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Court of Appeal, Second District, Division 3, California.

Aida MOUKALLED, Plaintiff and Appellant, v. FIRE INSURANCE EXCHANGE;  Yvonne Montano, Defendants and Respondents.

Civ. No. B041451.

Decided: June 05, 1990

Darian Bojeaux, for plaintiff and appellant. Waldman, Bass, Stodel & Graham and George Chuang, for defendants and respondents. Fred J. Hiestand, as amicus curiae on behalf of defendants and respondents.

Plaintiff and appellant Aida Moukalled (Moukalled) appeals an order of dismissal following the sustaining without leave to amend of a demurrer interposed by defendants and respondents Fire Insurance Exchange (FIE) (erroneously sued as Farmers Insurance Group) and its adjuster, Yvonne Montano (Montano) (collectively, defendants) to Moukalled's third amended complaint.1

The issue presented is whether Moukalled, a third party claimant, has stated a cause of action for intentional infliction of emotional distress (IIED) against the insurer based on its misconduct in handling her claim.

We conclude Moukalled has stated a cause of action for IIED based on factual allegations disclosing outrageous behavior by the insurer amounting to more than a mere violation of the insurer's statutory duties.   The order therefore is reversed.


This third party insurance action was commenced on December 31, 1987, when Moukalled filed a three count complaint for violation of Insurance Code section 790.03 2 , intentional infliction of emotional distress (IIED) and negligence.

The trial court eventually sustained defendants' demurrer to the negligence count of the second amended complaint without leave to amend.3

Shortly after the Supreme Court filed its opinion in Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58, defendants brought a motion for judgment on the pleadings.   The motion was directed at the remaining section 790.03 and IIED counts.   Defendants argued Moukalled could not state a cause of action for violation of section 790.03 because the underlying action was resolved by way of settlement and there was no final judicial determination of liability.   They further argued that Moukalled had not pled facts constituting outrageous conduct such as to give rise to a valid cause of action.

The trial court granted defendants' motion as to both causes of action, but granted Moukalled 30 days leave to amend her IIED count.4

a. Moukalled's IIED allegations.

On December 2, 1988, Moukalled filed her third amended complaint, which is the operative pleading.   The detailed complaint, which contained a single count, provided in substance:

On or about May 2, 1984, a Doberman dog belonging to Barney Wagner and Joseph Wagner, FIE's insureds under a $300,000 liability policy, in an unprovoked attack, bit Moukalled's leg and elsewhere and left her severely scarred and disabled, with nerve damage.   The attack was at least the fourth of five or more incidents involving said dog.   The Wagners' policy covered Moukalled's injuries and in May 1984, Moukalled made a claim against the policy.   FIE assigned the claim to Montano.

In making the claim, Moukalled initially requested that FIE pay amounts necessary for her to obtain medical care, which she could not afford, to decrease the extent of future scarring and permanent injuries.   FIE refused to make any medical expenditures whatsoever, and instead represented that it first would have to investigate the incident thoroughly.   At that time, FIE knew Moukalled's claim was one of unquestionable strict liability, that there was coverage under the policy, that it was liable to the extent of the policy limit, and that punitive damages were likely to be imposed on the Wagners if the matter proceeded to trial.   Due to FIE's refusal to pay her medical expenses, Moukalled was not able to obtain better medical care which would have decreased the degree of the permanent injuries and scarring.

In May 1984, FIE was aware that Moukalled was rendered unable to walk very well or to support herself in her usual occupation as a waitress.   FIE undertook a course of conduct to cause Moukalled severe emotional distress and financial hardship so as to minimize Moukalled's ultimate recovery.   Also, FIE sought to delay paying the claim to continue earning income on the money which should have been paid to Moukalled.

FIE's course of conduct included the following affirmative acts:

It continually misrepresented to Moukalled for nearly one year that there was an insurance coverage dispute when in fact no such dispute existed.   FIE previously had admitted coverage and settled the claims of another party, one DeHart, which claim had been made for an attack by the same dog within the same policy period, and FIE knew that coverage had been in effect on the subject premises.   Nonetheless, FIE continued to contend falsely that coverage was in dispute for reasons which it was not at liberty to divulge.   Ultimately, toward the end of one year, FIE admitted the subject incident was covered.

Thereafter, FIE promised it would make a settlement offer once it had taken Moukalled's deposition.   It was not necessary for Moukalled's deposition to be taken prior to the making of a settlement offer, as FIE had sufficient information to extend a fair offer.   Moukalled quickly submitted to the deposition but a settlement offer was not forthcoming.

Next, FIE promised it would extend a settlement offer once Moukalled had submitted to a defense medical examination.   FIE already had sufficient medical records and had viewed Moukalled's permanent disfigurement, so that it was in a position to make a fair settlement offer.   However, FIE asserted it could make no settlement offer because it had “ ‘no idea’ ” of the value of Moukalled's case.   Moukalled quickly submitted to two defense medical examinations.   Again, a settlement offer was not forthcoming.

Thereafter, FIE promised to make a settlement offer once it received formal written medical reports from its examining physicians, even though the physicians made prompt verbal reports to FIE.   FIE continued to refuse to make an offer during a several month period on the ground one of its physicians refused to render a written report.   After receiving the formal written reports, FIE did not make the long awaited settlement offer.

Next, FIE asserted it could not make an offer until the claim had been discussed at length between various claims personnel, a process which would take considerable time, even though claims personnel had discussed the claim long ago.

At one point, after FIE admitted coverage, it advanced Moukalled $10,000 in an attempt to shield itself from future liability for its conduct.

Finally, on December 9, 1985, some 19 months after the incident, FIE made the first settlement offer of $145,000, which amount was unreasonable.   Nonetheless, Moukalled was disabled and desperate and instructed her counsel to accept the offer as soon as possible.   By falsely contesting coverage and thereafter repeatedly failing to make the promised settlement offer, FIE sought to aggravate Moukalled's financial, physical and emotional hardship, so that when an offer finally was made, Moukalled would likely jump and accept it, and FIE thereby would settle the claim for considerably less than its fair value.   FIE engaged in a similar course of conduct with one Marshall, Moukalled's co-plaintiff in the action against the Wagners.   FIE in time offered Marshall $80,000 on a claim which was worth considerably more.   Marshall had the strength and ability to reject FIE's paltry settlement offer and ultimately settled for $174,000, more than double the amount of FIE's initial offer.   As a consequence of FIE's outrageous acts, Moukalled suffered severe emotional and physical distress.   Moukalled prayed for compensatory damages according to proof, as well as punitive damages in excess of $5 million.

Defendants demurred on the ground Moukalled had failed to allege facts constituting outrageous conduct;  the nonpayment or delay in payment of a third-party claim does not, as a matter of law, constitute outrageous conduct;  further, conclusory allegations as to defendants' state of mind were insufficient to constitute outrageous conduct.

The matter was heard on February 7, 1989, and the trial court sustained defendants' demurrer without leave to amend.   In ruling on the matter, the trial court stated:  “all we have here is ․ a 790.03 case that you're just calling by another name and it just doesn't exist anymore.  [¶] This is—the—the line of cases that—that develop this tort of intentional infliction of emotional distress doesn't cover things like taking a position adverse to the other party's interest, engaging in hard negotiating tactics and all that sort of thing.   That's not conduct outside the bounds of human decency so that no one should have to endure it․”

Following entry of the order of dismissal, Moukalled appealed.


Moukalled contends:  (1) Even after Moradi–Shalal, third parties may sue insurers for IIED as well as other torts;  and (2) a cause of action for IIED will lie against an insurer which has engaged in outrageous unfair tactics and affirmative acts that are unreasonable or intentional.


1. Moukalled alleged outrageous conduct by defendants so as to support a cause of action for IIED.

Moradi–Shalal overruled Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, holding there is no private civil cause of action against an insurer for violation of section 790.03.   (Moradi–Shalal, supra, 46 Cal.3d at pp. 292–304, 250 Cal.Rptr. 116, 758 P.2d 58.)   However, Moradi–Shalal declared “courts retain jurisdiction to impose civil damages or other remedies against insurers in appropriate common law actions, based on such traditional theories as fraud, infliction of emotional distress, and (as to the insured) either breach of contract or breach of the implied covenant of good faith and fair dealing.   Punitive damages may be available in actions not arising from contract, where fraud, oppression or malice is proved.  (See Civ.Code, § 3294.)   In addition, prejudgment interest may be awarded where an insurer has attempted to avoid a prompt, fair settlement.  (See id., § 3291.)”  (Moradi–Shalal, supra, at pp. 304–305, 250 Cal.Rptr. 116, 758 P.2d 58.)

Thus, the issue before us is not whether a third party claimant may maintain an action against an insurer for IIED after Moradi–Shalal;  defendants concede that in appropriate cases a plaintiff may recover against an insurer for IIED.   The question presented is whether Moukalled alleged outrageous conduct by defendants so as to state a cause of action for IIED.   We conclude the alleged misconduct was outrageous and therefore reverse.

a. Standard of appellate review.

 The function of a demurrer is to test the sufficiency of a pleading by raising questions of law.  (Buford v. State of California (1980) 104 Cal.App.3d 811, 818, 164 Cal.Rptr. 264.)   When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action.  (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)   The allegations are regarded as true and are liberally construed with a view to attaining substantial justice.  (Shaeffer v. State of California (1970) 3 Cal.App.3d 348, 354, 83 Cal.Rptr. 347;  King v. Central Bank (1977) 18 Cal.3d 840, 843, 135 Cal.Rptr. 771, 558 P.2d 857.)

 When a demurrer is sustained without leave to amend, we decide whether there is a reasonable possibility the defect can be cured by amendment.   If not, there has been no abuse of discretion and we affirm.  (Blank v. Kirwan, supra, 39 Cal.3d at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

b. Elements of the tort.

The elements of a prima facie case for the tort of IIED are summarized in Davidson v. City of Westminster (1982) 32 Cal.3d 197, 209, 185 Cal.Rptr. 252, 649 P.2d 894, as follows:  “ ‘(1) extreme and outrageous conduct by the defendant with the intention of causing, or reckless disregard of the probability of causing, emotional distress;  (2) the plaintiff's suffering severe or extreme emotional distress;  and (3) actual and proximate causation of the emotional distress by the defendant's outrageous conduct.   [Citations.]’ ”  It must also appear the defendant's conduct was unprivileged.  (Ibid.)

“ ‘Conduct to be outrageous must be so extreme as to exceed all bounds of that usually tolerated in a civilized community.  [Citations.]’ ”  (Davidson v. City of Westminster, supra, 32 Cal.3d at p. 209, 185 Cal.Rptr. 252, 649 P.2d 894.)   Behavior may be considered outrageous “ ‘if a defendant (1) abuses a relation[ship] or position which gives him power to damage the plaintiff's interest;  (2) knows the plaintiff is susceptible to injuries through mental distress;  or (3) acts intentionally or unreasonably with the recognition that the acts are likely to result in illness through mental distress.   [Citations.]’  [Citation.]”  (Wallis v. Superior Court (1984) 160 Cal.App.3d 1109, 1120, 207 Cal.Rptr. 123.)

c. Insurer misconduct beyond violation of statutory duties required to state cause of action for IIED.

 In Lee v. Travelers (1988) 205 Cal.App.3d 691, 693, 252 Cal.Rptr. 468, the plaintiffs, after settling their underlying legal malpractice claim against two of defendants' insureds, filed an action against defendant insurers, alleging violations of sections 790.02 and 790.03, conspiracy, and intentional and negligent infliction of emotional distress.   The plaintiffs plead that although defendants were chargeable in December 1981 with knowledge their insureds had committed malpractice, they had refused to settle the case for more than its nuisance value until it was assigned to trial in February 1986, at which time they agreed to a combined settlement of $800,000.  (Ibid.)  The trial court sustained defendants' demurrers without leave to amend.

The reviewing court affirmed.   As to the IIED count, it observed that plaintiffs had “explicitly premised their [IIED] count upon defendants' purported failure to ‘fulfill[ ] their statutory duties ․’ and ha[d] not alleged with specificity any other acts ‘․ so extreme as to exceed all bounds of that usually tolerated in a civilized community.’ ”  (Lee, supra, 205 Cal.App.3d at p. 695, 252 Cal.Rptr. 468.)   In holding the allegations insufficient, the Lee court stated “it is well-settled that ‘[t]he failure to accept an offer of settlement or the violation of statutory duties under Insurance Code section 790.03 does not in itself constitute the type of outrageous conduct which will support a cause of action for intentional infliction of emotional distress.  [Citations.]’  [Citations.]”  (Lee, supra, 205 Cal.App.3d at pp. 694–695, 252 Cal.Rptr. 468.)

In marked contrast to Lee are the plaintiff's allegations in Hernandez v. General Adjustment Bureau (1988) 199 Cal.App.3d 999, 1007, 245 Cal.Rptr. 288, which were held sufficient to state a cause of action for IIED.   In Hernandez, the plaintiff brought an action against an independent claims adjuster retained by her employer's workers' compensation carrier, alleging IIED in connection with the adjuster's handling of her benefit payments.5  She alleged in essence that “knowing her susceptibility to profound mental distress, and of her repeated attempts at suicide, as a result of the incidents which caused her disability, [defendants] intentionally delayed payments of approved benefits vital to the support of [plaintiff] and her three children.”  (Ibid.)  The alleged behavior was outrageous because the adjuster had knowledge the plaintiff was susceptible to injury through mental distress, it acted intentionally or unreasonably with the recognition that its acts were likely to cause mental distress, and it thereby abused a relationship which gave it the power to damage the plaintiff's interest.  (Ibid;  see also Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 459, 113 Cal.Rptr. 711, 521 P.2d 1103 [insured's lack of funds led, inter alia, to utilities being turned off and repossession of wheelchair, resulting in mental distress due to inability to meet expenses].)

d. Moukalled stated cause of action for IIED because she alleged outrageous insurer misconduct over and above mere violation of statutory duties.

 Section 790.03, subdivision (h) proscribes, inter alia, the following unfair claims settlement practices:  misrepresenting to claimants pertinent insurance policy provisions relating to coverage (subd. (h)(1));  failing to affirm or deny coverage within a reasonable time after proof of loss has been submitted (subd. (h)(4));  and, not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear (subd. (h)(5)).

As set forth above, Moukalled pled that defendants misrepresented to her for nearly one year that there was a coverage dispute when in fact there was coverage under the policy and the Wagners were liable for her injuries;  and, although liability was clear and defendants had sufficient information to extend a fair settlement offer, they repeatedly delayed making an offer with the aim of ultimately achieving a low settlement.   But there is more.

Moukalled also pled that in May 1984, defendants were aware she was unable to walk very well or to work to support herself in her usual occupation as a waitress due to her substantial injuries, and that she was suffering extreme financial hardship, emotional distress and physical pain and discomfort.   Further, she “initially requested from defendants in May of 1984 that defendant [FIE] pay amounts necessary for her to obtain proper medical care, which she could not afford, to decrease the extent of future scarring and permanent injuries and damages”;  FIE refused to pay any medical expenditures and maintained it first would have to thoroughly investigate the incident;  due to FIE's unfair refusal to pay her medical expenses, “she was not able to obtain better medical care which would have decreased the degree of her permanent scarring, injuries, and damages.”

These allegations amount to more than a delay in effectuating settlement or other violation of the statutory proscription on unfair insurance claims settlement practices.  (§ 790.03, subd. (h).)  Moukalled has pled Hernandez-type facts which rise to the level of outrageous conduct by an insurer within the meaning of the tort of IIED.   She alleges defendants knew she was a vulnerable claimant, that her means were limited and that she required medical treatment for injuries sustained in the incident.   By concocting a coverage dispute and further delaying settlement for the purpose of achieving a low settlement, defendants acted intentionally and with a conscious disregard of the probability of causing Moukalled emotional distress.   Defendants thus abused a relationship or position which gave them the power to harm Moukalled's interest.   Accepting these allegations as true, which we must, Moukalled has stated a cause of action for IIED.

e. Defendants waived uncertainty objection.

 Defendants' petition for rehearing raises for the first time the objection that Moukalled failed to allege the nature or extent of her mental suffering with sufficient specificity.  (Bogard v. Employers Casualty Co. (1985) 164 Cal.App.3d 602, 617, 210 Cal.Rptr. 578.)

Defendants' demurrer did raise an uncertainty objection on the ground Moukalled had failed to allege with specificity the wrongdoing of each defendant.   However, defendants did not object on the ground Moukalled had not pled severe emotional distress with greater specificity.   Any uncertainty in Moukalled's allegation as to her harm could have been raised by special demurrer.   It was not so raised and therefore was waived.  (Code Civ.Proc., § 430.80;  (Drennan v. Star Paving Co. (1958) 51 Cal.2d 409, 417, 333 P.2d 757;  Collins v. Rocha (1972) 7 Cal.3d 232, 102 Cal.Rptr. 1, 497 P.2d 225.))

 2. Defendants' reliance on litigation privilege without merit.

 In the petition for rehearing, defendant insurers also brief for the first time whether the litigation privilege of Civil Code section 47, subdivision (2) (hereafter, section 47(2)) immunizes their communications to Moukalled in the underlying action.   Defendants contend Moukalled's IIED claim is barred by section 47(2) because it is based on communications made in the course of the underlying action.   We reject defendants' position that the mere existence of that action affords them the protection of section 47(2).

a. General principles.

Section 47(2) states in relevant part:  “A privileged publication or broadcast is one made—[¶]․  [¶] 2.   In any ․ (2) judicial proceeding, ․” The principal purpose of the privilege is to afford litigants and witnesses access to the courts without fear of being harassed subsequently by derivative tort actions.  (Silberg v. Anderson (1990) 50 Cal.3d 205, 213, 266 Cal.Rptr. 638, 786 P.2d 365.)

Although originally enacted with reference to defamation, the litigation privilege, which is absolute in nature, has been held applicable to any communication, whether or not it amounts to a publication, and to all torts, including IIED, with the sole exception being for malicious prosecution.   (Silberg, supra, 50 Cal.3d at pp. 212–215, 266 Cal.Rptr. 638, 786 P.2d 365.)

In Silberg, our Supreme Court unanimously disapproved the rule that an otherwise privileged communication is not privileged under section 47(2) unless made for the purpose of promoting the “ ‘interest of justice.’ ”   (Silberg, supra, 50 Cal.3d at p. 218, 266 Cal.Rptr. 638, 786 P.2d 365.)   Silberg reasoned that “endorsement of the ‘interest of justice’ requirement would be tantamount to the exclusion of all tortious publications from the privilege, because tortious conduct is invariably inimical to the ‘interest of justice.’   Thus, the exception would subsume the rule.”  (Ibid.)

b. Defendants not privileged persons in underlying action.

 Turning to defendants' argument, their reliance on the litigation privilege of section 47(2) is misplaced.   The privilege applies to participants in the litigation and extends to judicial officers, jurors, parties, attorneys and witnesses.  (Smith v. Hatch (1969) 271 Cal.App.2d 39, 46, 76 Cal.Rptr. 350;  Nagy v. Nagy (1989) 210 Cal.App.3d 1262, 1270, 258 Cal.Rptr. 787;  5 Witkin, Summary of Cal.Law (9th ed. 1988) Torts, § 504, p. 591.)   The privilege does not apply to communicators who are “strangers to the action (neither parties, prospective witnesses nor attorneys in the action) [.]”  (Silberg, supra, 50 Cal.3d at p. 217, 266 Cal.Rptr. 638, 786 P.2d 365.)

Here, defendants, as the Wagners' insurers, were strangers to Moukalled's action against the Wagners—defendants were neither parties, prospective witnesses nor attorneys in the action.   Because defendants are not within the class of privileged persons in that action, their communications to Moukalled are actionable.


Moradi–Shalal explicitly recognized that courts retain jurisdiction to impose civil damages against insurers under appropriate common law theories, including IIED.  (Moradi–Shalal, supra, 46 Cal.3d at pp. 304–305, 250 Cal.Rptr. 116, 758 P.2d 58.)   To state a cause of action for IIED, a plaintiff must allege outrageous conduct, i.e., more than a bare violation by an insurer of its statutory duties.  (Lee v. Travelers, supra, 205 Cal.App.3d at pp. 694–695, 252 Cal.Rptr. 468.)

Here, the plaintiff has pled the requisite outrageous conduct:  The insurer knew she could not continue to support herself as a waitress as a result of her injury and that she required funds for medical care to treat the injury sustained in the incident.   It falsely asserted a coverage dispute for nearly one year and then further delayed settlement although liability was reasonably clear.   It did so for the purpose of achieving a cheap settlement with the desperate plaintiff.   Such abuse of a vulnerable claimant amounts to conduct “ ‘so extreme as to exceed all bounds of that usually tolerated in a civilized community.  [Citations.]’ ”  (Davidson v. City of Westminster, supra, 32 Cal.3d at p. 209, 185 Cal.Rptr. 252, 649 P.2d 894.)

The litigation privilege of section 47(2) is unavailing to defendants because, as insurers, they were strangers to Moukalled's underlying action against defendants' insureds.


The order is reversed.   Moukalled to recover costs on appeal.


1.   The Association for California Tort Reform has filed an amicus curiae brief in support of defendants.

2.   All further statutory references are to the Insurance Code unless otherwise specified.

3.   Moukalled does not challenge the ruling as to her negligence count on appeal.

4.   The ruling on the section 790.03 claim similarly is not before us.

5.   Phillips v. Crawford & Co. (1988) 202 Cal.App.3d 383, 389, footnote 6, 248 Cal.Rptr. 371, disagreed with Hernandez 's allowing the IIED count to go forward, on the ground the superior court lacks jurisdiction to hear a claim based on a failure to pay workers' compensation benefits, even against a third party.

KLEIN, Presiding Justice.

DANIELSON and POUNDERS *, JJ., concur.

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