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Court of Appeal, Third District, California.

CONTINENTAL INSURANCE COMPANY et al., Defendants and Petitioners, v. SUPERIOR COURT of Sacramento County, Respondent. John Michael SHEA et al., Plaintiffs and Real Parties in Interest.

No. C006698.

Decided: July 10, 1990

Edwin T. Weiberg, Porter, Scott, Weiberg & Delehant, Sacramento, for defendants and petitioners. No appearance for respondent. Neil S. Turner, Scampini, Mortara & Harris, San Francisco, for plaintiffs and real parties in interest.

This writ proceeding is ancillary to a third party action in the trial court in which real parties in interest (plaintiffs) are suing petitioners (defendants) who are insurers of one John Kurt Schill.   The third party action is derivative from an earlier action arising out of an automobile accident caused by Schill's negligent driving in which plaintiffs sued Schill for damages.   After successive demurrers and the interposition of the Supreme Court's decision in Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58, the plaintiffs in the third party action were reduced to a single legal theory of recovery:  intentional infliction of emotional distress.   A complaint so alleging survived demurrer by defendants who now seek a writ of mandate directing the trial court to sustain their demurrer without leave to amend.

We shall hold that an insurer's refusal to pay an advance in anticipation of a settlement between its insured and an injured party is not actionable notwithstanding that liability is clear and the insurer is aware of the injured party's immediate need for the money.   Accordingly, we shall order a peremptory writ to issue.

The facts are taken from the complaint which alleges that John Kurt Schill, while under the influence of alcohol, drove his automobile negligently on a highway, lost control of his vehicle and struck the vehicle operated by plaintiff, John Shea, forcing it off the highway and into a tree.   As a result, Shea suffered serious injury requiring major surgery and hospitalization for a month.   Plaintiff, Linda Shea, John Shea's wife, suffered loss of consortium.

Schill was covered by a $1.5 million policy of liability insurance issued by defendant Continental Insurance Company (Continental).   Continental hired defendant Underwriters Adjusting Company (Underwriters), by whom defendant Marilyn Griffith was employed, to adjust plaintiffs' claim.

In January 1985, plaintiffs filed a complaint against Schill for personal injury and loss of consortium.   Plaintiffs subsequently served defendants with a statement specifying $2,078,267 in compensatory damages.

Underwriters had a policy of making special damages advance payments to Continental's third party claimants where:  (1) liability of the insured to a third party claimant was clear and (2) the claim involved serious bodily injury.   In February 1986, plaintiffs, alleging dire financial circumstances, requested from defendants a $100,000 advance in anticipation of settlement for expenses already incurred.   Defendants by that time were aware plaintiff John Shea had become especially vulnerable to injury from mental distress as a result of his inability financially to provide for his wife and three minor children.   Although John Shea met Underwriters' criteria for receiving the advance payment, defendants declined plaintiffs' request despite the fact defendants' own attorney and local claims adjuster both recommended defendants make the $100,000 advance payment.

Plaintiffs' complaint alleges:  “The above denial of said request was done as part of an agreement and conspiracy entered into between said defendants to coerce and oppress plaintiffs into accepting less than they were fairly entitled to under Mr. John Schill's policy.”   On April 24, 1986, defendants communicated to plaintiffs “their final and unequivocal rejection of plaintiffs' request for an advance on plaintiff's [sic] settlement.”

On or about May 14, 1986, plaintiffs received a letter from their home mortgage lender advising them their mortgage payments were delinquent.   Upon this event, plaintiffs “suffered emotional distress of such substantial quantity and enduring quality that no reasonable man in a civilized society should be expected to endure it.”

On September 16, 1986, defendants, through defendant Griffith, “intentionally communicated to plaintiff [sic] a settlement offer known to be unfairly low (i.e., $1,000,000) for the purpose of taking advantage of the plaintiff's [sic] financial and emotional desperation.”   The offer was made in course and furtherance of the aforementioned conspiracy among defendants.   Although plaintiffs believed defendants' later offer of $1,325,000 was still unfairly low, they accepted it out of desperation on September 30, 1986.

Defendants demurred to the complaint on the ground, inter alia, that it does not plead facts sufficient to constitute a cause of action for intentional infliction of emotional distress.   The trial court overruled the demurrer.

Mandate “may be issued ․ to compel the performance of an act which the law specially enjoins.”  (Code Civ.Proc., § 1085.)  “Although it is well established that mandamus cannot be issued to control a court's discretion, in unusual circumstances the writ will lie where, under the facts, that discretion can be exercised in only one way.”  (Babb v. Superior Court (1971) 3 Cal.3d 841, 850–851, 92 Cal.Rptr. 179, 479 P.2d 379.)   Here, as in Babb, “the trial court was under a legal duty to sustain [defendants'] demurrer․”  (Ibid.)

“A complaint survives a demurrer if it states facts disclosing some right to relief.  [Citation.]”  (Tyco Industries, Inc. v. Superior Court (1985) 164 Cal.App.3d 148, 153, 211 Cal.Rptr. 540.)  “The elements of a prima facie case of intentional infliction of emotional distress are:  (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.”  (Cervantez v. J.C. Penney Co. (1979) 24 Cal.3d 579, 593, 156 Cal.Rptr. 198, 595 P.2d 975.)

 Defendants contend the complaint is legally deficient in that it does not allege any active conduct.   Defendants argue that the law imposes no obligation upon an insurer to make an advance payment to a third party claimant toward a potential settlement (see Trujillo v. Yosemite–Great Falls Ins. Co. (1984) 153 Cal.App.3d 26, 29, fn. 2, 200 Cal.Rptr. 26);  therefore, as a matter of law, a mere passive failure to make such a payment cannot itself constitute conduct upon which the tort of intentional infliction of emotional distress can be predicated.

 As alleged in the complaint, the gravamen of plaintiffs' action is the refusal by defendants to make a requested advance payment in anticipation of settlement.   The question is whether defendants' alleged knowledge of facts revealing plaintiffs' particular emotional and financial vulnerability imposes upon defendants a duty actively to alleviate plaintiffs' plight.   We hold that it does not.   Since it is an insurer's “conduct, not its state of mind, that must be outrageous” (Beckham v. Safeco Ins. Co. of America (9th Cir.1982) 691 F.2d 898, 904), the reasons why defendants failed to act are immaterial.   Defendants' failure to act, where the law does not require defendants to act, will not support an intentional tort.

Although Moradi–Shalal v. Fireman's Fund Ins. Companies, supra, 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58 precludes third party actions premised upon the insurer's failure to comply with section 790.03 of the Insurance Code, the decision acknowledges that “the courts retain jurisdiction to impose civil damages or other remedies against insurers in appropriate common law actions, based on such traditional theories as fraud [and] infliction of emotional distress․”  (Id. at pp. 304–305, 250 Cal.Rptr. 116, 758 P.2d 58.)  Lee v. Travelers (1988) 205 Cal.App.3d 691, 252 Cal.Rptr. 468, decided after Moradi–Shalal, suggests that while an insurer's mere failure to fulfill its statutory duties cannot support a third party action for intentional infliction of emotional distress (Schlauch v. Hartford Accident & Indemnity Co. (1983) 146 Cal.App.3d 926, 936, 194 Cal.Rptr. 658), such an action would lie based upon “other acts ‘․ so extreme as to exceed all bounds of that usually tolerated in a civilized community.’  [Citation.]”  (205 Cal.App.3d at p. 694–695, 252 Cal.Rptr. 468.)   Here the complaint is not predicated on a failure to fulfill statutory duties.   The allegations of the insurers' knowledge of the injured party's financial and emotional condition and of the subjective desire to harm the injured party do not constitute “other acts” upon which a claim for intentional infliction of emotional distress may be predicated.

As indicated, Moradi–Shalal does not immunize insurers from liability for all outrageous acts taken in pursuit of their otherwise legitimate business interests.   For example, a cause of action for intentional infliction of emotional distress may lie where an insurer sends harassing or deceptive letters in an effort to induce a third party claimant to settle.  (See Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, 394–396, 89 Cal.Rptr. 78.)   On the other hand, it has been held that in the absence of other outrageous acts, an insurer's bad faith refusal in violation of the insurer's statutory duties (Ins.Code, § 790.03, subd. (h)(5)) promptly to pay a reasonable third party claim in the face of clear liability will not support an action by the third party for intentional tort.  (Lee, supra, 205 Cal.App.3d at pp. 694–695, 252 Cal.Rptr. 468.) 1  A fortiori, where no statute or case law imposes a duty upon an insurer to tender a requested payment as an advance on an anticipated settlement, intentional infliction of emotional distress will not lie for refusal to do so, regardless of the insurer's subjective knowledge or intent.

Defendants had established a program authorizing an adjuster to “advance payment of expenses to the claimant, without prejudice to his or her claim other than to constitute a credit against ultimate settlement.”   The program was a “technique” to be used in the discretion of the adjuster in the interest of the insurer.2  There is no allegation the program was incorporated in the insured's policy.   Indeed, there is no allegation plaintiffs were aware of the program and its guidelines until after they had filed their original third party complaint.   The existence of the program does not create a legal duty between the insurer and a third party claimant.

A demurrer should be sustained without leave to amend “where it is probable from the nature of the complaint and the previous unsuccessful attempt to plead that the plaintiff cannot state a cause of action.”  (Tyco, supra, 164 Cal.App.3d at p. 153, 211 Cal.Rptr. 540;  see Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)   Although plaintiffs' theory of the action has shifted over the course of five versions of the complaint, plaintiffs have never indicated they can allege defendants engaged in any actionable conduct beyond refusing plaintiffs' request for advance payment in anticipation of settlement.   On this record, there is no reasonable possibility plaintiffs can amend their complaint to state a cause of action and defendants' demurrer should therefore be sustained without leave to amend.

Let a peremptory writ of mandate issue directing the superior court to vacate its order overruling defendants' demurrer, and to enter an order sustaining the demurrer without leave to amend.   The alternative writ is discharged.   Defendants are to recover costs.


1.   Insurance Code section 790.03, subdivision (h)(5) defines as an unfair claims settlement practice:  “(h) Knowingly committing or performing with such frequency as to indicate a general business practice any of the following ․ [¶] (5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”  (Stats. 1983, ch. 1261, § 1.)Although Moradi–Shalal ended third party tort actions against insurers for violation of this statute, the duty upon insurers persists and is enforceable administratively.  (46 Cal.3d at p. 304–305, 250 Cal.Rptr. 116, 758 P.2d 58.)

2.   Defendants' advance payment program states:  “Experience in the industry demonstrated that judicious use of these techniques in handling of bodily injury claims will, in a sufficient number of cases to make the risk worthwhile, dispose of the claim without pursuit by the claimant of additional claims for exaggerated general damages․  And in many cases, despite the protestations of the claimant that he or she will bring suit for further damages, there has been no further contact by the claimant where there has been a voluntary payment of a reasonable amount without obtaining a general release.”

PUGLIA, Presiding Justice.

BLEASE and SCOTLAND, JJ., concur.

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