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

Chang LIU, Plaintiff and Respondent, v. The INTERINSURANCE EXCHANGE OF the AUTOMOBILE CLUB OF SOUTHERN CALIFORNIA, et al., Defendants and Appellants.

Civ. B023217.

Decided: November 03, 1988

Shield & Smith, Theodore P. Shield and Douglas Fee, Los Angeles, for defendants and appellants. Gage, Mazursky, Schwartz, Angelo & Kussman, Charles J. Mazursky and Steven B. Stevens, Beverly Hills, for plaintiff and respondent.

Defendant, The Interinsurance Exchange of the Automobile Club of Southern California (“defendant”), appeals from that portion of a judgment which awarded plaintiff Chang Liu (“plaintiff”) exemplary damages of $200,000.   The underlying cause of action for this award was defendant's violation of the rights given to plaintiff under section 790.03, subdivision (h)(5) of the Insurance Code.   Subdivision (h)(5) declares that an insurer commits an unfair claims settlement practice by “Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”   Reviewing the record, as we must, in a light most favorable to the judgment, we hold that substantial evidence exists from which the jury could infer that defendant acted with malice when it handled plaintiff's claim.   We therefore affirm the award of punitive damages.


On November 8, 1984, while walking in a crosswalk on a street in Glendale, California, plaintiff, a 72–year–old man, was injured when he was struck by a car driven by defendant's insured, William Beck (“Beck”).   The police report for the accident contains the remarks of an eyewitness who stated that Beck entered the intersection of Pacific and California against a red light, made a turn from California to Pacific, and struck plaintiff as he was making this turn.   Plaintiff had his grandson with him at the time.   There was no indication in the police report that either pedestrian was in any way at fault in causing the accident and the report concluded that Beck was the “primary collision factor.”

Later in November, 1984 plaintiff retained the law office of Samuel Delug (“Delug”) to represent him in the matter of the accident.   A complaint was filed against Beck that same month.   On November 19, 1984, Larry Ball (“Ball”), an attorney in Delug's law office, sent Beck a letter stating that the office represented plaintiff and asking that the letter be forwarded to Beck's insurance carrier.

Beck's coverage with defendant had a $15,000 limit.   Doris Morrissey was the original adjuster assigned by defendant to handle plaintiff's claim.   However, on December 10, 1984 the case was transferred to Jay Richmond (“Richmond”), a claims adjuster and “litigation specialist.”   Richmond stated at trial that he knew he had a duty under the Insurance Code to act in good faith towards third party claimants and to attempt to effectuate a prompt, fair and equitable settlement when the insured's liability had become reasonably clear.   At the time he got the case, the file had Beck's statement and the police report in it and it had been determined by defendant that Beck's liability was “probable.”

Paul Smit (“Smit”), who is employed by the Delug law office as a “negotiator consultant,” sent a letter to defendant on January 11, 1985.   Along with the letter was a partial set of plaintiff's medical records and bills.   The documentation was for plaintiff's original hospitalization on November 8 and 9 and did not include his later brain surgery, although defendant was aware that plaintiff incurred such surgery.   The letter contained an offer to settle the case for the $15,000 policy limit and stated that the offer would remain open only for 15 days.

A few days after receiving the letter from Smit, Richmond had a conference with defendant's division claims manager, Bruce Randall (“Randall”), regarding plaintiff's claim.   Based on his review of the file and the discussion at the conference, Randall knew at the time that Beck was liable for the accident and that plaintiff had suffered “fairly severe head injuries.”   At a subsequent meeting between Randall and Richmond, Richmond was directed to offer the policy limit of $15,000 because the partial medical records sent to defendant justified tendering the full amount.   However, Randall directed that the defendant's agreement to settle for $15,000 was conditioned on plaintiff getting his “heirs” to sign a “kindred release.”   This counteroffer was communicated to plaintiff's attorneys.   The kindred release is a form which is intended by the defendant to be signed by an injured claimant's heirs.   By signing the kindred release, said heirs give up any potential claim they may have for a wrongful death action in the event the injured person subsequently dies from injuries sustained in the accident.

The kindred release which defendant demanded of plaintiff is something apparently uncommon with insurers.   Randall, who had been with defendant for 25 years testified he does not know of any other insurer in the Los Angeles area who uses a kindred release.   Ball had never heard of a kindred release prior to handling plaintiff's claim.   Smit, who had been with the Delug law firm for over four years at the time of the trial and who had worked for defendant for seven years as an adjuster and then as a litigation specialist and who had adjusted thousands of claims for defendant, stated that before plaintiff's case he had never heard of a kindred release.   He testified he had handled many cases like the instant one, involving elderly people who were struck in a crosswalk and sustained severe head injuries.   An attorney who testified as an expert witness for plaintiff stated he had been handling personal injury cases for 20 years and had only once had a kindred release used in a case he handled.   In that action, the carrier paid more than the policy limits as partial consideration to get the claimant's heirs to sign the kindred release and there was an agreement among the heirs as to the amounts of money they would receive.

Defendant's decision to demand a kindred release or to waive it is one made by management, such as someone in Randall's position or higher.   Evidence at trial showed that the kindred release is addressed in defendant's claims-handling manual.   The manual states that the kindred release is to be used when (1) the claimant wishes to settle immediately, (2) the injuries are unknown and (3) there is a possibility of subsequent death of the injured person.  “Possibility” of death means probability or high possibility.   It is this three-part test which Richmond's superiors relied on in demanding a kindred release from plaintiff's heirs.   The claims manual does not offer criteria for application of the test.   It does not explain what percentage of likelihood of death is a “high possibility” or a “probability.”   It does not require that the decision to demand the kindred release be supported by a doctor's opinion.   There are no guidelines regarding the age of the injured claimant or the time lapse between date of injury and when a kindred release would be required.   The claims manual does not contain anything that indicates what types of injuries could possibly lead to subsequent death of the injured claimant.

The claims manual also does not contain information regarding what should be done if one or more of the heirs will not sign the kindred release.   Nor does defendant have a specific policy on this situation.   Rather, defendant just goes on a case-by-case basis in deciding what action to take.   If the defendant insists on a kindred release as part of the settlement and the injured party cannot get the release from his heirs, his only recourse is to pursue a lawsuit against the defendant's insured.   The burden is on the injured claimant to determine who all of his heirs are.   Defendant admitted that the identity of a person's heirs cannot really be determined until he dies.

Defendant's position is that any heir who signs the kindred release gives up his right to later sue for wrongful death.   In addition, the kindred release also provides that the heirs who sign the release thenceforth must indemnify both defendant's insured and defendant against any future wrongful death claims by any other persons claiming to be heirs who did not sign the kindred release, such as a later-born child.

The heirs who sign defendant's kindred release do not receive any consideration from defendant for signing it, even though the defendant admits that they have no legal obligation to sign it as a precondition to payment of the injured person's claim.   Defendant's position is that the question of whether the signatories to the kindred release receive any compensation for giving up their rights is a matter between them and the injured claimant, who decides if any of his settlement proceeds will be given to the heirs.   Defendant places the heirs names on the settlement draft.   Defendant does not, however, evaluate the value of any wrongful death action that the heirs might have had when it determines how much it will pay in settlement to the claimant.   Rather, the amount paid in settlement relates solely to the amount of claimant's claim for injuries.

Randall testified that defendant keeps no statistics on the frequency with which it demands kindred releases.   He stated that the kindred release is used “very sparingly” but that the use of a kindred release is “not uncommon” in cases like the instant one.

Although defendant conditioned a settlement with plaintiff on the kindred release, defendant never had any information that there was a probability or even a high possibility that plaintiff might die from his injuries.   Defendant never obtained a medical opinion about the possibility of plaintiff dying from his injuries and in fact defendant's employees never formed any opinion about the likelihood that plaintiff would die.   Richmond, the litigation specialist assigned to handle plaintiff's claim, never consulted with a doctor for any reason whatsoever regarding the claim.   Richmond stated that this case was handled in the same fashion as any case in which defendant required a kindred release.   Richmond testified that his medical training was limited to 2 or 3 seminars provided by defendant and that his ability to rule out that an injured person would die from those injuries is no better than that of a lay person.

When Richmond told Smit on January 11, 1985 that the settlement for $15,000 was conditioned on plaintiff's heirs providing the kindred release, he never indicated there might be circumstances under which defendant would waive the necessity of the release.   Smit wrote to Richmond on January 30, 1985 and indicated that plaintiff's family did not want to sign the kindred release.   Defendant had already decided that in the event plaintiff's heirs would not sign, defendant would continue to insist on it.   Not until just before the trial date did Richmond inform plaintiff's counsel that defendant would be willing to settle the case without the kindred release.

After the kindred release impasse arose, Smit turned the case over to the litigation department of Delug's law firm to prepare for the June 3, 1985 trial date, which plaintiff had obtained because of his advanced age.   Ball handled the case from then on.   Ball testified that in March and April of 1985 defendant was still insisting on the kindred release and that in the middle of May, even after defendant had taken plaintiff's deposition and could see that plaintiff was not in a near-death condition, defendant still insisted that the kindred release was necessary.   Defendant admitted that it was just before the trial date that it agreed to settle the case for $15,000 without the kindred release and that in fact it was the actual imminence of the trial date that caused defendant to remove the kindred release condition.   Defendant admitted that if it were not for its insistence on the kindred release, the case could have been settled for $15,000 and the money paid to plaintiff before the end of January, 1985.   Randall stated that if plaintiff's claim were presented to defendant again, it would be handled in the same way as it was handled in 1985.

Patrick Mesisca (“Mesisca”) is an attorney with the law firm which represented Beck in the underlying action.   He handled the matter of plaintiff's claim until time for trial.   He testified that both he and the defendant were aware of defendant's duties to plaintiff under the Insurance Code.   He stated that liability against Beck was clear and that plaintiff's injuries could be excess of the policy limits.   Mesisca personally delivered a letter to Beck around May 29, 1985 which advised Beck that if a final judgment were rendered in excess of Beck's policy limits, defendant would pay the entire judgment.   Mesisca explained that the words “final judgment is rendered” did not include a stipulated judgment but only included a judgment which was the product of a trial.

William Jennett is the attorney in Mesisca's firm who was assigned to try the underlying case on Beck's behalf should it go to trial.   Jennett testified he was of the opinion that if defendant had paid a $15,000 settlement to plaintiff and a subsequent wrongful death action had been brought by plaintiff's heirs, it is “quite possible” that defendant would be responsible under the policy for paying any settlement or judgment to said heirs.

Plaintiff's underlying action against Beck was resolved when Beck, with the knowledge and concurrence of defendant, stipulated to a judgment in favor of plaintiff in the amount of $101,954.45, which included $2,172 as costs of suit.2  In consideration of plaintiff's promise not to execute on his judgment against Beck, Beck assigned to plaintiff all rights Beck had under his policy of insurance with defendant.   Thereafter, on August 20, 1985, plaintiff's filed the instant action against defendant.   In his complaint, plaintiff alleged defendant's breach of the implied covenant of good faith and fair dealing, as an assignee of Beck's contractual rights.   Plaintiff also alleged that defendant's conduct in handling the underlying action constituted a violation of plaintiff's rights under Insurance Code section 790.03, subdivision (h)(5) and that said conduct was prompted by malice and oppression towards plaintiff, in conscious disregard of plaintiff's rights, warranting the imposition of exemplary damages.

Plaintiff introduced two expert witnesses on the issue of the propriety of defendant's insistence on a kindred release as a condition of settlement.   Duane Comport (“Comport”), an insurance claims consultant, who has been retained by both plaintiffs' and defendants' law firms to review claims matters and give advice, and who has extensive background in claims adjustment for automobile liability insurance policies, testified that under California case law (Aetna Casualty & Surety Co. v. Superior Court (1980) 114 Cal.App.3d 49, 170 Cal.Rptr. 527), an insurance carrier has no duty to protect an insured from a potential wrongful death claim by getting a release from the heirs when it settles the third party's injury claim.   He stated that an insurance company has a duty to keep abreast of the status of the law.   Comport testified that in his opinion, an insurance company's use of a kindred release is an unfair claims practice under any and all circumstances because (1) the kindred release is made a condition of settlement, (2) it is impossible to identify all the heirs of an insured until the insured actually dies, and (3) the release entitled the insurer to demand indemnity from everyone of the signatories to the release if anyone sues the insured for the injured party's wrongful death and obtains a judgment.   Comport noted that the heirs receive no consideration for such indemnity liability.

David Berglund (“Berglund”), an attorney with 20 years experience in representing plaintiffs in personal injury cases, who also advises on the defense of personal injury claims, stated that requiring the kindred release means that the heirs have to hire attorneys to advise them of their rights because the attorney for the injured party has a conflict of interest with the heirs.   He found “particularly onerous” the fact that the kindred release in effect makes the signatories insurers of the insured and the insurance company, for which they receive no consideration from defendant.   From reading the partial medical reports which Smit sent to Richmond on January 11, 1985, Berglund was of the opinion that even a policy limit of $50,000 would have been an appropriate demand by plaintiff, given the severity of the injuries reflected by those reports.

Defendant offered no expert testimony regarding the issue of the reasonableness of the kindred release.   However, defendant's employee Randall testified that by demanding the kindred release, defendant was merely trying to protect Beck from future wrongful death claims.   Plaintiff presented the judgment in the underlying action as evidence that far from protecting Beck, insistence on the kindred release subjected Beck to liability greatly in excess of his $15,000 policy limit.   Plaintiff also presented evidence that defendant did not try to protect Beck from other claims, such as a loss of consortium claim by plaintiff's spouse.   Further, Richmond agreed that in a case where the settlement figure does not reach the policy limits, a kindred release would save defendant from future payments in the event the injured claimant died.   As evidence on the issue of the amount of punitive damages that might be awarded, plaintiff established that defendant's net worth exceeded $220 million in 1985 and that defendant had total assets of over $1 billion, 91 million.

In a special verdict, the jury found that defendant violated the covenant of good faith and fair dealing it owed to Beck;  that Beck suffered $84,782.45 in damages by this breach;  that defendant violated its duties to plaintiff under Insurance Code section 790.03, subdivision (h)(5);  that this violation caused damages to plaintiff in the amount of $36,285.63;  that defendant was guilty of fraud or oppression toward plaintiff in handling his claim against Beck;  and that defendant should pay plaintiff $200,000 as punitive damages because of its conduct towards plaintiff.   Judgment was entered for these amounts, plus costs and interest, for a total judgment of $329,546.33.3

Defendant's motion for a new trial was denied and defendant filed an appeal from the entirety of the judgment.   After a settlement conference on appeal, defendant paid $151,638.59 as partial satisfaction of the judgment.   There remains unpaid $200,000, the portion of the judgment which represents the exemplary damages.   It is this outstanding amount which is at issue on this appeal.


On appeal defendant contends that the evidence does not support an award of punitive damages and that imposition of punitive damages in this case is against the public policy of this State.   In addition, defendant argues that a recent decision of the Supreme Court bars plaintiff's claim.


 1. The Stipulated Judgment Was a Conclusive Judicial Determination of Insured Liability

Before addressing the issues relating to the award of punitive damages, we must first turn our attention to the contentions which defendant has raised 4 with respect to the recent decision of the Supreme Court in Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58.5  Defendant argues that there has been no conclusive judicial determination of the insured's (i.e., Beck's) liability within the meaning of Moradi–Shalal, and thus plaintiff can state no cause of action for compensatory damages.   Therefore, the argument continues, there is no basis for an award of punitive damages.   There are two answers to this contention.

First, there was a judgment entered in the underlying action against defendant's insured, Beck.   It resulted from a stipulation to which the defendant expressly gave its consent following negotiations in which defendant's counsel (appearing of record on behalf of the insured) participated.   Defendant insists that such a stipulated judgment is actually tantamount to nothing more than a settlement and dismissal of the action which, under Moradi–Shalal, cannot constitute a “conclusive judicial determination” of its insured's liability.6  We disagree.

 A stipulated judgment is no less a conclusive judgment on the merits merely because it has resulted from the negotiated agreement of the parties rather than from factual and legal determinations made by a trial court following contested proceedings.  (Gates v. Superior Court (1986) 178 Cal.App.3d 301, 308–311, 223 Cal.Rptr. 678;  7 Witkin, Cal. Procedure (3d ed. 1985) Judgment § 219, p. 656.)   The insured's liability to the third party claimant is established by entry of a stipulated judgment in favor of the third party claimant unless the issue of liability is withdrawn by express reservation in the judgment (Ellena v. State of California (1977) 69 Cal.App.3d 245, 260–261, 138 Cal.Rptr. 110) or unless the judgment is obtained pursuant to section 998 of the Code of Civil Procedure (Milicevich v. Sacramento Medical Center (1984) 155 Cal.App.3d 997, 1004, 202 Cal.Rptr. 484).  The phrase “conclusive judicial determination,” as used in Moradi–Shalal,7 requires nothing more than such a determination by judgment as will effect a collateral estoppel with respect to those issues included within the judgment.8  A stipulated judgment, subject to the two caveats mentioned above, which is free of collusion and fraud, certainly meets that test.

 Second, not only did defendant knowingly consent to the entry of a judgment against its insured but it also initially conceded in these appellate proceedings that there was no issue with respect to the imposition of compensatory damages as awarded by the trial court.9  It was not until oral argument that defendant raised any issue regarding the propriety of the award of compensatory damages.   In our view, that objection comes too late.   Moreover, nothing in this record in any way suggests that the stipulated judgment entered in the underlying action was not entirely appropriate, given the very serious nature of the injuries sustained by the plaintiff.   The stipulation for the judgment was not collusive, but rather (1) was the product of arms length negotiations in which the defendant, through the counsel whom it had retained to represent Beck, actively participated and (2) was based upon an agreement as to an amount of damages which in fact were reasonably related to those actually suffered by the plaintiff.

 2. The Award of Punitive Damages Was Supported by Substantial Evidence

 In reviewing the award of punitive damages, we must examine the whole record, viewing the facts in a light most favorable to the judgment, so as to determine whether there was substantial evidence from which the jury could reasonably conclude that defendant acted with malice or oppression towards plaintiff in handling plaintiff's claim.  (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 922–923, 148 Cal.Rptr. 389, 582 P.2d 980.)   We are mindful, of course, that evidence which is sufficient to support a finding of a breach of the implied covenant of good faith and fair dealing or a breach of Insurance Code section 790.03, subdivision (h)(5), is not necessarily sufficient to justify an award of punitive damages.  (Neal, supra, at p. 922, 148 Cal.Rptr. 389, 582 P.2d 980;  Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 462–463, 113 Cal.Rptr. 711, 521 P.2d 1103.)   To justify exemplary damages, we must look beyond the question of whether the defendant's conduct was a reasonable response to the situation in which it found itself and examine defendant's motive and intent.  (Neal, supra, 21 Cal.3d at p. 922, 148 Cal.Rptr. 389, 582 P.2d 980;  Beck v. State Farm Mut. Auto. Ins. Co. (1976) 54 Cal.App.3d 347, 355–356, 126 Cal.Rptr. 602.)

Motive, intent and knowledge are at the heart of the statutory provisions for imposition of exemplary damages.   At all times relevant to the instant case, Civil Code section 3294 stated in pertinent part: 10  “(a) In an action for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.  [¶] (b) ․ [¶] (c) As used in this section, the following definitions shall apply:  [¶] (1) ‘Malice’ means conduct which is intended by the defendant to cause injury to the plaintiff or conduct which is carried on by the defendant with a conscious disregard of the rights or safety of others.  [¶] (2) ‘Oppression’ means subjecting a person to cruel and unjust hardship in conscious disregard of that person's rights.”   The trial court gave the jury appropriate instructions for application of section 3294 to the instant case.  (BAJI No. 14.71 (7th ed. 1987 pocket pt.) pp. 27–28.)

 The malice required under section 3294 is malice in fact, not malice implied by law.  (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 66, 118 Cal.Rptr. 184, 529 P.2d 608.)   Malice in fact means acting with “the motive and willingness to vex, harass, annoy, or injure” (Davis v. Hearst (1911) 160 Cal. 143, 162, 116 P. 530) or with a conscious disregard of the plaintiff's rights (Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d at p. 922, 148 Cal.Rptr. 389, 582 P.2d 980).   This motive and willingness to vex, harass, annoy or injure can be proved by express evidence (direct evidence) or by implication (indirect evidence, i.e., evidence of other facts from which the jury may infer a defendant's motive and willingness to vex, harass, annoy or injure the plaintiff).  (Neal, supra, at p. 923, fn. 6, 148 Cal.Rptr. 389, 582 P.2d 980;  Davis, supra, 160 Cal. at pp. 162, 163, 116 P. 530.)   We are satisfied that such indirect evidence was adduced at trial.   Although defendant's asserted motive for insisting that plaintiff obtain a kindred release from his heirs was its desire to protect Beck from a later wrongful death action, the jury was not required to believe this claim.

 The jury heard evidence that under the law, defendant had a duty to both plaintiff and Beck to attempt to effectuate a prompt, fair and equitable settlement of plaintiff's claim and that defendant had no duty to Beck to obtain for him a wrongful death claim release.   Defendant admitted that but for the kindred release it would have paid the $15,000 to plaintiff by the end of January, 1985.   Richmond testified that in the instant case, defendant relied on its claims manual provisions for kindred releases.   Although that manual states that a kindred release should be used when there is a possibility that a claimant will die from his injuries, the manual provides no guidelines for determining when this possibility of death exists and it does not even require that the decision to demand a kindred release be supported by a doctor's opinion.   Indeed, defendant acknowledged that in this case, it never consulted a doctor for any reason, that it never formed any opinion at all as to plaintiff's chances of dying from his injuries and that it had no information that there was a possibility that plaintiff would die.   Plaintiff's attorney in the underlying action testified that even after plaintiff's deposition was taken by defendant and defendant had an opportunity to see plaintiff's condition, defendant still insisted that plaintiff obtain the kindred release.   Defendant admitted that it was only the imminence of trial which caused it to waive the kindred release.

In addition, plaintiff presented evidence that far from being concerned about Beck's future welfare, defendant's insistence on the kindred release resulted in a judgment against Beck in excess of $101,000 when the case could have settled for $15,000.   Other evidence showed that defendant made no attempt to protect Beck from other claims, such as a loss of consortium claim by plaintiff's spouse.   Further, the evidence showed that in all kindred releases, including the instant one, defendant itself is a major beneficiary of the release since the injured party's heirs would be required to indemnify defendant if any wrongful death claims resulted in a judgment against defendant's insured.   For this protection, defendant would pay not one penny.

Given this state of the evidence, the jury could reasonably infer that rather than being concerned about its insured, defendant's true concern was to obtain a kindred release for its own benefit.   From defendant's complete inattention to the real state of plaintiff's medical condition, the jury could infer that defendant had no true interest in whether plaintiff was going to die, an interest which was the cornerstone of its expressed motivation for obtaining the kindred release.   From all of this indirect evidence the jury could find that defendant's insistence on the kindred release, in the face of its duties to plaintiff under the Insurance Code, is proof not of defendant's interest in Beck, but rather of defendant's motivation and willingness to vex, harass, annoy or injure plaintiff.  (Richardson v. Employers Liab. Assur. Corp. (1972) 25 Cal.App.3d 232, 245, 102 Cal.Rptr. 547, disapproved on another point in Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032.)

 A recent Court of Appeal decision states that “Punitive damages are appropriate if the defendant's acts are reprehensible, fraudulent or in blatant violation of law or policy.”  (Flyer's Body Shop Profit Sharing Plan v. Ticor Title Ins. Co. (1986) 185 Cal.App.3d 1149, 1154, 230 Cal.Rptr. 276, emphasis added.)   The state of the law in 1985 was clear with respect to defendant's duties to plaintiff under Insurance Code section 790.03, subdivision (h)(5), and to Beck under Aetna Casualty & Surety Co. v. Superior Court, supra, 114 Cal.App.3d 49, 170 Cal.Rptr. 527.   Defendant admitted its duty to plaintiff to attempt to effectuate a prompt, fair and equitable settlement and its lack of duty to Beck under Aetna to obtain the kindred release.   Further, defendant admitted that plaintiff's heirs had no legal duty to sign the kindred release.   Defendant admitted that by the end of January, 1985 Beck's liability was clear and $15,000 was not an unreasonable sum for plaintiff to claim.   The kindred release which defendant demanded does not even approach being a fair and equitable condition of settlement.   Yet, defendant's sole justification for insisting on the kindred release was its concern for Beck.   By insisting on the release, the jury could conclude that defendant blatantly violated the Insurance Code.   This is true even if the jury believed defendant's asserted motive for insisting on the kindred release.

Even further evidence for this conclusion is the letter which defendant's attorney delivered to Beck on May 29, 1985, wherein defendant told Beck that if a final judgment were rendered against him which was in excess of his $15,000 policy limit, defendant would pay the judgment in its entirety.   The letter demonstrates that defendant was aware that its steadfast position on the kindred release had violated its implied promise to Beck to attempt a prompt and fair settlement of plaintiff's claim so that Beck would not be exposed to a judgment in excess of his policy limits.   The same tardiness and lack of fairness which would constitute a breach of that promise to Beck would also constitute a violation of plaintiff's rights under Insurance Code section 790.03, subdivision (h)(5).  (Aetna Casualty & Surety Co. v. Superior Court, supra, 114 Cal.App.3d at pp. 57, 58, fn. 5, 170 Cal.Rptr. 527.)   Without any legal basis for doing so, defendant dug in its heels and insisted on the kindred release.   A jury could reasonably find this was such a blatant violation of the Insurance Code as to warrant punitive damages.11

 3. The Award of Punitive Damages Was Not Contrary to Public or Social Policy

 Finally, we address defendant's contention that awarding plaintiff exemplary damages in this case is against the public and social policy of this State.   Defendant contends that in jury trials, punitive damages are imposed by “a lay group of ordinary citizens who have not been professionally trained to exclude personal values from the fact-weighing process.”   We note, however, that very few determinations which juries are asked to make could not in some way be affected by their personal values;  yet we trust that defendant is not advocating that we abolish the jury system altogether.   The trial court instructed the jury that when making its determinations it must not be influenced by sympathy, prejudice or passion.   It instructed the jury that the fact that defendant is an interinsurance exchange should not prejudice the jurors in their deliberations.   It gave the jury appropriate instructions on punitive damages.   In the absence of anything in the record to the contrary, we must presume that the jury followed these instructions.  (People v. Pike (1969) 71 Cal.2d 595, 604, 78 Cal.Rptr. 672, 455 P.2d 776, disapproved on another point in Prudhomme v. Superior Court (1970) 2 Cal.3d 320, 85 Cal.Rptr. 129, 466 P.2d 673;  People v. Meneley (1972) 29 Cal.App.3d 41, 52, 105 Cal.Rptr. 432.)

Defendant also contends that “the central issue on this appeal [is] whether a slight delay in payment caused by an effort to obtain a kindred release, with the purpose of protecting the insured, and based upon innocently mistaken advice of counsel, is so worthy of condemnation that a jury's award of punitive damages ․ in any amount ․ should be allowed to stand.”   We cannot answer that precise question because it misstates the facts of this case.

The defendant admitted at trial that the reason it lifted its demand for a kindred release was because trial was about to commence.   It can be inferred therefrom that had plaintiff not been of an age which entitled him to priority trial setting, the “slight delay” in payment to plaintiff would not have been so slight.   With respect to defendant's “purpose of protecting the insured,” as discussed above, the jury could infer from the evidence that this was not defendant's true motive in insisting on the kindred release.   Further, whatever defendant's motive, section 790.03, subdivision (h)(5), of the Insurance Code sets out a standard which outweighed defendant's desire to obtain that release.   As for defense counsel's innocent mistake in being unaware of the decision in Aetna Casualty & Surety Co. v. Superior Court, supra, 114 Cal.App.3d 49, 170 Cal.Rptr. 527, counsel had a duty to know the law and a simple “Shepardizing” of the very case which counsel did cite to plaintiff's counsel to justify defendant's insistence on the kindred release would have alerted defendant to Aetna.

Defendant asserts that “verdicts [like the instant one are] based upon conduct which is no worse than negligence.”   Defendant contends that “Neither the judicial system, parties litigant, or the public at large are served by the values implicit in the result below.”   We disagree.   First, we have already discussed that there was sufficient evidence from which the jury could infer that defendant acted with motivation and willingness to vex, annoy, harass or injure plaintiff.   Defendant's behavior in this matter went far beyond mere negligent conduct.   Second, if the protection of the insurance-consuming public needs to be advanced by the imposition of exemplary damages in a proper case then that is a result for which the Legislature has provided.


The judgment is affirmed.   Costs on appeal to plaintiff.


1.   We remind defendant of its duty under California Rules of Court, rule 15(a) to support, by appropriate references to the record, statements in its briefs regarding matters in the record.

2.   The record makes it clear that the procedural mechanics of resolving the underlying action specifically and intentionally included a stipulated judgment against defendant's insured, Beck.   As attorney Mesisca testified, defendant's “procedure [for protecting its insured when bad faith is claimed] was implemented here as it would be in most cases where there are allegations of bad faith.   The primary effort is to see if a stipulated judgment can be achieved.”   In describing one of the defendant's objectives in using a stipulated judgment to resolve the underlying action, Mesisca confirmed that it enabled the plaintiff to proceed against defendant insurer directly on the bad faith claim.   Mesisca stated:  “That is the purpose of the stipulated judgment.   If the claimant feels that bad faith or some breach of duty has occurred, it gives the claimant the opportunity to come right here where we are today before this court and this jury and have the issue fully litigated.”

3.   We recognize that the foregoing is a rather detailed summary of the evidence.   However, resolution of this case and the principal issue tendered by the defendant turns in substantial part on the particular facts presented here and the inferences which the jury might reasonably draw from them.

4.   These contentions were raised by defendant for the first time at oral argument and then discussed in greater detail in post-argument letter briefs which this court permitted each party to file.

5.   The Supreme Court filed its decision in Moradi–Shalal on August 18, 1988, the same day on which oral argument was had in this case.   The court overruled its earlier decision in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 884, 153 Cal.Rptr. 842, 592 P.2d 329, which held that a third party claimant had a private right of action for an insurer's violation of Insurance Code section 790.03, subdivision (h).   However, this reversal was expressly given prospective application, prohibiting statutory “bad faith” causes of action after Moradi–Shalal becomes final.   Thus, third party claimants whose cases were filed before that time, such as plaintiff in this case, may prosecute claims based upon alleged violations of section 790.03, subdivision (h), provided they can demonstrate that there has been “a conclusive judicial determination of the insured's liability.”  (Moradi–Shalal, supra, 46 Cal.3d at p. 306, 250 Cal.Rptr. 116, 758 P.2d 58.)   As we note below, that condition has been satisfied in this case.

6.   See footnote 8, post.

7.   See footnote 5, ante.

8.   Thus, the Supreme Court, in Moradi–Shalal, makes clear that neither (1) a settlement of the claim in the underlying action nor (2) an admission of the insured's liability therein can constitute the required “conclusive judicial determination.”   While either might result in, or at least lead to, such a resolution of the underlying action as would bar any future assertion of the settled or admitted claim, neither is the equivalent of a final judgment.   It is only by such formal judicial action that the question of the insured's liability is in fact finally resolved.   It is that liability which, under Moradi–Shalal, must be established as a predicate to the assertion of any claim against the insurer for an alleged violation of section 790.03, subdivision (h).   A settlement, not involving a stipulated judgment, is routinely accompanied by a denial of such liability.   An admission of liability, which is not reduced to judgment, is subject to dispute and proof in the bad faith action.   In either circumstance, there has not been “a final judgment determining the insured's liability.”  (Moradi–Shalal, supra, 46 Cal.3d at p. 311, 250 Cal.Rptr. 116, 758 P.2d 58;  see also, Nationwide Ins. Co. v. Superior Court (1982) 128 Cal.App.3d 711, 714, 180 Cal.Rptr. 464.)

9.   On page two of its Opening Brief, defendant stated that “the only issue on this appeal is whether the evidence adduced in the trial is sufficient to support the judgment for punitive damages.”  (Emphasis supplied.)

10.   Civil Code section 3294 was amended by Statutes 1987, chapter 1498, section 5, pages 5–6.

11.   Although defendant makes passing reference to the amount of punitive damages awarded to plaintiff, it is not clear from defendant's brief whether defendant is actually challenging that amount.   If it is, the contention is easily disposed of by noting that the size of the award is not disproportionate to the amount of compensatory damages awarded to plaintiff for defendant's violation of Insurance Code section 790.03, subdivision (h)(5), nor to the defendant's wealth or the degree of reprehensibility of defendant's actions.   The entire record, when viewed in a light most favorable to the judgment, does not indicate that the jury acted out of passion or prejudice in making its award.  (Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d at pp. 927–929, 148 Cal.Rptr. 389, 582 P.2d 980;  Bertero v. National General Corp., supra, 13 Cal.3d at p. 65, 118 Cal.Rptr. 184, 529 P.2d 608.)

CROSKEY, Associate Justice.

KLEIN, P.J., and LUROS, J.*, concur.

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