WEINER v. FIREMAN FUND INSURANCE COMPANIES

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Court of Appeal, Fourth District, Division 1, California.

Felice WEINER, et al., Plaintiffs and Appellants, v. FIREMAN'S FUND INSURANCE COMPANIES, Defendants and Respondents.

No. D011547.

Decided: July 18, 1991

Rosenberg & Associates, Mark J. Speck and Daniel J. Martin, San Diego, for plaintiffs and appellants. Haasis, Pope, & Correll and Kenneth E. Goates, San Diego, for defendants and respondents.

In Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58, the California Supreme Court overruled its earlier Royal Globe decision 1 and held that the Legislature did not intend Insurance Code section 790.03—the unfair claims practices statute—to permit a private action by a third-party claimant against an insurance company which unreasonably refused to settle a claim.   In doing so, however, the court expressly acknowledged the availability of other common law theories such as infliction of emotional distress which, in appropriate circumstances, might afford compensation to a third party claimant who suffered mistreatment at the hands of an insurer.  (46 Cal.3d at pp. 304–305, 250 Cal.Rptr. 116, 758 P.2d 58.)

In this case Herman Weiner, who lost both legs as a result of military service, suffered severe injuries when an allegedly negligent employee of D.M. Summers Inc. allowed Herman's wheelchair to tip backward, causing Herman to strike his head on a concrete walkway outside his home.   The accident and its immediate aftermath were witnessed by Herman's wife, two of his children and his two grandchildren.   Herman was paralyzed and died six months later as a result of complications from the injury.

D.M. Summers was insured by defendant Fireman's Fund Insurance Companies.   Plaintiffs are Herman's wife Felice, his four children and two grandchildren.   Both Felice and one of the sons, Craig, are also confined to wheelchairs.   The complaint alleges that Fireman's knew that liability and causation could not reasonably be disputed yet sought to take advantage of the Weiners' difficult circumstances and unique needs by stonewalling their request for compensation.   To this end, the Weiners claim, Fireman's ignored some communications, intentionally delayed responding to others, made requests for information which had already been provided and continued to raise unspecific and unfounded questions about liability and damages.   Prior to Herman's death at a time when he required 24–hour home care, Fireman's refused the Weiners' request for an advance payment of $3,000 per month to cover some of the costs.   It then waited until 21 months after the accident to make an initial settlement offer of $105,000.2  Two months later, the offer was doubled.   Ultimately, the case went to trial and a jury awarded the Weiners $650,000.

The Weiners then filed this action seeking damages for intentional and negligent infliction of emotional distress.   Relying principally on Schlauch v. Hartford Accident & Indemnity Co. (1983) 146 Cal.App.3d 926, 936, 194 Cal.Rptr. 658, the trial court sustained Fireman's demurrer without leave to amend.   We conclude, however, that the complaint states a cause of action on an intentional infliction theory as contemplated by the Supreme Court in Moradi–Shalal.   Accordingly, we reverse.

FACTUAL ALLEGATIONS

The Weiners' dealings with Fireman's between the date of Herman's injury (October 1986) and the final settlement offer (September 1988) are detailed in the allegations of the complaint.   Following the accident, the Weiners immediately retained attorney Norman Finkelstein to represent them.   Finkelstein contacted Fireman's on October 23, 1986, to notify them of the Weiners' claim against D.M. Summers, Inc.   Seven weeks later Fireman's acknowledged Finkelstein's letter and requested certain information which was promptly provided.   In January Fireman's responded to another Finkelstein letter admitting coverage up to a $750,000 limit but ignored a request that some immediate payments be made under the medical payment provisions of the policy to assist with the extraordinary costs incurred by the Weiners for the care and treatment of Herman.

On February 9, 1987, Finkelstein provided Fireman's with a comprehensive demand letter detailing three specific categories of information.   The letter first described the nature of the accident and injuries suffered by Herman Weiner.   Finkelstein noted the high standard of care required of for-profit transporters like D.M. Summers and explained why the Summers' employee was negligent in failing to engage an anti-tipping device on Herman's wheelchair which was designed to prevent the precise type of accident which occurred.   He also indicated that while the physicians at UCSD Medical Center could not determine a precise organic cause of Herman's paralysis, they were “in total agreement” that it resulted directly from the accident.   Of particular significance, Finkelstein also outlined the unique needs of the Weiner family and the significant impact the injury to Herman was having.   Fireman's was advised that both Felice and Craig were confined to wheelchairs and that Craig suffered from Lesch–Nyhan Syndrome, which results in psychological and developmental as well as physical disabilities.   As a result of the important family roles filled by Herman before the accident, his injuries resulted in disastrous consequences for the Weiners.   Finally, Finkelstein's letter itemized the Weiners' out-of-pocket medical expenses—which totalled more than $114,000—and provided documents to substantiate those figures.

Fireman's responded to Finkelstein's letter by requesting additional information, much of which had already been provided or was contained in medical records which Fireman's possessed.   Finkelstein nonetheless provided all the requested information, emphasizing the desperate circumstances faced by the Weiner family and requesting expedited settlement of the claim.   Shortly thereafter, he sent Fireman's two videotapes depicting Herman's physical capabilities before and after the accident and requested that Fireman's consider providing monthly payments of $3,000 to ease the Weiners' financial difficulties until full settlement of the claim.   In a two paragraph response, Fireman's flatly refused to make any advance payments, asserting that neither liability nor the relationship between the accident and Herman's injuries was reasonably clear.   It disclaimed the present ability or desire to enter into settlement discussions.

Eight months later following Herman's death, Finkelstein again contacted Fireman's, providing statements from experts to substantiate liability and causation and inquiring as to the status of the Fireman's investigation.   Fireman's wrote back claiming a lack of sufficient information to respond.   Again, however, virtually all of the data Fireman's allegedly needed had already been provided months earlier.

Despite having all the information it claimed it needed to evaluate the claim, Fireman's refused to make a settlement offer to the Weiners for an additional eight months.   During this time, Fireman's attempted to argue that the accident was caused by a defective screen door or that Herman Weiner should have somehow prevented his fall.   These arguments were made despite the uncontested fact that the D.M. Summers' employee failed to engage the wheelchair's anti-tipping device which would have prevented the accident.   The Weiners allege that Fireman's engaged in this pattern of recalcitrant conduct in order to exacerbate their suffering and ultimately pressure them into accepting a grossly unreasonable settlement offer, the first of which—a structured settlement worth approximately $105,000—was finally extended 21 months after the accident.

DISCUSSION

I

 On the narrow issue before us as framed by recent Supreme Court precedent, we write on a nearly clean slate.   In Moradi–Shalal v. Fireman's Fund Ins. Companies, supra, 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58, the court explained that under appropriate circumstances, a third-party claimant might state a cause of action against an insurer for intentional infliction of emotional distress arising out of the handling of a claim.3  The Chief Justice's opinion observed, “[T]he courts retain jurisdiction to impose civil damages or other remedies against insurers in appropriate common law actions, based on such traditional theories as fraud, infliction of emotional distress, and (as to the insured) either breach of contract or breach of the implied covenant of good faith and fair dealing.”  (Id. at pp. 304–305, 250 Cal.Rptr. 116, 758 P.2d 58.)   The question we must answer here is whether the facts pleaded by the Weiners constitute appropriate circumstances.

The elements of a cause of action for intentional infliction of emotional distress are well established:  “(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;  Agarwal v. Johnson (1979) 25 Cal.3d 932, 946, 160 Cal.Rptr. 141, 603 P.2d 58.)   Here, the Weiners have clearly pled the second and third elements of the cause of action.   Factual issues not subject to resolution on demurrer remain as to the extent of the distress suffered and Fireman's intent or awareness of causing such distress.

The critical question for our purposes centers on the first part of the first element.   If Fireman's conducted itself as alleged, was such conduct outrageous, i.e., “so extreme as to exceed all bounds of that usually tolerated in a civilized community.”  (Cervantez v. J.C. Penney, supra, 24 Cal.3d at p. 593, 156 Cal.Rptr. 198, 595 P.2d 975.)  “ ‘Behavior may be considered outrageous if a defendant (1) abuses a relation or position which gives him power to damage the plaintiff's interest;  (2) knows the plaintiff is susceptible to injuries through mental distress;  or (3) acts intentionally or unreasonably with the recognition that the acts are likely to result in illness through mental distress.’ ”  (Agarwal v. Johnson, supra, 25 Cal.3d at p. 946, 160 Cal.Rptr. 141, 603 P.2d 58, quoting Newby v. Alto Riviera Apartments (1976) 60 Cal.App.3d 288, 297, 131 Cal.Rptr. 547;  accord Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1122, 252 Cal.Rptr. 122, 762 P.2d 46.)   The question of whether a pleaded set of facts meets this standard has been resolved as a question of law even before Moradi–Shalal added a gloss on intentional infliction claims in the third party context.   (See, e.g., Isaacson v. California Ins. Guarantee Assn. (1988) 44 Cal.3d 775, 789, 244 Cal.Rptr. 655, 750 P.2d 297;  see also Davidson v. City of Westminster (1982) 32 Cal.3d 197, 210, 185 Cal.Rptr. 252, 649 P.2d 894.)

Few cases have considered the “level of outrageousness” question implicitly reserved in Moradi–Shalal.   In Lee v. Travelers Companies (1988) 205 Cal.App.3d 691, 252 Cal.Rptr. 468, plaintiffs “explicitly premised their intentional infliction of emotional distress count upon defendants' purported failure to ‘fulfill[ ] their statutory duties ․’ ” under Insurance Code section 790.03.  (Id. at p. 695, 252 Cal.Rptr. 468.)   Relying on the pre-Moradi-Shalal case of Schlauch v. Hartford Accident & Indemnity Co., supra, 146 Cal.App.3d 926, 936, 194 Cal.Rptr. 658, Lee held that more was required to state a valid intentional infliction claim, a reaffirmation which is hardly surprising in light of the Supreme Court's conclusion that there is no private right of action for third-party claimants under Insurance Code section 790.03.4

The fact that few cases have addressed this issue in our post-Moradi-Shalal world does not present an insurmountable impediment.   By referring to “traditional [common law] theories” (46 Cal.3d at p. 304, 250 Cal.Rptr. 116, 758 P.2d 58), the Supreme Court implied that existing cases explicating the requirements for an intentional infliction claim would provide relevant guideposts.   In this regard we note that an accepted basis for finding outrageous conduct has been that the defendant, who occupies a position with the power to injure the plaintiff and/or knows the plaintiff is particularly susceptible to emotional injury, engages in conduct calculated to inflict such injury.5  (See Prosser and Keeton on Torts (5th ed. 1984) § 12, pp. 62–63;  Agarwal v. Johnson, supra, 25 Cal.3d at p. 946, 160 Cal.Rptr. 141, 603 P.2d 58;  Katsaris v. Cook (1986) 180 Cal.App.3d 256, 267, 225 Cal.Rptr. 531.)

For more than 20 years California courts have approved intentional infliction claims against insurance companies which, knowing of a claimant's vulnerable psyche and/or desperate financial circumstances, deliberately refuse to settle an indisputable claim in hopes of pressuring the claimant to later accept an unreasonably low settlement offer.   Thus in Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, 89 Cal.Rptr. 78, a disability insurer despite abundant evidence to the contrary made the unsupportable assertion that the insured's physical disability was not the result of an injury but rather a concealed congenital condition.   As a result, it restricted payments to the insured—a man of limited means—forcing him to institute litigation to resolve the matter.   Upholding a jury verdict on an intentional infliction theory, the court summarized the insurer's outrageous conduct:  “[D]efendants, without probable cause for believing that plaintiff had made an intentional material misrepresentation or that his disability was due to anything other than his injury in January 1965, embarked upon a concerted course of conduct to induce plaintiff to surrender his insurance policy or enter into a disadvantageous ‘settlement’ of a nonexistent dispute by means of false and threatening letters and the employment of economic pressure based upon his disabled and, therefore, impecunious, condition․”  (Id. at p. 392, 89 Cal.Rptr. 78;  see also Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 461, 113 Cal.Rptr. 711, 521 P.2d 1103;  Merlo v. Standard Life & Acc. Ins. Co. (1976) 59 Cal.App.3d 5, 12, 130 Cal.Rptr. 416;  5 Witkin, Summary of Cal. Law (9th ed. 1988) § 411, pp. 491–494.)

More recently, the court in Hernandez v. General Adjustment Bureau (1988) 199 Cal.App.3d 999, 245 Cal.Rptr. 288, approved an intentional infliction claim under similar circumstances.   Hernandez became psychologically disabled as a result of a work-related incident.   She sued her employer's independent workers' compensation insurance adjuster alleging that, “knowing her susceptibility to profound mental distress, and of her repeated attempts at suicide, as a result of the incidents which caused her disability, [the defendant] intentionally delayed payments of approved benefits vital to the support of appellant and her three children.”  (Id. at p. 1007, 245 Cal.Rptr. 288.)   The court concluded, “[T]hese allegations are sufficient to state a cause of action for intentional infliction of emotional distress.”  (Ibid.)

Fireman's attempts to distinguish Hernandez—and, implicitly, Fletcher and its progeny—on the ground that an insurer has greater duties to its insured than to third party claimants.   We fail to see how this rationale has any application to Hernandez where the plaintiff was suing her employer's independent adjuster.   In any event, the existence of a “special relationship” between the plaintiff and defendant has never been a requirement for an intentional infliction claim.   Indeed, the Supreme Court's Moradi–Shalal language belies any suggestion that an insurer-insured relationship is necessary to bring an intentional infliction claim.   By specifying that breach of contract and breach of the implied covenant remedies were limited to insureds, the court by necessary implication indicates that intentional infliction actions are not so limited.  (See ante, p. 342.)

Like the plaintiffs in Fletcher and Hernandez, the Weiners have alleged the particular facts which contributed to the family's desperate financial and psychological circumstances.   They have further alleged that Fireman's knew of these circumstances.   Here, the Weiners' attorney repeatedly informed Fireman's of the family's unusual needs and the financial pressures occasioned by Herman's condition.   He also provided detailed analysis supported by witness statements and documents establishing liability and causation.   Although Fireman's did not dispute these facts or identify contrary evidence, it continued to maintain that proof of liability and causation was not sufficient to permit settlement discussions.   With perfunctory explanation it refused the Weiners' conservative request for some advance funds to help defray the mounting medical bills.

 Throughout its investigation, Fireman's rarely initiated contacts with the Weiners.   Instead, it waited for the Weiners to inquire and responded by asking for additional information, much of which had already been provided.   The complaint alleges that Fireman's, knowing of the Weiners' peculiar susceptibility to emotional injury, deliberately delayed its investigation and processing of the Weiners' claim in order to pressure them into accepting an unreasonably low settlement.   This allegation is corroborated by the fact that when Fireman's finally made its first settlement offer 21 months after Herman's accident, the amount offered did not even cover the Weiners' out-of-pocket medical costs which had been documented as early as February 1987, four months after the accident.   Under these circumstances, the allegations of the complaint go well beyond the mere “failure to fulfill[ ] ․ statutory duties.”  (Lee v. Travelers Companies, supra, 205 Cal.App.3d at p. 695, 252 Cal.Rptr. 468.)   We think they are sufficient to state a cause of action for intentional infliction of emotional distress as contemplated by the Supreme Court in Moradi–Shalal.

II

 Although it did not raise the contention in the superior court, Fireman's argues on appeal that even if the complaint theoretically states a cause of action, it is barred by the absolute privilege created by Civil Code section 47, subdivision (b) for “publication[s] or broadcast[s]” made in the course of a “judicial proceeding.”  (Kimmel v. Goland (1990) 51 Cal.3d 202, 209, 271 Cal.Rptr. 191, 793 P.2d 524.)   Fireman's relies principally on the recent decision in The Doctors' Co. v. Superior Court (1990) 225 Cal.App.3d 1284, 275 Cal.Rptr. 674, which held that an insurance company's instructions to its insured to commit perjury were communications made in the course of a “judicial proceeding” and therefore absolutely privileged.  (Id. at p. 1299, 275 Cal.Rptr. 674.)   The Doctors' court acknowledged the Supreme Court's recent holding that the Civil Code section 47, subdivision (b) privilege does not “bar suit for personal injuries arising from noncommunicative conduct that occurred during a judicial proceeding.”   (Kimmel v. Goland, supra, 51 Cal.3d at p. 211, 271 Cal.Rptr. 191, 793 P.2d 524.)   It explained, however, that the plaintiffs in that case did not “complain of any noncommunicative conduct, such as a destruction of physical evidence causing injury apart from communication of an injurious falsehood.”6  (225 Cal.App.3d at p. 1299, 275 Cal.Rptr. 674, emphasis in original.) 7

Fireman's asserts that the Weiners seek to impose liability on it for the harm they suffered as a result of the communications they received from Fireman's while the litigation was pending.   The Weiners dispute this characterization, arguing they were harmed by Fireman's noncommunicative course of conduct in stonewalling a settlement of the case.

The Supreme Court addressed this identical issue in the context of an insurance bad faith case in White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 221 Cal.Rptr. 509, 710 P.2d 309.   There the court rejected an insurer's argument that the bad faith action was barred by the privilege because it was based on the insurer's offers of settlement made after the commencement of litigation.   In doing so, the court “[drew] 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.”  (Id. at p. 888, 221 Cal.Rptr. 509, 710 P.2d 309;  see also Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d at pp. 575–576, fn. 5, 108 Cal.Rptr. 480, 510 P.2d 1032.)   Similarly here, Fireman's communications with the Weiners (or more importantly, the lack thereof) merely evidence an underlying course of conduct—the failure to enter into a reasonable settlement—designed to inflict emotional distress on the Weiner family in order to extort acceptance of an unreasonably low settlement offer.8  (See also Oren Royal Oaks Venture v. Greenberg, Bernhard Weiss & Karma, Inc. (1986) 42 Cal.3d 1157, 1168, 232 Cal.Rptr. 567, 728 P.2d 1202.)

DISPOSITION

The judgment is reversed.   The superior court is directed to overrule defendant's demurrer to plaintiffs' cause of action alleging the intentional infliction of emotional distress.

I dissent.

Evidently Justice Mosk's report of the death of Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, was, in the words of Mark Twain, greatly exaggerated.  (See Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 313, 250 Cal.Rptr. 116, 758 P.2d 58, dissenting opinion of Mosk, J. (Moradi–Shalal).)   Although the Supreme Court has instructed us in some detail about the practical and analytical problems posed in finding insurers have a duty to third party claimants to promptly settle claims (see Moradi–Shalal, supra, 46 Cal.3d at pp. 301–303, 250 Cal.Rptr. 116, 758 P.2d 58;  Coleman v. Gulf Ins. Group (1986) 41 Cal.3d 782, 794–795, 226 Cal.Rptr. 90, 718 P.2d 77;  Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 940–942, 132 Cal.Rptr. 424, 553 P.2d 584;  see also J.C. Penney Casualty Ins. Co. v. M.K. (1991) 52 Cal.3d 1009, 1018, 278 Cal.Rptr. 64, 804 P.2d 689), my colleagues have nonetheless found this insurer may be liable to these third party claimants because the insurer failed to promptly settle their claims.

There is nothing in this record akin to the affirmative misconduct which, in other cases, supports independent claims for damages arising during the course of litigation.   The insurer did not physically assault the Weiners, as in Unruh v. Truck Insurance Exchange (1972) 7 Cal.3d 616, 630, 102 Cal.Rptr. 815, 498 P.2d 1063 (Unruh).   The insurer did not surreptitiously tape telephone conversations, as in Kimmel v. Goland (1990) 51 Cal.3d 202, 205, 271 Cal.Rptr. 191, 793 P.2d 524 (Kimmel).   The insurer did not maliciously prosecute a declaratory relief action as alleged in Camarena v. Sequoia Ins. Co. (1987) 190 Cal.App.3d 1089, 235 Cal.Rptr. 820.1

What then did the insurer do?   The insurer responded to requests for payment made by the Weiners' attorney and initiated requests for information from the Weiners.   Although my colleagues do not confront the issue, the insurer's responses and requests were not themselves tortious—they were absolutely privileged under Civil Code section 47 subdivision (b)(2).   (Doctors' Co. v. Superior Court (1990) 225 Cal.App.3d 1284, 1299, 275 Cal.Rptr. 674 (Doctors' ).) 2

Since none of the insurer's affirmative acts are, on their own, actionable, we are left with what the insurer failed to do.   This presents an analytical problem my colleagues have bumped into—the need for a “special relationship”—but have failed to fully address.   In general, tort liability may not be founded upon mere nonfeasance.  “The fact that the actor realizes or should realize that action on his part is necessary for another's aid or protection does not of itself impose upon him a duty to take such action.”  (Rest. of the Law 2d, Torts, § 314;  Prosser & Keeton on Torts, pp. 373–375;  see also Andrews v. Wells (1988) 204 Cal.App.3d 533, 539, 251 Cal.Rptr. 344.)   According to the Restatement commentators, “The rule stated in this Section is applicable irrespective of the gravity of the danger to which the other is subjected and the insignificance of the trouble, effort, or expense of giving him aid or protection.”  (Rest.2d Torts, com. c to § 314.)

Although, as the majority suggests, the distinction between misfeasance and nonfeasance has for the most part been discussed in terms of negligence claims, the distinction is by no means limited to negligence liability.  Section 314 is the first entry in Topic 7 of the Restatement 2d Torts, Duties of Affirmative Action.   The scope note preceeding Topic 7 states that while the duties to take affirmative steps are generally duties to act with reasonable care, “[t]here are many cases, however, in which the actor deliberately fails to perform such a duty which he knows is vital to the security of another.   In such case, his misconduct is often either intentional, that is, done for the very purpose of harming the other or with knowledge that harm will certainly result from it (see § 8A), or is in reckless disregard of the other's interests (see § 500).”  (Rest.2d Torts, Topic 7, Scope Note, p. 115.)   In addition to the commentator's broad view of the scope of Topic 7, and implicitly section 314, I also note the distinction between acts and omissions plays a vital role in determining liability for false imprisonment (see Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1123–1124, 252 Cal.Rptr. 122, 762 P.2d 46, and cases cited therein) and fraud (see Mesmer v. White (1953) 121 Cal.App.2d 665, 670, 264 P.2d 60;  5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 697, pp. 799–800.) 3

In any event, the law has created a number of exceptions to the rule set forth in Restatement Second, Torts, section 314.   Those exceptions arise when courts have been able to find “some definite relation between the parties, of such a character that social policy justifies the imposition of a duty to act.”  (Prosser & Keeton on Torts, p. 374, fn. omitted;  see also Nally v. Grace Community Church (1988) 47 Cal.3d 278, 292–293, 253 Cal.Rptr. 97, 763 P.2d 948.)   Thus, while in the abstract my colleagues are correct when they state that “existence of a ‘special relationship’ between the plaintiff and defendant has never been a requirement for an intentional infliction claim” (maj. opinion, ante, p. 345), their statement does not tell the entire story.   Certainly no special relationship is necessary where a tortfeasor has been guilty of affirmative misconduct—such as the physical invasions described in Unruh and Kimmel;  on the other hand a “special relationship” is necessary where, as here, the only “conduct” which survives application of Civil Code section 47, subdivision (b)(2), is a failure to act—or in the words of the majority, “stonewalling.” 4  (Prosser & Keeton on Torts, pp. 373–375.)

To date no court has found a special relationship exists between an insurer and a third party claimant to policy benefits.   Indeed the cases have repeatedly rejected the notion an insurer owes any nonstatutory duty to anyone other than its policyholders.  (See Coleman v. Gulf Ins. Group, supra, 41 Cal.3d at pp. 794–795, 226 Cal.Rptr. 90, 718 P.2d 77 [no claim for breach of covenant of good faith and fair dealing may be brought by third party tort victim on grounds insurer failed to settle];  Murphy v. Allstate Ins. Co., supra, 17 Cal.3d at pp. 940–942, 132 Cal.Rptr. 424, 553 P.2d 584 [same];  Ricard v. Pacific Indemnity Co. (1982) 132 Cal.App.3d 886, 890–891, 183 Cal.Rptr. 502 [no claim for breach of covenant by employee against workers' compensation carrier];  Austero v. National Cas. Co. (1976) 62 Cal.App.3d 511, 516–517, 133 Cal.Rptr. 107 [spouse of policy beneficiary may not bring action against disability insurer for failure to pay];  Hatchwell v. Blue Shield of California (1988) 198 Cal.App.3d 1027, 1033–1034, 244 Cal.Rptr. 249 [spouse may not bring common law claim against other spouse's health insurance provider].)   While these cases involved attempts by third parties to assert derivative tort claims for breach of the covenant of good faith and fair dealing rather than claims for intentional infliction of emotional distress, they are instructive here because each involved a failure to pay benefits under a policy and in each the courts refused to find that the relationship between the insurer and the claimant would support tort liability.5

Also instructive is the following from Moradi–Shalal:  “Most authors have noted another consequence of our holding in Royal Globe that insurers owe a direct duty to third party claimants:  It tends to create a serious conflict of interest for the insurer, who must not only protect the interests of its insured, but also must safeguard its own interests from the adverse claims of the third party claimant.   This conflict disrupts the settlement process and may disadvantage the insured.”  (Moradi–Shalal, supra, 46 Cal.3d at p. 302, 250 Cal.Rptr. 116, 758 P.2d 58.)   In short, given the uniform unwillingness of previous courts to create a duty to settle running in favor of third parties and the conflict of interest inherent in any such duty, I believe recognition of any special relationship between insureds and third parties would be unprecedented and unwarranted.

Because the insurer in this case had no common law duty to pay the Weiners, the insurer's failure to do so, no matter how premeditated and intentional, will not give rise to common law tort liability.  (See Rest.2d Torts, § 314.)   Because the insurer did not otherwise engage in affirmative misconduct, the Weiners have not stated a cause of action against it.

I cannot leave this subject, however, without embracing, in part, the sentiments expressed so well in the majority opinion.   An insurer's attempt to reduce its losses by waiting for the burdens on a vulnerable family to mount is odious.   For a number of years such calculated nonfeasance would have entitled the Weiners to a remedy in our courts.   Nonetheless, with due respect to my colleagues, Justice Mosk was right:  the occurrence of such practices no longer supports a cause of action for damages.

I would affirm the judgment.

FOOTNOTES

1.   Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329.

2.   The offer was actually a structured settlement.   Its present cash value was $105,000.

3.   The Weiners also allege a cause of action for negligent infliction of emotional distress.   Although Moradi–Shalal only speaks of an “infliction of emotional distress” theory, we do not see how a negligent infliction claim can be made in this context.   As the Supreme Court explained in Thing v. La Chusa (1989) 48 Cal.3d 644, 257 Cal.Rptr. 865, 771 P.2d 814, there is technically no separate cause of action for negligent infliction of emotional distress.   The tort is negligence, and emotional distress is an element of damage which may be recovered in certain circumstances and not in others.  (Id. at pp. 647, 648, 257 Cal.Rptr. 865, 771 P.2d 814.)   If a third-party plaintiff is allowed to recover emotional distress damages against a “merely” negligent insurer, a private right of action under Insurance Code section 790.03 would effectively be resurrected since any unreasonable refusal to settle could give rise to tort damages.   We think such a result would be inconsistent with Moradi–Shalal.

4.   Two other courts have tackled the more difficult issue of what allegations beyond the mere “failure to fulfill statutory duties” are necessary to state a valid cause of action.   One reversed a trial court which had sustained a defendant-insurer's demurrer.  (Moukalled v. Fire Ins. Exchange (1990) 221 Cal.App.3d 769, 271 Cal.Rptr. 588.)   Another issued a writ of mandate directing the trial court to sustain a similar demurrer.  (Continental Ins. Co. v. Superior Court (1990) 221 Cal.App.3d 1520, 271 Cal.Rptr. 266.)   Both cases were depublished by the Supreme Court.  (Moukalled–8/22/90;  Continental–9/20/90.)   Even were it possible, consistent with California Rules of Court rule 979(e) we draw no inference from the Supreme Court's action.

5.   The dissent suggests that a defendant with no “special” relationship to the plaintiff who knows of the plaintiff's susceptibility to emotional injury and intends to cause such injury is nonetheless immune from liability unless the instrument used to cause the injury is an affirmative act rather than an omission.   The principal authorities cited in support of this assertion, however, relate to the tort of negligence and the concept of a legal duty to prevent harm.  (See dissent, post, at p. 347.)   Indeed, a recent Supreme Court case approved an intentional infliction claim against a church based on both the “misrepresentation and concealment of the Church's identity․”  (Molko v. Holy Spirit Assn., supra, 46 Cal.3d at pp. 1120, 1122, 252 Cal.Rptr. 122, 762 P.2d 46, emphasis added.)In any event, the dissent admittedly relies exclusively on cases holding that a third party cannot state a tort cause of action against an insurer for breach of the implied covenant of good faith and fair dealing.   (Dissent, post, at pp. 348–349.)   That unique tort cause of action derives from the parties' contractual relationship (see, e.g., Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 575, 108 Cal.Rptr. 480, 510 P.2d 1032) and thus cannot be asserted by other than a party to the insurance contract.   This is not to say, however, that an insurer does not occupy a “position which gives [it] power to damage the ․ interests” of third party claimants.  (Agarwal v. Johnson, supra, 25 Cal.3d at p. 946, 160 Cal.Rptr. 141, 603 P.2d 58;  Molko v. Holy Spirit Assn., supra, 46 Cal.3d at p. 1122, 252 Cal.Rptr. 122, 762 P.2d 46.)   By encompassing the duty to defend, the insurance contract necessarily places the insurer in a position to affect the interests of injured third parties.

6.   The Doctors' court was apparently concerned with the numerous situations in which a communication made in connection with litigation serves to facilitate noncommunicative conduct which causes harm to the plaintiff.   We assume, for instance, that if a lawyer solicited his client to murder a key opposition witness, the privilege would not bar a subsequent wrongful death action even though the lawyer's involvement consisted solely of communicative conduct.

7.   An independent predicate holding in Doctors' was that insurers as a matter of law were “participants” in the litigation (see Silberg v. Anderson (1990) 50 Cal.3d 205, 212, 266 Cal.Rptr. 638, 786 P.2d 365) entitling them to assert the privilege.  (225 Cal.App.3d at pp. 1295–1298, 275 Cal.Rptr. 674.)   Because we conclude Fireman's asserted liability is based on a noncommunicative course of conduct, we express no opinion on the correctness of this aspect of Doctors'.

8.   Indeed, acceptance of Fireman's argument would suggest that virtually all pre-Moradi-Shalal actions filed pursuant to Insurance Code section 790.03 were barred by the privilege.

1.   Compare Pacific Gas & Electric v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1132–1136, 270 Cal.Rptr. 1, 791 P.2d 587:  because of effect on adversary process claim for intentional interference with contract will not be recognized in case where financial advisor encouraged client to challenge validity of contract.

2.   Although my colleagues apparently have some doubts about Doctors' (see maj. opinion, p. 346, fn. 6), I note review was recently denied in Doctors'.   Unlike an order directing that an opinion not be published (see rule 979(e), California Rules of Court), we may consider as significant an order denying review.  (United States Fidelity & Guaranty Co. v. Superior Court (1988) 204 Cal.App.3d 1513, 1524, 252 Cal.Rptr. 320.)

3.   The majority's reference to defendants who have power to injure a plaintiff (ante, p. 344) is intriguing.   The only power this insurer had was the power to pay.   Evidently my colleagues believe the ability to relieve suffering is enough, by itself, to support tort liability.

4.   I have no quarrel with the majority's conclusion Civil Code section 47, subdivision (b)(2), does not bar claims based upon the failure to pay insurance benefits.  (See White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 888, 221 Cal.Rptr. 509, 710 P.2d 309.)   Moreover, I agree statements an insurer makes in connection with litigation may be used to show its intent in failing to provide policy benefits.  (See Oren Royal Oaks Venture v. Greenberg, Bernhard, Weiss & Karma, Inc. (1986) 42 Cal.3d 1157, 1168, 232 Cal.Rptr. 567, 728 P.2d 1202.)   The problem I have is finding any authority—aside from Royal Globe—which has ever provided third parties with a right of action against an insurer for failing to promptly pay policy benefits.

5.   In this regard the majority's dogged reliance on the holding in Hernandez v. General Adjustment Bureau (1988) 199 Cal.App.3d 999, 245 Cal.Rptr. 288, is telling.   Absent today's opinion, no published case has relied on the holding in Hernandez that knowledge of a claimant's distress is sufficient to give rise to liability for failing to relieve the distress.   Indeed another panel of this court, in circumstances remarkably similar to those alleged in Hernandez, acknowledged Hernandez but failed to find any common law right of action for intentional infliction of emotional distress.  (See Stoddard v. Western Employers Ins. Co. (1988) 200 Cal.App.3d 165, 170–173, 245 Cal.Rptr. 820 [common law right of action for intentional infliction of emotional distress against worker's compensation carrier barred by the exclusive remedy provisions of the Workers' Compensation Act].)   I also note that the result reached in Hernandez has been criticized as “inexplicabl[e].”  (See Phillips v. Crawford & Co. (1988) 202 Cal.App.3d 383, 389, fn. 6, 248 Cal.Rptr. 371.)   The court in Hernandez failed to consider or discuss the fundamental problem posed by section 314 of the Restatement 2d, or the earlier cases which uniformly reject a common law duty to pay third party claimants.   I also note that, unlike us, neither the parties nor the court in Hernandez had the benefit of the concerns expressed in Moradi–Shalal about imposing on insurers a direct duty to pay third parties.

WIENER, Acting Presiding Justice.

WORK, J., concurs.

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