ALISON RAE SYCH, a Minor, etc., Plaintiff and Appellant,
v.
INSURANCE COMPANY OF NORTH AMERICA et al., Defendants and Respondents.
Court of Appeals of California, Second District, Division Six.
*323 COUNSEL
Lewis Graham for Plaintiff and Appellant.
Wise & Nelson, Wise, Wiezorek, Timmons & Wise, Anthony F. Wiezorek, Richard P. Dieffenbach, Greines, Martin, Stein & Richland, Kent L. Richland and Alan G. Martin for Defendants and Respondents.
OPINION
STONE, P.J.
May a plaintiff who, at trial, fails to prove an insured defendant's liability subsequently sue the defendant's insurers for unfair practices in not attempting, in good faith, to settle the case once liability to plaintiff is "reasonably clear"? It may not. We affirm the judgment of dismissal.
Minor, Alison Rae Sych, by and through Marianne Sych, mother and guardian ad litem, appeals the trial court's sustaining demurrers of Insurance Company of North America (INA) and Pacific Indemnity (Pacific), *324 without leave to amend, on grounds that plaintiff could not state a cause of action for unfair practices, restraint of trade, declaratory relief and violations of Insurance Code section 790.03.[1]
FACTS
Material complaint allegations are: from December 18, 1969, to and including June 2, 1970, Constantine S. Innes, M.D., ministered to Marianne Sych who was pregnant with appellant. June 2, 1970, Marianne Sych gave birth to appellant two months prematurely; appellant had cerebral palsy and hyaline membrane disease.
Appellant filed suit against Doctor Innes claiming professional negligence by inducing labor prematurely. After discovery proceedings, appellant demanded policy limits from INA and Pacific, response due by June 1, 1977. Included therewith were numerous newspaper articles advising of verdicts that juries had rendered in cases judged by her to be similar to that of Sych v. Innes, "all being in excess of 3.3 million." Appellant indicated to INA and Pacific that "(i)t seems quite clear that the total claim of Alison Sych far exceeds the alleged limits of the carriers' liability and failure to settle at this time might subject Alison Sych to unwarranted emotional distresses. It would appear that good faith under the circumstances would require the insurance carriers ... to accept the foregoing offer to settle."[2] Pacific, primary carrier, had policy limits of $300,000; INA, excess liability carrier, had policy limits of $1 million. Appellant received no correspondence nor offer of settlement until April 19, 1979, close to the trial setting and mandatory settlement conference date. April 13, 1979, Pacific informed appellant its policy limits were available for settlement, and, at the settlement conference, INA offered the following structured settlement:
$150,000 cash for fees & expenses $ 150,000 $ 10,000 per year to age 18 $ 90,000 $ 25,000 lump sum at age 18 $ 25,000 $ 15,000 per year from age 18 for remainder of life $ 915,000
Appellant told Pacific it would accept the $300,000 as "credit" against eventual judgment in exchange for releasing Pacific from excess liability for "bad faith." Pacific refused to pay without complete settlement, contending it to be contrary to its client's interest and bad faith to the excess *325 carrier. Appellant refused INA's offer. INA made a second offer July 11, 1979:
$ 10,000 to age 18 $ 90,000 $ 25,000 cash at age 18 $ 25,000 $ 15,000 compounded at 3% annually from age 18 $ 3,459,000 $225,000 attorney fees expenses $ 225,000 $ 50,000 to guardian ad litem $ 50,000
Appellant refused any structured settlement and told INA its proffers were not "good faith" offers. January 4, 1980, the case came to trial. The insurers offered $600,000 cash, which appellant rejected as untimely. The jury returned an unanimous verdict for the defense. Appellant appealed from that judgment which was affirmed, and remittitur issued February 7, 1983.
Appellant then filed this action, alleging that Doctor Innes' malpractice carriers were in bad faith in failing to settle the underlying action based upon facts discussed infra. Appellant repleaded the alleged negligence of Doctor Innes, damages and violations of Insurance Code section 790.03, subdivisions (b), (c), and (h), i.e., respondents: (1) made untrue, deceptive and misleading statements with respect to the business of insurance; (2) entered into an agreement to commit, and did commit, an act of boycott, coercion and intimidation resulting in unreasonable restraint of trade; (3) failed to adopt and implement reasonable standards for prompt investigation and processing of claims; (4) failed to attempt, in good faith, to effectuate prompt, fair, and equitable settlements of claims in which liability had become reasonably clear, and "compelled Plaintiff ... to institute litigation and litigate to recover amounts due Plaintiff under said insurance policies by offering substantially less than the amounts ultimately recovered in said action ... when Plaintiff made claim for amounts reasonably similar to the amount ultimately recovered ... in said litigation;" (5) attempted to settle for amounts less than a reasonable man would believe he was entitled to "by reference to written and printed advertising material accompanying and made part of the claim and application;" (6) failed to settle where liability had become apparent; and (7) failed to provide promptly a reasonable explanation of facts and applicable law for denial of the claim. Appellant also included a request for declaratory relief.
Respondents demurred to the complaint on grounds it failed to state a cause of action under Insurance Code section 790.03, based on the jury's verdict in the underlying action exonerating Doctor Innes, and, additionally, that appellant's claim for declaratory relief sought only retrospective rather than prospective relief.
The court permitted amendment by interlineation that "liability to Dr. Innes [sic] to plaintiff had become reasonably clear," held appellant had *326 failed to state a cause of action, sustained the demurrers without leave to amend, and pursuant thereto, entered judgment in favor of respondents.
DISCUSSION
(1) A demurrer admits all material and issuable facts properly pleaded, (Daar v. Yellow Cab Co. (1967)
In Royal Globe Ins. Co. v. Superior Court (1979)
Cases first interpreted "concluded" as final judgment establishing the insured's liability. (Cf. Nationwide Ins. Co. v. Superior Court (1982) 128 *327 Cal. App.3d 711, 714 [
Additionally, at least one appellate court has held that a claimant who settles with some tortfeasors and then recovers a net judgment of zero against other insured tortfeasors is not precluded by that judgment from bringing a bad faith suit against the breaching insurance carrier. (Schlauch v. Hartford Accident & Indemnity Co. (1983)
Nevertheless, a conclusive establishment of liability against the insured is a prerequisite to third party "bad faith" suits against insurers found in decisions interpreting Royal Globe. (Cf. Williams v. Transport Indemnity Co. (1984)
In Williams v. Transport Indemnity Co., supra,
(5) Moreover, principles of public policy and res judicata mandate this result. If, as appellant contends, the outcome of the malpractice suit is irrelevant in the subsequent "bad faith" action, appellant would be allowed to relitigate the issue of Doctor Innes' alleged negligence and liability to establish damages. It is a rational inference, in a third party action against an insurer, that the value of plaintiff's claim is equivalent to the amount of judgment entered against the insured. (Betts v. Allstate Ins. Co. (1984)
Appellant's contention that res judicata is inapplicable because insurers were neither parties nor privies nor issues identical is specious. She repleaded here the exact claim of professional negligence against Doctor Innes that was previously concluded adversely. (6) Res judicata bars relitigation of an issue previously adjudicated between the same parties or their privies to final judgment on the merits. (Teitelbaum Furs, Inc. v. Dominion Ins. Co., Ltd. (1962)
(7) The doctrine of res judicata represents strong public policy promoting judicial economy by minimizing repetitive litigation, preventing inconsistent judgments which undermine the integrity of the judicial system, and providing repose by preventing a person from being harassed by vexatious litigation. (People v. Taylor (1974)
(3c), (8) Appellant's complaint is a melange of statutory allegations replete with contradictory facts. Although a person to whom civil liability runs may enforce the Unfair Practices Act (§ 790 et seq.) by appropriate *329 action (Royal Globe, supra,
We find it unnecessary to decide the retroactivity of Royal Globe to facts which, as here, occurred prior to that decision.[6] As indicated supra, prior to that decision, only the insured had a cause of action against the insurer for bad faith failure to settle a claim. (Murphy v. Allstate Ins. Co., supra,
(3d) Since we hold that a finding of liability against the insured was a prerequisite for appellant's third party claim, as pleaded or pleadable against respondents, appellant could not state a cause of action under either prior or present law.
Respondents request that we impose sanctions upon appellant for frivolous appeal. We were sorely tempted to do so since appellant's complaint and arguments ignore settled law and facts of the case. However, since recent cases have amplified the holding of Royal Globe to include other than final judgment of total liability on the insured's part, we prefer to give the benefit of the doubt to appellant and decline.
*330 The judgment is affirmed, each party to bear own costs and attorneys fees on appeal.
Gilbert, J., and Abbe, J., concurred.
Appellant's petition for review by the Supreme Court was denied January 16, 1986. Bird, C.J., was of the opinion that the petition should be granted.
NOTES
Notes
[1] It is the resulting judgment that is appealable rather than the order sustaining the demurrer, although we review the propriety of the order. (Jackson v. State Farm Mutual Auto. Ins. Co. (1983)
[2] Appellant attached letters from parties concerned in settlement negotiations to the complaint and incorporated them by reference.
[3] All statutory references are to the Insurance Code unless otherwise indicated.
[4] Because Code of Civil Procedure section 877 requires that a plaintiff's claims against other tortfeasors must be reduced by amounts paid in good faith by settling tortfeasors, if plaintiff recovers more by settlement than he does at trial, that settlement reduces his judgment to zero by operation of law. (Schlauch v. Hartford Accident & Indemnity Co., supra,
[5] Appellant appears correctly to have abandoned her claim for declaratory relief. Declaratory relief operates prospectively, and not merely for redress of past wrongs. (Travers v. Louden (1967)
[6] Avila v. Travelers Ins. Companies (C.D.Cal. 1979)