HARRIS v. TASHMA

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

Essie HARRIS, Individually and as Administrator, etc., et al., Plaintiffs and Appellants, v. Albert TASHMA, M.D., et al., Defendants and Respondents.

No. B030622.

Decided: April 25, 1989

A. Tod Hindin, Los Angeles, for plaintiffs and appellants. Kirtland & Packard and Gregory M. Hulbert, Los Angeles, for defendants and respondents.

Plaintiffs and appellants Essie Harris, individually and as the administrator of the estate of Jerry Harris, deceased, Yolanda Harris and Jerry Harris, Jr., appeal from the judgment on the pleadings in favor of defendants and respondents Albert Tashma, M.D., and the Vermont Eye Medical Group (“Tashma”), in a statutory bad faith action (Ins.Code, § 790.03, subd. (h)(5)).1  We reverse the judgment.

FACTS

After obtaining a judgment in the amount of approximately $1,000,000 in an action for damages for personal injuries sustained by their decedent, Jerry Harris, in an automobile accident caused by one Robert Jones, plaintiffs brought the present action against Jones' insurer, State Farm Insurance Companies (“State Farm”), the law firm of Spray, Gould & Bowers, Eugene Bennett, and Tashma, seeking damages based on the insurer's alleged refusal to negotiate a prompt, fair and equitable pretrial settlement of the claim.

In the third cause of action of their first amended complaint, plaintiffs alleged that on April 22, 1978, a vehicle driven by Robert Jones struck the rear of the vehicle driven by Harris, who ultimately lost the sight in his right eye and became totally disabled as a result of the collision.   Jones' insurer, State Farm, was promptly notified of the accident and within thirty days thereafter Jones' liability for the damage sustained by Harris, which substantially exceeded the $250,000 limit of the policy issued to Jones by State Farm, became reasonably clear.   Because of State Farm's bad faith refusal to engage in meaningful settlement negotiations, despite multiple offers by Harris to settle within the policy limits, Harris was forced to sue Jones, and participate in a three-week trial culminating in the April 1985 verdict in favor of Harris.

Plaintiffs alleged State Farm knew Harris was disabled from working and in poor physical and financial condition, and needed to have his claim promptly and fairly paid.   Aware that Harris, because of his physical condition, was particularly subject to the effects of economic stress, State Farm and its attorneys, Spray, Gould & Bowers, employed Tashma to prepare and disseminate a false medical report minimizing the severity of the injury suffered by Harris.   Because of extreme emotional distress caused him by defendants' conduct, Harris suffered a stroke and died in August 1985.   The present plaintiffs are his heirs.

Plaintiffs alleged on information and belief that prior to April 1978, State Farm, its attorneys, Eugene Bennett, and Tashma met and orally conspired to (1) violate the provisions of Insurance Code section 790.03 by “intentionally, knowingly and with such frequency as to indicate a general business practice failing to attempt in good faith to effectuate the prompt, fair and equitable settlement of claims asserted against State Farm ․ and their insureds once the liability of ․ State Farm ․ or their insureds had become reasonably clear;”  (2) employ physicians, including Tashma, “to examine claimants and then report falsely upon their medical condition so as to facilitate the efforts of the other defendants in procuring inadequate and inequitable settlements of claims by misleading the claimants and their attorneys as to the true value of their claims;”  and (3) to use State Farm's superior financial condition, power and delaying tactics “to coerce injured persons to accept unfair and inequitable settlements of claims․”

Plaintiffs alleged that Tashma, an ophthalmologist, engages primarily in the performance of medical services for and at the request of insurance companies, that he was engaged by Spray, Gould and Bowers on at least four hundred occasions to examine persons who made claims against insureds of State Farm, and that Tashma and companies controlled by him, such as the Vermont Eye Medical Group, Inc., received in excess of $1,000,000 for performing such services for insurance companies.   Plaintiffs alleged Tashma is “engaged in the business of assisting in the adjustment of insurance claims by preparing and disseminating reports regarding the medical condition of claimants making insurance claims for the primary purpose of misleading the claimants and their attorneys as to the value of the claims so as to enable the insurers to unfairly and inequitably settle the claims.”

In furtherance of the alleged conspiracy, State Farm required that the decedent, Jerry Harris, be examined by Tashma, who prepared and disseminated to Harris and his attorney a false and fraudulent medical report in an attempt to coerce Harris to settle his claim, first for $7,500, and later for $50,000, when the claim was worth more than $1,000,000.

The trial court granted the motion of defendants Tashma and Vermont Eye Medical Group for judgment on the pleadings on the ground that neither was an “insurer” within the meaning of Insurance Code section 790.03.

CONTENTIONS

Plaintiffs contend they may sue Tashma for conspiring with the insurer to engage in bad faith settlement proceedings.   They rely primarily on the decision in Wolfrich Corp. v. United Services Automobile Assn. (1983) 149 Cal.App.3d 1206, 197 Cal.Rptr. 446, where the court reversed a judgment on the pleadings in favor of the attorneys for an insurance carrier, and held the complaint stated a cause of action against the attorneys for engaging in a conspiracy with the insurer to violate section 790.03, subdivision (h)(5).

Defendants claim privilege under subdivision 2 of Civil Code section 47, and justify raising this theory for the first time on appeal because it involves only a question of law.   Citing Mercury Casualty Co. v. Superior Court (1986) 179 Cal.App.3d 1027, 225 Cal.Rptr. 100, they also urge that Wolfrich should not be extended to affect them as independent medical examiners.

DISCUSSION

“A motion for judgment on the pleadings is tantamount to a general demurrer.   [Citations.]  Upon appellate review, the standard for a judgment on the pleadings is the same as for a judgment of dismissal following a general demurrer.  [Citation.]  Review is limited to the facts alleged in the complaint.   Those facts must be accepted as true, and a judgment on the pleadings may be upheld only if the complaint, liberally construed, fails to state a cause of action on any theory.  [Citation.]”  (Barney v. Aetna Casualty & Surety Co. (1986) 185 Cal.App.3d 966, 973–974, 230 Cal.Rptr. 215.)

In Mercury Casualty Co. v. Superior Court, supra, 179 Cal.App.3d 1027, 225 Cal.Rptr. 100, the plaintiff, who prevailed in his personal injury action but was unsatisfied with the damage award, attempted to collaterally attack the judgment by filing a new action against an insurer and a physician who testified favorably for the defense, on the theory that the disappointing verdict resulted from the witness' allegedly false testimony.  (Id. at pp. 1030–1031, 225 Cal.Rptr. 100.)   The plaintiff charged both defendants with fraud and conspiracy, and the insurer with bad faith refusal to settle the claim.   The fraud cause of action was based upon the allegation that the physician was represented to be an “ ‘independent medical examiner who would conduct a fair and impartial examination of the plaintiff,’ when in fact he was a ‘hireling of the insurance interests who always wrote negative reports concerning claimants for insurance benefits.’ ”  (Id. at p. 1031, 225 Cal.Rptr. 100.)   Distinguishing Agnew v. Parks (1959) 172 Cal.App.2d 756, 343 P.2d 118, the court determined the plaintiff could not have been “ ‘defrauded’ ” by the defendants, as a physician appointed to conduct a medical examination under Code of Civil Procedure section 2032 “is not hired for the purpose of being impartial” (Mercury Casualty Co. v. Superior Court, supra, 179 Cal.App.3d 1027, 1033, 225 Cal.Rptr. 100), but rather, to “provide a means for the defense to have a medical expert of its choice evaluate the plaintiff's claims and be prepared to testify if the case goes to trial.”   (Ibid.)  The court pointed out that the plaintiff had several means of protecting his interests, in that he could have protested selection of the physician, had his attorney present at the examination, used cross-examination to reveal the physician's bias at trial, or brought a motion for new trial or a motion for additur following the disappointing verdict.   Rather than do any of these things, the plaintiff collaterally attacked the judgment in a new action alleging, essentially, intrinsic fraud.  “Just as plaintiff could not obtain equitable relief from the judgment on grounds of intrinsic fraud, he may not attack the judgment in another manner by filing a new action seeking damages based upon unsubstantiated claims of fraud and perjury.”  (Id. at p. 1035, 225 Cal.Rptr. 100.)

The court went on in Mercury Casualty to characterize allegations that the insurer refused to settle its claim because it had the medical examiner's false report and knew his testimony could be used to defeat the plaintiff's claim, as “another angle to [plaintiff's] fraud cause of action,” rather than a bad faith claim.  (Ibid.)  The court explained:  “In order to state a cause of action for ‘bad faith refusal to settle’ (Ins.Code, § 790.03, subd. (h)) plaintiff must plead facts to show that (1) the insurance company had facts to demonstrate that the liability of its insured had become reasonably clear, (2) knowing of these facts, the insurance company did not act in good faith to effectuate a prompt, fair and equitable settlement with the claimant, and (3) there has been a settlement or a final determination that the insured is liable to the claimant.  [Citation.]”  (Ibid.;   now see Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58.)   In Mercury Casualty, “[a]ll plaintiff ․ alleged is that [the insurer] declined to settle the case because it thought it could prevail at trial.   As a practical matter, that is what happened․”  (Mercury Casualty Co. v. Superior Court, supra, 179 Cal.App.3d at pp. 1035–1036, 225 Cal.Rptr. 100.)

 The present case differs from Mercury Casualty.   Here, plaintiffs' decedent obtained a satisfactory verdict, and properly pled the elements of a bad faith cause of action.   What is complained of is the physical and/or emotional damage allegedly caused him and plaintiffs by reason of the defendant's bad faith efforts, prior to trial, to coerce the decedent into settling his case for a fraction of its value.

“ ‘To state a cause of action for conspiracy the complaint must allege:  (1) the formation and operation of the conspiracy;  (2) the wrongful act or acts done pursuant thereto;  and (3) the damage resulting.  [Citations.]’  [Citations.]”  (Wolfrich Corp. v. United Services Automobile Assn., supra, 149 Cal.App.3d 1206, 1210, 197 Cal.Rptr. 446.)  “A cause of action for conspiracy will lie against agents and employees of insurers even though the former are not parties to the agreement of insurance when they join the insurer in a conspiracy to defraud the insured.   As such, they are jointly liable with those with whom they conspire to commit the tort.”  (Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 511, 169 Cal.Rptr. 478.)   Similarly, a cause of action will lie against the defendants in the present case for conspiracy to engage in the tortious bad faith proscribed by Insurance Code section 790.03, subdivision (h)(5).

Wolfrich Corp. v. United Services Automobile Assn., supra, 149 Cal.App.3d 1206, 197 Cal.Rptr. 446, is in point.   There the court determined the immunity afforded attorneys against charges of conspiracy based on advice rendered to corporate clients accused of breach of contract (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576, 108 Cal.Rptr. 480, 510 P.2d 1032;  Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 72, 35 Cal.Rptr. 652), does not apply to attorneys who participate in tortious acts with their clients, such as violating Insurance Code section 790.03, subdivision (h)(5), liability for which may rest on a conspiracy.  (Wolfrich Corp. v. United Services Automobile Assn., supra, 149 Cal.App.3d at p. 1211, 197 Cal.Rptr. 446.)  Wolfrich reiterates the general rule set forth in Younan, and clarifies that (1) the Gruenberg–Wise immunity does not apply to agents and employees of corporations who engage in conspiracies to commit tortious acts, and (2) persons who so conspire to violate the provisions of Insurance Code section 790.03, though not themselves engaged in the business of insurance, may be held liable for damage resulting therefrom.

 There remains a question as to the effect of Civil Code section 47.   We agree with defendants that the issue may be raised for the first time on this appeal, as it is purely one of law presented by undisputed facts.   (Barney v. Aetna Casualty & Surety Co., supra, 185 Cal.App.3d 966, 973, 230 Cal.Rptr. 215.)

The statute provides, in part:  “A privileged publication or broadcast is one made ․ [¶] 2. In any ․ (2) judicial proceeding․”  (Civ.Code, § 47.)

 To fall within the privilege, a communication must:  (1) be made in a judicial proceeding;  (2) have some connection or logical relation to the action;  (3) be made to achieve the objects of the litigation;  and (4) involve litigants or other participants authorized by law.  (Carden v. Getzoff (1987) 190 Cal.App.3d 907, 914, 235 Cal.Rptr. 698, citing Bradley v. Hartford Acc. & Indem. Co. (1973) 30 Cal.App.3d 818, 825, 106 Cal.Rptr. 718.)   It may be made outside of the courtroom, in settlement negotiations (Asia Investment Co. v. Borowski (1982) 133 Cal.App.3d 832, 842, 184 Cal.Rptr. 317), or even “preliminary to a proposed judicial proceeding.”  (Fuhrman v. California Satellite Systems (1986) 179 Cal.App.3d 408, 420, 231 Cal.Rptr. 113.)

The privilege “applies to judges and other official officers, attorneys, parties, jurors, and witnesses, even when their testimony is allegedly perjured or malicious.  [Citations.]”  (Carney v. Rotkin, Schmerin & McIntyre (1988) 206 Cal.App.3d 1513, 1520, 254 Cal.Rptr. 478.)

In Carden v. Getzoff, supra, 190 Cal.App.3d 907, 235 Cal.Rptr. 698, an action for abuse of process and intentional and negligent infliction of emotional distress, we found the privilege applicable to the report prepared by, and the testimony of, an expert accounting witness for the plaintiff's wife in a dissolution action.   In that case, the plaintiff anesthesiologist alleged he was forced to settle the action and to pay his wife $50,000 as her community property share of the goodwill of his practice, “because of respondent's wrongful acts in testifying falsely and misusing the processes of the court.”   (Id. at p. 910, 235 Cal.Rptr. 698.)   We noted in that decision that the absolute privilege accorded by subdivision 2 of section 47 applies to virtually all causes of action, with the exception of an action for malicious prosecution.  (Id. at p. 913, 235 Cal.Rptr. 698, citing Ribas v. Clark (1985) 38 Cal.3d 355, 364, 212 Cal.Rptr. 143, 696 P.2d 637;  Kilgore v. Younger (1982) 30 Cal.3d 770, 778, 180 Cal.Rptr. 657, 640 P.2d 793.) 2

 In the present case, defendants contend the privilege applies to the false medical reports provided by Tashma.   We disagree.

“ ‘The privileges of Civil Code section 47, unlike evidentiary privileges which function by the exclusion of evidence (see Evid.Code, § 900 et seq.), operate as limitations upon liability.’  (Italics added.)   Indeed, on brief reflection, it is quite clear that section 47(2) has never been thought to bar the evidentiary use of every ‘statement or publication’ made in the course of a judicial proceeding:  answers to interrogatories or to questions at depositions are, for example, routinely admitted into evidence and relied on in determining liability even though they are clearly ‘statements made in the course of a judicial proceeding.’   Thus, while section 47(2) bars certain tort causes of action which are predicated on a judicial statement or publication itself, the section does not create an evidentiary privilege for such statements.”  (Oren Royal Oaks Venture v. Greenberg, Bernhard, Weiss & Karma, Inc. (1986) 42 Cal.3d 1157, 1168, 232 Cal.Rptr. 567, 728 P.2d 1202.)

In White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 221 Cal.Rptr. 509, 710 P.2d 309, the jury found the defendant insurer breached the covenant of good faith and fair dealing, and awarded compensatory damages of $20,000.   On appeal, the defendant contended the trial court erred in admitting, as evidence of breach, settlement offers and other matters occurring after commencement of litigation.   The court found the contractual relationship between insurer and insured does not terminate with commencement of litigation, and the duty of good faith and fair dealing thus survived commencement of litigation between them.  (Id. at pp. 885–886, 221 Cal.Rptr. 509, 710 P.2d 309.)   The court also found admission of the settlement offers did not violate Evidence Code section 1152, as “[t]he language of this section does not preclude the introduction of settlement negotiations if offered not to prove liability for the original loss but to prove failure to process the claim fairly and in good faith.3  (Id. at p. 887, 221 Cal.Rptr. 509, 710 P.2d 309, citing Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, 396, 89 Cal.Rptr. 78.)   Finally, the court found admission of the settlement offers was not proscribed by subdivision 2 of Civil Code section 47, stating:  “It is obvious ․ that even if liability cannot be founded upon a judicial communication, it can be proved by such a communication—otherwise Evidence Code section 1152 would be unnecessary, and much of modern discovery valueless.   Defendant's argument, consequently, forces us to draw a careful distinction between a cause of action based squarely on a privileged communication, such as an action for defamation, and one based upon an underlying course of conduct evidenced by the communication.   In the present case plaintiffs do not assert that defendant's communications were defamatory, or done with the intent of causing emotional distress, but instead that they show that defendant was not evaluating and seeking to resolve their claim fairly and in good faith.   In our opinion, section 47, subdivision 2, does not bar admission of the offers for that purpose.”  (White v. Western Title Ins. Co., supra, 40 Cal.3d at p. 888, 221 Cal.Rptr. 509, 710 P.2d 309.)

In a note to his separate concurring opinion in White, Justice Grodin observed that Insurance Code section 790.03, subdivision (h)(5) “apparently contemplates that evidence of settlement offers will come in as part of the means of proving a violation of the statutory duty imposed.   Although the Legislature has not explicitly addressed the common law tort of breach of the implied duty of good faith and fair dealing [alleged in White ], from a policy standpoint there appears to be no difference between the common law duty and the statutory duty imposed by Insurance Code section 790.03, subdivision (h) as regards admissibility of settlement offers.  (White v. Western Title Ins. Co., supra, 40 Cal.3d 870, 891, fn. 2, 221 Cal.Rptr. 509, 710 P.2d 309.)

In our case, as in White, the medical report prepared by Tashma, if false as alleged by plaintiffs, is merely evidence which shows defendants were not evaluating and seeking to resolve the decedent's claim fairly and in good faith.  (Id. at p. 888, 221 Cal.Rptr. 509, 710 P.2d 309.)   Plaintiffs' cause of action against Tashma for statutory bad faith (Ins.Code, § 790.03, subd. (h)(5)) is not precluded by the provisions of Civil Code section 47, subdivision (2).

DECISION

The judgment is reversed.   Appellants are awarded costs on appeal.

FOOTNOTES

1.   Insurance Code section 790.03, subdivision (h)(5) provides:  “The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance․  [¶] (h) Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices:  ․ [¶] (5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”

2.   The plaintiff's position in Carden was similar to that of the plaintiff in Mercury Casualty Co. v. Superior Court, supra, 179 Cal.App.3d 1027, 225 Cal.Rptr. 100.   In Carden, rather than entering into the complained of settlement, the plaintiff could have proceeded to trial and there used cross-examination to reveal the accountant's bias or the inadequacy of his methods or credentials, and presented his own evidence that his practice had no goodwill value.   Instead, he chose to, in effect, collaterally attack the settlement to which he had agreed.

3.   Evidence Code section 1152, subdivision (a) provides:  “Evidence that a person has, in compromise or from humanitarian motives, furnished or offered or promised to furnish money ․ to another who has sustained ․ loss or damage, as well as any conduct or statements made in negotiation thereof, is inadmissible to prove his liability for the loss or damage or any part of it.”

DANIELSON, Associate Justice.

KLEIN, P.J., and ARABIAN, J., concur.

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