for the purpose or who California investigating determining Shop- answered, was?” pers Gibson “California had never even been Shoppers Thus, mentioned.” there was absolutely Gibson’s re- nothing testimony, garding Scott, his conversations with even remotely suggest that Scott knew that California had tendered defense of the Uneedus action.

As for Scott’s it was testimony, consistent with Gibson’s. When Scott was asked if he had answered, denied he “I denied it coverage everybody, Adco.” Mr. Hafif could not shake that While we are not in a testimony. position witness, evaluate Scott’s demeanor as a canwe observe from a reading the cold record that there is there to evasion or nothing suggest dissembling.

This uncontradicted, was the direct evidence on the factual issue wheth- er Scott knew it was California and not Adco which had sought defense to the Uneedus action. Accordingly, have found Scott had such knowledge, would had have to have been inferred.

As earlier explained, what just inferences can be permissibly drawn the factfinder are of law. questions this approaching decisional precise task, reiterate, starting point, to (b) is section subdivision Code, which, Evidence inference, an defining states that it may “logically be reasonably drawn ...” We to mean also that interpret language an inference not may be illogically unreasonably drawn.

Otherwise, the cases earlier cited teach that an inference cannot be based on a mere possibility alone, and cannot flow from or from suspicion imag- ination, surmise, speculation, supposition, conjecture guesswork. other

Seeking legal guidelines for performing court’s task deciding drawn, what inferences may be 3545 of permissibly section the Civil Code recites the legal maxim that “Private transactions are fair and regular.” This maxim in substance at one time was among tabulated the presumptions in old section 1963 of the Code of Civil Procedure. Since the Evidence Code maxims, constituted, adopted as now do not carry so, form, weight Even in its current presumptions. section clearly imports the that the law does condone inferences of proposition improper in the purpose absence of direct evidence to such infer- support ences.

Thus, to the more general admonitions that inferences must be logical reasonable can be added the guideline in the factual context here that legal is there some unless of cannot be inferred (infra)

absence cause” “proper to have the jury For such an inference. direct evidence which base upon to attribute tortious, necessary it would have been found Scott’s behavior of him, first, defense was seeking that California Shoppers knowledge cause” action, of “proper an absence Uneedus and second find the defense, the for all as explained case declining accept infra. could

Therefore, which the jury direct evidence from because there is no Shoppers had and infer that Scott identified logically reasonably action, be- and particularly the defense of the Uneedus party tendering June letter of wrote the cause there was no evidence that Scott direct here mind, hold that the we with absence of cause proper of knowledge, such not drawn the inference of could have permissibly absence of an cause. proper disbe- could have

This us that the jury to consider the brings suggestion that it was lieved when he that he did not realize Scott testified action. of the Uneedus and not Adco which had tendered defense that Shoppers’ argument This the basis for California suggestion provides did know Scott could an inference that such disbelief have supported itself defense. that California had tendered the instance, testifies, was that it law is to the If a witness for contrary. collision, that disbelieves raining at the time of the and if the jury raining was that it such disbelief does not evidence testimony, provide Kuttler, the time of in Estate the collision. This was proposition applied of of a pow- That involved the supra, interpretation 189. case Cal.App.2d will, er of appointment holographic particularly contained the decedent’s of appoint- as recited in the meaning power word “belongings” decedent whether the ment. Such controlled the of interpretation question prop- died her partially intangible personal intestate as to real property to mean which were defined erty, result would follow if “belongings” only tangible personal property. which followed

The trial appeal court reached that and the interpretation, interpretation included an of whether there evidence to support issue of on the those testimony word factfinder. The placed “belongings” by the toward an of will militated given power appointment by holographic entire estate included the decedent’s interpretation “belongings” states, connection, “It is that there was no In this intestacy. opinion . . was argued prop- that the . testimony attorney Beatson appellants Let be conceded erly disbelieved on in the interest case. ground does not testimony further discussion. their purpose Rejection of ” (Estate create evidence Kut contrary to the what thus discarded. tler, 189, 198, added.) supra, After an extended italics Cal.App.2d discussion what can many the propositions concerning provide basis for inferences in the court concluded that there factfinding process, no other evidence the record as to what the beyond speculation said, testatrix meant “It thus word It then appears “belongings.” the that hiatus in the of Beatson proof testimony created a of by rejection appellants] has not filled with evidence and the pre [and been substantial (Id., sumption against 205.) intended stands.” partial intestacy p. words, In other with no evidence testatrix’ intent that she otherwise of her dispose only of the adverse tangible personal par- disbelief property, ties’ testimony to facts of all of her dispose an intent to estate showing the testatrix by did As not evidence to the a provide contrary. consequence, unrebutted, the presumption stood the was re- applicable judgment versed.

This was not a new or In Hicks novel when Kuttler. proposition applied (1943) v. Reis 21 788], Cal.2d 654 oc- P.2d the Court had Supreme [134 Hicks, casion this apply same rule. one of issues in an auto- key the mobile collision case was whether the had been with adverse vehicle driven owner, consent of the court, the one of defendants. the by As stated “[t]he therefore, evidence, real question, is whether there is or inference from evidence, that support finding using driver [the defendant] the car with the permission at the time appealing [the owner-defendant] (Id., 659.) accident.” at p.

After reciting well-settled rule if shows au that the evidence that an tomobile was being by driven an owner at the time of the employee accident, the jury that the may infer the automobile employee operating owner, with the permission of the the court went on to discuss several propositions applicable to the cases. In jury’s role such concluding said, commentary, the court with reference to the factfinder’s exclusive witnesses, province do judging credibility refuse they “‘[I]f [the testimony] credence is of no effect if it had not testimony] more than [this been It given. it is from the case and the inference disappears opposed Reis, no 654, 660, longer (Hicks contradicted.’” v. 21 Cal.2d supra, quot from ing Market Ry. Street Co. v. 116 576 George Cal.App.572, 41].) result, P.2d As a testimony because the trial court disbelieved the owner, in favor militating of no consent inference of such per mission remained and was unrebutted dispositive appeal. Above, Parkes,

So it is here. we the rule of Marshall v. applied supra, not Cal.App.2d as a matter of law that the could holding jury 6, 1975, Scott, of June wrote the letter infer that at the time he properly seeking Adco which was knew it was California the jury’s because foregoing, defense for the Uneedus action. In view of the disbelief, itself have could not such testimony, disbelief Scott’s assuming no there was knowledge, evidence to of such finding provided support Scott had acted either for the legally open way avenue infer More- action. of the Uneedus when he declined to defense tortiously accept over, of whatever rea- regardless we rule emphasize, applies foregoing Reis, (Hicks v. supra, son the have had for Scott. jury may disbelieving 654, 660.) Cal.2d from the other axiom

To conclude this of the analysis, applying phase Marshall, noted, ‘estab evidence uncontradicted “. . . where the already un from the [jury] lishes the of the inferences drawn impropriety evi by is not supported controverted facts’ a based thereon finding 650, 655, Parkes, Es (Marshall citing supra, Cal.App.2d dence.” v. Tarrant, sum, California 51.) to In with regard tate 38 Cal.2d supra, Globe no that Royal was evidence first there Shoppers’ theory liability, On this Uneedus action. tortiously had to a defense to the provide declined court, the time it ruled findings at reciting the trial evidentiary point, verdict, notwithstanding on California motion for Shoppers’ judgment stated, Scott from employee] ‘‘It clear the evidence that [defendant’s Shoppers Globe to California denied on behalf of originally coverage Royal insured of not an under the mistaken belief that California of the Adco Royal policy, Globe. Scott was furnished the number policy Shoppers’ and he was not number of the California furnished the policy name, but The Globe had no index was that policy. testimony Royal relied on numbers.” policy

(b) Royal Investigate Globe's Asserted Failure Of theory This is what alternative Shoppers’ we have described as California of the Uneedus action of tortious behavior at time of the defense tender California Shop- was declined in June of analyzing Globe 1975. Royal its counsel’s pers’ theory pleadings, here more terms closely, brief, to the what the actual predicate and in its is unclear argument jury is for the assertion to investigate provided that Globe’s failure Royal of the implied basis for the failure was a breach find that such Cal- knew that covenant. There are The first is that Scott two possibilities. Adco, the Uneedus action ifornia defense of Shoppers, not had tendered the have but would investigation nevertheless decided not to whatever pursue written by held a policy been that California necessary disclose second, Globe and Royal what ac- coverages that contained. policy that Scott did a cepting not know the correct identity parties seeking defense, Scott, is that because of confronting the unusual circumstances him, should have someone else “investigated” possibility Adco a actually defense. seeking

As for the first we that no in- have held possibility, already permissible ference could be of California knowledge drawn that Scott had legally actual Shoppers’ colorable identity. That leaves the second only possibility be addressed. California instance to be Shoppers’ appears reasoning mere Scott than the showing that did not look further Adco policy provided sufficient evidence to that such omission support finding view, breached the In our fails to implied reasoning covenant. such take into account at whether Scott breached tort all. This law-imposed will be point when we discuss to the addressed the authorities applicable actual evidence trial. produced

(c) Nonresponse Globe’s Letter Odger’s Of

The third of of bad-faith Shoppers’ liability, theories June notice regardless the events of is that received tender of action for defense again the Uneedus Shoppers’ 1976 but it. did about August September nothing issue, to the this events occurred. The Turning evidence on two probative 30, office, 1976, first on where Hard- August Harding’s meeting Ibold, one of California ing joined and for a time by Odgers Shoppers’ James Coffran. principals, testified, contradiction,

Ibold of- he meeting actually without that that fered, behalf, on to defense of Globe’s assume California Royal Shoppers’ the Uneedus action. was confirmed by Ibold’s recollection on this point Coffran’s it out way I came that quoted, earlier “and think the testimony, would, know, . .” case . . they you they that would take over words, In other of Uneedus learned Royal once Globe had actually action served against being July as a result of Shoppers, earlier, here, with filed a month issuing summons litigation counsel, met, Globe, and once its through counsel had respective un- actually offered This is the to assume defense of the action. Uneedus own prin- contradicted Shoppers’ confirmed one of California testimony cipals. event, course, itself,

The other already of probative quoted was the letter letter, in its with entirety. along Roy- contends that this thereto, which the jury al Globe’s evidence from is direct lack response Globe, its contract breaching could and did infer in addition to that defend, and fair dealing. also faith good breached the covenant implied connection, to be In inferences is are conflicting that there argued that the drawn from the letter with the lack of response, coupled with the result that resolved these conflicts in Shoppers, favor California on appeal. verdict tort cannot be disturbed properly 310 and Such is Evidence Code section variance with reasoning totally Co., Parsons v. Bristol 62 Cal.2d 861. Development supra, that, Parsons function inter court stated “It is therefore solely judicial credibility a written pret instrument turns upon unless the interpretation bound aby extrinsic court is not evidence. ‘An Accordingly, appellate of the written construction of the based the terms solely upon [instrument] [citations], conflict instrument without where there no the aid of evidence in the [citations], evidence incom or a determination has been made upon (Id., 865.) petent evidence . . . at p. involved,

There is here no issue of extrinsic evidence credibility free, bound, we Odgers’ so are if of the interpret meaning letter aas routine function. judicial connection, of the this latter the author we emphasize Odgers,

letter, any did not at the trial. This is the testify suggestion answer 30, 1976, as to Harding’s testimony meeting August what at the happened is relevant in with terms of factual issues reference resolving supposed not. meaning any Actually, Harding terms recited the letter. It was $100,000 did not testify as to demanded by Odgers discussion of the as to part testify consideration for settlement of this case. Nor did he any discussion of the Adco action either. Parsons,

Accordingly, as further of a written stated in “The interpretation instrument ... is function to be according exercised essentially judicial Code, to the (See generally canons of .... Civ. accepted interpretation 1635-1661; Proc., 1856-1866.)” (Parsons De Code Civ. v. Bristol §§ §§ Co., short, velopment 861, 865.) In is such that supra, 62 Cal.2d the record we can proceed with an none of the facts the letter because interpretation stated as facts in the letter were at the extrinsically by testimony challenged trial. letter,

As we read it does not a tender Odger’s imply even action, Globe of Royal defense of so in so the Uneedus alone saying let many words. The sec- first is of substantive The significance. no paragraph ond paragraph refers to the only litigation against commenced just Royal Globe, i.e., the case here under review. The third tenders to paragraph Royal Globe defense of the suit Adco had just filed California against Shop- The fourth pers. returns of this paragraph subject litigation, particu- larly the form of a demand for settlement. The demand recites four spe- items, cific none of which involves taking over defense of the Uneedus action. The fifth paragraph states that “the above are things separable,” followed by puffing threats.

At page brief, of its California respondent’s asserts that refers to “separable” its demand to settle and its litigation, request However, defendant assume “the” or “a” defense. which only defense was requested in the Odgers’ letter Adco suit. defense of brief,

Quoting “The letter confirms Shoppers’ de- plaintiff’s mands for settlement of the herein lawsuit. . . . defendant’s Contrary contention, plaintiff is entitled to the obvious conclusion that there were no conditions placed by plaintiff of the Adco defense assumption [of by Royal Globe. The demands at the suit] were for settlement meeting [¶] of this case. The request Globe to defend Royal an plaintiff entirely separate fact, with no request attached. refer- strings this is [¶] enced in letter it is paragraph page where out that ‘the pointed above things’ settlement of the herein case of defense ‘are assumption (Italics separable’ added.) requests.” our

Accordingly, of the letter a tender interpretation constituting as to Royal Globe defense of the Uneedus action is even if un- supported, wittingly, by California own brief. Shoppers’ event,

In any it is not until the sixth letter is reached paragraph Odger’s that the subject defense of possible by Royal the Uneedus action Globe is even no arguably implied. There is demand that take over the defense. There only recitation of a of reasons litany why Royal Globe would not be to. on the sixth permitted Putting para- best face from graph Anderson it is that Kindel & Shoppers’ standpoint, would continue to represent who regardless paid attorneys.

The last then paragraph returns to a discussion of Globe’s exposure liability now in this P.S. to the pursued also refers litigation. demand for settlement. summarize,

To letter, was re- Odgers’ recited that he fairly interpreted, ferring three and distinct separate matters involving 54 tender First, Globe Royal accept Globe. he was Royal demanding plus California Shoppers suit against

of the defense of the Adco newly-filed of four Second, consisting demand the same coverage. Odgers repeated Shop- of the California earlier for settlement items as several proposed days Third, review). Odgers (the here under suit one pers’ against offer to Globe’s with reference to categorical stating, defend, does that California that “I’m the fact you appreciate sure . . this late in . to have other substituted not desire counsel [a]t [trial] stage.” foregoing of the record and the

As a of the state consequence evidentiary letter, no evi- there was direct we hold that legal interpretation Odgers’ therefrom, dence, refer- with let to be drawn permissible alone inferences would support which liability, to California third Shoppers’ theory ence verdict for tort damages. 3. Precedent to the Evidence Application of noted, covenant of the implied As earlier the authorities hold that breach of the breach beyond faith and fair involves dealing something good Co., v. Aetna Ins. Gruenberg contractual itself. recited in duty Again, 566, in good act supra, fairly 9 Cal.3d an insurer’s responsibility mandated handling requirement faith an insured’s claim “is not settle, defend, is the It pay. obligation the terms itself—to policy in discharging . . . under which the insurer must and in faith fairly good act 573-574, added.) (Id., italics its contractual responsibilities.” pp. faith, to be bad what further for there determining appear must identifiable with par cases reflect a wide variety language, increasingly the rule ticular After variously recognizing cases. categories . fails to deal court said “where . . quoted, Gruenberg insurer] [the cause, without good proper faith with its insured fairly by refusing, such conduct its insured for a loss covered policy, compensate covenant rise a cause of action in tort for breach an may give implied Co., supra, faith and fair v. Aetna Ins. good dealing.” (Gruenberg course, 566, 574, deleted; added.) the con Cal.3d italics Of italics original a contractual verse of “without cause” declining perform is that proper of the implied under the with cause is not a breach policy proper Service, Oil (See Inc. v. Standard Co. covenant. Seaman’s Direct Buying 1158].) (1984) 36 Cal.3d P.2d Cal.Rptr. stan- recognized general Translated into more terms within the specific then, that, dard, an insured can before stands Gruenberg proposition

55 be found to i.e., faith, have acted tortiously, bad to bestow refusing benefits, policy it must have done so “without cause.” proper That this language best articulates the standard which an evolving against alleged breach of the implied covenant is to be measured is confirmed in Neal v. Farmers 389, Ins. Exchange (1978) 21 Cal.3d 910 Cal.Rptr. [148 582 980], P.2d where the Court Supreme actually quoted Gruenberg “without proper cause” language of whether the insurer analysis had breached the 920-921; accord, (Id., covenant. implied at pp. Hanson v. America, Prudential 580, 584, Ins. Co. F.2d supra, 772 Neal and citing Gruenberg this (9th proposition; Guyton Ins. Co. America v. Safeco 1982) Cir. 551, 557, 692 F.2d 7.) fn. To refine further the nature and extent of the here under duty analysis, in cause,” terms of a particular of “with it is application proper our view benefits, where, that a mistaken withholding least as policy here, such (as mistake to the insured’s and not as to the matter of identity coverage) has been contributed to those very party claiming policy benefits, is consistent with observance of the covenant of faith implied good and fair because dealing the mistake cause.” supplies “proper mistake, foregoing proposition, as it invokes the has two concept itself, elements. As for mistake without to its it has been regard origins, held, in a context anof insurer’s to take into account the interests of the insured as well as its own in a demand for settlement within weighing limits, policy than mistaken faith unfair rather implies dealing “[b]ad 788, judgment (Critz . . . .” (1964) v. Farmers 230 Group Ins. Cal.App.2d 401, 796 1142], 12 Cal.Rptr. A.L.R.3d on other disapproved grounds [41 425, 13, Crisci v. (1967) Ins. Security Co. 66 Cal.2d 433 Cal.Rptr. [58 426 173], P.2d (1960) v. National Ins. Co. 181 Davy Public citing 387, 396 Acc. Cal.App.2d 488], and v. Standard Ins. Cal.Rptr. Hodges [5 564, (1961) Co. 17].) 198 Cal.App.2d Cal.Rptr. [18 mistake, As for the well that the origins it is now settled implied street, covenant of from good running faith and fair “is a two-way dealing (Commercial insured to his insurer well Union As as vice versa.” Stores, surance Companies v. Inc. 26 Cal.3d Safeway 1038].) Cal.Rptr. 610 P.2d no evidence disclosing Here there was reason why California the Uneedus action sum chose to forward mons and no cov and Renfro in an Adco with complaint Jay envelope ering letter of whether and so issue is not here explanation, presented the insured’s be a or offset to any breach of the covenant can bar implied However, on alleged breach of the insurer. covenant implied record, California Shoppers where the direct evidence is undisputed Adco belief that itself contributed to to Scott’s mistaken leading the events action, is the Uneedus it was the a defense to Royal seeking insured constitutes the “prop- to hold mere logical thereby resulting that the mistake which, there Gruenberg, er to cause” of according without presence covenant, and with the would otherwise have been a breach of the implied of which there would be no such breach. presence by to to the evidence offered Turning precedent applicable i.e., in the alleged of its alternative of tort Shoppers theory liability, support of failure to the threshold question it is to address investigate, necessary any on viable whether Scott breached a duty investigate law-imposed There Scott or did was no in the evidence of what did theory. direct dispute not do. We have not infer permissibly established that the could Scott actual who had tendered had notice that was California Shoppers defense of we it significant, action. At deem point, Uneedus court, time it ruled again, that the trial in at the noting reciting findings verdict, on California motion for Shoppers’ notwithstanding judgment stated, no “there is that the defendant . . . acted with a conscious showing at this Thus the to be answered disregard plaintiff’s rights.” key question Scott, Globe, had in the is a analysis through whether point acting it did. legal terms of the covenant to do more than duty implied Defining legal the tort of course involves resort to duty precedent, has all which hold that a marshalled the authorities Shoppers which, failure to is evidence of there investigate arguably, suggests bad faith ais if the is to duty investigate tort be avoided.

Part of California “Denial of a instruction No. 16 recited that Shoppers’ claim an insurance foun thoroughly investigating without company dation of its denial a faith and obligation good constitutes breach include v. Egan fair authorities cited for this dealing.” proposition 691, (1979) (24 Mutual Omaha 620 Cal.Rptr. Ins. Co. Cal.3d 809 [169 141], (1978) P.2d Neal v. 21 Cal.3d Farmers Ins. 910 Exchange [148 980], Co. 582 P.2d v. Ins. Cal.Rptr. Silberg California Life 1103], of the In Cal.3d 521 P.2d 790.03 Cal.Rptr. § Code.) surance cases,

On the investigate facts of those where the insurer failed insured, nature of the no but that these claim of a known there is question Here, however, authorities Califor- stand for the quoted. above proposition nia to do was is Globe omitted tortious that what urging because it did pursue possible identity into another investigation insured besides Adco.

What California with in its neglected expo has general deal notice, sition on the actual investigate threshold question notice. While constructive has notice contractual significance determining liabilities, it has no here. More without application particularly, actual presentation with claims claim compliance insured procedures contained the insurer there is no policy, duty imposed to the (1983) claim. investigate (Paulfrey v. 150 Chip Stamps Blue 187 Cal.App.3d 501].) Cal.Rptr. [197

In the Paulfrey, her and ac- plaintiff sued and its employer group health carrier, cident insurance a bad faith to benefits. alleging pay refusal policy The trial court directed a for reversed on verdict the which was plaintiff appeal. had the con- plaintiff comply failecfHo with claims procedure tained the of as re- policy that notice her claim had not been given quired. The court which said that this 'the appellate evidence represented jury should a have had to there had chance consider whether deciding been a of breach hence implied covenant of faith and fair dealing; good the reversal.

In the of course of opinion Paulfrey range noted the full cases court from Austero v. National Cas. Co. 1 Cal.App.3d Cal.Rptr. Co., 653], Silberg to v. 452. In Aus Ins. Cal.3d supra, California Life tero, claim, the court held that the of the in terms of the insurer’s handling conducted, investigation of Silberg, was not tortious as a matter law. court held insurer’s of the was tortious a matter handling claim of law.

After these of evidence recognizing on ends possibilities opposite and choice is spectrum the middle where the implicitly conceding ground a claim to the up jury, court went on to “What constitutes Paulfrey say, and the ques- thereof to a contract are mixed filing pursuant provisions was Paulfrey tions of law. her here fact and To of the part bargain, keep the claim to under to notice of obligated these furnish written provisions Blue and or Aetna Chip covering with written occurrence together proof reasonableness, with other rules extent of the loss. The along standard law, unless and insurer down case dictate that governing conduct set there- complied until or substantially satisfied both Paulfrey requirements, with, no obligation its’ Blue were under Aetna and agent, Chip, [sic] court (Id., Paulfrey Earlier the 200.) claim.” at investigate Paulfrey’s p. stated, “Insurance had characterized the above noted when it “standard” claim, with proof of a filing for the legitimately complete contracts call an investigate on any responsibility It would seem loss. reasonable issue as the threshold would not unless until arise part insurer’s filed, with claims faith to comply whether a claim effort good made, an insured determined. In no event could has been procedure instance, thereafter his/her the first keep part bargain fail to based for breach of a recovery duty pay seeking punitive seek (Id., 199-200.) failure to a nonclaim.” investigate pp. an insurer’s here, evidence Applying Paulfrey, evaluating undisputed and hold as a matter we down on Austero end spectrum come there was no Globe given Royal Shop law that actual notice investigate As no pers of its a defense. request consequence, in terms with the result that Globe’s “investigating,” ever arose insured, a breach of the out the of an unknown was not identity seeking covenant faith and fair good implied dealing. actual notice the dissent asserts that did receive

Interestingly, claim, that Regardless, of albeit was Adco. ostensibly a claimant a to duty that the issue remains to insurer had dissent as whether the urges if the claim been another of its by poli had investigate actually presented must is to we the task here decide cyholders. response, emphasize that in there was a whether to raise to a of whether duty investigate context covenant, i.e., further that duty a tort. We implied emphasize breach a and none of is the authorities California legal concept by cited insured, to duty especially a deal with an announcing investigate undisclosed so, is Even when that insured undisclosed its own fault. is through sug failure gested Royal that the to here can Globe’s investigate charged be poor business and that the mistake practices by induced fact some could not relieve Globe of its if in duty party inquire were Adco action. Paulfrey other than a defense to Uneedus seeking insured, There, known provides answer that with a argument. even of law the court entertained the of as matter that possibility holding failure to with did relieve the the notice comply policy of requirement Stamps, supra, insurer of a v. 150 (Paulfrey Chip Blue investigate. 187, 200.) So it here. Cal.App.3d Aside,

4. No Liability Damages Were Proved (the We come now under part to the fourth of our C part analysis $3 loss) (other damages). in III It damages million for economic of part $3 to justify a review ofFered involves evidence Shoppers’ 59 million award for issue, economic loss. of the liability Regardless argues no economic were damages any theory, proved espe- a tort cially We theory. agree.

Section 3300 of Code, the Civil is the for such point starting inquiry. It provides, contract, “For the breach of an from obligation arising measure of damages, where otherwise except this expressly provided by Code, is the amount which will for all the compensate party aggrieved which, detriment proximately caused or thereby, ordinary in the course of would things, be likely (Italics added.) result The corre- therefrom.” Civil 3333, Code sponding provision for tort cases is section al- likewise ready cited. That section “For the provides, breach an obligation contract, from arising measure damages, except where otherwise code, expressly provided is the amount will which compensate all the detriment proximately caused whether it have thereby, could been ” anticipated (Italics not. added.)

As observed in Twentieth Film v. Harbor Ins. Century-Fox Corp. (1978) Co. 85 105 Cal.App.3d 313], “. . . Cal.Rptr. but the measure [149 Code, tort is (Cf. broader than contract Civ. § 3333.)” (Id., 113, 8.) at fn. p. § between the distinction foregoing two measures of damages, as defined these statutes was noted also Weaver v. 4, Bank America 59 Cal.2d 428 P.2d Cal.Rptr. [30 644], said, where the court “While the be damages may causal extent more limited (see than tort v. [in Hunt Bros. Co. San contract] Lorenzo America, .; Water Co. . . . 150 Cal. . . 56-57 v. Bank Abramowitz supra, Code, Cal.App.2d Civ. Supp. p. compare 892] § Code, 3333), nevertheless, with Civ. or actually § damages contemplated, within the reasonable (Id., of the contemplation are recoverable.” parties, 434.) at p.

From authorities, these pronouncements in the two the sec- interpreting tions of the Civil Code above is clearly the rule that quoted, applicable the measuring of scope recoverable in breach of contract cases damages must be restricted such as were damages actually contemplated by within the reasonable of entered they the at the time contemplation parties into measure, i.e., the contract. Moreover this “within the reasonable con- of templation (Weaver, the 434) is much parties,” something supra, p. more limited in of than that in cases where the fiction scope tort applied foreseeability risk one of into the complicated factors woven many fabric which finally is labeled in cause such cases. proximate insurance;

Here the contract was one of the breach was a failure to defend an action brought within a risk contemplated by policy.

contract of insurance of the business item terms only peripheral words, conducted California by Shoppers California In other Shoppers. it was was not pri- business to defend itself primarily against litigation, de- which marily business to an “advertiser” type newspaper publish func- for successful income the sale of Its pended day-to-day advertising. little, against had if it was insured tioning very to whether any, relationship of within the area of to hire its own if sued possibility having lawyer risk otherwise covered policy. from $3 resulting

To the award of of bring damages million consequential rule we of damages the breach of the within the measure duty defend recited, contemplated, have it would be hold that necessary parties (1) at the time the California insurance was that: purchased, Act; Califor- (2) would sue would violate the Unfair Practices a competitor violations; would decline (3) Globe nia because of such Royal $39,000 defense; (4) attorney’s and the coverage tender of this because of action, be forced to incurred would fees to defend the California Shoppers million9; (5) Globe Royal $1.5 sell publishing enterprise ’ at a aware to sell business Shoppers long-range plan of later date it had in value. greatly appreciated after would parties

The mere recital combination of items requisite of that to have in this demonstrates damages have had mind to award justify for breach damages could not have they been awarded consequential short, the terms section the contractual to defend. In measured duty Code, of the contrac- no evidence a breach the Civil there was $3 million loss tual to defend Shoppers’ contemplated an economic loss. under California of how it suifered theory Shoppers’ failed Otherwise, tortiously even if we were to accept not, Globe, defend, without resort which we for its part, do contract, challenges as tort or characterizations the breach particular (1) damages represented such item on at least two damage grounds: and thus totally such are recovery; speculative double at law. cognizable Sandbom, record, assumption. Don highly questionable this is a 9On the facts in the even any of the other not think that he did Shoppers, testified a former shareholder California deal,” prevailing sentiment big that suit “a shareholders considered the Uneedus us, was, God, defend won’t Globe my deep trouble. It was not like “Oh we’re However, because keep just going.” We’ll we’ll let Kindel and Anderson do it. $39,000 otherwise, whether the with the issue of not deal

disposition of the issue we need $1.5 for million. caused the sale of plaintiff’s assets attorney’s actually fees

61 (a) The Evidence Shows a Double Recovery to the first a

Turning point, Royal argument makes very good the award of for so-called in this case damages economic business loss double represents As by demonstrated content recovery. testimony one of given by (Coffran), California Shoppers’ the owners principals California Shoppers received more than of “one times price gross a fair words, sales” when the was sold. In the mouth of company other out of witness, California Shoppers’ undisputed it was that the business principal Thus, was sold market value. recovery California Shoppers’ for fair loss,” for “economic or business an loss premised upon alleged of future would earnings necessarily a double This fol- recovery. constitute lows, for California (1) that: fails to Shoppers’ theory damage recognize the sale price received it for future implicitly compensated expected earnings; use of for California had the the sale Shoppers proceeds investment from dating the time of the sale.

It is axiomatic that the as a current market of a business going value concern includes of future present discounted value its estimated flow earnings. of this recognition analogous numerous cases principle, to the one now under review have receive both held cannot that a plaintiff the fair market value of its business for loss of future profits. plus damages (Albrecht 131; 124, (8th 1971) v. Herald F.2d Company Cir. 452 Gustafson v. General F.2d (8th 1973) Motors Cir. Acceptance Corporation 1061; 1975) Greene v. F.2d (5th General Foods Cir. Corporation 663; 1974) (5th Pollock & Riley, Inc. v. Pearl Cir. Brewing Company 1240, 1244.) F.2d

The consistent cited compels rule from the authorities appearing us to con- reach the same Shoppers result here. owners California cededly received a fair for going the sale of all of its assets price business, concern. Whatever their motives have been for may selling to re owners of fairly expect could not thereafter Shoppers cover an additional sum loss claiming economic prospective business have an that the busi would stream or produced earnings increased ness implicitly would have increased in value. were components These value Harte taken into account the sale price paid Hanks.

(b) The Proved Damages Speculative Were even follow Globe’s here did not Turning Royal other the award point, “loss of in the theory involving cases California cited applied to sell was, been “forced” it not California had theory profits.” Shoppers’ $10 million. did, later been sold when it assets could have its assets such been a Here, crip- having in terms of there there no of profits “loss” that it “loss” was theory of a business. Plaintiff’s of the pling operation for, them it sold $1.5 million have for more than the could sold its assets “loss” theory This is the time of sale. postpone had it been able to has which nowhere support precedent. rule, pro recover damages in order to

It is the generally accepted future, certainty with reasonable must show into the jected plaintiff the future. to him in of contract will accrue that detriment from the breach P.2d Ins. Co. 23 Cal.2d (Caminetti [142 v. Mut. Life Pacific remote, cannot possible or 741].) merely which are Damages contingent, (1963) 212 (Frustuck v. City recovery. serve as a basis for legal Fairfax 357].) Cal.Rptr. 367-368 Cal.App.2d [28 (1981) 122 Cal.App.3d In case of v. Nobmann Earp the recent made 767], award of consequential the court reversed an Cal.Rptr. from a with its loss of use of the proceeds to a landowner in connection because to be The court held the award delayed speculative real estate sale. funds of use of the loss had been introduced to establish how no evidence (Id., at to the landowner. profits had caused lost out-of-pocket expenses 295.) p. here, data no probative Shoppers the case California offered otherwise, nature, been have as to how its would profits

a mathematical or were. No they had not been sold when assets generated business if its projec history profit documents its and loss reflecting profit financial any expert failed to present were California also tions presented. factors or other pertinent to its future analysis potential with respect profit impacting trends and relevant economic industry relating particular either industry. or that company had that California

The evidence was introduced showed which California assertion in the red. Mr. Coffran’s consistently operated time is at a later price been for a greater assets could have sold Shoppers’ profit performance not reliable data. postsale supported corroborate business, does testimony, Mr. alluded to Coffran’s during ignored of profits claimed projection his claim. California Shoppers’ Shop- (who Harte Hanks purchased additional funds invested by in- by such effected assets), expansion and territorial pers’ circulation vestment, personnel. of additional the hiring of new offices and opening the internal also ignored future of loss of theory profits Shoppers’ it was problems aas result of the experiencing frequent occurring infighting assumed, its among principals. and asked the Shoppers simply to jury accept evidentiary without that it assumption, any support, Hanks, would (and have the achieved same national results as Harte a chain in fact while in chain) with that without Hanks’ competition Harte resources or expertise.

As the Supreme Court observed in Continental Car-Na-Var Corp. v. Moseley (1944) 9], 24 Cal.2d to P.2d “Evidence establish [lost] must not profits be uncertain or This rule does not to speculative. apply derived, as to uncertainty the amount of which have been profits would but to uncertainty or as to speculation profits whether loss result of and whether such would have been derived any profits [breach] (Id., 113.) all.” at p. This is which the precisely uncertainty record discloses here. As a whether the causation relied consequence, upon tort, was breach of contract there was no that Cali competent evidence fornia Shoppers suffered measurable form of economic any damages loss as proximate a result of either.

As a result of the failure damages to adduce evidence any competent loss, for economic or business trial which court’s order denied i.e., motion, verdict, Globe’s error postjudgment this item the for this additional reason.

5. Instructional Errors

Defendant contends there errors in instructions. We were prejudicial agree. issue,

On the Globe’s liability attorney at trial and on appeal Royal in objected to No. which vigorously several of instruction provisions cluded descriptions constituting insurance behavior possible company breach of the He that many faith and fair obligation good dealing. argues of the included under existing either did not constitute bad faith descriptions evidence, law, or could not and all of this be traced to facts in the polemic-type jury. material could well have mislead served brief, issue, states, “The On the in its damages opening . . . . are awarded . . economic loss damages plaintiff prospective jury recoverable as matter to instruct the of law. It was thus error [] addition, to award these instructions damages plaintiff. foregoing the event commanded award these improperly found had liability on the whether regard plaintiff without part Royal, its sustained burden of proving alleged damages.” in its No. 9 to another instruction Shoppers’ Turning point, entirety reads: Damages

“Compensatory is entitled to find “If under the that plaintiff Court’s instructions you of the any on Insurance Company verdict defendant against Royal theories: following fair dealing;

“1. of Breach of faith implied good covenant and/or, defend; “2. of duty Breach to Fraud, will that “3. in an amount damages must then award you plaintiff of claimed loss elements it for each of the reasonably following compensate and legally suffered by plaintiff that find that such loss was provided you fair dealing, faith and good caused a breach of covenant by implied award shall defend or The amount such a breach of the to fraud. include: satisfying judgment

“1. if in incurred Expenses, by any, plaintiff it Uneedus against by Corporation. in by defending

“2. if incurred Expenses, necessarily plaintiffs any, action Uneedus Corporation. occurred,

“If items one and have by you two loss are determined shall then shall occurred. You you then determine the date which said loss in the the diminution increase award reflect attributable to your any loss This loss such date. of the occurred since purchasing power dollar that has is referred loss.’ commonly ‘past to as inflation losses,

“3. or if any. All other economic business theory “If find Globe on you Royal defendant against liability to the dealing breach of and fair addition good covenant faith implied incurred necessarily fees attorneys’ above must award damages you plaintiff ben- any to secure reasonably required plaintiff this efits under the insurance policy. regard, owing any, if recovery damages, is not entitled to fees in the incurred attorneys’ damages.” attributable economic loss punitive instruction, Globe’s out The prejudicial pointed defect this brief, without award its clear the jury intendment is that differentiating between contract find and tort should lia- damages, bility three theories set forth in instruction found to be Globe, exist. Mr. on behalf of in the Gallagher, objected particularly trial court feature when Austero instruction Mr. insisted all three theories of be recovery into a instruction. damage lumped single Pet, (Cf. Quigley (1984) v. Inc. 162 Cal.App.3d 893-894 [208 394].)10 Cal.Rptr.

Otherwise, there nowas in this provision instruction ele explain ments of necessary to proof the basis for even provide finding damage, court, assuming liability were established. v. San Dodge Electric Diego Ry. 37], Co. P.2d said Cal.App.2d an instruction directs a if verdict the the finds plaintiff “[w]hen jury true, certain facts to be it must embrace all to show a necessary legal things the on the liability of part defendant warrant the conclusion that the plaintiff (Rush is entitled to a verdict. v. 308 Lagomarsino, 196 Cal. [237 1066]; P. Ebrite v. Crawford, 937]; 215 724 v. Cal. P.2d Tice [12 Pacific Co., 1022, Electric Railway 844].) 36 66 P.2d 97 P.2d Cal.App.2d [96 references, instructions, Repetitious in the that under the re circumstances lated the jury ‘must find favor of or ‘in favor of has defendant’ plaintiff’ (Taha been 533].) condemned. v. 81 536 P.2d Finegold, Cal.App.2d [184 The of such formula has giving theory instructions been criticized under the that they frequently amount to an rather a fair of than discussion argument the law. v. (Elsey 794]; 144 42 P. v. Domecq, Douglas Cal.App. [299 Co., 390, (Id., 764.) Southern 237].)” 203 Cal. P. at p. [264 Pacific As stated in Henderson v. 12 Cal.3d Corp. Harnischfeger 1, Cal.Rptr. 353], 527 P.2d if that “Generally appears speaking error in an giving jury instruction was to mislead the and improper likely verdict, thus to become a for re factor it is and ground prejudicial Moreover, (Id., versal [citing 670.) it seems at p. Witkin].” ‘“[w]here the probable that verdict on in jury’s have been the erroneous may based struction[,] spec “should not prejudice court appears reviewing] [the ”” ’ 670, added.) ulate upon (Id., basis the verdict. italics p. rule, instruc Under this court’s giving Shoppers’ 16, error, tions No. 9 would rever without other regard require verdict, i.e., sal of this item of $3 busi the million for “economic and words, ness to delete loss.” other but for the modification of the judgment error, Quigley, page 10In particularly paragraph the last instructional as defined instruction including footnote was a failure to a in the qualification include Seaman's there, i.e., given. legal jury, error to find thus was the same if it were here only (even context) compelled award tort breach contract absent was a Seaman’s damages. outright verdict, required would have the error here infra, Item 5 of the of the verdict. reversal of this portion Award Damage $3 Million Other Errors Reversal Requiring

6. as a so-called to testify was allowed Attorney A. Aitkin Wylie of such purpose insurance company practices, on the subject expert Globe had that Royal been to show designed obviously having testimony but fair dealing, faith and covenant of good breached only implied as to way in such a to behave also further and behaved failed gone had damages. make it answerable in exemplary words, everything essentially testimony

In other Aitkin’s He was wrong. per- did California Shoppers with reference to evidence), (not exhibit 19 placed to refer to California Shoppers’ mitted Hafif, for California Shoppers, Mr. of the attorneys a chart one prepared by ob- Over insurance practices.” to be “statements of represented good counsel, be used before chart to court permitted defense jections prej- was highly The chart itself testimony. to “illustrate” Aitkin’s in mis- excerpts legal propositions udicial because it set forth selected accurate statements some testimony manner. Aitkin’s contained leading law, law, state- erroneous some and some palpably statements incomplete Whatever, wholly was testimony incompe- of law. all of this ments almost tent. as in no sense qualified

The crux of error here was that Aitkin There testify. he to on which subject purported an to about the expert testify bar, at the but of repute both on record and as matter is no question and a aggressive attorney, particularly that he is a trial highly qualified However, no companies. cases insurance against advocate plaintiffs’ that Aitkin had special was laid to demonstrate foundation whatsoever would skill, such as qualify education training knowledge, experience, answer, that It is no company practices. him as on insurance an expert insurance com- are at discovering efforts aimed certain his professional to An objection then them task. taking derelictions of and duty, pany claim was han- Shoppers’ on how California made to his opinions giving dled. admitted, nor

Indeed, employed he had never been as Aitkin candidly wonder. Small company. even retained as counsel an insurance by with be established must an It is well settled that expert’s qualifications fact that purported testimony. to the matter of his respect subject

67 be expert may qualiñed in one field vaguely related to another does not mean Adams, that he is (Putensen in that qualified other field. v. Clay Inc. (1970) 1062, 12 319].) 1081 Cal.App.3d Cal.Rptr. [91 In Elder v. (1977) Tel. & Tel. Co. 66 650 Cal.App.3d [136 Pacific 203], Cal.Rptr. the plaintiffs of an testimony offered architect about the custom of the practice construction The exclusion of industry. this tes to, timony was and on excepted the court held appeal that even an expert witness would not be to permitted into lapse legal commentary. The court said, “Plaintiffs also called an architect as testify to to the custom and practices in the construction industry, his as to the sought opinion ap plicability defendants certain construction orders safety relating demolition work. The latter opinion was excluded. While an properly expert may witness properly testify to custom and in construction practice safety (Alber (1967) 790, 117, v. Owens 66 Cal.2d 427 P.2d Cal.Rptr. [59 781]), law, he may statute, state whether be interpretations of a ordinance or safety (see regulation a statute Evid. promulgated pursuant Code, 720, 803; cf. Hyman v. Gordon §§ 774- Cal.App.3d 262]).” (Id., italics.) at Cal.Rptr. It p. original was precisely the kind here, that was thing excluded Elder which was allowed it in and of itself was so as to the basis overwhelmingly prejudicial provide for an reversal outright of Item 5 of verdict.

Significantly, all the authorities cited support this instruction were cases an identified Here first-party involving insured. the breach of the defend with duty to arose connection a denial of cov- erage because of a mistake contributed ben- party seeking policy efits.

The other trial was to allow the highly prejudicial happening exemplary issue to damage to the It is no comfort that trial go jury. court later struck the Royal award in to Globe’s exemplary response damage verdict; motion for judgment the an irremedial notwithstanding prejudice had been already inflicted. The of the damage issue into injection exemplary the trial could not but have the Globe as help prejudiced jury against Royal a consequence of California counsel about arguments Shoppers’ Roy the wealth, al Globe’s size and and the further that argument Royal should be a punished award. compensatory large damage

In an unrestrained to appeal passion prejudice, Shoppers’ counsel the urged to return the jury award largest compensatory damage Riverside County history, with The together punitive damages. only per- missible purpose is not awarding compensatory damages compensation, Yet Mr. punishment. Hafif told had jury to compensatory damages turn, be to a high justify substantial In he punitive damage urged award. award in order that such to render excessive compensatory damages the jury for awarding The basis hold to the Court.” “will all the up way Supreme an factor to support meaningful is not to a provide compensatory damages award- are damages damages. Compensatory additional award exemplary he he has which proved to for the actual ed compensate plaintiff of the prej- measure be at all is a suffered. That such a must stated truism this point. error which the record on udicial pervades to this tactic by objection was no defense It is because there suggested, fails it. Such a suggestion from addressing Mr. Hafif that we are precluded Merlo v. invoked have already error here. We the nature of the perceive Co., for the proposition & Acc. Ins. supra, Cal.App.3d Standard Life appears where court to act that there is a upon reviewing to be so exces- of law as a matter award of compensatory damages appears passion prejudice. result of to raise a that it was the sive as presumption Hafif’s Mr. matter mere beyond presumption. Here the record carries the so as award in a enough compensatory invitation to bring large to the way Supreme hold all the up to enable a award to companion punitive and prej- kind of of the passion Court demonstrates the injection palpably us to ignore. Merlo orders into the which udice deliberations jury’s Moreover, upon commandment limits the there is in Merlo which nothing in the was made objection on whether any particular us to act as depending court. trial into the sum, issue damage exemplary improper injection

case, to appeal counsel the opportunity which afforded California Shoppers’ Globe sufficient resulted in prejudice the passions jury, verdict. itself to reversal of Item 5 justify

IV-V*

Disposition for judgment Globe’s motion which trial court’s order granted verdict, dam- exemplary as to Item 6 of the verdict notwithstanding as to ver- been granted motion should have is affirmed. Because such ages, $59,493, Item 5 for $50,000, and verdict Item 4 for dict Item 3 for verdict modified, million, As thus those items. $3 modified delete judgment the judgment of the foregoing, As a consequence is affirmed. judgment 7, $21,963. 2, $39,000; Each 1, $86,500; Item Item now consists of: Item shall on appeal. bear its own costs party J.,

Kaufman, concurred. P. Acting footnote, 1, page ante.

*See RICKLES, dissent from of I respectfully portion majority that the opin- J. ion which (2) strikes the (1) awarded for economic attor- loss and ney’s fees.

The bids a majority today fond farewell to appel- traditional principles late review. With mechanical the regularity, majority intones that defend- ant’s behavior was not on unreasonable a matter of law based the only inferences permissible to be drawn from the direct evidence. undisputed truth, however, The is that the evidence and the reasonable inferences there- from the amply support conclusion defendant breached its covenant of good faith and fair dealing.

The majority compounds problem the the law by misconstruing governing an insurer’s breach of its covenant of faith and fair implied dealing. good

I am therefore set both and the compelled the law record straight.

I

The Facts evidence, the examining it must be borne mind that an appellate court the considers the evidence in favorable to the light prevailing most party, and re- giving party every benefit reasonable inference solving conflicts in (Tyrone Kelley v. support judgment. 671, 65].)

9 Cal.3d The inverts this majority P.2d Cal.Rptr. rule, facts, evidence, in- stating resolving drawing conflicts ferences therefrom all most favorably many while appellant, ignoring reasonable They and crucial inferences favorable the prevailing party. have traditionally stood the substantial rule on its head. What was evidence in the hands of principle judicial judgment, restraint disinterested What advocacy. becomes a subtle must be majority weapon appellate done is review facts in some detail the correct standard. utilizing of,

Plaintiff notice tried this case on received that defendant theory defend, and breached its separate at least two occasions. first occurred when Uneedus sent a May plaintiff copy Renfro, &Jay & Renfro had been an complaint agent.1 Jay defendant's 1I emphasize Jay majority appears to agent & Renfro was because the Globe’s ignore this not believe evaluating fact in to be drawn from the evidence. I do inferences jury’s personal Jay elimination to be re responsibility caused & Renfro’s conduct moved from an evaluation of the evidence. broker was the procuring for time and insurance broker for defendant some the sum- Plaintiff sent and of both Adco plaintiff. for the insurance policies Adco envelope. & Renfro in an Jay mons and complaint & Renfro defendant, Jay was. was not a Adco named with a complaint and summons this fact forwarded the totally ignored than for plain- for Adco number rather standard form referencing policy stockholders.) (Adco shared several principal California Shoppers tiff.2 Scott, the summons received Richard manager, Defendant’s claims num- checked the policy claims that he from & Renfro. Scott Jay complaint named Adco, was not a ber, that Adco observed learned that it issued was not cover the did that the policy in the and concluded party complaint, on thereafter, the claim Scott Shortly rejected enclosed complaint. suit.” ... for this that the “no policy provided coverage grounds the grounds on solely that he the claim rejected Scott later claimed named was not that Adco referenced Adco and number policy he in- However, why as to explanation Scott had no adequate complaint. the policy rejected grounds formed Adco that their claim was being suit,” accurately informing rather than “no ... for this coverage provided with Adco’s forwarded in the them that Adco was not named complaint number. policy Renfro, had several Gibson, he & claims testified

Roy manager Jay about con- was asked When Gibson with Scott at this time. conversations or to accept was going versations with Scott as to whether on, Gib- Later “I don’t remember.” Gibson’s answer was reject coverage, understanding any there was son was about whether again questioned answered, “It was He Globe. was insured by Royal California Shoppers whether was asked Gibson never persisted. brought up.” questioning He May 1975. an Globe’s insured us, answered, Shoppers.” of California I never heard “With no. had 46, ante.) did concede Scott Gibson from p. (Adopted majority opinion, not covered under on the that the lawsuit rejected had the claim ground the policy. California Shop- whether investigated further that he never

Scott admitted was covered in the actually complaint, of the individuals named pers, contained policy whether Adco’s he check to see Royal Globe. Nor did did Scott Nor in the complaint. additional insureds who be named might Renfro, pro- the policy’s agent, who was his Jay company’s & inquire defendant. policy number to plaintiff supplied Adco’s suggest 2There is no evidence to broker and the curing that had the to party actually transmitted complaint Globe, why as to sent him a number they had a under complaint policy no referencing named in the not his own party Scott did follow complaint! admitted routine in this case which check see if was “to and any individuals under the Adco De- were an additional named insured.” policy witness, fendant Royal Globe’s own W. McCray, Mike stated that expert bona fide any insurance to would have checked see company normally whether of the defendants named in the were covered under complaint a with policy the company. Scott admitted that “it would have probably struck me as very strange the sent to me Adco policy was Advertising and yet they were not a named Notwithstanding seemingly defendant.” occurrence, unusual Scott stated he no com- undertook investigation beyond paring policy number with the named defendants. facts,

Confronted with these to this case was asked determine jury whether defendant’s refusal to was and a defend unreasonable constituted breach its covenant of deter- implied good faith fair dealing. They mined that it was.3 The two evidence substantial provides separate grounds First, Scott; for their finding. have they disbelieved jury may could have reasonably concluded that Scott knew or had reason to actually Second, believe that California by they was insured defendant. Shoppers could have concluded that source Scott’s failure to investigate adequately unreasonable, the claim was thereby studied totally was negligence a constituting breach its faith and dealing. covenant fair good As to first of could remem- these Gibson testified he possibilities, ber whether Scott cov- indicated Globe was going accept reject erage. California was never and California Shoppers Shoppers mentioned was not insured he by Royal May Globe in 1975.4 Scott claimed undertook no com- investigation between names on the explain discrepancy plaint and name on the He further number. claimed policy accompanying the only means available of or business whether an individual ascertaining was insured with Cali- defendant was number. through policy Lacking number, fornia Shoppers’ that was in- policy he could not have verified defendant, sured by even if untrue as he had wanted to. This is patently errors, 3The majority implies, may not alleged because of that I certain instructional plausibly infer from to be tortious. the verdict that the defendant’s behavior determined C, contrary, On the infra, permits as I no other shall demonstrate in Section the verdict II (not defendant) by majority entirely conclusion. alleged by instructional errors are question. irrelevant to the May 4The evidence shows Shoppers by Royal 1975. The insured policy by agent Jay employer issued defendant’s Shoppers, & Renfro California of Gibson. re- was covered Scott have discovered California easily could Renfro) their records. Even defendant’s- & to check (Jay questing agent witness, own whether W. Mike expert McCray, questioned defendant’s means of checking bona insurance would lack alternative company fide Indeed, Scott’s claim see was one of its insureds. particular entity whether routine) identify he undertook no to his investigation (contrary regular admission that “it doubt his was thrown into further sent to have the was policy would struck me as that probably very strange a defendant.” me as and were not named yet they Adco Advertising Moreover, truth- he had not why Scott no adequate had explanation were Adco time fully accurately they requesting and informed at the that Instead, not a defendant. they defense of a lawsuit in which were named What for this suit.” Scott wrote them “there no that would be coverage entirely if could been the complaint Scott have “coverage” referring unrelated to Adco?

The in Gibson’s and Scott’s contradictions and inherent improbabilities short, an that Scott either testimony, could inference reasonably support had knew or to confirm the fact a willfully plaintiff policy that neglected case, with If the defendant breached defendant. this was then unquestionably fair covenant of and with its insured. good dealing faith above, en the the not jury that majority argues Notwithstanding titled as a matter of to infer from Scott’s “uncontra law conduct wrongful dicted” is erroneous. of innocence. This contention protestations palpably Code, which cites 3545 Civil authority, as one section of the majority and states the venerable maxim transactions are fair that legal “[p]rivate this, From of regular.” contrary, majority its disclaimer spite unless there is direct the rule bad faith cannot be inferred extrapolates However, Code, Civil sec evidence which such inference. to base an upon 3545, rule, been tion cited of novel has by majority support fact, with the enactment 1967 years. in recent thoroughly eviscerated 600, (a), Evidence Code subdivision the “former presumption section . has statutory fairness . . been maxim cau regularity by replaced (Lane & regular.” transactions are fair and tioning private (usually) 61, 817]; Pryon, (1968) Inc. v. 266 Gibbs 66 Cal.Rptr. Cal.App.2d [71 italics supplied.) is be established

There no rule of law in that bad must faith direct must a de- evidence. The that a accept law does mandate refute fendant’s claim of is no “direct” evidence to innocence where there it. On “has an inherent well the trier of fact contrary, it is settled that witness, right disregard testimony any prima or the effect

73 thereon, facie based showing when he is satisfied that the witness is not telling the truth or his is testimony due to its inac inherently improbable time, curacy, due to or interest or bias of the witness. uncertainty, lapse All of these be may considered in things properly weight determining to be given of a testimony witness there be no adverse testi although mony adduced. The is the arbiter credibility [trier fact] witnesses. A be may witness contradicted completely he states as facts as by direct adverse testimony, there be so omissions in his may many account of transactions of his own conduct as to his particular discredit whole His story. manner of rise to doubts of his sincer testifying may give ity create the impression that he material giving wrong coloring facts.” (1962) 275, v. (Camp Ortega 209 282-283 Cal.App.2d [25 873], Cal.Rptr. La quoting (1950) Jolla Casa de Manana v. Hopkins 339, 871]; 345-346 Cal.App.2d Quock P.2d also italics See supplied. [219 417, 502, v. Ting (1891) United States 140 U.S. 420-421 L.Ed. [35 733]; S.Ct. Davis v. 147].) Judson 159 Cal. P. The majority that I alleges into” that Scott “buy plaintiff’s argument consciously rejected plaintiff’s claim. the could be further from Nothing truth. I view the evidence in the record and as attempt judge dispassion- Indeed, as ately what a possible reasonable could infer person therefrom. unlike the which majority characterizes Scott’s as unabashedly testimony neither “evasive nor I for am to substitute dissembling,” unwilling myself the and jury to evaluate the or of witnesses attempt demeanor credibility whom I did observe. I found memories most personally have selective difficult to evaluate.

I do buy into the the theory could infer from evidence jury reasonably that Scott such consciously claim. at whether rejected plaintiff’s Arriving an inference can be drawn of facts an of the requires appreciation quality necessary an inference. It is not that the show an infer- necessary party ence in his favor is the that be drawn from the only may reasonably one evidence; he need show only may that the material fact to be proved logi- and cally evi- reasonably be inferred circumstantial from the direct and (See 173, dence. (1976) Dimond v. 65 Caterpillar Cal.App.3d Tractor Co. 895].) 181-182 in mind and based Cal.Rptr. these Bearing principles [134 out, the direct upon and heretofore set the jury circumstantial evidence could reasonably infer or Scott either had failed to acquire actual knowledge actual a knowledge as result of his own conscious neglect.

There is ayet second basis for the verdict. The jury evidentiary upholding could have of exis- believed Scott’s he was unaware testimony plaintiff’s tence, but have concluded his the result reasonably was ignorance “ostrich-like” As the negligence procedures. nonexistent investigative observes: Scott were majority facts the claims confronting manager “[T]he 74 If he to make a further inquiry. as to him on notice of the need put

such actually he that it was made this further would have discovered had inquiry, for de- summons and who had tendered the complaint California Shoppers fense, ... then olfered to defend. In Globe would have notice which raised classic case of constructive represents aggregate, words, cir- In given the contractual defend. other duty appropriate cumstances, facts which the law will with notice all those charge party have he requisite he ascertained had might diligently pursued inquiry.” insurer faith under An cannot and in benefits reasonably good deny (Egan without foundation for its denial. policy thoroughly investigating 809, Cal.Rptr. v. Mutual Ins. Co. 24 Cal.3d Omaha [169 691, 141].) 620 P.2d of investigation This exists whether subject validity plaintiff’s is the claim as in existence Egan, plaintiff’s as here. It was obvious someone asking Royal policy, patently evidence, could rea for a defense. I believe here Based upon of, have sonably response concluded that Globe’s investigation to, of its duty the Uneedus and constituted a breach claim unreasonable faith and As have continually emphasized, fair the cases good dealing. fair least with breach covenant of faith and implied dealing, good is “not from respect exemplary, damages, distinct compensatory, meant to . . . misconduct of a malicious connote the presence positive (Neal (1978) Cal. 3d or immoral nature. ...” v. Ins. Exchange Farmers 921-922, 980].) order to recover fn. 5 P.2d Cal.Rptr. faith, for bad com tort an insured insurance only “must prove i.e., acted insurer’ would have pany paid negligently, ‘prudent Co., (See claim. 24 Cal.3d at Egan supra, v. Mutual Ins. Omaha of 813, 818.)” (Brandt (1985) v. 37 Cal.3d 824 p. Superior [210 Court 211, J., (Lucas, failure Cal.Rptr. 693 P.2d Defendant’s dissenting).) 796] to subse here take claim and its steps reasonable to investigate plaintiff’s refusal to from afford relief risk insured amounted quent very against, to a violation duty every of its fair good dealing implied faith and Co., 24 insurance v. Mutual Ins. Cal.3d policy. (Egan supra, Omaha 819; 452, Silberg (1974) v. 11 462 Ins. Co. Cal.3d p. [113 California Life 1103].) 521 P.2d Cal.Rptr. reason, to There is no no authority, logical equitable absolutely does duty investigate conclusion an insurer’s to support majority’s insured. not commence until it receives notice” a claim an by “actual Moreover, the here. in this case totally irrelevant Defendant proposition of a claim. The issue is whether presented with “actual notice” insurer had a claim was duty presented to into whether that investigate a valid The such as to a reasonable policyholder. facts were clearly impose mysterious duty upon allegedly defendant to source inquire into the so, con- majority summons and Had as even the defendant done complaint.

75 cedes, the would have been The mystery solved. defendant would have discovered early on that was entitled to a defense. plaintiff seeks excuse majority to defendant’s to discover its failure insured’s for a request (See defense as an honest and reasonable mistake judgment. v. Farmers (1964) Ins. Group Critz 230 796 Cal.App.2d Cal.Rptr. [41 401, 12 here, 1142].) however, A.L.R.3d The issue is whether an insurer may escape for liability tort a mistake its own induced unreasonable to failure the source of investigate a claim. Fairness and dictate logic clearly it cannot. The cases which a reasonable impose insurer to upon duty Co., (see, investigate v. e.g., supra, Mutual Omaha Ins. Cal.3d Egan 809) law, clearly facts apply before us. Neither nor logic fairness that we excuse impel an insurance mistaken for a belief company engen- dered by poor business own its practices negligence.

Nothing Paulfrey v. Blue Chip Stamps Cal.App.3d 501], Cal.Rptr. relied by the holds otherwise. In upon majority, Paulfrey, plaintiff that her insurer alleged good had violated its covenant faith and fair dealing by her claim mishandling negligently investigate failing for disability and accident benefits. The a directed trial court entered verdict for plaintiff, as a matter law that had ruling defendant failed negligently to investigate on plaintiff’s claim. The reversed Paulfrey court grounds that triable issues fact existed as defendant had to whether sufficient notice its held: trigger duty The court investigate. “[W]hether (Id., arose to on what found be true.” investigate depended facts the 201.) at p.

The same is true Both held here. Adco and California policies issued by defendant’s a summons agent Defendant received from agent. and complaint under a number Adco was not listed Adco. policy referencing However, among named defendants. was a named defendant. One of the of both was named in principal companies owners the complaint. Defendant’s behalf coverage issuing agent requesting of one of defendant’s insureds under these circum- lawsuit. Whether holds, stances a was, a duty arose to investigate Paulfrey further question of fact for the The here defendant had a jury. duty determined that investigate and unreasonably failed to do The sub- sufficiently so. evidence stantiates their determination. Our is judgment. to affirm

There is still a third for unreasonably a defendant refused ground finding to defend.

Plaintiff claimed that claim defendant received a second notice about a'year later. July defendant received a letter from admits that it plaintiff’s in a of the the instant action. attorney, containing copy complaint This letter insureds. was one of its defendant that plaintiff letter alerted attorneys and defendant’s between plaintiff’s

was followed a by meeting one time, conceded plaintiff At counsel 1976. that defendant’s August claim was insureds, the Uneedus that acknowledge of its but he refused to In order days. in several Trial was to commence by covered set policy. assume the continuance, defendant counsel requested to avoid a plaintiff’s which had plaintiff to retain the attorneys defense Uneedus but against agree also Plaintiff refusal to defend. a of defendant’s hired as result already fees already attorney’s for the (1) reimburse plaintiff defendant requested action, indemnify (2) plain- agree of the incurred the defense Uneedus $100,000 loss, for settle- tiff in the event pay plaintiff requested also attorney ment of its claim for distress. Plaintiff’s emotional lawsuit a separate Shoppers defendant undertake the defense of California which had been filed it Adco. by against defend- sent a letter to counsel days

Several after the meeting, plaintiff’s stated as part ant’s counsel his demands. This letter pertinent reiterating Globe, Royal think that I meeting, follows: “As I indicated at our you worse, immedi- should definitely in order to avoid a bad situation making recently lawsuit on the assume the of California ately defense lawsuit is ADCO, of this by My understanding and also brought coverage. California of the bought it falls within the squarely coverages policy Shoppers. on the lawsuit

“I our for at this time reiterate that demand settlement Company California Globe Insurance brought by Shoppers against as follows: in the far Pay

“1. fees thus attorneys’ expended amount; full lawsuit;

“2. of the defense fees for the remainder Pay attorneys’ “3. for returned Pay Shoppers; judgment against $100,000 distress emotional “4. Offer of the claims for settlement four five on behalf of the in the general damages alleged complaint plaintiffs Globe. against Royal failure and that

“I’m are you things separable sure above realize from which Globe in situation remedy the situation is going put is now in.” one it it will be itself than the even more difficult to extricate (Italics supplied.)

The letter went to be repeat counsel’s to request plaintiff permitted retain the law firm which it had for the year been forced to last employ action, the Uneedus it be dif- “At late would defending stating: stage, ficult for other to the of the case that attorneys acquire thorough knowledge have, Kindel & to Anderson and it would be difficult ask judge the equally trial, for a continuance day undoubtedly on the set for the would since judge become upset.”

Defendant never letter. Defendant continued to responded plaintiff’s refuse to plaintiff’s undertake defense in even the Uneedus action though by this time it was a clear and had fact defendant undisputed defend.

Thus plaintiff’s it request attorney’s that defendant reimburse fees So, too, already was it expended reasonable. that not plaintiff’s request be forced to substitute Trial set within several attorneys. to commence days and a substitution of attorneys would have Moreover, defendant major problems. presented It

continued to under is deny policy. coverage settled that a “conflict arises” between “once the in- insurer and insured surer takes (San view issue is Federal coverage Navy present.” Diego Credit Union v. Cumis Ins. Society, Cal.App.3d Inc. exists, 494].) Cal.Rptr. Where such a it for an conflict is reasonable insured,

insurer to pay for unrea- counsel its independent retained sonable for the insurer control of the insured to surrender compel (Id., litigation. 375.) at p. $100,000

While of the in- plaintiff’s additional for a settlement requests stant action and or may the defense the Adco action assumption may reasonable, not have been the letter and estab- testimony clearly Harding’s lish that these demands were A reasonable inference therefore “separable.” that all as an were refers to them requests negotiable. letter basis, “offer.” They were not aas on a take-it-or-leave-it presented package ultimatum, nor as an nor assumption as to defendant’s preconditions defense Uneedus break action. Defendant was not entitled simply off negotiations with its sand” behavior plaintiff continue “head by ignoring clear Such unquestionably to defend. behavior obligation supports jury’s good conclusion that defendant violated its covenant faith and fair dealing.

Nevertheless, conclusively insists the establishes majority evidence law, cannot, that defendant’s actions as a be characterized matter First, de- really unreasonable. never majority argues plaintiff requested fendant is fatu- “assume” This contention defense Uneedus action. ous. As earlier would not have been reasonable explained, practical time, substitute at the nor was entitled to demand attorneys legally defendant defendant assume that do so. Plaintiff plaintiff reasonably requested finan- Under the circumstan- of Uneedus action. cial ces, for defense the responsibility the that “take over” litigation. this was a defendant clearly request was justified The refusal to defend also defendant’s majority implies was unreasonably the fact defense of the Uneedus action tender of plaintiff’s This is demon- to other demands. conditioned defendant its upon acceding of all of that strably clearly interpretation The an susceptible false. letter is Harding, plain- the negotiable. contained therein were requests separately counsel, de- with tiff’s was at plaintiff’s meeting testified this position the letter. In view intended in attorney, fendant’s well as meaning evidence, mistakenly majority this are at as the liberty, extrinsic we I fail letter. to argues, perceive to interpret independently meaning testimony letter. His of the fact not author the significance Harding did extrinsic constitutes evidence nevertheless. sum, for bases three separate the evidence adduced trial established un-

a to defend plaintiff that defendant refused finding unreasonably (1) action: The direct and circumstantial evidence derlying suggesting to in the Scott knew insured and refused defend an actually plaintiff (2) clearly face clear the evidence demonstrat- duty its under policy; on the Scott’s constructive claim ing knowledge validity of the plaintiff’s in- rudimentary basis of a defendant’s failure to undertake even negligent claim; com- defendant’s establishing of the the evidence vestigation fi- assume the plete failure that defendant respond request plaintiff’s its nancial was no doubt about burden the Uneedus when there litigation did, conclude, would the defendant duty under the I as the policy. breached a defense. tortiously provide with plaintiff

II

A. Faith Refusal Defend—Bad bad This of the tort of case as a over the began scope dispute appropriate faith, and a “mere” not an case majority evidence arguing refusal to defend never be could tortious. exist a creature may now concedes that there majority grudgingly consigns

known then as bad faith refusal to defend. The majority promptly this creature to the Styx River transportation.

I Chamber treatment begin Star my analysis by noting majority’s when, all, if at a tortious evidence avoids a clear-cut treatment bad faith refusal defend exists.

The majority would real issue in this case avoid confrontation cause,” mistake,” adding the ingredients “mere and “ac- “without proper tual notice.” A brief of each of barriers is necessary discussion these order not to be derailed from our original objective.

An insurer’s failure proper to a benefit “without cause” provide requires more nothing than the insured in insurer act toward its administer- unfairly the benefits ing bargained for under the policy.

The of concept “mistake” from springs Shoppers’ forwarding conduct, to defendant the in an Adco This complaint according envelope. to the majority, induced to withhold benefits under mistakenly defendant the policy. duty Shoppers, breaching part reciprocal of faith and fair good relieved of dealing, liability.

In the support, cites Commercial Assurance Union majority Companies Stores, v. Safeway Inc. 26 Cal.3d 912 610 P.2d Cal.Rptr. However, is not 1038]. Commercial the advanced. authority proposition Commercial held:

“We have no the of duty with that a faith and quarrel proposition good street, fair an is dealing policy insurance a from the two-way running However, insured to his insurer as vice as well versa what that [citations]. embraces duty upon is the of struck between dependent bargain nature the the insurer and the of insured legitimate expectations parties which arise from the contract. “The essence of the in insurance covenant of faith implied good policies ‘ is that “neither dowill which of the other party anything right injures ’

to receive the One benefits of of the most im- agreement” [citations]. benefits of a portant maximum limit insurance is the assurance that policy will company the insured indemnification for provide with defense purpose him from the insured has protecting liability. Accordingly, legitimate to that the settlement within right policy method of expect (Id., will be limits in order to him such employed give protection.” 918.) facts, Under p. our mistake is inapplicable.

I disagree with the to assertion the an insurer’s to duty majority’s trigger is investigate actual notice. waters, demonstrate, spite I tor- muddied believe intend

tious bad faith refusal to defend existed in this case. '

Before a proceeding believe cause of action analysis why I my exists, for bad faith refusal to I would out a misconception defend point arises. implied as to when the to act in faith majority duty good on the insured duty faith would a covenant and fair good dealing impose boundaries a defense to within the contractual to afford its insured on of action rested The record not indicate cause plaintiff’s does policy. asserted its consistently traditional theories tort Plaintiff has liability. benefits contracted bad refusal afford claim based of a faith theory provide de- for under the A breach of the insurer’s policy. obligation fair faith and dealing fense is a included within the covenant good both contract and tort. sounding covenant of the the scope by the insurer duty imposed upon

“[T]he fair we characterize its faith and does not turn on whether good dealing tortious, since, case, or itself as contractual in either the duty springs breach Thus, defendant can from the contractual between the relationship parties. a in cause of action as liability not avoid by labelling plaintiff’s case (Johansen Inter-Ins. Bureau cause tort.” v. State Auto. Assn. California 9, 288, omitted.). (1975) 744]; fn. 15 Cal.3d 18 P.2d 538 Cal.Rptr. [123 Thus, the to act reason majority’s fulfilled its tort duty assertion defendant and in for a defense based faith it ably good rejected when plaintiff’s request of the on honest doubts as decisions coverage displays misconception the this area and case. facts of this this case An the bad cases as relate to the facts analysis they faith covenant of leaves no doubt the defend the failure to constitutes a breach faith and fair to tort good damages. dealing entitling plaintiff I with Cal.3d 566 begin v. Aetna Ins. Co. Gruenberg 1032], insurer where the sued its tort Cal.Rptr. plaintiff P.2d for him losses incurred at his unreasonably for fire refusing indemnify of business. result of Plaintiff claimed that as a direct and place proximate defendant’s bad faith he “severe economic indemnify refusal to had suffered distress,” earnings,” “severe “loss of and damage,” emotional upset various damages. punitive both special sought Plaintiff compensatory (Id., at demurrer damages. 572.) The court p. granted trial defendant’s reversed, The plaintiff holding Court appealed. Supreme could sue in refusal to plaintiff indemnify. tort for defendant’s unreasonable court an unreason- Gruenberg no basis distinguishing perceived “These able refusal to settle from are indemnify. an unreasonable refusal to two “It merely different same court wrote. is the duty,” aspects law, insurer deemed to be which the must obligation, under imposed act and in fairly good responsibilities. faith in contractual discharging Where in so with its insured doing, fairly fails to deal and in good faith cause, for a without its insured loss by refusing, proper compensate of action in covered conduct rise to cause policy, may give such (Id., tort for breach of an faith and fair implied dealing.” covenant good 573-574.) at pp.

It is also worth nowhere limited the nature noting court Gruenberg or extent of the tort recover. may for which insured suing an On contrary, that an insured Gruenberg court reiterated rule recover, in tort suing may “all Civil Code section detri- pursuant to (Id., ment caused 579.) whether it have could anticipated p. been not.” In Gruenberg, where the fire insured sued for failure to plaintiff indemnify business, losses to his emo- “detriment” included economic damage, tional distress and loss of earnings.

One year Silberg after Gruenberg, Court decided Supreme Co., v. Ins. supra, Silberg, 11 Cal.3d 452. plaintiff/ California Life insured suffered at his insurer injuries business. The defendant place refused to pay plaintiff’s medical bills and as incurred a result plaintiff medical heavy his expenses, rating his credit suffered and he lost eventually business. Plaintiff sued for bad fraud and a him faith and awarded $75,000 $500,000 compensatory and The trial court punitive damages. granted defendant’s for of motion a new trial on the insufficient grounds to evidence the of claim bad The Cali- support faith and plaintiff appealed. reversed, fornia Supreme Court refusal defendant’s holding unjustified to pay medical bills constituted a breach of the covenant of good implied faith and fair which dealing rendered liable for “proximately the damages caused its by (Id., conduct.” at The also p. 460.) court affirmed that portion of the judgment award, that there reversing exemplary damage holding was no (Id., evidence defendant was or malice. fraud guilty oppression, 462-463.) at pp. Co., In v. Egan 809, Mutual Omaha Ins. 24 supra, plaintiff Cal.3d

sued his in tort insurer for to benefits. The trial court refusing disability pay granted defendant, a directed verdict as a matter of law that against ruling defendant’s failure have of its or examined a doctor choice plaintiff by to consult with plaintiff’s and violated the covenant of faith physicians good fair (Id., 817.) $45,600 at A dealing. p. awarded in jury plaintiff general $78,000 distress, damages, $5 emotional million in punitive dam- The ages. affirmed, can- Supreme Court “an insurer holding that and in reasonably faith good to its insured without thor- deny payments oughly (Id., investigating 819.) foundation While for its denial.” at p. that the holding evidence award of some supported damages, punitive the court $5 ruled (Id., 822-824.) million excessive. at pp.

A final decision worthy of mention v. Ins. is Jarchow Transamerica Title Co. 48 470], Cal.App.3d 917 a decision Cal.Rptr. perceptive [122 Jarchow, rendered by this court a sued their nearly ago. decade plaintiffs 82 insurer to certain duty

title for clear title failing tort discharge $200,000 total of plaintiffs compensatory The awarded property. to clear indicating duty This affirmed the that the damages. court judgment, three, All title was no in kind from to defend settle. duty different observed, has a reasonable we involve risks which the insured major against (Id., 941.) implied We reasoned that if expectation protection. p. duty litigate, covenant faith and fair not extend to the good did dealing title, insur- either in of having or to clear then “instead purchased defense will the insured litigation, ance against hardship and financial trauma lawsuit,” (id., at found than a have that he has more purchased nothing 942-943), nothing “into degenerated will have pp. litigate fees incurred.” attorney’s more than a for promise to reimburse an insured (Id., 944.) at p. for tort

The lesson of the gravamen of the is clear. foregoing cases at least breach and fair good dealing, covenant faith implied context, in- which between insurance lies in the relationship exists special . . . does surer As “The insured Egan: insured. stated the court in not seek to obtain a commercial purchasing policy—rather, advantage by he seeks of such insurance protection . . . The against calamity purchase v. Omaha Ins. peace of mind and . . . .” Mutual provides security (Egan Co., “Since supra, 819.) court in Cal.3d at stated Jarchow: p. As is the of mind and primary peace consideration insurance purchasing it will insured arises security against when the provide [cita- contingency tion], an suffered as a result insured recover emotional distress may any faith, of an result- proximately insurer’s bad as well as other detriment Co., from the Ins. 11 Cal.3d ing breach. v. (Silberg Life Co., 1103]; Gruenberg 460-461 v. Aetna Ins. Cal.Rptr. P.2d Co., 566, 580; supra, supra, Cal.3d v. Traders & General Ins. Comunale Co., 660.)” (Jarchow supra, 50 Cal.2d Title v. Transamerica Ins. 940.) Cal.App.3d p. leaves Jarchow Silberg, Egan, and reasoning underlying Gruenberg,

no room for indemnify. from the to duty to defend distinguishing duty In each case for calamity, the insured has for from protection contracted “the of in- mind and it will when the peace security contingency provide 940.) (Jarchow, sured against arises . . . .” at p. supra, Cal.App.3d Indeed, cases, as the “trauma and court many perceived, Jarchow financial a failure of litigation” exceed that occasioned hardship might (Id., 942.) to indemnify. at p. defense,

Where the to provide insurance contract the insurer requires be of contract. unreasonable defense a breach withholding may Indeed, the its contractual concedes that defendant here violated majority duty to defend. is that the evidence What the fails to understand majority here, review, construed in accordance with traditional standards appellate amply supported conclusion jury’s that defendant’s refusal defend was unreasonable.

To I repeat, conclude that the which tort reasoning recovery permits for an insurer’s unreasonable refusal to no leaves basis indemnify principled for denying the same tort where an insurer recovery unreasonably refuses to defend. That right exists in- independent insurer’s actions issue, demnity than, for the duty defend is much broader certainly and as vital to insured, Jarchow, the interest of the as the indemnify. this very court recognized that an insurer’s unreasonable refusal to litigate a claim on behalf of its insured constituted a breach of the covenant implied of good faith and fair dealing. The oifers no majority creditable basis for distinguishing Jarchow from the case at bar.

While the California authorities which I no have marshalled leave doubt mind as my action, to the soundness of plaintiff’s two sister-state courts which have considered the same issue offer further illumination.

In Smith v. American (N.D. Family 1980) Mut. Ins. Co. 294 N.W.2d 751 1], A.L.R.4th Supreme Court North Dakota confronted the very issue before us. Plaintiff brought an action his automobile against liability insurer for wrongfully refusing to defend him a lawsuit from against arising action, an automobile contract, collision. In his breach of plaintiff alleged tortious fraud, breach of the implied covenant of faith fair good dealing, and intentional infliction of emotional distress. The jury plaintiff awarded $4,000 contract, $3,000 for breach breach the implied $50,000 covenant of good faith fair On dealing, punitive damages. appeal, contract, defendant claimed that a failure to defend is a breach of but does not constitute a tort on the insurer. The Court part Supreme contention, rejected the defendant’s that under the covenant holding implied faith good and fair an insurer dealing may refuse to unreasonably defend its insured against lawsuit covered policy. Significantly, reaching conclusion the Smith court relied upon Supreme Court’s decision in Gruenberg. The Smith court no policy legal perceived basis for an from an un- distinguishing unreasonable refusal indemnify reasonable refusal to defend. “We cannot differentiate between a failure and, here, as in pay, defend, Gruenberg, a failure to if the insurer breaches its covenant to act and in faith in its contractual fairly good discharging (294 responsibilities.” 758.) N.W.2d at p.

The Smith court took note of v. Fidelity Guaranty Farris U.S. & Co. Farris, 284 Ore. 453 P.2d the Court Oregon Supreme 1015]. also considered the issue of of to whether or not the failure an insurer defend the insured under a The liability could rise to a tort action. policy give a cause only of court the insured had the concluded that

majority Oregon Smith, however, Farris the for in of action breach of contract. Like the court rec- a Gruenberg compelled court the in recognized holding logically 1021.) How- (587 of P.2d the tort for at ognition p. claim failure to defend. ever, The reasoning. the Farris majority Gruenberg’s court rejected indemnify a Farris from failure to a failure to settle majority distinguished in a “fidu- or defend on involved the insurer the that the former ground faith and of duty with insured ciary” imposed good the which relationship hence in- and fair latter dealing, relationship while the invoked no special (587 1019- no P.2d at pp. volved more than a mere breach of contract. 1021.) Farris, however, plain- in would have recognized minority opinion majority’s

tiff’s tort to the claim failure defend. It rejected spurious the distinction to defend. It scorned duty between the and the to duty settle undertak- majority’s a bad the insurer after “that faith breach reasoning faith from a bad ing performance of the contract somehow different rela- 1027.) breach in (Id., at all.” at The “special refusing perform p. insured, from the arises tionship” argued, between insurer and minority the assume, insurer’s right litiga- and finance and control the responsibility of not first tion claims does the insured. That against relationship special commence in the con- with the exercise of the rather it is immanent right; of a tract itself and of the insured expectation the reasonable grounded fact, as- defense. legal just “In the basis of insurance is liability of but also the actual cost and losses from a lawsuit sumption that result of sued, of assumption attorney, the risk of selection an being of losing.” and even of the risk responsibility control litigation, (Id., at p. italics supplied.)

Furthermore, damages, minority to contract by limiting plaintiff Farris noted en- actually would majority distinction advanced courage an insurer “rath- to breach contract before a defense undertaking er than perform- risk the bad liability tort faith breaches applicable (Id., ance.” italics.) p. original

Still another to contract dam- disturbing consequence limiting plaintiff for breach ages such a rule defend is the treatment inequitable rule, would afford the those rich Under the poor society. majority insureds fortunate to absorb costs of without enough heavy litigation collateral indeed be the award damage may fully compensated through However, attorney’s fees. those insureds who must sacrifice less fortunate in order to finance their defense would not be certainly fully compensated for their losses. rule tortious nature Only potentially recognizes insureds, of a bad faith refusal to defend can assure that all rich poor alike, will have the recover all their losses. opportunity reiterate, To where an insurer defeats its insured’s reasonable expecta- of manner, tions a legal defense in an the unreasonable which damages result therefrom are not solely even those the occasioned primarily costs and fees distress; of the lawsuit. The emotional they be damages may be may economic the losses as result of The heavy litigation expenses. reasoning Gruenberg are clearly damages dictates that these recoverable observed, tort.5 As the in Farris of minority the of the uniqueness “part between relationship the insurer is the liability and the insured that insurer the accepts risk of sued and lawsuit” of an being with a dealing selecting costs, attorney, the controlling litigation, escalating the meeting litigation and (587 ultimately bearing the risk P.2d at italics p. losing. sup- plied.) to

Refusing tort recognize ground action on contract plaintiff’s are there no adequate and such misses the creature point. insured has contracted to avoid the substantial economic and emo- precisely tional burden of and It at the outset. assuming litigation controlling ignores fact that the defending economic costs of a lawsuit could throw a business on a narrow operating into It profit margin bankruptcy. ignores the internal dissension causal a such caused litigation finger-pointing small business. It the fears of mere ignores financial drain generated prospect extended It emotional distress litigation. ignores substantial occasioned by the one’s own personal for responsibility providing legal It defense. to ignores less fortunate who not be able may those insureds afford their own Finally lawsuit. attorney over course an extended and most to live to the importantly, obligation insurer’s ignores up covenant of and fair its insured. implied faith with good dealing sum, law, I believe fairness all that California and fundamental logic, militate favor of a of the tort of faith refusal to defend. bad recognition first-party 5The which generally recognized jurisdictions permit commentators have must, by bad faith actions bad faith refusals analogy, recovery sanction tort for to defend. Shernoff, Levene, 3.25[1], example, For Gage Litigation, section Insurance Bad Faith jurisdictions the authors write: number of that an insurer that withholds growing hold “[A] policy may liability. By analogy benefits due under these subject a in bad faith be to tort cases, appears there why liability reason that refuses in bad faith to be no valid a insurer against third-party subject liability defend insured be for a action should also tort not implied good breach faith dealing.” covenant of and fair Co., supra] Family expressly least one has held court v. American Mut. Ins. “[A]t [Smith liability unjustified may that an insurer’s to defend for breach of the refusal lead tort good imposed faith and dealing, likely jurisdictions fair it seems that have that those (Id., liability pay tort a similar result.” unreasonable refusal claims would reach 3.26[2].) section 4.09, Ashley, Bad same Faith section conclusion: “[0]ne Actions reaches surprised jurisdiction first-party should be cause recognized to find that has indemnify] promise action bad faith to defend as [for refusal to . . . treat a breach form bad faith.” 86 forth, it set facts as

Applying previously rule of law to the foregoing evidence supported little effort to demonstrate that substantial requires actual notice verdict. If the defendant received jury’s believed that jury 1975, under its policy, May yet duty refused to defend its clear flatly despite notice, still then certainly later to have never received pretended toward its insured was entitled to conclude that defendant’s behavior violated its defend- Alternatively, covenant of faith and fair good dealing. circumstances of ant’s failure to take any reasonable steps investigate its behavior was claim in 1975 plaintiff’s a conclusion clearly justifies (if Still, reckless) to find and unreasonable. a third negligent opportunity dealing presents defendant in violation of its fair good covenant faith and was then aware itself the events in the fall of 1976. Defendant occurring claim, it reasonable demands plaintiff’s yet refused consider plaintiff’s (2) (1) that defendant fees attorney’s expended, for compensate plaintiff year, to retain the for over a permit plaintiff counsel had employed (3) for additional compensate future Plaintiff’s two plaintiff legal expenses. for emotional requests, of the Uneedus claim coverage compensation distress, minimum, were from defendant clearly At “separable.” response Hence required. the evidence that defendant’s amply finding supports refusal to to defend con- respond offer and continued refusal plaintiff’s stituted a breach of fair covenant of faith and implied dealing. good

The standard which measure of tort in California “is the amount will compensate for all the whether thereby, detriment caused proximately Code, 3333; (Civ. it could have been or not.” Crisci v. Se anticipated § 13, (1967) Ins. Co. curity P.2d 66 Cal.2d at 426 p. Cal.Rptr. [58 173].) The insurer’s breach of the and fair “con dealing faith good stitutes a tortious interference with a of its insured for interest property which damages may be recovered to for all detriment compensate proxi therefrom, mately resulting economic loss as well as emotional including and, case, (Fletcher v. Western distress . . . in a proper punitive damages.” National Ins. Co. 401-402 Cal.App.3d pp. Life 78, 47 Cal.Rptr. 286].) A.L.R.3d Plaintiff herein adduced evidence that the internal dissension and pressure caused having the lawsuit with the strain on manage operating coupled and the capital cost of its own defense necessitated a undertaking premature sale of the $1.5 business for million. Plaintiff also offered expert testimony that the $10 market value of a mature business have been million. would Hence the $3 evidence of million substantially award supports jury’s Therefore, damages for economic loss. I portion would affirm this judgment. $59,000

B. The Award Fees Attorney’s to Procure Policy Benefits As the observes, majority correctly in California as split authority to whether attorney’s fees to obtain are policy benefits recoverable as lost damages recently resolved the Supreme Court in favor of recovery. (Brandt Court, v. Superior 813.) 37 supra, Cal.3d determined that Having plaintiff herein was entitled to recover in tort for breach of the covenant of faith good and fair dealing, an element of the appropriate damages would include attorney’s fees for the maintenance of the instant action itas relates to the procurement Therefore, of benefits due under the the policy. jury’s award of attorney’s fees for this should affirmed. purpose be

C. The Alleged Instructional Errors The majority asserts that an erroneous to the contained in jury charge plaintiff’s instruction No. 9 the without permitted “award damages differentiating between contract and tort ...” damages.

The most appalling aspect other than its lack majority’s argument, merit, is the that defendant herein has raised this issue on suggestion statement, The appeal. farthest appellant goes is the regard general devoid of theory economic that the argument, damages prospective “are fact, loss not recoverable as a matter of law.” In on defendant appeal has challenged instruction No. on whatsoever to nothing a ground having do with the issue raised The for- has majority. majority graciously mulated a new and different theory on from that appeal argued by appellant itself. here,

Thus it is has apparent again, judicial abandoned majority role and assumed that of The makes argu- advocate. appellant’s majority ments for appellant Royal Globe which Globe not itself made! has Moreover, it is apparent actually close examination that precluded from them. raising gist on plain- is that instructed majority’s argument although tort,

tiff’s theories of which it contract and and on the recovery damages could breach, recover in the event of a were not instructed they properly on the distinction between the measure of for breach of contract (of defend) duty to and for tort. The does not challenge majority accuracy of the incomplete instruction in but that it was argues question, and hence distinction. prejudicial they allegedly because omitted this crucial It is clear that if this court would were this contention raising defendant refuse to consider instruction it. Defendant failed to the additional request court, As this per omitted. erroneously to have been

alleged by majority Kaufman, was complaining case where the insurer Justice a similar stated satisfied set of “If given: about the bad faith instructions [insurer] more it to request upon with the instruction on this it was incumbent point, case, ‘In a civil of its instructions own. complete, appropriate [Citations.] instructions comprehensive each of the complete must parties prepare so, do not do if accordance with his theory litigation; parties (Merlo v. has no on its own motion.’ court to instruct duty [Citation.]” 5, 13 Cal.Rptr. & Standard Acc. Ins. Co. 59 Cal.App.3d [130 Life 43, 59 416]; (1974) 13 Cal.3d Corp. see also Bertero v. National General remains P.2d 65 A.L.R.3d Cal.Rptr. [“[I]t 878] ac- instructions in of a party complete comprehensive propose (1979) 25 v. Johnson Agarwal cordance with his theory litigation”]; settled that a party Cal.3d 603 is Cal.Rptr. P.2d [“It 58] too in law is may general that an instruction correct complain appeal or instruc- qualifying he had an additional or incomplete unless requested tion.”].)

Furthermore, in the manner is no that misled there likelihood the jury have felt may the by majority jury the The assert that suggested majority. losses, economic including all foreseeable damages, award “compelled” simply even if all was a of On the they contrary, found breach contract. had breached not to infer that the concluded defendant impossible jury this. reasons for covenant of There are two good dealing. faith and fair First, damages the in case jury may impose punitive was instructed they malice, if fraud or of they determined that defendant guilty oppression, i.e., vex, annoy or with a if defendant with the intent injure acted $2 in conscious of The awarded million disregard rights. plaintiff’s jury de- the determined crystal It is therefore clear that punitive damages. jury intentionally disregard plaintiff’s rights fendant had and in conscious A fortiori, refused to in the must jury defend action. plaintiff Uneedus “unreasonable,” have determined which ob- that defendant’s behavior was is a The trial lesser standard of than “intentional.” viously culpability way court’s of malice no ruling finding evidence did not support no mistaking There is logical jury’s alters verdict. implications the mind of this their concluded defendant they verdict reveals that jury; had rights, acted and in intentionally disregard plaintiff’s conscious to be unrea- which that found defendant’s actions necessarily they implies sonable. certainty

There is a with absolute second reason for concluding fair dealing. faith and found a breach of covenant of jury implied good (1) the Uneedus After could for being they damages instructed award (2) the judgment, attorney’s fees incurred defending the Unee- plaintiff action, dus losses, all other economic and business the court further “If find charged: you liability theory defendant Globe on the against breach implied covenant faith fair good dealing addition the above you damages must award it attorney’s fees incurred necessarily by plaintiff ben- reasonably to secure required efits owing under the insurance policy.”

Thus,, the court made clear an award of fees would damages attorney’s be if the permissible only found a breach of the covenant of jury implied faith $59,000 and fair good fees dealing. jury did award for attorney’s Therefore, incurred benefits owing under the insurance securing policy. I can infer conclusively found jury defendant had breached its implied covenant of faith and good fair dealing.

“Whether a has been misled by an erroneous or by instruction overall be charge must determined an examination of the circumstan- all ces of the case a review of including all of evidence well as instructions as (Bertero a whole. v. Corp., National General [Citations.]” 59.) supra, Cal.3d p. view the instruction on punitive mind, connection with defendant’s state of and the on instruction attor- fees in ney’s connection with breach of the covenant faith implied good and fair is clear dealing, it the failure to instruct on contract damages harmless. Quigley the case cited the In

Nothing majority suggests by otherwise. Pet, 394], v. (1984) Inc. 162 held 877 the court Cal.Rptr. Cal.App.3d [208 it was error to the standard tort instruction to an insurance give relating insureds, duty of faith fair with its where there company’s and good dealing was no which “special between the two commercial relationship” parties damages. justify would to sue for more than contract permitting plaintiff (Id., 887-893.) the did pp. Obviously, plaintiff enjoy and defendant here sum, is absolutely of insurer and In there “special relationship” insured. no likelihood that failure instruct to on contract misled jury (Henderson Corp. or resulted in v. Harnischfeger defendant. prejudice 663, (1974) 353].) 12 527 Cal.3d P.2d Cal.Rptr. [117 Prejudicial D. Errors at the Trial innocent,

I with the disagree unsophisti- characterization majority’s cated, defenseless company scheming plain- insurance was devoured tiff’s attorney. (1) two misconduct: alleged cites instances of majority prejudicial as an as to testify expert

the court’s Aitkin to allowing attorney Wylie ar- (2) attorney) Mr. Hafif’s (plaintiff’s insurance and company practices a sub- had enough justify to be gument compensatory damages high punitive damage stantial award. admission, if even erro-

A review of Mr. shows its testimony Aitkin’s neous, insurance sense indicates the does not reversal. Common require reminiscent of a group were company followed this instance practices event, in- eight-year-olds playing jury properly business. I am they and confident structed as the evaluation of testimony expert followed I error here. the law. no reversible perceive of law was

The contention testimony concerning principles Aitkin’s the record. is absurd and “overwhelmingly prejudicial” unsupported Moreover, fact zeal does not even note the majority mitigating attorney, of a defense testimony offered expert prominent defendant law, W. Mike as to as well. McCray, principles ob fails to show any

As Mr. Hafif’s remarks to the the record jury, state inflammatory prejudicial defendant these jection by allegedly circumstances, ments. In these that a “claim of misconduct the law is clear a timely to no unless the record shows entitled consideration appeal ‘It is and a that the be admonished. ... proper objection jury request court, in extreme cases when only acting promptly speaking that the cannot, clearly and on the to disre directly by instructing subject, matters, such correct act of counsel and remove gard impropriety his would otherwise have.’ ...” any effect conduct remarks [Citation.] (Horn T & Co. 61 Cal.2d Ry. v. Atchison S. F. Here, 721, P.2d neither to nor

Cal.Rptr. 561].) 394 defendant objected the be re disregard, allegedly asked that admonished to the jury improper the be jury marks. “The fact that neither asked that admonished [defendant] to that counsel did not at nor demanded a mistrial should be taken indicate (Hansen v. Warco Steel Corp. the time the as regard argument prejudicial.” 428].) no doubt There is 878-879 Cal.App.2d Cal.Rptr. an and prompt objection harm could have been cured defendants’ any by remedial the court. defendant elected not demand admonition Because by be unfair to a com the it would hear jury, action before the case went to the verdict. unsatisfactory receiving after plaint review, majority the In this fundamental appellate ignoring principle re- to bend the rules appellate once demonstrate their again willingness view order to reach favorable appellant. result my The damages instructed as to jury properly compensatory Any faith is unshaken properly. prejudice that it followed these instructions by striking was cured allowing evidence as to the punitive damages $3 of those million compensatory The verdict with damages. respect untainted, for economic losses remains and was amply supported the evidence. by sum, I would reverse the trial court’s the plaintiff determination

entitled to in all respects. inflation and affirm other past loss the judgment

Conclusion verdict; The evidence in does fully the record supports support majority. mischievous new of law suggested principle whether on the Court has not ruled Supreme yet question an insured in tort may directly proximately recover detriment However, from resulting breach of its defend. insurer’s itself, as Gruen- opportunity will when it does cases such surely present rec- berg, the court will Silberg, Egan and Jarchow leave little doubt that such re- fairness of ognize permitting essential and fundamental logic Hence covery. majority I the life of decision announced suspect it, be, nasty, will today “solitary, Hobbes prove put poore, Thomas ed., Press (Hobbes’s brutish and Clarendon short.” Leviathan (reprint 1929) 97.) p. J., Rickies,

A 1985. for a December petition was denied rehearing was of the should be that the opinion petition granted.

Case Details

Case Name: California Shoppers, Inc. v. Royal Globe Insurance Co.

Court Name: California Court of Appeal

Date Published: Nov 26, 1985

Citation: 221 Cal. Rptr. 171

Docket Number: Docket Nos. 27339, 27496

Court Abbreviation: Cal. Ct. App.