FREMOIRE v. ALLSTATE INSURANCE COMPANY

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

Rosa FREMOIRE et al., Plaintiffs and Appellants, v. ALLSTATE INSURANCE COMPANY, Defendant and Respondent.*

No. B043246.

Decided: November 27, 1990

Roberts & Morgan and James C. Packer, Riverside, for plaintiffs and appellants. Pollak & Vida, Encino, and Scott J. Vida, Los Angeles, for defendant and respondent.

Plaintiffs Rosa and Hector Fremoire appeal from a judgment of dismissal entered after defendant Allstate Insurance Company's demurrer to their complaint was sustained without leave to amend.   In this surviving Royal Globe action by third party claimants under Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 305–306, 250 Cal.Rptr. 116, 758 P.2d 58, the question before us is whether the stipulated judgment in the underlying personal injury action in favor of plaintiffs and against Allstate's insured can reasonably be interpreted to constitute a final judicial determination of the insured's liability, a prerequisite for plaintiffs' action against Allstate for breach of statutory duties under Insurance Code section 790.03, subdivision (h).  (46 Cal.3d at p. 313, 250 Cal.Rptr. 116, 758 P.2d 58.)

FACTS

On review of a demurrer, we must assume plaintiff's allegations to be true.   (Wade v. 20th Century Ins. Co. (1988) 206 Cal.App.3d 32, 35, fn. 1, 253 Cal.Rptr. 361.)   According to the Fremoires' complaint,1 Rosa Fremoire sustained injuries when her vehicle was rear-ended by defendant's insured, Robyn Ann Dincin, on July 31, 1986;  within 60 days of the accident, defendant became aware of Rosa Fremoire's claims;  in January 1987, the Fremoires filed an action against Dincin;  on September 28, 1987, plaintiffs offered to settle their claims against Dincin for $25,000, but received no response to this demand;  Allstate hired defense counsel for Dincin and conducted depositions of the plaintiffs in March 1988;  trial was set for April 27, 1988, with a mandatory settlement conference set for April 4, 1988.

On March 18, 1988, an offer to compromise in the sum of $15,000 was forwarded to Allstate's representatives;  on April 1, 1988, “a compromise was entered into between [Allstate's] designated representatives and the plaintiffs whereby it was agreed that Robyn Ann Dincin would stipulate to a judgment in the sum of $15,000 by accepting the offer to compromise previously forwarded, and that the payment of $15,000 would thereby satisfy the judgment which Robyn Ann Dincin was stipulating to”;  “it was subsequently agreed that [Dincin] would execute a stipulated judgment in favor of the plaintiffs in this case in the amount of $15,000, and that Allstate's designated representative represented that it had been so signed and was being filed with the court”;  the judgment was filed in September 1988 and has been executed by Allstate.   The complaint against Allstate also referred to the Stipulation for Entry of Judgment in the underlying action against Dincin, and plaintiffs' opposition to Allstate's demurrer requested the trial court to take judicial notice of the stipulation.   The stipulation stated that Dincin and plaintiffs stipulated that judgment be entered in favor of plaintiffs and against defendant in the sum of $15,000;  the stipulation was signed by the parties as well as their attorneys;  beneath the stipulation was the order of the court which stated that “On reading and filing the stipulation of the parties hereto for the entry of judgment herein, and good cause appearing therefor, [¶] IT IS HEREBY ORDERED that judgment be entered in the above-entitled case in favor of plaintiffs ․ and against defendant ․ in the sum of $15,000․”

Allstate demurred to the complaint on the ground that pursuant to Wade v. 20th Century Ins. Co., supra, 206 Cal.App.3d 32, 253 Cal.Rptr. 361, there was no conclusive judicial determination of the insured's liability under Moradi–Shalal.2

The court's ruling on the demurrer stated that “Demurrer is sustained without leave to amend.   Court finds that the offer to compromise and the stipulated judgment do not amount to a final judicial determination of the insured's liability pursuant to Wade.”

Plaintiffs filed timely notice of appeal from the judgment of dismissal.   On appeal they contend that this case is not governed by Wade because the stipulation herein was not entered pursuant to Code of Civil Procedure section 998 (hereinafter section 998), but rather is a stipulated judgment which collaterally estops Allstate from contesting Dincin's liability under principles enunciated in California State Auto. Assn. Inter–Ins. Bureau v. Superior Court (1990) 50 Cal.3d 658, 268 Cal.Rptr. 284, 788 P.2d 1156 (hereinafter CSAA ).3  Appellants contend that the language in the complaint which alleged that “it was agreed that [Dincin] would stipulate to a judgment in the sum of $15,000 by accepting the offer to compromise previously forwarded ․” does not mean that the stipulation was entered pursuant to section 998, but that “the agreement was to stipulate to a judgment in the same amount set forth in the 998 offer to compromise.   It was not an acceptance of a [section 998 offer to compromise].”

DISCUSSION

 “ ‘In reviewing the sufficiency of a complaint against a general demurrer, ․ “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.  [Citation.]   We also consider matters which may be judicially noticed.”  [Citation.]   Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.  [Citation.]  ․ ‘[W]e bear in mind our well established policy of liberality in reviewing a demurrer sustained without leave to amend:  “the allegations of the complaint must be liberally construed with a view to attaining substantial justice among the parties.” ’  [Citation.]   Further, ‘[w]hen a demurrer is sustained without leave to amend, the reviewing court may consider any tenable basis for amendment on appeal even though the theory was not presented to the trial court.  [Citation.]’ ”  (Warfield v. Peninsula Golf & Country Club (1989) 214 Cal.App.3d 646, 652–653, 262 Cal.Rptr. 890.)

 As a reviewing court we are not bound by the construction placed by the trial court on the pleadings, but must make our own independent judgment thereon, even as to matters not expressly ruled upon by the trial court.   (Marina Tenants Assn. v. Deauville Marina Development Co. (1986) 181 Cal.App.3d 122, 127, 226 Cal.Rptr. 321.)   The appellate court may adopt a construction of judicially noticed material contrary to that which the trial court found persuasive.  (Highlanders, Inc. v. Olsan (1978) 77 Cal.App.3d 690, 697, 143 Cal.Rptr. 679.)

 “Finally, where an ambiguous contract is the basis of an action, it is proper, if not essential, for a plaintiff to allege its own construction of the agreement.   So long as the pleading does not place a clearly erroneous construction upon the provisions of the contract, in passing upon the sufficiency of the complaint, we must accept as correct plaintiff's allegations as to the meaning of the agreement.”  (Marina Tenants Assn. v. Deauville Marina Development Co., supra, 181 Cal.App.3d at p. 128, 226 Cal.Rptr. 321.)

The Stipulation for Entry of Judgment (hereinafter stipulation) in the underlying case against Dincin does not state that the judgment is being entered pursuant to section 998, or that Dincin had accepted or was thereby accepting an offer to compromise under that section.   The fact that the stipulation states, in that portion titled “Order,” which is signed by the court, that “good cause [appears] therefor,” suggests that entry of the judgment was a discretionary judicial act outside the ambit of section 998.   Pursuant to section 998, the court has no discretion to refuse to enter judgment where there has been a properly accepted statutory offer to settle.  (See Code Civ. Proc., § 998, subd. (b)(1);  CSAA, supra, 50 Cal.3d at p. 665, fn. 3, 268 Cal.Rptr. 284, 788 P.2d 1156.)

 Respondent argues that even if the procedure called for in section 998 was not strictly observed in this case, inasmuch as a proof of acceptance was not filed with the court, the compromise was substantively based on the insured's acceptance of the section 998 offer, and the essential character of the stipulated judgment is one based on the acceptance of a compromise offer under section 998.   The problem with respondent's argument is that section 998 requires that if the offer is accepted, “the offer with proof of acceptance shall be filed and the clerk or the judge shall enter judgment accordingly.”  (Code Civ. Proc., § 998, subd. (b)(1).)   It is the filing of the offer and proof of acceptance which is the basis of the subsequently entered judgment, and which renders the judgment one entered pursuant to section 998.   Even though respondent appears to construe the complaint as alleging that there was an oral agreement to accept the offer to compromise, respondent acknowledges, consistent with the allegations in the complaint, that there was no filing of the offer and proof of acceptance.   In light of the allegations of the complaint and the unambiguous terms of the stipulation, we adopt a construction of the record different from that of the trial court and conclude that as a matter of law the stipulation was not entered pursuant to section 998.   The trial court improperly relied upon Wade in sustaining the demurrer.

 Despite the inapplicability of Wade, we proceed to address the issue of whether the stipulation can reasonably be interpreted to constitute a final judicial determination of the insured's liability.   One factor that was present in the stipulated judgment in CSAA and lacking here is an express admission of liability by the insured.

The court in CSAA adverted to the issue of whether a stipulated judgment in favor of plaintiff constitutes a final judicial determination of the defendant's liability even if the judgment does not contain an express admission of liability, but stated that “For purposes of the present case, we need not resolve this debate.   It seems fair to say that by specifically stipulating to the issue of liability, the parties intended the ensuing judgment to collaterally estop further litigation on that issue.   Were their intent otherwise, the parties easily could have expressly restricted the scope of the agreement.”  (50 Cal.3d at pp. 664–665, fn. 2, 268 Cal.Rptr. 284, 788 P.2d 1156.)   The court in CSAA then cited with approval Ellena v. State of California (1977) 69 Cal.App.3d 245, 260, 138 Cal.Rptr. 110.

The court in CSAA thus impliedly approved the following language in Ellena:  “Although a stipulated judgment is no less conclusive than a judgment entered after trial and contest [citations] it is axiomatic that its res judicata effect extends only to those issues embraced within the consent judgment.  [Citations.]   Thus, while a stipulated judgment normally concludes all matters put into issue by the pleadings, the parties can agree to restrict its scope by expressly withdrawing an issue from the consent judgment.  [Citations.]  ․ [¶] We agree that because of the contractual aspect of a stipulated judgment, extrinsic evidence may be admitted to resolve ambiguities in its language․   The exception to the normal res judicata effect of a judgment, as articulated in Miller & Lux, Inc. v. James, supra, 180 Cal. 38 [179 P. 174] requires that an otherwise included issue be withdrawn by an express reservation.”  (Ellena v. State of California, supra, 69 Cal.App.3d at pp. 260–261, 138 Cal.Rptr. 110.)

In the instant case, the stipulation does not expressly reserve from its scope the issue of the insured's liability, which was clearly put into issue by the pleadings.   Accordingly, the general rule of Ellena would support appellants' construction of the stipulation as a final judicial determination of the issue of the insured's liability.4

Pointing out language in CSAA that its holding was a narrow one, limited to the situation therein where “the insurer both participated in the settlement and signed the stipulation” (50 Cal.3d at p. 665, fn. 5, 268 Cal.Rptr. 284, 788 P.2d 1156), respondent argues that the instant case is distinguishable in that Allstate did not sign the stipulation.   While respondent is correct as to the holding in CSAA, respondent overlooks language therein indicating that the issue before the court was whether the insurer therein was in control of the action under Code of Civil Procedure section 1908, subdivision (b) so as to be bound by the judgment, with the insurer's signature on the stipulation being evidence of such control:  “Where, as here, an insurer signs a stipulation in which the insured admits liability, that insurer is privy to the agreement and can be collaterally estopped from relitigating liability to the same extent as the insured.  (See Code Civ. Proc., § 1908, subd. (b)․)” 5  (50 Cal.3d at pp. 664–665, 268 Cal.Rptr. 284, 788 P.2d 1156.)   We do not construe the above language by the court in CSAA to indicate that the insurer's signature on the stipulated judgment is a prerequisite for operation of the doctrine of collateral estoppel, but simply that such signature is evidence the insurer is privy to the agreement and can be collaterally estopped by it.   This point is further made clear by the statement in a footnote that “If, however, the insurer had not received reasonable notice of the settlement, or were not allowed to control the insured's defense in the proceedings, any stipulated judgment would only be presumptive evidence of the insured's liability․   In such a case, the issue of the insured's liability would be subject to litigation in the section 790.03(h) suit, thereby conflicting with the policies of Moradi–Shalal.”  (50 Cal.3d at pp. 665–666, fn. 5, 268 Cal.Rptr. 284, 788 P.2d 1156.)

The complaint in the instant case alleges that Allstate hired defense counsel for Dincin, that a compromise was entered into between plaintiffs and Allstate's “designated representatives,” and that Allstate subsequently executed the judgment.   Because such allegations support a conclusion that Allstate is bound by the stipulation under section 1908, the stipulated judgment can reasonably be interpreted as a “final judicial determination of the insured's liability” under Moradi–Shalal.   The trial court improperly sustained the demurrer.

DISPOSITION

The judgment of dismissal is reversed.   The trial court is directed to overrule the demurrer and order respondent to answer the complaint.   Appellants are entitled to costs on appeal.

FOOTNOTES

1.   As this appeal is not concerned with the issue of the manner of defendant's handling of the Fremoires' claims and whether sufficient facts have been alleged to substantiate the allegations of breach of statutory duties, we do not set out the allegations of the complaint pertaining to defendant's handling of the claims.

2.   In Moradi–Shalal v. Fireman's Fund Ins. Companies, supra, 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58, the court held, contrary to its earlier decision in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, that “Insurance Code section 790.03, subdivision (h) ․ does not confer on private parties a statutory cause of action against insurance companies for damages for unfair practices.   We overruled Royal Globe prospectively only, however:  Any then pending actions by private parties ․ could proceed․  [¶] With respect to such surviving Royal Globe actions brought by injured third party claimants, we specified in Moradi–Shalal that ‘a final judicial determination of the insured's liability [for the third party claimant's injuries] is a condition precedent to a section 790.03 action against the insurer.’ ”  (California State Auto Assn. Inter–Ins. Bureau v. Superior Court (1990) 50 Cal.3d 658, 661, 268 Cal.Rptr. 284, 788 P.2d 1156.)Wade held that because a judgment entered pursuant to Code of Civil Procedure section 998 is deemed to be a compromise settlement (Code Civ. Proc., § 998, subd. (f)), which does not as such constitute an adjudication of either liability or damages, such a judgment does not constitute a conclusive judicial determination.  (206 Cal.App.3d at p. 38, 253 Cal.Rptr. 361.)

3.   The court in CSAA held that where the insurer both participated in the settlement and signed the stipulation in which the insured admits liability, “that insurer is privy to the agreement and can be collaterally estopped from relitigating liability to the same extent as the insured.  [Citations.]  [¶] Because the stipulated judgment in this case is entitled to collateral estoppel effect, the injured third party will not be required to establish the insured's liability within the section 790.03(h) action.   Thus, treating the stipulated judgment here as a ‘final judicial determination’ would neither invoke the serious practical and policy problems with which we were concerned in Moradi–Shalal (supra, 46 Cal.3d at p. 311, 250 Cal.Rptr. 116, 758 P.2d 58), nor deny the parties a primary advantage of settlement by forcing them to relitigate a settled issue.   These considerations, combined with the fact that a stipulated judgment contemplates the exercise of judicial discretion or involvement, convince us that, unlike a simple settlement, a stipulation of the insured's liability signed by the insurer and later entered as a judgment constitutes a final judicial determination as required by Moradi–Shalal ” (50 Cal.3d at pp. 664–665, 268 Cal.Rptr. 284, 788 P.2d 1156;  footnotes omitted.)The court in CSAA distinguished stipulated judgments entered pursuant to Code of Civil Procedure section 664.6 (hereinafter section 664.6) from compromise settlements entered in accordance with section 998.   The court pointed out that under section 664.6, entry of a stipulated judgment “is a judicial act that a court has discretion to perform” (50 Cal.3d at p. 664, 268 Cal.Rptr. 284, 788 P.2d 1156), and “ ‘the court cannot surrender its duty to see that the judgment to be entered is a just one, nor is the court to act as a mere puppet in the matter.’ ”   (Ibid.)  “Unlike a stipulated judgment under section 664.6, the court has no discretion to refuse to enter judgment in a properly accepted statutory offer to settle pursuant to section 998.”  (Id., at p. 665, fn. 3, 268 Cal.Rptr. 284, 788 P.2d 1156.)The court further noted that because section 998, subdivision (f) provides that any judgment entered pursuant to the section shall be deemed to be a compromise settlement, the “Legislature did not intend to give settlements under that section collateral estoppel effect” (50 Cal.3d at p. 665, fn. 3, 268 Cal.Rptr. 284, 788 P.2d 1156), and issues settled in this manner are not deemed actually litigated.  (Ibid.)

4.   Moreover, Moradi–Shalal does not go so far as to require an “actual adjudication of the issue of the insured's liability ‘in a court of law by a judge or jury.’ ”  (State Farm Mut. Auto. Ins. Co. v. Superior Court (1989) 211 Cal.App.3d 5, 15, 259 Cal.Rptr. 50 [holding that award made in judicial arbitration and entered as a judgment against insureds under Code of Civil Procedure section 1141.23 constitutes a conclusive judicial determination of insureds' liability].)  “The doctrine of collateral estoppel concerns itself with the actual litigation and final determination of identical issues between identical parties (or those in privity).   An issue is ‘actually litigated’ when it is (1) properly raised by the pleadings, or otherwise, (2) submitted for determination and (3) finally determined.  [Citation.]   Even if only for the limited purposes of satisfying Moradi–Shalal, the imposition of an additional requirement that the prior judgment also be supported by some particular level of litigation activity would be a novel and troublesome departure from settled law.   It seems to us sufficient if the issue of liability was raised, submitted for decision and finally determined in the underlying action.   Whether that final judicial determination is based upon a jury's resolution of conflicting evidence, a failure of proof or a stipulation which necessarily resolves the issue is not a consideration relevant to the application of collateral estoppel.”  (State Farm Mut. Auto. Ins. Co. v. Superior Court, supra, 211 Cal.App.3d at p. 15, fn. 12, 259 Cal.Rptr. 50.)

5.   Subdivision (b) of section 1908 provides in pertinent part:  “A person who is not a party but who controls an action, individually or in cooperation with others, is bound by the adjudications of litigated matters as if he were a party if he has a proprietary or financial interest in the judgment or in the determination of a question of fact or of a question of law with reference to the same subject matter or transaction;  if the other party has notice of his participation, the other party is equally bound.”

LILLIE, Presiding Justice.

JOHNSON and FRED WOODS, JJ., concur.