Lead Opinion
Opinion
Plaintiffs obtain a judgment against defendant, defendant appeals, and the parties settle while the appeal is pending. May plaintiffs then bring a new suit to recover additional damages against the defendant’s insurer, claiming that the insurer was responsible for instigating the appeal, and that it did so knowing the appeal was without merit but in order to achieve delay and coerce settlement?
I.
Plaintiffs are the survivors of William Coleman who drowned in a swimming facility owned and operated by the City of Monrovia in August 1975. After the accident, plaintiffs brought a wrongful death action against the city, and a jury found the city liable and awarded plaintiffs $350,000 in damages. Following denial of its motion for a new trial, the city appealed.
Sometime after filing the appeal, the city’s insurer, Gulf Insurance Group (Gulf), offered plaintiffs an amount equal to less than one-half of the judgment award to settle the case. Plaintiffs declined to settle. Later, in January 1982, Gulf tendered and plaintiffs accepted $300,000 in full settlement of the judgment. As a result, the appeal was dismissed.
Six months later, plaintiffs filed the present action against Gulf, seeking to recover additional compensatory and punitive damages on the basis of Gulf’s conduct in the original appeal. The complaint alleged that Gulf controlled all aspects of the initial proceedings, including appeal and settlement, and that when Gulf instituted the appeal it had no reasonable basis for believing that the judgment would be reversed but simply desired to postpone payment of the judgment. The complaint claimed that Gulf had two objectives in mind. First, the complaint alleged that Gulf, knowing that plaintiffs were of modest financial means and had lost their principal source of financial support with the death of William Coleman, hoped by postponing payment to force plaintiffs to settle for a fraction of the judgment. Second, the
On the basis of these allegations, plaintiff claimed that it was entitled to recover damages on four separate causes of action: (1) bad faith refusal to pay insurance benefits; (2) violation of Insurance Code section 790.03, subdivision (h)(5)’s requirement to attempt good faith settlement; (3) malicious prosecution of an appeal; and (4) abuse of process.
II.
Before examining each of the disparate causes of action which plaintiffs seek to invoke to support their present suit, it is important that we emphasize at the outset that the conduct in which Gulf allegedly engaged during the earlier proceedings—filing an appeal maliciously and in bad faith, solely for the purpose of delay—is clearly improper conduct which is subject to sanctions under California law. Section 907 of the Code of Civil Procedure, one of the general provisions included in the portion of the code dealing with “Appeals in Civil Actions,” specifically provides: “When it appears to the reviewing court that the appeal was frivolous or taken solely for delay, it may add to the costs on appeal such damages as may be just.” (See also Cal. Rules of Court, rules 26(a), 135(a).)
We discussed the proper interpretation and application of section 907 at some length in In re Marriage of Flaherty, supra,
In Flaherty we established a general standard for determining “frivolousness”
Flaherty did not directly address the issue presented by this case; whether, after the settlement of an appeal, a plaintiff may bring an independent action to recover compensatory and punitive damages on the basis of the defendant’s alleged bad faith prosecution of the earlier appeal. The reasoning of Flaherty, however, appears substantially at odds with the recognition of such a cause of action. Unlike section 907, which leaves the determination of frivolousness to an appellate court which is qualified to judge the degree of meritlessness of the arguments raised on appeal, plaintiffs’ proposed causes of action would require that determination to be made by a lay jury. Although there are many contexts in which jury determinations may be superior to those of trial or appellate judges, the determination of the frivolousness of an appeal is not one. And the potential “chilling effect” on appeals—an effect that Flaherty struggled to minimize—would be greatly exacerbated if every appellant faced the prospect that a jury might impose additional damages—compensatory and punitive—in a subsequent action based on its assessment of his or her motive in prosecuting the appeal. Thus, although the issue presented here was not before us in Flaherty, the thrust of that decision certainly counsels that we approach plaintiffs’ present claims with a healthy degree of skepticism.
III.
Plaintiffs acknowledge that in no previous case has a litigant who has settled a case on appeal been permitted to maintain a separate action for damages based on the opposing party’s allegedly bad faith conduct in prosecuting the appeal. Nonetheless, they maintain that such a cause of action should be recognized under any one of a number of theories. Because the closest authority on point involved an abuse of process action, we consider that theory first.
To establish a cause of action for abuse of process, a plaintiff must plead two essential elements: that the defendant (1) entertained an ulterior motive in using the process and (2) committed a wilful act in a wrongful manner. (See Templeton Feed & Grain v. Ralston Purina Co. (1968)
The facts before us bear a striking resemblance to those in Tellefsen v. Key System Transit Lines (1961)
The court accepted plaintiff’s contention that the appeal was taken frivolously, but held: “merely taking a frivolous appeal is not enough to constitute an abuse of process.” (Id., at p. 615.) Despite plaintiff’s contention that defendants had filed an appeal to “advantage themselves” and to pursue a plan for “cheap compromise settlement of verdicts” (id., at pp. 612-613), the court held “[t]here is no allegation of any act of defendant using such appeal for other than its proper purpose. For taking that kind of appeal the party may be fined by the appellate court or damages may be awarded therefor to the respondent on appeal.” (Id., at p. 615.)
As in Tellefsen, plaintiffs in the present case allege nothing more than the taking of an appeal to which the city was entitled. They assert no facts to
The dissent suggests that Tellefsen is distinguishable from this case on the ground that “there was no allegation that the defendant [in Tellefsen] had actually threatened plaintiff or offered to settle.” (Post, p. 804.) With all respect, we find the distinction untenable. The only “threat” which plaintiffs here can be said to have alleged is the threat that is implicit in every appeal—that it will be pursued to finality unless settlement is reached. And in view of the strong state interest in encouraging the settlement of litigation, it would clearly be improper to hold that the making of an offer to settle is itself sufficient to supply the missing element in an abuse of process action. Such a holding would inevitably have a devastating effect on the settlement process which many of our appellate courts have struggled hard to encourage, for no appellate counsel could properly advise his client to propose a settlement on appeal if that very proposal would itself provide the essential ingredient to subject the client to a second lawsuit for abuse of process.
Accordingly, we conclude that the abuse of process claim is without merit.
B. Malicious prosecution of appeal.
Plaintiffs alternatively maintain that recovery is permissible under the tort of malicious prosecution. Although they acknowledge that no California decision has approved a cause of action for the malicious prosecution of an appeal, they suggest this court’s decision in Bertero v. National General Corp. (1974)
To prevail in an action for malicious prosecution, a plaintiff must prove—among other elements—that the “prior action . . . was commenced by or at the direction of the defendant.” (Id., at p. 50.)
Although plaintiffs suggest that the reasoning of Bertero supports a cause of action for the malicious filing of an appeal, we cannot agree. In Bertero, we emphasized that for many purposes cross-pleadings are treated as distinct and independent actions (13 Cal.3d at pp. 51-52; see also Skaff v. Small Claims Court (1968)
C. Breach of covenant of good faith and fair dealing.
Plaintiffs also assert that their current suit is sustainable as an action for breach of the covenant of good faith and fair dealing which is implied by law in every contract, including insurance contracts. (See, e.g., Gruenberg v. Aetna Ins. Co. (1973)
Plaintiffs acknowledge this relatively recent precedent, but argue that our decision in Royal Globe Ins. Co. v. Superior Court (1979)
D. Violations of Insurance Code provision.
Finally, plaintiffs contend that their present action can be sustained on the basis of the statutory provision we considered in Royal Globe, supra,
In addition, and perhaps more importantly, the standard provided in subdivision (h)(5)—sanctioning an insurer for not attempting to effectuate settlements of claims “in which liability has become reasonably clear”—affords no meaningful guidance once judgment is entered. In almost every case it could be argued that liability is “reasonably clear” once a trial judgment is entered in favor of a claimant, but—in light of the fundamental nature of the right to appeal and the general considerations discussed at length in In re Marriage of Flaherty, supra, —it appears quite unlikely that the Legislature intended to subject an insurer to the risk of a subsequent suit every time it exercised its right to appeal from an adverse judgment. Instead, we conclude that the more plausible interpretation of subdivision
IV.
The abuse of the litigation process for the purpose of delay is unquestionably a serious problem. Although, from a defendant’s personal perspective, justice delayed may not be justice denied but a consummation devoutly to be wished, our legal system has long struggled—not always successfully— to eliminate such dilatory tactics. Recent legislation has expanded the judicial tools for dealing with the matter by explicitly authorizing the imposition of sanctions for frivolous and delaying conduct in the course of pretrial and trial proceedings (§ 128.5) and by increasing the judgment rate of interest to reduce a defendant’s incentive to delay payment. (§ 685.010.) Additional remedial measures have been proposed—such as the inclusion of at least some portion of attorney fees as an item of costs routinely recoverable by the prevailing party on appeal (see Rep. of the Chief Justice’s Special Com. on App. Practices and Procedures in the First App. Dist. (1981) p. 32)— which also appear deserving of thoughtful legislative consideration.
As we have seen, section 907 has long afforded a remedy for frivolous or delaying actions in the appeal process, and, in recent years, appellate courts, increasingly sensitized to the incentives for delay and the adverse consequences resulting from wholly meritless appeals, have begun to impose significant sanctions when they find that appeals have been pursued frivolously or for the improper purpose of delay. (See, ante, p. 791, fn. 7.) Nonetheless, as we have also explained, the imposition of sanctions in this context remains a delicate task, because an overbroad exaction of damages may significantly chill every litigant’s enjoyment of the fundamental protections of the right to appeal. Given the complex and specialized nature of the task of distinguishing frivolous and nonfrivolous appeals, we conclude that—in the absence of an explicit legislative authorization of an independent cause of action for “malicious appeal”—an aggrieved party’s remedy properly lies in the provisions of section 907.
The judgment is affirmed.
Mosk, J., Broussard, J., Reynoso, J., and Lucas, J., concurred.
Notes
Unless otherwise noted, all statutory references are to the Code of Civil Procedure.
Plaintiffs asserted a fifth cause of action for punitive damages, incorporating each of the four prior causes of action and then characterizing defendant’s conduct as malicious and cruel. Of course, there is no separate or independent cause of action for punitive damages. The Court of Appeal treated this purported fifth cause of action as a prayer for damages. In light of our conclusion that plaintiffs have failed to establish any of the first four causes of action, it is unnecessary to address this claim for punitive damages.
Because the appeal arises after the sustaining of a demurrer, for purposes of the appeal we must, of course, assume the truth of the facts alleged in the complaint and the reasonable inferences that may be drawn therefrom. (See, e.g., Thompson v. County of Alameda (1980)
Both rules 26(a) and 135(a) provide in relevant part: “Where the appeal is frivolous or taken solely for the purpose of delay ... the reviewing court may impose upon offending attorneys or parties such penalties ... as the circumstances of the case and the discouragement of like conduct in the future may require.”
While sanctions pursuant to section 907 are ordinarily imposed in conjunction with an opinion on affirmance, there is nothing in section 907 which precludes an aggrieved respondent on appeal from seeking such damages, or even dismissal of the appeal, at an earlier point in the process. (See generally 9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 530, pp. 514-515 and cases cited.) Although the power summarily to dismiss a frivolous appeal is seldom exercised (id., Appeal, § 531, pp. 515-516), past cases have on occasion awarded damages in connection with such dismissals. (See, e.g., McFadden v. Dietz (1897)
“[A]n appeal should be held to be frivolous only when it is prosecuted for an improper motive—to harass the respondent or delay the effect of an adverse judgment—or when it indisputably has no merit—when any reasonable attorney would agree that the appeal is totally and completely without merit.” (
Since Flaherty, appellate courts have imposed sanctions—at times quite sizeable—under section 907 in a number of instances. (See, e.g., Maple Properties v. Harris (1984)
Bertero succinctly noted the elements necessary to establish a cause of action for malicious prosecution of a civil proceeding: “[A] plaintiff must plead and prove that the prior action (1) was commenced by or at the direction of the defendant and was pursued to a legal termination in his, plaintiff’s, favor [citations]; (2) was brought without probable cause |citations]; and (3) was initiated with malice [citations].” (Ibid.)
Bertero noted that courts have long “refused to recognize a tort of malicious defense” (
Section 790.03, subdivision (h) reads in full: “(h) knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices: [fl (1) Misrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue, [fl (2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance
Dissenting Opinion
I respectfully dissent. Here, the insurer of a negligent defendant knowingly filed a meritless appeal and used it for the purpose of coercing the plaintiffs to settle for less than their rightful judgment. The plaintiffs certainly do have a cause of action against the insurer.
The facts are clear since the present appeal arises from the sustaining of a demurrer. Consequently, the facts alleged in the plaintiffs’ complaint are deemed to be true. (Thompson v. County of Alameda (1980)
William Coleman drowned on August 3, 1975, while attempting to rescue his son from a swimming facility owned and operated by the City of Monrovia (hereafter the city). The death was caused by the city’s negligence. At the time, the city was covered under a liability insurance policy issued by defendants Gulf Insurance Group and Gulf Insurance Company (hereafter collectively referred to as Gulf).
William Coleman’s heirs, plaintiffs in the present action, brought a wrongful death suit against the city. In October of 1980, they obtained a jury verdict for $350,000. Following the denial of its new trial motion, the city appealed.
Throughout the proceedings, Gulf controlled the defense on behalf of the city. At the time of the appeal, Gulf lacked any reasonable basis for believing that the judgment would be reversed.
However, Gulf stood to gain by delaying payment as long as possible. Gulf was aware that plaintiffs were in dire financial straits, having lost their principal source of support when William Coleman died. By appealing, Gulf sought to postpone payment until plaintiffs were forced to settle for a fraction of the judgment.
Further, Gulf knew that the judgment accrued interest at the statutory rate of 7 percent per year, in contrast to the general market rate of over 15 percent. By investing the funds that would otherwise go to pay the judgment, Gulf could earn the higher rate, thus depriving plaintiffs of the return that they would have obtained had the judgment been promptly paid. For each year of delay, Gulf would gain—and plaintiffs would lose—over $28,000.
Sometime after filing the appeal, Gulf offered to pay plaintiffs an amount totalling less than half of the judgment awarded. Plaintiffs declined to settle. In January 1982, Gulf tried again, this time tendering to plaintiffs $300,000 in full satisfaction of the judgment. Under financial pressure, plaintiffs accepted.
H.
Plaintiffs have asserted four causes of action: (1) breach of the covenant of good faith and fair dealing, (2) violation of the insurer’s statutory duty ' to attempt good faith settlement (Ins. Code, § 790.03, subd. (h)(5)
Plaintiffs’ first cause of action is for breach of the covenant of good faith and fair dealing. Plaintiffs acknowledge that they cannot prevail under current law since they are not among the intended beneficiaries of the insurance contract. (See Murphy v. Allstate Ins. Co. (1976)
The duty of good faith and fair dealing is implied in all contractual relationships. (Seaman’s Direct Buying Service, Inc. v. Standard Oil Co. (1984)
Plaintiffs’ reliance on Royal Globe Ins. Co. v. Superior Court (1979)
Next, plaintiffs claim that they may recover under the Unfair Practices Act. Section 790.03, subdivision (h)(5) requires insurers to attempt to settle
However, the standard of “reasonably clear” liability is nonsensical when applied to an appeal, since liability is—at least arguably—“reasonably clear” in virtually all cases that have yielded a judgment in favor of the plaintiff. Thus, subdivision (h)(5)’s standard would subject insurers to the risk of suit every time they exercised their right of appeal. It is unlikely that the Legislature intended such a result.
In their third cause of action, plaintiffs contend that Gulf committed the tort of malicious prosecution. To prevail in an action for malicious prosecution, a plaintiff must plead and prove, among other elements, that “the prior action . . . was commenced by or at the direction of the defendant and was pursued to a legal termination in his, plaintiff’s, favor [citations] [].” (Bertero v. National General Corp. (1974)
Plaintiffs acknowledge that the California courts have not recognized a cause of action for the “malicious prosecution of an appeal,” but suggest that such recognition flows logically from this court’s decision in Bertero v. National General Corp., supra,
“‘Process,’ as used in the tort ‘abuse of process,’ has never been limited to the strict sense of the term, but instead has been interpreted broadly to encompass the entire range of ‘procedures’ incident to litigation." (Barquis v. Merchants Collection Assn., supra, 1 Cal.3d at p. 104, fn. 4.) In particular, “the taking of an appeal [may] give rise to an abuse of process.” (Ibid., italics in original, citing Tellefsen v. Key System Transit Lines (1961)
To state a cause of action for abuse of process, a plaintiff must allege two elements: “‘first, an ulterior purpose, and second, a wilful act in the use of the process not proper in the regular conduct of the proceeding. Some definite act or threat not authorized by the process, or aimed at an objective not legitimate in the process is required .... The improper purpose usually takes the form of coercion to obtain a collateral advantage, not properly involved in the proceeding itself, such as the surrender of property or the payment of money, by the use of the process as a threat or a club. There is, in other words, a form of extortion, and it is what is done in the course of negotiation, rather than the issuance [of] any formal use of the process itself, which constitutes the tort.’” (Spellens v. Spellens (1957)
It is not disputed that plaintiffs have alleged the first element, an ulterior purpose. The complaint avers that Gulf filed the appeal both to coerce plaintiffs into accepting less than the payment to which they were entitled and to gain the benefit of the funds that should have gone to pay the judgment.
The second element presents a more complex problem. It is well established that the wilful act requirement is not satisfied where the defendant has merely obtained process on nonmeritorious grounds. (See Tellefsen v. Key System Transit Lines, supra,
In construing the requirement of a wilful act, the courts have endeavored to curb and remedy serious abuses of the judicial process while avoiding undue restraints on the ability of litigants to vigorously assert their interests. The requirement that plaintiffs prove something more than an improper motive and the absence of meritorious grounds ensures against an uncontrolled expansion of liability. (See generally, Miller v. Stem (1941)
Tranchina v. Arciñas (1947)
In the present case, plaintiffs have alleged that Gulf filed an appeal and subsequently used it for purposes that are prohibited by law and disfavored as a matter of public policy. Code of Civil Procedure section 907 and California Rules of Court, rule 26(a), prohibit the taking of an appeal for purposes of delay or harassment. Gulf escaped the operation of these provisions only because it successfully forced the plaintiffs to abandon their full judgment before the merits of the appeal were determined. (See ante, fn. 2.)
Furthermore, Gulf has violated the strong public policy favoring the prompt settlement of insurance claims. As explained above, Gulf’s conduct slips into a crack between the statutory and common law prohibitions against the use of dilatory settlement tactics to exploit the vulnerable position of
Yet, the need for special protection clearly extends to the present situation. In upholding jury awards of punitive damages for bad faith refusal to settle, the courts have recognized that insurance claimants need special protection against dilatory insurer tactics: “The very risks insured against presuppose that if and when a claim is made, the insured will be disabled and in strait financial circumstances and, therefore, particularly vulnerable to oppressive tactics on the part of an economically powerful entity.” (Fletcher v. Western National Life Ins. Co., supra,
Nor is the need for protection limited to the prejudgment period. Indeed, claimants may be even more helpless against coercive tactics after judgment, when they have already undergone pretrial and trial proceedings without any compensation to ameliorate the effect of their injuries.
In short, as in Tranchina, supra,
This court has recently had occasion to discuss the chilling effect of damages and penalties imposed for the taking of groundless appeals. The opinion in In re Marriage of Flaherty, supra,
This court noted that the imposition of damages or sanctions for bringing an appeal poses delicate problems. “The difficulty is in striking a balance that will ensure both that indefensible conduct does not occur and that attorneys are not deterred from the vigorous assertion of clients’ rights.” (Flaherty, supra,
The court concluded that “an appeal should be held to be frivolous only when it is prosecuted for an improper motive—to harass the respondent or delay the effect of an adverse judgment—or when it indisputably has no merit—when any reasonable attorney would agree that the appeal is totally and completely without merit.” (Flaherty, supra,
Gulf argues that the cause of action for abuse of process nevertheless poses a greater danger of chilling legitimate appeals since it, unlike the Flaherty sanctions, would be determined by a jury. In Gulf’s view, trial by jury is the real concern. However, the danger of chilling valid appeals is not a serious one and the policies favoring a remedy are most compelling.
The statute and rule discussed in Flaherty were directed primarily at reducing the burden of frivolous appeals on the appellate courts. (See Flaherty, supra, 31 Cal.3d at pp. 645-646, 648.) The present cause of action not only advances that important policy, but it furthers the public policy against bad faith settlement practices in the insurance field. (See ante, at pp. 799-800.)
In Flaherty, this court was principally concerned with the danger that personal sanctions imposed on individual attorneys would inject “ ‘undesirable self-protective reservations into the attorney’s counseling role.’” (Flaherty, supra,
Gulf has raised only speculative fears of a chilling impact on the right of appeal. In Royal Globe, supra,
Gulf nevertheless maintains that the recognition of a cause of action in the present situation would violate insurers’ constitutional right of access to the judicial process. The right to petition the courts for redress of grievances is protected under the due process and free speech provisions of the United States and California Constitutions. (U.S. Const., 1st and 14th Amends.; Cal. Const., art. I, §§ 3, 7, subd. (a).) The constitutional right of effective access to the courts is applicable not only in actions against a government entity, but also where the opposing litigants are private parties. (See Mine Workers v. Illinois Bar Assn. (1967)
However, in the judicial context, the right to petition is tempered by the necessity for restrictions designed to ensure a fair process. (See California Transport v. Trucking Unlimited, supra, 404 U.S. at pp. 512-513 [30 L.Ed.2d at pp. 647-648].) According to the complaint, Gulf did not actually seek a redress of grievances. It pursued its appeal not to obtain a favorable decision on the merits, but to coerce plaintiffs into abandoning their rightful judgment. Gulf thereby interfered with plaintiffs’ right of effective access to the courts. Moreover, Gulf has failed to establish that the recognition of a cause of action in the present situation would have an undesirable chilling effect on insurers’ rights of appeal. Hence, Gulf’s claim of a constitutional violation is without merit. (Cf. id., at pp. 511-512 [30 L.Ed.2d at pp. 646-647].)
“Malice” means “conduct which is intended by the defendant to cause injury to the plaintiff or conduct which is carried on by the defendant with a conscious disregard of the rights or safety of others.” (Civ. Code, § 3294, subd. (c)(1).) “Oppression” is defined as “subjecting a person to cruel and unjust hardship in conscious disregard of that person’s rights.” (Civ. Code, § 3294, subd. (c)(2).)
Plaintiffs have alleged that Gulf deliberately embarked on a concerted course of conduct designed to exploit their financial misfortunes, to coerce them into abandoning the judgment, which Gulf knew to be valid, and to reap the interest from the award during the period of delay. Accordingly, plaintiffs have alleged that Gulf was guilty of malice and oppression as defined in Civil Code section 3294, subdivision (c). They should be permitted to seek punitive damages.
m.
In conclusion, plaintiffs have failed to meet the requirements for any of their first three asserted causes of action: breach of the covenant of good faith and fair dealing, violation of the statutory duty to settle, and malicious prosecution. However, plaintiffs should be permitted to maintain an action for abuse of process. Their complaint alleges that Gulf: (1) filed an appeal for purposes of coercion and delay, and (2) subsequently used the appeal to force plaintiffs into accepting a payment less than the judgment, in violation of the strong public policy against the use of dilatory settlement practices to exploit the vulnerable position of insurance claimants. These allegations make out the two elements of abuse of process: an ulterior purpose and a wilful and improper act in the use of the process. (See Spellens, supra,
Since I would reverse the judgment of dismissal as to the cause of action alleging abuse of process and the prayer for punitive damages, I do not join my colleagues’ opinion.
Unless otherwise noted, all statutory references are to the Insurance Code.
Since Code of Civil Procedure section 907 and California Rules of Court, rule 26(a) are enforceable only by the reviewing court, they are ineffective where, as here, an insurer successfully coerces plaintiffs into accepting partial payment prior to a decision by that court.
The majority maintain that plaintiffs can avoid the delay inherent in the normal course of appeal by moving for dismissal. (See maj. opn., ante, at fn. 5.) Although the majority admit that the power to dismiss is rarely exercised, they fail to explain why. The reader may be left with the misleading impression that this court can solve the problem of meritless, coercive appeals with a friendly reminder to the appellate courts that they have the power to dismiss them with dispatch.
The problem is not so simple. As Witkin explains, “[recognition of the power to dismiss or summarily affirm . . . tells us little of the practice. Except for a brief and unsuccessful experiment between 1932 and 1939 with summary affirmance or dismissal by rule (see 17 So. Cal. L. Rev. 259), the courts have dismissed few appeals as frivolous. The reason is that to determine the unsubstantial character of the appeal almost always requires an examination of the record, and this results in double labor for the court or unwarranted advancement of the case on the calendar. [Citations.]” (6 Witkin, Cal. Procedure (2d ed. 1971) Appeal, § 476, p. 4431.)
Because of the “double labor” involved, our overburdened appellate courts are about as likely to act on the majority’s suggestion as they did in response to this court’s last statement on the subject, “emphasizing] that the appellate courts possess the . . . inherent power to summarily dismiss any action or appeal which has as its object to delay, vex or harass the opposing party or the court, or is based upon wholly sham or frivolous grounds.” (Ferguson v. Keays (1971)
The majority also suggest that when an appellate court does dismiss an appeal as frivolous, it may award damages under Code of Civil Procedure section 907. (Maj. opn., ante, fn. 5; see Cal. Rules of Court, rule 26(a).) Yet, consideration of such an award will almost inevitably draw the court into a full review of the merits of the appeal, even if it somehow managed to avoid that task in the initial determination to dismiss. As this court held in In re Marriage of Flaherty, supra, due process requires that “[penalties for prosecuting frivolous appeals should not be imposed without giving fair warning, affording the attorney an opportunity to respond to the charge, . . . holding a hearing [and] providing] the attorney with a written statement of the reasons for the penalty.” (
This conclusion is strengthened by the fact that plaintiffs may recover under an alternative theory. (See post, at pp. 802-807.)
Subdivision (h)(5) applies only to “claims.” Viewed solely as a matter of semantics, the term “claims” might or might not include claims that have been reduced to judgment. This ambiguity becomes apparent when subdivision (h)(5) is contrasted with subdivision (h)(10), which specifically prohibits “[m]aking known to insureds or claimants a practice of the insurer of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration. ”
Plaintiffs criticize the distinction between the offensive and defensive use of process as artificial and meaningless. However, there is no need to alter the longstanding elements of the cause of action for malicious prosecution. Where a complaint alleges misuse of the judicial process but lacks one or more of the elements of malicious prosecution, it may properly be considered under the doctrine of tortious abuse of process. (See, e.g., White Lighting Co. v. Wolfson (1968)
The necessity for special protection is also reflected in an exception to the general rule against the award of attorney fees in civil actions—the allowance of compensation to insurance claimants for attorney fees incurred in obtaining benefits withheld by insurers in bad faith. (See Brandt v. Superior Ct. (1985)
Gulf relies heavily on Tellefsen v. Key System Transit Lines, supra,
The court accepted the notion that “the rule of abuse of process could be applied to the appellate process.” (Tellefsen, supra,
Gulf’s reliance on Tellefsen is misplaced in two respects. First, the present complaint, unlike the complaint in Tellefsen, alleges that Gulf not only filed an appeal for an improper purpose, but also attempted to effectuate that purpose by inducing the plaintiffs to accept partial payment under the threat of continued delays in payment. (Cf. Spellens, supra, 49 Cal.2d at pp. 230-233.) Although an offer to settle could not by itself transform a frivolous appeal into an abuse of process, it is significant that the plaintiff in Tellefsen failed to allege any act by the defendant other than the pursuit of the appeal itself.
Second, the present case—again unlike Tellefsen—implicates the strong judicial and legislative policies against the use of delaying tactics to exploit the vulnerable position of insurance claimants.
Gulf attempts to draw an analogy between the attorney-client relationship and the duty of defense owed by an insurer to its policyholder. It is argued that even if insurers can be relied upon to pursue their own interests, they may be discouraged from advancing their policyholders’ interests. In many reported cases, however, the insurer insisted on pursuing a vigorous defense even though the interest of the insured lay in a prompt settlement within the policy limits. (See, e.g., Comunale v. Traders & General Ins. Co. (1958)
The defense of insurance claims is an integral aspect of the insurance business. Insurers possess both the means and the incentive to litigate valid appeals. (Cf. Va. Pharmacy Bd. v. Va. Consumer Council (1976)
Gulf points to a few large judgments assessed against insurers under Royal Globe. However, the mere existence of large judgments does not, by itself, establish an undesirable chilling effect. As noted above, insurers are well equipped to recognize and pursue valid appeals. (See ante, fn. 9.) Further, the award of large judgments cuts both ways. From the claimants’ point of view, it underscores the magnitude of insurer abuses and, hence, the need for a remedy.
I am at a loss to understand the majority’s reluctance to encourage the several benefits that recognition of such a tort would imply. The policy favoring settlement and the policy
It would do so by substantially increasing the risks of attempts to gain unfair settlement leverage. The deterrent effect would be particularly strong in egregious cases such as this one, where the insurer was motivated to exploit a financial crisis brought upon the plaintiffs by the veiy conduct of its insured that supported the underlying judgment.
An insurer considering a frivolous appeal would be left with a clear choice: pay the judgment, or appeal and wait for a decision on the merits. An unfair, coercive settlement offer would no longer be an attractive way to avoid payment of the full judgment or to escape judicial scrutiny of the appeal to determine whether it is frivolous. Denied the cheap settlement option, the insurer would be forced to face squarely the possibility that the appellate court will deprive it of the other principal advantage of a dilatory appeal—the market/ judgment interest differential—by awarding Flaherty damages. As a result, fewer frivolous appeals would be filed and justice would be more fully and promptly served.