Rebecca PELKEY et al., Plaintiffs and Appellants, v. ALLSTATE INSURANCE COMPANY, Defendant and Respondent.
In this case, we announce a corollary to the rule formulated in California Shoppers, Inc. v. Royal Globe Ins. Co. (1985) 175 Cal.App.3d 1, 221 Cal.Rptr. 171, which defined the showing which must be made to demonstrate insurer bad faith in a first party case, i.e., a showing, in addition to nonpayment of benefits, that the insurer failed “to deal fairly and in good faith with its insured ․, without proper cause. ․” (Id. at p. 54, 221 Cal.Rptr. 171,original italics.) The corollary is for application in evaluating so-called non-adjunct claims for alleged insurer bad faith, that is to say, where there is no companion breach-of-contract claim arising from nonpayment of policy benefits. In these first party cases,1 where policy benefits have been paid, as illustrated by the case before us here, we hold that particular economic consequences (cf., e.g. Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 459, 113 Cal.Rptr. 711, 521 P.2d 1103), allegedly caused by the insurer's bad faith, must be pleaded with specificity, together with the “without-proper-cause” facts, in order for the complaint to survive a general demurrer.
Turning to our introductory overview of the case here, Rebecca Pelkey (Rebecca) was seriously injured through no fault of her own in a garden-variety motor vehicle collision. After settlement of the litigation which Rebecca and her husband Robert (plaintiffs) had instituted against the tortfeasor, they filed a first party case against their own auto insurance carrier, Allstate Insurance Company (Allstate) and others (defendants). Plaintiffs' alleged grievance was that Allstate and the other defendants, in a variety of ways, had breached the covenant of good faith and fair dealing implied in all insurance contracts. As perceived by plaintiffs, these breaches, in the aggregate, caused a 12-month delay in paying plaintiffs the balance of so-called underinsured motorist (UIM) benefits for which they were covered as insureds under Allstate's policy. Because of this delay, plaintiffs alleged that they “suffered ․ emotional distress ․ and out-of-pocket expenses[,] including costs of suit and attorney's fees ․” for which they sought $500,000 in damages.
The underlying litigation was resolved in the trial court by dismissal of plaintiffs' second amended complaint after Allstate's demurrer had been sustained without leave to amend. The seeming rationale, relied upon by the trial court in sustaining the demurrer, was that Allstate's allegedly tortious conduct in handling plaintiffs' first party claim was insulated by the privilege set forth in section 47(b) of the Civil Code. This privilege, the so-called litigation privilege, was seen by the trial court as available because plaintiffs initiated arbitration proceedings against Allstate immediately after they made their demand for the balance of UIM benefits.
On these facts, we are doubtful about the availability of the litigation privilege. The underlying action was not for defamation; ostensibly, among other things, it was brought for so-called bad faith 2 on the part of Allstate, allegedly because of the manner in which it had handled plaintiffs' first party claim for UIM benefits. However, even couched in the lexicon of the tort of bad faith, the allegations in the second count of plaintiffs' second amended complaint, as we hold, were ineffective to state a cause of action on that theory because of plaintiffs' failure to allege their economic damages with specificity. Plaintiffs should nevertheless be afforded an opportunity to amend in light of the criteria set forth (post).
As above noted, Rebecca was involved in a motor vehicle collision. While stopped at an intersection, she was rear-ended by Doris Gable (Gable). Shortly after the collision, Rebecca notified Allstate of the loss. Rebecca's husband was also a named insured in the policy. Thus, Allstate instructed both Rebecca and Robert to proceed against their tortfeasor Gable, who was insured up to $50,000 for public liability by another carrier. About four months after the collision, Rebecca and Robert filed suit against Gable in Riverside County Superior Court. Shortly after such action was initiated against Gable, her insurance carrier offered the $50,000 public liability policy limits to plaintiffs. Allstate authorized plaintiffs to accept the settlement offer.
Meanwhile, about five months after the collision but before the settlement reached with Gable's insurer, plaintiffs submitted their first party demand to Allstate for payment of UIM benefits. At this same time, they requested arbitration of their claim. Later, after receiving Gable's public liability policy limits, plaintiffs submitted a demand to Allstate for its UIM policy limits. In support of their demand, plaintiffs provided documentation of Rebecca's injuries showing entitlement to recover over $100,000 in damages. Thereafter, Allstate made a $25,000 settlement offer, an offer which plaintiffs rejected. One year after plaintiffs' demand for UIM policy limits, and after taking Rebecca's deposition, Allstate offered policy limits; plaintiffs accepted the offer. As a result, plaintiffs received the full UIM policy limits of $100,000 as provided for in Allstate's coverage of this risk, i.e., $50,000 from Gable's carrier, a collateral source, and $50,000 from Allstate. Plaintiffs then filed the underlying first party action against defendants.
Plaintiffs' second amended complaint (the complaint), upon which the matter was resolved in the trial court, was styled in four counts: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3) intentional infliction of emotional distress, and (4) fraud. Because plaintiffs' appeal, as earlier noted, deals solely with the second count, it is unnecessary to set forth the allegations contained in the other three.
In the complaint's general allegations, applicable to all counts, it was alleged: (1) on January 29, 1992, Rebecca's vehicle was rear-ended by another vehicle driven by Doris Gable; (2) shortly after being informed of the collision, Allstate advised plaintiffs to proceed against Gable; (3) in April of 1992, plaintiffs filed an action against Gable in Riverside Superior Court; (4) on June 4, 1992, plaintiffs submitted a demand to Allstate in the form of a written request for arbitration under terms of the UIM coverage in their policy, one provision of which provided for limits of $100,000; (5) Gable's insurance carrier, State Farm, promptly offered the $50,000 policy limits on behalf of Gable to settle plaintiffs' action against her; (6) Allstate authorized plaintiffs to accept State Farm's $50,000 in settlement, and (7) on July 7, 1992, plaintiffs submitted to defendants a demand for the balance of UIM policy limits. In particular, under the heading of “GENERAL ALLEGATIONS,” the complaint alleged: “Although defendants' obligation to pay $50,000 in benefits to plaintiffs was then unequivocally and reasonably clear, plaintiffs are informed and believe and thereon allege that defendants then knowingly proceeded to engage in conduct calculated to delay the adjustment and resolution of their claim, and to cause plaintiffs to experience emotional distress, in order to allow defendants to obtain a more favorable settlement than the facts warranted.”
In the second count for breach of the implied covenant of good faith and fair dealing, after incorporating the general allegations, it was alleged that defendants breached certain obligations, purportedly arising under the policy, which in the aggregate caused an unreasonable delay in payment of amounts due thereunder. More particularly, it was alleged that “25. By reason of the implied covenant of good faith and fair dealing, numerous duties and obligations were and are, at all times relevant herein, imposed upon the defendants against which this Cause of Action [is] asserted. [¶] 26. By way of example only, the duties and obligations that were and are imposed upon said defendants by reason of the implied covenant of good faith and fair dealing included, but were not limited to, duties and obligations:” Then followed a tabulation of 26 purported specific duties which, if not performed, allegedly represented breaches of the implied covenant. For example, they included: “(b) Not to unreasonably withhold or delay the payment of benefits due under the contract of insurance; ․ (g) To fairly and objectively evaluate insureds' claims; ․ (k) Not to use abusive or coercive practices to compel compromise of claims; ․ (r) To provide necessary claim forms, instructions, and reasonable assistance to insureds within 15 calendar days of receipt of the insured's notice of claim; ․ (z) To accept and pay a claim when there is sufficient evidence to support it, and not to insist that the claim be proved only through certain types of evidence, or that the insurer receive every item of information it requested from the insured.”
The foregoing conduct was then alleged proximately to have caused plaintiffs to suffer “anxiety, worry, mental and various other forms of emotional distress ․ [and] out-of-pocket expenses including costs of suit and attorney's fees․” Based upon these allegations, plaintiffs sought general, specific and incidental damages, according to proof, costs of suit and attorney fees, together with punitive (exemplary) damages “per Civil Code § 3294 in an amount sufficient to punish ․ defendants.”
Only Allstate appeared in response to plaintiffs' complaint. It demurred on grounds that: (1) the complaint failed to state a cause of action; (2) it was uncertain, and (3) it was subject to the bar of the litigation privilege as set forth in section 47(b) of the Civil Code. With reference to this latter ground, Allstate argued that plaintiffs' complaint, on its face, showed that Allstate's alleged bad faith misconduct had occurred in the course of the arbitration. Allstate further argued, because its handling of the claim was conducted in the course of an adversarial, legal proceeding, sanctioned by the insurance contract, that nothing which it did or omitted to do could provide the basis for liability. Allstate argued finally, because it had paid plaintiffs the full benefits to which they were entitled under their policy, that the insurance contract had not been breached.
Plaintiffs opposed the demurrer. After undertaking to refute Allstate's litigation privilege theory, plaintiffs turned to their count based on alleged breach of the implied covenant of good faith and fair dealing. In their written opposition, plaintiffs argued to the trial court: “It is again important to emphasize that although the Demurrer states that it is to the ‘entire complaint[,]’ in fact there is no specific discussion, of which plaintiffs' counsel is aware, pertinent to the plaintiffs' Second Cause of Action, i.e. for breach of the implied covenant of good faith and [fair] dealing. [¶] An insurer is under a duty to deal fairly and in good faith with its insured. [¶] ‘[T]his duty, the breach of which sounds in both contract and tort, is imposed because there is an implied covenant of good faith and fair dealing in every contract [including insurance policies] that neither party will do anything which will injure the right of the other to receive the benefits of the agreement [Citation.]’ (Gruenberg v. Aetna Ins. Co. [ ] (1973) 9 C.3d 566, 573 [108 Cal.Rptr. 480, 510 P.2d 1032].)[¶] ‘In this usual first party case, the promise of the insurer is to pay money due under the policy, to the insured upon the happening of the event, the risk of which has been insured against. The benefit contracted for by the insured is the availability of money promptly upon the happening of the event insured against, and when an insurer refuses unreasonably to make a payment of the benefits due under the terms of the policy, it deprives the insured of the essential benefit of the agreement.’ (Austero v. National Cas. Co.[ ] (1978) 84 C.A.3d 1, 29-30 [148 Cal.Rptr. 653].)[¶] ‘Accordingly, when the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.’ (Gruenberg v. Aetna Ins. Co., supra, 9 C.3d at p. 575 [108 Cal.Rptr. 480, 510 P.2d 1032].)”
With these filings before it, the trial court entertained oral argument of the demurrer. At the conclusion of such argument, the court stated: “Okay. I'm convinced. I'm going to sustain the demurrer to each cause of action․ [¶] ․ I'm going to do it without leave to amend. I don't believe you can state a cause-If you want to pursue this, I think you need to go to the appellate court. I don't particularly like this kind of a case in the first instance. [¶] In the second instance-Now, this is the first, second, third time you've been here on the complaint. I'm not about to make it a fourth. I think the litigation privilege under 47(b) of the Civil Code probably prevails on all this and the cases cited by counsel. So I'm going to sustain it for each of the reasons stated.”
Plaintiffs' complaint was then dismissed. This appeal followed.
In pursuing their appeal, plaintiffs urge it was error for the trial court to sustain the demurrer to the second count of plaintiffs' complaint for the reason that Allstate's handling and processing of plaintiffs' claim was privileged. Significantly, plaintiffs have limited their appeal to challenging only the propriety of the court's sustaining the demurrer to the count for breach of the implied covenant of good faith and fair dealing. In short, only the propriety of sustaining Allstate's demurrer to the second count of plaintiffs' complaint is before us for review.
Reviewing the sufficiency of all or any part of a pleading when tested by a general demurrer is guided by well-settled rules. “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions ․ of ․ law.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591, 96 Cal.Rptr. 601, 487 P.2d 1241.)
Plaintiffs argue in their opening brief that their action is based “on the wrongful manner in which Allstate carried out evaluative, investigative, and settlement activities concerning a UIM claim that it was contractually obligated to perform in good faith. It is not based ․ even remotely, on ‘publications' or ‘communications' by Allstate's arbitration counsel, such as a pleading, or testimony, or mere questioning, as it must be in order to be barred by Civil Code § 47(b). To the contrary, the gravamen of this cause of action is that the Pelkeys were damaged by Allstate's failure to properly and timely evaluate and settle their claim in and after July 1992, when its liability was reasonably clear.” Continuing, “[t]he Pelkeys allege that the implied covenant was breached by Allstate's adjusters' continuing failure to fairly evaluate, investigate, and settle their claim.”
For its part, Allstate 3 argues that plaintiffs' grievance derives entirely from its conduct after arbitration was initiated. More specifically, Allstate insists that an insurer cannot be held liable on the basis of its conduct during arbitration, conduct which it characterizes as essentially communicative and thus protected by the litigation privilege. Otherwise, Allstate argues that plaintiffs' complaint is defective for another reason in that “it fails to allege facts which ․ establish all of the required elements of a cause of action for bad faith.” (Original emphasis.)
Allstate's latter contention is more persuasive than its former which relies on the bar of the litigation privilege. We agree with plaintiffs that the litigation privilege has little if anything to do with the issue of liability here. (White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 885-886, 887-889, 221 Cal.Rptr. 509, 710 P.2d 309.) Thus, the dispositive issue on appeal is whether the allegations in the second count of plaintiffs' complaint are sufficient to state a cause of action for breach of the implied covenant of good faith and fair dealing, i.e., for insurer bad faith in a first party case.
Pursuing our analysis of the foregoing issue within its now established framework, we first consider paragraph 26 contained in the second count of plaintiffs' complaint. There, it was alleged that “․ the duties and obligations that were ․ imposed upon said defendants by reason of the implied covenant of good faith and fair dealing included, but were not limited to․” Then followed a laundry list of recitations, (a) through (z), which described various duties, in general terms, non-performance of which allegedly constituted breach of the implied covenant.
For example, such alleged duties included: subparagraph (f), “[t]o promptly and thoroughly investigate insureds' claim,” and subparagraph (l ), “[t]o timely respond to all communications by insureds.” Others have already been quoted.
First, subparagraphs (f) and (l ), along with the other 24, are not contained in the policy. More important, they are nothing more than legal conclusions. As such, they are meaningless and contribute nothing to plaintiffs' effort to plead a cause of action for bad faith. To be of any significance they would have to be tied to allegations of specific behavior by Allstate purportedly illustrating breach of any given duty.
We find it somewhat perplexing that plaintiffs, in pursuing a purported claim for bad faith in a first party case, have not alluded to, let alone discussed on appeal, as they did in the trial court, the key elements which must be established to succeed in such a case. Plaintiffs are directed to their own points and authorities filed in opposition to the demurrer where they cited Love v. Fire Ins. Exchange, (1990) 221 Cal.App.3d 1136, 271 Cal.Rptr. 246. In Love, the court observed, “․ there are at least two separate requirements to establish breach of the implied covenant [in a first party case]: (1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been ․ without proper cause.” (Id. at p. 1151, 271 Cal.Rptr. 246.) The pronouncement here quoted was confirmed in Dalrymple v. United Services Auto. Assn. (1995) 40 Cal.App.4th 497, 512, 46 Cal.Rptr.2d 845.
To provide a predicate for understanding the rationale of our decision, we shall comment briefly on the advent of the bad faith concept in so-called first party insurance cases. One of the earliest cases to postulate the underlying premise of bad faith in a breach of contract action was Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20 Cal.2d 751, 128 P.2d 665. In that case, involving interpretation and questioned performance of a sales contract, the Supreme Court stated, “[i]n every contract there is an implied covenant that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract, which means that in every contract there exists an implied covenant of good faith and fair dealing. (17 C.J.S. 778, § 328.)” (Id. at p. 771, 128 P.2d 665.)
This proposition was carried forward in Brown v. Superior Court (1949) 34 Cal.2d 559, 564, 212 P.2d 878, a case involving an agreement to execute mutual wills.
Finally, in Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 328 P.2d 198, the Supreme Court noted for the first time that, “this principle [the presence of the implied covenant in all contracts] is applicable to policies of insurance.” (Id. at p. 658, 328 P.2d 198.) The determination of bad faith liability against insurers first appeared in third party cases, of which Comunale is an example. In such cases, the rationale of decision has finally come to rely on a kind of pat formula, i.e., the insurer who declines to pay policy limits in settlement of a third party claim against its insured does so at its own peril. (Johansen v. California State Auto. Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9, 19, 123 Cal.Rptr. 288, 538 P.2d 744.)
One of the early cases where there was a transposition of the implied covenant concept to a first party insurance case was in (Richardson v. Employers Liab. Assur. Corp. (1972) 25 Cal.App.3d 232, 239, 102 Cal.Rptr. 547.) Soon thereafter, the implied covenant concept, applied in first party cases, provided the rationale of decision in both Gruenberg and Silberg. In this respect, the point to be made is that these early first party cases and those which followed, e.g., Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 169 Cal.Rptr. 691, 620 P.2d 141, with certain exceptions, e.g., Richardson; Beck v. State Farm Mut. Auto. Ins. Co. (1976) 54 Cal.App.3d 347, 126 Cal.Rptr. 602, and Hightower v. Farmers Ins. Exchange (1995) 38 Cal.App.4th 853, 45 Cal.Rptr.2d 348, involving application of the bad faith principle, were cases which included adjunct claims focusing on the insurer's tortious behavior manifested in conjunction with its refusal to pay policy benefits, i.e., in conjunction with counts for breach of contract.
In Richardson, Beck and Hightower, all involving non-adjunct claims based on alleged bad faith of the insurer, that is to say, where there was no companion breach of contract claim, no reference whatsoever was made by the panels in any of those decisions as to what damages were suffered and proximately caused by the delay in payment of policy benefits. Thus, the result we reach here is not in conflict with those decisions which were wholly concerned with the kind of insurer conduct which qualified as bad faith. Finally, then, on this feature, that is to say, the requirement of proximately caused cognizable damages as the result of insurer bad faith, in order to establish tort liability, we are guided by the overriding principle recited in Budd v. Nixen (1971) 6 Cal.3d 195, 98 Cal.Rptr. 849, 491 P.2d 433. There, the Supreme Court plainly stated, in a legal malpractice action involving application of the statute of limitations, that “[i]f the allegedly negligent conduct does not cause damage, it generates no cause of action in tort.” (Id. at p. 200, 98 Cal.Rptr. 849, 491 P.2d 433.) We see no reason why this proposition cannot be paraphrased to state, “if the alleged breach of the implied covenant does not cause damage, it generates no cause of action in tort.”
Silberg, earlier noted, is the classic first party case involving an adjunct claim for bad faith coupled with a count for recovery of policy benefits, the nonpayment of which inflicted severe suffering on the insured. In Silberg, it was refusal without proper cause to pay policy benefits which triggered the litigation. As a result of this nonpayment, Silberg lost his dry cleaning business, his utilities were turned off and his wheelchair was repossessed. As further recited in the opinion, “․ he [Silberg] had difficulty in affording medication to ease his constant pain. Ultimately, in 1969 plaintiff suffered two nervous breakdowns. A psychiatrist testified that plaintiff's concern over inability to meet [his] medical expenses contributed to these episodes.” (Silberg v. California Life Ins. Co., supra, 11 Cal.3d 452, 459, 113 Cal.Rptr. 711, 521 P.2d 1103.)
Most of the cases plaintiffs have invoked, purporting to authenticate various pronouncements condemning this or that practice by an insurer, have been in a context in which the insurer, besides its allegedly tortious conduct, had also refused to pay policy benefits, i.e., cases involving an adjunct bad-faith claim. Here, we do not have an adjunct claim. The insurance contract was fully performed by defendant. In this context, Love included a categorical pronouncement in one of its footnotes. “Our interpretation that a plaintiff must show, at a minimum, [that] benefits were delayed or withheld, accords with the analysis of the commentators: ‘where benefits are fully and promptly paid, no action lies for breach of the implied covenant-no matter how hostile or egregious the insurer's conduct toward the insured may have been prior to such payment. I.e., absent an actual withholding of benefits due, there is no breach of contract and likewise no breach of the insurer's implied covenant. [Citation.]’ (Kornblum, et al., Cal. Practice Guide: Bad Faith, supra § 4:28, p. 4-9, italics added.)” (Love v. Fire Ins. Exchange, supra, 221 Cal.App.3d 1136, 1151-1152, fn. 10, 271 Cal.Rptr. 246.)
The facts before us present a hybrid circumstance. Policy limits were withheld for a time but eventually paid in full. Thus, what we have is a count based on a non-adjunct, bad-faith claim as earlier alluded to, that is to say, there is no companion count for breach of contract. In this regard, Allstate could argue, per Love, that there can be no breach of the implied covenant absent a breach of the insurance contract itself in the form of withholding benefits. Plaintiffs would respond of course that there was a withholding of benefits, at least for a time. Allstate's rejoinder would then be that it paid the benefits in full. As a result, Allstate would query, how have plaintiffs been damaged? As a consequence, our decisional task is to determine whether the allegations of the second count of plaintiffs' complaint provide the requisite legal predicate for recovery of money damages under the bad faith theory, absent the companion count for breach of contract.
In pursuing our analysis, we of course start with the pronouncement in Love confirmed in Dalrymple, as already noted. The tort of bad faith involves two elements: “․ (1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been ․ without proper cause.” (Love v. Fire Ins. Exchange, supra, 221 Cal.App.3d 1136, 1151, 271 Cal.Rptr. 246.) There is of course a third element implicit in the first. It is that there must be consequences of the withholding of benefits, consequences which can be identified as compensable damages under our tort system. In other words, as earlier suggested, it can correctly be observed, in evaluating the bad-faith claim here as in evaluating all tort claims, that the right to recover damages has two prerequisites: (1) tortious behavior and (2) proximately caused consequences in the form of cognizable damages. (Budd v. Nixen, supra, 6 Cal.3d 195, 200, 98 Cal.Rptr. 849, 491 P.2d 433.)
The latter requirement, above noted, i.e., proximately caused consequences in the form of cognizable damages, brings the commentary back to Richardson. That case involved a first party claim for uninsured motorist benefits followed by a delay in payment of the claim. The claim was the subject of arbitration which resulted in an award to the insured. In order to obtain payment, the insured was forced to seek confirmation of the award in superior court. (Richardson v. Employers Liab. Assur. Corp. supra, 25 Cal.App.3d 232, 238, 102 Cal.Rptr. 547.)
After such confirmation, the insurer paid the award. The insured, as plaintiff, then sued the insurer, pleading breach of the implied covenant. The jury verdict was in favor of the insured. On appeal, the judgment was reversed with directions. One of the errors justifying reversal, as perceived by the reviewing court, was an instruction by the trial court on the availability of damages for emotional distress. It was seen as error because the record contained no evidence of emotional distress such as would justify such an instruction. The trial court gave an instruction on compensatory damages as well as under BAJI 14.13, which provides for compensation “for any ․ fears, anxiety and other mental and emotional distress․” The disposition of the appeal recited that, “[t]he judgment is reversed and the cause is remanded for a new trial solely upon the issue of the amount of compensatory and exemplary damages, ․” (Richardson v. Employers Liab. Assur. Corp., supra, 25 Cal.App.3d 232, 246, 102 Cal.Rptr. 547, italics added.)
The rule we draw from this disposition is that in a non-adjunct case based solely on alleged breach of the implied covenant of good faith and fair dealing (of which Richardson is an example), the plaintiff must present evidence not only on the nature and extent of defendant's behavior which will support an award in exemplary damages, but also on the nature and extent of the compensatory damages.
Here, of course, the case is at the pleading stage; even so, it can logically be insisted that the Budd prescription yet applies, namely that the complaint must allege proximately caused consequences of the tortious behavior in the form of cognizable damages.
The “logical insistence,” above noted, starts with the rule in Love that there can be no breach of the implied covenant absent a breach of the insurance contract itself. On the facts here, plaintiffs could not allege a breach; they had received full UIM policy limits before they filed their action against Allstate. Thus, if we are to relax this requirement of an extant breach of the insurance contract as a condition of alleging a claim for bad faith, it would only be fair to require plaintiffs, in view of their receipt of the UIM policy limits, to show with specificity just how the interim withholding of policy benefits resulted in their suffering real economic damages for which they were not compensated by reason of their receipt of the UIM policy benefits.
If such a trade-off were to be adopted as fair, the rule embodying such trade-off would require that the plaintiff plead with particularity the nature and extent of his or her economic damages proximately caused by any interim breach of the implied covenant. As earlier indicated, the perfect model in an analogous circumstance is provided by Silberg. There, as a result of the withholding of policy benefits by the insurance carrier, Silberg lost his dry cleaning business, his utilities were turned off and his wheelchair was repossessed. Sadly, that was only the beginning of Silberg's suffering.
To reiterate where the benefits due under the insurance contract had been fully paid, in a case involving only a non-adjunct claim, it is nothing less than just and reasonable to require the plaintiff, in order to plead a breach of the implied covenant, to show with specificity in what way the interim withholding of policy benefits caused actual economic detriment. In other words, if plaintiffs here, because of the interim withholding of benefits, had actually sustained cognizable economic damages, it would represent no imposition to require them to tell the trial court at the outset what they were.
Beyond the fairness of the logic as above explained, the policy basis for our decision is apparent. In this day and age of proliferating frivolous litigation, it is incumbent upon the courts to adopt measures, such as the one here proposed, which will help to stave off the threatened implosion of the system. For example, where at one time it was the policy of the law to look with disfavor on summary judgments as a harsh and drastic means of disposing of cases in the trial court, they are now looked upon with favor. As observed in Campanano v. California Medical Center (1995) 38 Cal.App.4th 1322, 45 Cal.Rptr.2d 606, “ ‘[t]he policy underlying motions for summary judgment and summary adjudication of issues is to “ ‘promote and protect the administration of justice and to expedite litigation by elimination of needless trials.’ ” ' ” (Id. at pp. 1326-1327, 45 Cal.Rptr.2d 606.) In this vein, if certain of these suits could be eliminated at the pleading stage, it would aid substantially in freeing up courtrooms for plaintiffs with meritorious claims who are now hard pressed in many counties to get to trial within the five-year statute. (See The Litigation Explosion: What Happened When America Unleashed The Lawsuit, by Walter K. Olson, published 1991 by E.P. Dutton/Truman Talley Books, for an extensive and critical look at the nature and extent of the current exploitation of the U.S. judicial system.)
Based upon the foregoing analysis, in order to survive a general demurrer in attempting to plead a non-adjunct claim for interim breach of the implied covenant of good faith and fair dealing, that is to say where policy limits of the given coverage were later fully paid, we hold that a plaintiff must plead with the kind of specificity found in Silberg the nature and extent of his or her economic damages proximately caused by any such interim breach and in addition show how such damages were not mitigated by receipt of policy benefits. This holding of course implies the continuing requirement of pleading the “without-proper-cause” reasons as announced in California Shoppers.
To apply the corollary rule herein formulated for application in non-adjunct bad-faith cases, we turn to evaluation of paragraph 33 of the complaint. There plaintiffs alleged, “[a]s a proximate result of the aforementioned wrongful conduct of defendants, plaintiffs have suffered, and will continue to suffer in the future, damages under said Contract of Insurance, plus interest, in the amount of $500,000, or other amount according to proof. Plaintiffs have suffered various other forms of economic damage including, but not limited to, attorney fees and costs incurred in receiving and attempting to receive the benefits due under said Contract.” Nowhere in paragraph 33, except in the most general terms, did plaintiffs explain how they were damaged by Allstate's alleged bad faith.
More particularly, it is apparent that paragraph 33 fails even remotely to match the specificity found in Silberg.4 As a consequence, Allstate's demurrer was properly sustained. In this connection, we invoke D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 112 Cal.Rptr. 786, 520 P.2d 10. There, the court said, “ ‘․ a ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. If right upon any theory of law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion.’ [Citation.]” (Id. at p. 19, 112 Cal.Rptr. 786, 520 P.2d 10.)
However, that is not the end of the matter. Because our disposition of the appeal relies upon a rationale of decision not heretofore pronounced, it would be only fair to afford plaintiffs an opportunity to amend in the ways which would meet the conditions herein prescribed.
The judgment is reversed with directions to the trial court to vacate its order of February 3, 1995, and to enter a new and different order sustaining Allstate's demurrer but affording plaintiffs 30 days to amend. The parties shall bear their own costs on appeal.
1. As used in this opinion, the designation “first party case” denotes one in which the risk exposure experienced by the insured resulted in the insured's making a claim directly to the insurer. The designation “third party case” denotes one in which the risk exposure experienced by the insured was one created by the insured and resulted in a claim against the insured by an injured third party. As the law has evolved, substantially different rules are applied to determine the incidence of bad faith in the two kinds of cases.
2. Breach of the implied covenant of good faith and fair dealing is frequently delineated in the published cases as “bad faith” and will be thus referred to occasionally in this opinion.
3. Allstate is the only defendant who has responded to plaintiffs' appeal.
4. In our view, the broad reference in paragraph 33 of the complaint to “attorney fees” is no more enlightening than the reference to “$500,000.” In light of the facts alleged, it could readily be inferred that any attorney fees incurred by plaintiffs were in connection with the arbitration. With certain exceptions, none of which are applicable here, it is not a breach of the implied covenant for the insurer to request arbitration. Here, it was plaintiffs and not Allstate who requested arbitration, and so any attorney fees incurred in connection therewith could not fairly be claimed to have been caused by Allstate. In any case, in keeping with the policy underlying the rationale of our decision, it would represent no burden on a plaintiff, if he or she has been forced unnecessarily to incur attorneys fees to obtain payment of policy limits, to provide at the pleading stage some indication of what such necessity consisted.
McDANIEL, Associate Justice.** FN** Retired Associate Justice of the Court of Appeal, Fourth District, sitting under assignment by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
RAMIREZ, P.J., and WARD, J., concur.