VACNIN v. 20TH CENTURY INSURANCE COMPANY

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Court of Appeal, Second District, Division 7, California.

Daniel VACNIN, Simon Vacnin, Ilana Elaine Vacnin, Plaintiffs and Appellants, v. 20TH CENTURY INSURANCE COMPANY, Defendant and Respondent.

No. B045850.

Decided: August 09, 1991

David Drexler and Peter O. Israel, for plaintiffs and appellants. Demler, Armstrong & Rowland, and Abilio Tavares, Jr., for defendant and respondent.

The plaintiffs in this action are insureds under an automobile insurance policy issued by defendant 20th Century Insurance Company (20th Century). The trial court granted summary judgment in favor of 20th Century exonerating it from any liability to plaintiffs under the policy and laws relating to bad faith and unfair settlement practice. We reverse.

FACTS AND PROCEEDINGS BELOW

Ilana Vacnin, her infant son Simon and her unborn daughter, Elaine, were involved in an automobile collision while riding as passengers in one of the vehicles. Ilana and Elaine were killed; Simon was left a permanent quadriplegic.

The Vacnins had an insurance policy with defendant 20th Century Insurance Company which included a maximum payment of $30,000 for bodily injuries caused by an uninsured motor vehicle. In February 1988 plaintiff, Daniel Vacnin, husband and father of the injured insureds, filed an uninsured motorist claim with 20th Century. Under the terms of the policy, in order to preserve uninsured motorist coverage the insured must do at least one of three things within one year of the accident. The insured must either (1) conclude an agreement with the insurance company as to the amount due under the policy; or (2) formally institute arbitration proceedings against the insurance company; or (3) commence an action against the uninsured motorist in a court of competent jurisdiction. (These provisions are based on Ins.Code, § 11580.2, subd. (i).)

When Mr. Vacnin had not received payment or rejection of his claim by July 1988, he filed this action alleging inter alia breach of contract, bad faith and unfair claims settlement practices and requesting declaratory relief. 20th Century answered and filed a cross-complaint for declaratory relief alleging in both pleadings the injuries to the Vacnins were not covered because Mr. Vacnin had failed to comply with any of the three coverage conditions within one year of the accident: i.e., he had not concluded an agreement with the company as to the amount due; he had not formally instituted arbitration proceedings; and he had not commenced suit against the uninsured motorist.

The trial court granted summary judgment in favor of 20th Century on Mr. Vacnin's complaint and 20th Century's cross-complaint.

SUMMARY OF ARGUMENTS AND OUR DECISION

Defendant, 20th Century, presents several theories in support of its summary judgment. These theories can be summarized as follows: (1) Plaintiffs' action for breach of contract is barred under Insurance Code section 11580.2, subdivision (i) because plaintiffs failed, within one year of the accident, to conclude an agreement with 20th Century as to the amount due under the policy, initiate arbitration proceedings or commence suit against the uninsured motorist. (2) Failure to take any of the steps just mentioned entitled 20th Century to a judgment declaring plaintiffs' claim was not covered under the policy. (3) Because plaintiffs' claim was not covered under the policy, 20th Century is not liable in tort for denying coverage. (4) Under the reasoning of Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58, no private cause of action exists for violation of the duties prescribed in Insurance Code section 790.03. (5) Even if such a cause of action in first party cases survived Moradi-Shalal, plaintiffs' cause of action is barred by their failure to first obtain a determination they were entitled to benefits under the policy and the amount thereof and by the fact their claim was not covered under the policy.

Plaintiffs' argument in opposition to summary judgment can be summarized as follows: (1) Plaintiffs did reach an agreement with 20th Century as to the amount due under the policy within one year from the date of the accident. (2) 20th Century failed to give plaintiffs notice of the necessity to comply with one of the three prerequisites to the accrual of a cause of action as required by Insurance Code section 11580.2, subdivision (k). (3) 20th Century's bad faith in handling plaintiffs' claim estops it from using plaintiffs' failure to do one of the three aforementioned acts as a basis for denying coverage or barring suit on the contract. (4) Plaintiffs' suit against 20th Century under Insurance Code section 790.03 is not barred because it was filed prior to the decision in Moradi-Shalal. (5) The predetermination rule of Moradi-Shalal is not applicable to first party suits under Insurance Code section 790.03 and lack of coverage does not bar suits for breach of the duties prescribed by that statute.

For the reasons discussed below, we conclude the undisputed facts established plaintiffs did not timely comply with any of the three requirements for preservation of coverage under the policy or accrual of a cause of action and that 20th Century was not required to give plaintiffs notice of the necessity to comply with those requirements because 20th Century had been notified plaintiffs were represented by an attorney. However, we also conclude these undisputed facts did not entitle 20th Century to summary judgment.

If plaintiffs' failure to comply with any of the requirements for preservation of coverage or accrual of a cause of action under the policy was caused by the bad faith of 20th Century then 20th Century is estopped from asserting plaintiffs' failure as a bar to plaintiffs' causes of action or as a basis for denying coverage. Triable issues of fact exist on this issue. Furthermore, even if first party suits are barred under the reasoning of Moradi-Shalal such a bar does not apply to this action which was filed before the decision in Moradi-Shalal. The predetermination rule of Moradi-Shalal does not apply to first party suits.

DISCUSSION

I. THE UNDISPUTED FACTS ESTABLISH PLAINTIFFS DID NOT TIMELY COMPLY WITH ANY OF THE PROCEDURAL REQUIREMENTS FOR PRESERVATION OF COVERAGE AND ACCRUAL OF A CAUSE OF ACTION UNDER THE POLICY'S UNINSURED MOTORIST PROVISIONS, AND THAT 20TH CENTURY WAS ON NOTICE PLAINTIFFS WERE REPRESENTED BY AN ATTORNEY.

Section 11580.2, subdivision (i) of the Insurance code provides: “(1) No cause of action shall accrue to the insured under any policy or endorsement provision issued pursuant to this section unless one of the following actions have been taken within one year from the date of the accident. [¶] (1) Suit for bodily injury has been filed against the uninsured motorist, in a court of competent jurisdiction. [¶] (2) Agreement as to the amount due under the policy has been concluded. [¶] (3) The insured has formally instituted arbitration proceedings.” This provision creates an absolute prerequisite to the accrual of any cause of action against the insurance company under the uninsured motorist law and does not create a conventional statute of limitations. (California State Auto. Assn. Inter-Ins. Bureau v. Cohen (1975) 44 Cal.App.3d 387, 396, 118 Cal.Rptr. 890.) Thus, the statute creates in reality an exclusion from coverage if certain prerequisites are not met. These prerequisites are also treated as excluding coverage under terms of the 20th Century policy.

Perhaps fearing the procedural requirements of subdivision (i) would produce a trap for the unwary insured, the Legislature added a requirement that the insurance company notify it insured of the time limits in subdivision (i) at least 30 days before they expire. Failure to do so tolls the running of these time limits until 30 days after written notice is given. (Ins.Code, § 11580.2, subd. (k); Branham v. State Farm Mut. Auto Ins. Co. (1975) 48 Cal.App.3d 27, 30-31, 121 Cal.Rptr. 304.) Assuming wrongly, as the facts in this case show, the procedural requirements of subdivision (i) would not produce a trap for insureds represented by counsel, the Legislature provided notice under subdivision (k) “shall not be required if the insurer has received notice that the insured is represented by an attorney.” (Ins.Code, § 11580.2, subd. (k).)

The undisputed evidence shows plaintiffs failed to meet any of the three procedural requirements for uninsured motorist coverage. It is clear from the correspondence between 20th Century and Drexler, plaintiffs' attorney, no agreement as to the amount due under the policy was concluded within the one-year period. Mr. Vacnin's declaration someone at 20th Century told him the policy limit of $30,000 would be paid “as soon as their routine investigation was completed” does not raise a triable issue of fact. The only reasonable inference that can be drawn from that statement is the “routine investigation” would have to show the Vacnins were entitled to payment under the terms of the policy. No arbitration proceeding was ever initiated by the Vacnins. A lawsuit was not filed against the uninsured driver of the vehicle until November 8, 1988, more than a year and four months after the accident.

The evidence is also undisputed 20th Century received written notice the Vacnins were represented by an attorney. Therefore, 20th Century was not required to give the Vacnins notice of the running of the one-year period. (Ins.Code, § 11580.2, subd. (k).) Mr. Vacnin's declaration that Drexler was not representing him and the children with respect to the uninsured motorist claim cannot be considered. Mr. Vacnin admitted, in response to a request from 20th Century, that prior to July 1, 1988, 20th Century Insurance Company had been notified by the law offices of David Drexler that “said attorneys were representing ... David Vacnin, Simon Vacnin, and Ilana Elaine Vacnin with regard to uninsured motorist claims being made by said cross defendants with regard to the July 1, 1987, accident.” Plaintiffs are bound by that admission; they cannot introduce evidence to the contrary unless the trial court grants permission to withdraw or amend the request. (Code Civ.Prox., § 2033, subds. (m), (n); and see Thompson v. Williams (1989) 211 Cal.App.3d 566, 573-574, 259 Cal.Rptr. 518.)1

In summary, the undisputed evidence shows Drexler represented the Vacnins on their claim for benefits under the uninsured motorist provisions of their policy; Drexler notified 20th Century of his representation; Drexler failed to conclude an agreement on payment, initiate arbitration or file suit on the Vacnins' behalf within one year from the date of the accident.

II. PLAINTIFFS' CAUSES OF ACTION ARE NOT BARRED BY THEIR FAILURE TO PRESERVE COVERAGE IF THAT FAILURE WAS CAUSED BY 20TH CENTURY'S BAD FAITH.

The “coverage” issue in this case is not the typical one of whether the loss suffered by the insured was protected against by the policy. (See, e.g., Murray v. State Farm Fire & Casualty Co. (1990) 219 Cal.App.3d 58, 61-62, 268 Cal.Rptr. 33; Native Sun Investment Group v. Ticor Title Ins. Co. (1987) 189 Cal.App.3d 1265, 1278, 235 Cal.Rptr. 34.) It is undisputed the Vacnins were “covered” for bodily injury caused by uninsured motor vehicles.

Obviously, if there was no substantive coverage under the policy for the loss the Vacnins suffered, bad faith on the part of 20th Century in handling their claim could not create coverage where none existed. (Murray, supra, 219 Cal.App.3d at pp. 65-66, 268 Cal.Rptr. 33.) But 20th Century does not contend the Vacnins failed to meet the substantive coverage requirements. Its only basis for denying their claim was that coverage lapsed when, within a year from the date of the accident, the Vacnins had not settled with 20th Century, instituted arbitration proceedings or filed suit against the uninsured motorist. The performance of any of these requirements could be affected by bad faith conduct on the part of 20th Century. Our focus is on the claims adjustment procedures 20th Century followed in this case.

Clearly, an insurer's failure to deal fairly and in good faith with its insured with respect to a policy provision may estop the insurer from asserting that policy provision as a defense to a suit for benefits under the policy.

For example, in Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032, the insurer refused to pay benefits under plaintiff's fire insurance policy on the ground plaintiff refused to appear before the insurer and submit to an examination under oath and produce certain documents as required under the terms of his policy. Plaintiff sued the insurance company for breach of the covenant of good faith and fair dealing in the denial of benefits. His complaint alleged the insurance company and other defendants schemed to deprive him of benefits by falsely implying to arson investigators he had a motive to commit arson and then, while criminal charges were pending against him, ordered plaintiff to appear for an examination knowing he would not do so under advice of counsel. The insurance company used plaintiff's failure to appear as a pretext for denying benefits under the policy. (Id., at pp. 570-571, 108 Cal.Rptr. 480, 510 P.2d 1032.) The court held the complaint stated a cause of action for bad faith, rejecting the insurance company's argument plaintiff's breach of an obligation under the contract excused the insurer from its implied in law duty of good faith and fair dealing. (Id. at p. 578, 108 Cal.Rptr. 480, 510 P.2d 1032.) More pertinent to our case, the court stated in a footnote, “[T]he allegations of the complaint demonstrate that plaintiff's failure to appear was induced by defendants' conduct, in breach of their duty of good faith and fair dealing. Therefore, plaintiff's obligation to appear may be seen as excused by defendants' alleged breach.” (Id. at p. 578, fn. 9, 108 Cal.Rptr. 480, 510 P.2d 1032.)

In Elliano v. Assurance Co. of America (1970) 3 Cal.App.3d 446, 450, 83 Cal.Rptr. 509, the court held the insurer could not enforce a policy provision setting a 12-month time limit for bringing an action on the policy because by its words and conduct the insurer induced the insured to delay filing suit beyond the 12-month limit.

“Bad faith” as that term is used in disputes over payment of insurance benefits means an unreasonable withholding of benefits; a withholding without proper cause. (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 920, 921, 148 Cal.Rptr. 389, 582 P.2d 980.) The term does not connote malicious or even intentional misconduct but rather conduct violating community standards of decency, fairness or reasonableness. (Id. at p. 921, fn. 5 at p. 922, 148 Cal.Rptr. 389, 582 P.2d 980.) Similarly, an estoppel may arise without a showing of fraud on the part of the one estopped. (Benner v. Industrial Acc. Com. (1945) 26 Cal.2d 346, 349, 159 P.2d 24.) The following are indicia of unreasonable conduct: failure to thoroughly investigate the claim. (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819, 169 Cal.Rptr. 691, 620 P.2d 141; unduly restrictive interpretation of the policy terms (Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 277, 203 Cal.Rptr. 672); purposefully delaying payment of the claim (Richardson v. Employers Liability Assur. Corp. (1972) 25 Cal.App.3d 232, 239, 102 Cal.Rptr. 547); and dilatory processing of the claim (Fleming v. Safeco Ins. Co. (1984) 160 Cal.App.3d 31, 37, 206 Cal.Rptr. 313.)

One of the things that would have prevented lapse of the Vacnins' coverage, and given rise to a suit on the policy, was an agreement as to the amount due under the policy. Since it takes two to conclude a settlement, if 20th Century unreasonably failed to settle with the Vacnins within a year from the date of the accident, 20th Century is estopped from raising lapse of coverage and section 11580.2(i) of the Insurance Code to bar the Vacnins' claim for benefits. The Vacnins do not have to prove at trial 20th Century unreasonably interfered with all three alternatives for satisfying the policy and statute. The Vacnins had a contractual and statutory right to walk down any of three paths. 20th Century had a corollary duty not to unreasonably block any of these paths. If it unreasonably blocked one of these paths, it is no defense to assert the other paths remained clear. To accept that argument would mean 20th Century could unilaterally amend the policy and the statute to provide plaintiffs with two paths instead of three.

The complaint in this action alleges that after the Vacnins filed their claim for benefits 20th Century unreasonably failed to conclude a settlement by failing and refusing to adequately investigate the claim, failing to provide any reasonable or justifiable basis for withholding benefits and failing to act diligently in the investigation and processing of their claim. The insurer's failure to properly investigate the insureds' claim breaches the implied covenant of good faith and fair dealing. (Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 817, 169 Cal.Rptr. 691, 620 P.2d 141.) An inherently unreasonable basis for denying benefits will also support a binding of bad faith. (Delgado v. Heritage Life Ins. Co., supra, 157 Cal.App.3d 262, 277, 203 Cal.Rptr. 672.) Perhaps most relevant to the Vacnins' situation, it has been held the insurer's failure to pursue settlement of the claim with reasonable diligence breaches the covenant of good faith and fair dealing. (Fleming v. Safeco Ins. Co., supra, 160 Cal.App.3d at p. 37, 206 Cal.Rptr. 313; McCormick v. Sentinel Life Ins. Co. (1984) 153 Cal.App.3d 1030, 1039-1040, 200 Cal.Rptr. 732.)

A well-settled principle of summary judgment motions, often overlooked by defendants, is notwithstanding the plaintiff's burden of proof at trial, the defendant who moves for summary judgment bears the burden of negating a necessary element of the plaintiff's case or stating a complete defense. (Estate of Fisher (1988) 198 Cal.App.3d 418, 423, 244 Cal.Rptr. 5; Security Pac. Nat. Bank v. Associated Motor Sales (1980) 106 Cal.App.3d 171, 179, 165 Cal.Rptr. 38.) The Vacnins were not obligated to submit declarations showing a triable issue of fact as to their bad faith claims unless 20th Century produced evidence that would negate those claims. 20th Century produced no such evidence.

As we noted above, 20th Century's sole basis for denying the Vacnins' claim for uninsured motorist benefits was the Vacnins' failure to settle, file for arbitration or commence litigation against the uninsured motorist within one year from the date of the accident. 20th Century successfully demonstrated no triable issues of fact exist as to that failure. However, 20th Century presented no evidence directed toward the Vacnins' allegations of bad faith in the settlement process during the one-year period following the accident.

Not only did 20th Century fail to negate the Vacnins' allegations of bad faith, the evidence relevant to its claim processing activities clearly suggests the presence of triable issues of fact as to those allegations.

The accident at issue occured on July 1, 1987, in Florida. The record shows Drexler wrote to 20th Century in February 1988 enclosing a copy of the police report. In May 1988, 20th Century wrote to Drexler stating it was investigating the following: (1) liability coverage on the other vehicle involved in the accident; (2) uninsured motorist protection on the vehicle in which the Vacnins were passengers; (3) whether Florida is a no-fault state and, if so, how that affects the Vacnins' claim. The letter also stated the driver of the vehicle in which the Vacnins were passengers “is in Israel. We will follow up with her when she returns.” The letter did not suggest 20th Century had any basis for denying the claim; only that “our investigation has not yet been completed.” The letter did not request any further information from the Vacnins.

The record also contains a letter from 20th Century to Drexler dated July 11, 1988, 11 days after the one-year period had elapsed. This letter shows the accident was still under investigation by 20th Century. The author of the letter, a claims supervisor for 20th Century, states, “I would like to have information regarding all of the surviving heirs of Ilana Vacnin. . . . I would like to know what information do you have to show that either vehicle involved in the collision was uninsured at the time of the collision.... With regard to the two minor passengers, we need some documentation of their claims. Medical records will be sufficient.” The letter goes on to point out the one-year period had elapsed and that 20th Century had not received a written demand for arbitration. The letter requests a copy of a summons and complaint “filed against the responsible party within the appropriate time requirements as required by our policy of insurance.” The letter concludes, “upon receiving the above information, discussion can be entered into to resolve these claims.”

The letters to Drexler from 20th Century raise a triable issue of fact as to whether 20th Century was pursuing the settlement of this claim with any reasonable degree of diligence. The July 11 letter shows 20th Century had not yet resolved a major issue on any uninsured motorist claim: whether either vehicle involved in the collision was uninsured. The letter, for the first time, asks Drexler for any information he has on that issue. The letter also requests, for the first time, medical records to document the claims of the minor passengers and information on Ms. Vacnin's surviving heirs. The Vacnins filed their claim in February 1988, therefore 20th Century had had five months to at least determine whether the accident involved an uninsured motor vehicle but had failed to do so. The letter also shows after five months 20th Century did not have medical documentations on the claim. A trier of fact could conclude five months was a reasonable time for 20th Century to have gathered the information it told Drexler it needed. Put another way, a trier of fact could conclude it was unreasonable for 20th Century to wait until the one-year period had elapsed and only then request information it claimed was necessary before it could enter into a discussion of the Vacnins' claims.

In Fleming v. Safeco Ins. Co., supra, bad faith was established in part on evidence “some seven months elapsed from the date of the accident before Safeco even concluded from its investigation that the vehicles involved were uninsured.” (160 Cal.App.3d at p. 37, 206 Cal.Rptr. 313.) The Fleming opinion does not mention the date Safeco received the claim but for comparison purposes we note in the present case more than a year from the date of the accident 20th Century had still not concluded from its investigation whether the vehicles involved were uninsured. Fleming also mentions as evidence of bad faith “requests by Safeco for information from plaintiff's counsel seem to have been spaced out over a much longer period than was reasonable under the circumstances.” (Ibid.) Here, no information was requested from plaintiffs' counsel until after the one-year period had elapsed. If 20th Century, knowing it needed information from the Vacnins in order to settle the claim, deliberately waited until after the one-year period elapsed before requesting that information its unconscionable conduct would clearly breach its duty of good faith and fair dealing. (Cf. Richardson v. Employers Liability Assur. Corp., supra, 25 Cal.App.3d at p. 239, 102 Cal.Rptr. 547.)

III. MORADI-SHALAL DOES NOT BAR PLAINTIFFS' CAUSE OF ACTION UNDER INSURANCE CODE SECTION 790.03.

In Moradi-Shalal, supra, our Supreme Court reversed the position it had previously taken in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, and held third parties do not have a private cause of action under Insurance Code section 790.03 against an insurance company. At the present time we are waiting for the court to drop the second shoe and decide whether section 790.03 provides a private cause of action to insureds against their own insurer. Zephyr Park v. Superior Court (1989) 213 Cal.App.3d 833, 836-838, 262 Cal.Rptr. 106 predicted the second shoe will point in the same direction as Moradi-Shalal. That prediction may well turn out to be correct. But Zephyr Park also predicts the Supreme Court decision, when it comes, will not apply retroactively to cases filed before Moradi-Shalal became final. (Zephyr Park, supra, 213 Cal.App.3d at pp. 838-841, 262 Cal.Rptr. 106; and see Moradi-Shalal, supra, 46 Cal.3d at p. 305, 250 Cal.Rptr. 116, 758 P.2d 58.) The present case was filed before the opinion in Moradi-Shalal was handed down. Therefore, we conclude plaintiffs' cause of action against their insurer is not barred even assuming Moradi-Shalal, by analogy, applies to first party cases.

A secondary holding of Moradi-Shalal was that a prior final determination of the insured's liability was a condition precedent to a third party action against the insurer under Insurance Code section 790.03 (46 Cal.3d at p. 313, 250 Cal.Rptr. 116, 758 P.2d 58.) 20th Century argues this “predetermination” rule should apply by analogy to first party actions requiring, in uninsured motorist cases, the insured's entitlement to payment and the amount must be determined through settlement or arbitration before the insureds can sue their insurer for violation of Insurance Code section 790.03.

20th Century's position is supported by Interinsurance Exchange v. Superior Court (1989) 213 Cal.App.3d 1439, 262 Cal.Rptr. 392. In that case the real party in interest, Maeshack, sued his insurance company for unfair settlement practices under Insurance Code section 790.03 regarding his claim for uninsured motorist benefits. The court held the trial court erred in overruling the insurance company's demurrer to Maeshack's complaint. The court reasoned, “[This] situation is similar to the cases involving third party bad faith claims in that the insurer has no liability to Maeshack under the uninsured motorist provision absent liability of the uninsured motorist to him. Statutory provision has been made for determination of liability of an uninsured motorist in Insurance Code section 11580.2, which provides, in part: “The policy ... shall provide that the determination as to whether the insured shall be legally entitled to recover damages, and if so entitled, the amount thereof, shall be made by agreement between the insured and the insurer or, in the event of disagreement, by arbitration.' ... Maeshack alleges petitioner's bad faith refusal to settle; however, nowhere in the second amended complaint does he allege that his entitlement to damages, and the amount thereof, have been determined in arbitration proceedings with the insurer, as required by subdivision (f) of section 11580.2.” (Id. at p. 1443, 262 Cal.Rptr. 392, citations and fn. omitted.)

Interinsurance Exchange v. Superior Court is contrary to every other case which has examined the applicability of the “predetermination” rule to first party suits under Insurance Code section 790.03. (California State Auto. Ass'n. Inter-Ins. Bureau v. Superior Court (1986) 184 Cal. App.3d 1428, 1433, 229 Cal.Rptr. 409; Bodenhamer v. Superior Court (1987) 192 Cal.App.3d 1472, 1480, 238 Cal.Rptr. 177; Carter v. Superior Court (1987) 194 Cal.App.3d 424, 427, 239 Cal.Rptr. 723; Zephyr Park v. Superior Court, supra, 213 Cal.App.3d at p. 840, 262 Cal.Rptr. 106 (dictum); Tricor California, Inc. v. Superior Court (1990) 220 Cal.App.3d 880, 883-884, 269 Cal.Rptr. 642.) As all of these cases recognize, the theoretical basis for the “predetermination” rule—prejudice to the insurance company—has no relevance to first party actions under Insurance Code section 790.03.

In Moradi-Shalal, the court summarized the reasons for requiring a final judicial determination of the insured's liability to the plaintiff prior to plaintiff's suit against the insurer under Insurance Code section 790.03.

“First, a joint trial [against the insured and the insurer] would obviously violate both the letter and spirit of [Evid.Code, § 1155]. That section provides that evidence that an alleged tortfeasor is insured is inadmissible to prove the insured's negligence or wrongdoing. Its 'obvious purpose' is to prevent the prejudicial use of such evidence in a proceeding to determine the insured's liability. [¶] Second, a joint trial would hamper the defense of the insured on the liability question. We stated, 'unless the trial against the insurer is postponed until the liability of the insured is first determined, the defense of the insured may be seriously hampered by discovery initiated by the injured claimant against the insurer.' (Italics added.) Third, 'damages suffered by the injured party as a result of the insurer's violation of subdivisions (h)(5) and (h)(14) may best be determined after the conclusion of the action by the third party claimant against the insured.' ” (46 Cal.3d at p. 306, 250 Cal.Rptr. 116, 758 P.2d 58; citations omitted.)

These considerations do not apply in a suit by an insured against his or her insurance company under Insurance Code section 790.03 for failure to settle an uninsured motorist claim, as the court explained in California State Auto. Assn. Inter-Ins. Bureau v. Superior Court, supra, 184 Cal.App.3d at page 1433, 229 Cal.Rptr. 409. “The prejudicial use of evidence of insurance is not a concern in a suit by an insured against an insurer” and ”[n]o potential discovery problems exist as no third party is involved.” (Ibid.) Furthermore, we see no reason why, in first party cases, damages on the statutory claim are “best determined” after the contract claim has been decided.

The court in Interinsurance Exchange, supra, expressed the fear determining the insurance company's obligation to pay under the policy and its unlawful refusal to do so in the same suit “would permit prejudicial use of evidence of insurance applicable to the claim....” (213 Cal.App.3d at p. 1443, fn. 4 cont'd. at p. 1444, 262 Cal.Rptr. 106.) But this prejudice against insurance companies would exist in any case in which an insurance company is a defendant. It is no different from the prejudice that might exist where a traditional “bad faith” claim is joined with a claim for policy benefits. Courts have long permitted such claims to proceed simultaneously. (See Brandt v. Superior Court (1985) 37 Cal.3d 813, 816, 210 Cal.Rptr. 211, 693 P.2d 796; Austero v. National Cas. Co. (1978) 84 Cal.App.3d 1, 18, 148 Cal.Rptr. 653.)

We believe the majority view is the better reasoned one and therefore hold that in first party claims the insurer's liability on the policy need not be finally determined before the insured can bring an action under Insurance Code section 790.03.2

The judgment is reversed.

FOOTNOTES

1.  We note plaintiffs did move to withdraw the admission and the motion was denied with a $1,000 sanction imposed against Drexler. Drexler represents the Vacnins in this appeal but does not raise the denial of this motion as an issue.

2.  Because we reverse the judgment we necessarily disagree with respondent's claim the appeal is frivolous. Nor are we willing to impose sanctions on Drexler for arguing he was not representing the Vacnins on their claim for benefits despite the binding admission of that fact in the record and Drexler's failure to appeal the court's denial of his motion to withdraw or amend that admission. Drexler has already been sanctioned on this matter in the sum of $1,000 which carries an automatic referral to the State Bar under Business & Professions Code section 6086.7, subdivision (c). We are forwarding a copy of this opinion to the State Bar for inclusion in its record on this matter.

JOHNSON, Associate Justice.

LILLIE, P.J., concurs. FRED WOODS, J., concurs in the judgment only.

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