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

Rosina CRISCI, Plaintiff and Respondent, v. The SECURITY INSURANCE COMPANY OF NEW HAVEN, CONNECTICUT, a corporation, Defendant and Appellant.

Civ. 22767.

Decided: July 05, 1966

Bishop, Murray & Barry, san Francisco, Cyril Viadro, San Francisco, of counsel, for appellant. Lewis & Stein, San Francisco, for respondent.

Respondent Rosina Crisci brought this action against appellant Security Insurance Company of New Haven, Connecticut, to recover damages for breach of an implied covenant of good faith in connection with the company's failure to settle an action brought against respondent by Mrs. June DiMare.   In her complaint respondent sought to recover as damages first, the difference between the amount of her insurance coverage and the DiMare judgment, and second, damages for mental suffering, distress, anxiety and worry caused by being subjected to loss of her property by execution and sale.   The trial court found that appellant was guilty of bad faith in refusing to settle the DiMare claim within the limits of respondent's insurance, and fixed respondent's damages at $125,272.35.   In addition, the court awarded respondent $25,000 as damages for mental suffering, distress and worry, but denied her prayer for punitive damages.   We have concluded that the trial court's finding of bad faith on the part of appellant is supported by substantial evidence, but that, upon the facts of this case, damages for mental distress, anxiety and worry are not recoverable as a matter of law.   We therefore modify the judgment by striking therefrom the award of $25,000 damages for mental suffering and distress, and as so modified, affirm.

The essential facts are these:  Appellant issued a policy of public liability insurance to respondent, covering rental premises on Mason Street in San Francisco.   The policy limit was $10,000.   Mr. June DeMare was a tenant of respondent, and was injured when a common stairway controlled and maintained by respondent collapsed, causing Mrs. DiMare to fall.   In her complaint in the action brought against respondent Mrs. DiMare alleged both physical and mental injury as a result of her experience in falling through the stairway.   It was undisputed that, shortly after the accident, Mrs. DiMare suffered a severe psychotic episode of a recurring and continuing nature and that she was hospitalized from time to time thereafter.   Damages demanded totalled $95,000.

Pursuant to rights reserved in the insurance policy, appellant took full and complete charge of the DiMare litigation.   It hired a competent and experienced lawyer to handle the case, and supported his efforts by its staff of investigators and claims manager.   Respondent was notified that the DiMare claim exceeded policy limits and was informed that she could hire independent counsel to protect her interests.   respondent did secure independent counsel.   he was in contact with appellant's attorney throughout the course of the litigation.

Appellant's attorney evaluated the DiMare action.   He wrote to the company and said the case was one of liability.   There were, of course, two aspects to the claim for damages, first, damages claimed for the physical injuries suffered by Mrs. DiMare when she fell through the stairs, and second, damages claimed for mental suffering and emotional distress because of her frightening and injurious experience.   In a second letter to appellant, counsel stated in effect that if all the alleged “mental background” could be proved, the company faced the possibility of a very large verdict.   Still later, the attorney wrote that the case was worth a great deal of money unless the defendant could prove that Mrs. DiMare was suffering from some mental derangement prior to the accident.

Appellant began and completed an extensive investigation of Mrs. DiMare's past, but was unable to discover any evidence of mental illness prior to the accident.   Both parties sought the aid of psychiatrists, and each found respectable medical opinion to support its contentions.

Appellant's claims manager notified it that the question of whether Mrs. DiMare's mental condition arose from her accident or other causes was one for the jury, and further that, if the jury should be impressed with Mrs. DiMare's medical evidence the verdict could reach $150,000.   Appellant's attorney continued to be of the view that the case was one of liability and reported to the company that if the jury believed Mrs. DiMare's medical experts the verdict could reach $100,000.

After appellant was in possession of the facts and after it had received the advice of counsel and its claims manager noting the possibility of a large verdict, Mrs. DiMare offered to settle her claims for $10,000, the face amount of the insurance policy.   But appellant had by this time received encouraging medical expert opinion, and its claims manager and attorney recommended that this offer be rejected, because in light of the new evidence they believed the case worth no more than $3,000.   Despite this view, the claims manager was careful to point out that the ultimate result was subject to some speculation, but concluded that the probabilities were that damages could be confined to physical injuries alone upon the basis that Mrs. DiMare's psychosis did not result from her fall.

Appellant considered its position vis-a-vis a possible claim of bad faith in refusing to settle at policy limits.   Its superintendent of claims wrote its regional claims man:  “I thoroughly agree that with the medical evidence before us as provided by eminent medical men, we could not be considered guilty of bad faith in this case by refusing to throw away our policy limits on what would appear to be a spurious claim based on illness which is not in any way causally related to the accident in question.”   The offer to settle at the policy limit was rejected.

Mrs. DiMare finally reduced her demands to $9,000.   There was evidence that respondent had offered to contribute $2,500 towards settlement, and that this offer had never been withdrawn.   Mrs. DiMare's final offer was also rejected.

The jury's verdict reflects acceptance of Mrs. DiMare's medical expert opinion evidence and rejection of respondent's expert testimony.   She received a verdict for $100,000.   Her husband was awarded $1,000.   The judgment was affirmed by the California Supreme Court.  (See DiMare v. Cresci, 58 Cal.2d 292, 23 Cal.Rptr. 772, 373 P.2d 860.)   Appellant paid the amount of its policy, together with interest and costs, but refused to pay the excess.   Mrs. DiMare satisfied a portion of her judgment by execution and sale of respondent's property and stripped her of all her material possessions.   Previously financially independent, respondent at time of trial was without financial resources.   She works as a baby sitter, is over 70 years of age, of foreign ancestry, speaks little English, and is in poor health.

 The main issue here, of course, is whether the evidence supports the trial court's finding of bad faith on the part of appellant in refusing to settle the DiMare claim within the limits of its policy.   Bad faith in cases such as this is purely a question of fact to be resolved by the trier of the facts (Brown v. Guarantee Ins. Co., 155 Cal.App.2d 679, 689, 319 P.2d 69, 66 A.L.R.2d 1202) and where found must be upheld on appeal if supported by substantial evidence.   Here the evidence supports the finding of bad faith made by the trial court.

 We need not review in detail the various elements to be considered by a court in deciding whether an insurer's failure to settle a claim within policy limits constitutes a breach of its duty to act in good faith in the disposition of claims made against its insured.   Those factors have been exhaustively described and discussed in many cases (see Brown v. Guarantee Ins. Co., supra, p. 689, 319 P.2d 69;  Ivy v. Pacific Automobile Ins. Co., 156 Cal.App.2d 652, 659, 320 P.2d 140;  Davy v. Public National Ins. Co., 181 Cal.App.2d 387, 394–395, 5 Cal.Rptr. 488;  Palmer v. Financial Indem. Co., 215 Cal.App.2d 419, 428–429, 30 Cal.Rptr. 204;  Martin v. Hartford Acc. & Indem. Co., 228 Cal.App.2d 178, 182–183, 39 Cal.Rptr. 342;  Kinder v. Western Pioneer Ins. Co., 231 Cal.App.2d 894, 900, 902, 42 Cal.rptr. 394) and are now well settled.   Some factors prominently mentioned in the cases are present here.   There was, for example, the standing proposal of the insured to contribute to the settlement, with no showing that the company did not wish or would not accept the policyholder's financial help.   There also existed a very great disparity between the financial risk to which the company was exposed and that which faced its policyholder in the event of a refusal to settle.   This emphasizes another factor prominently mentioned in the cases, namely that the insurance company must give at least as much consideration to the financial interests of its insured as it does to its own.  (Comunale v. Traders & General Ins. Co., 50 Cal.2d 654, 659, 328 P.2d 198, 68 A.L.R.2d 883;  Ivy v. Pacific Automobile Ins. Co., supra, 156 Cal.App.2d at 659, 320 P.2d 140;  Palmer v. Financial Indem. Co., supra.)   It is obvious here that appellant cannot successfully claim to have satisfied this latter rule.   Its policy limit was $10,000.   The case was recognized as one of liability, with a minimum judgment of $2,500 to $3,000 a strong probability.   Respondent had a standing offer to contribute $2,500 towards settlement, or at least had made such an offer at one time and had never withdrawn it.   Mrs. DiMare's demand was $9,000.   Hence a mere $3,500 or $4,000 separated the demand from settlement.   beyond the policy limits, however, loomed the menacing possibility of a very large deficiency running, in appellant's view, only against its assured.   The danger was clearly seen.   The record supports the view that it was appellant's intention, in the event the storm were to descend in full force, as it ultimately did, to raise the protective umbrella of its policy limits while permitting its policyholder to shiver in the rain.   The evidence, plainly enough, supports the trial court's finding on the issue of bad faith.

 One portion of appellant's appeal, however, must be sustained.   As we have seen, the trial court awarded respondent $25,000 damages for mental suffering and distress caused by appellant's bad faith failure to settle the DiMare action within policy limits, with the resulting judgment and loss of respondent's property.   The trial court's award appears to have been grounded upon the belief that respondent's claim is based upon tort and not upon contract and hence that Civil Code section 3333 governs the measure of damages to be allowed.1  It is true that some jurisdictions do treat an action for breach of an implied covenant of good faith in liability insurance settlement situations as sounding in tort.  (See Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.R. 1136, 1138, fn. 5.)   But in California we treat such actions as sounding in contract.   Thus, in Critz v. Farmers Ins. Group, 230 Cal.App.2d 788, 799, 41 Cal.Rptr. 401, 407, the court pointed out:  “Prior to * * * [Communale v. Traders & General Ins. Co., supra] * * * it was not clear whether the policyholder's claim against the insurer sounded in tort or contract.   In California at least, the Communale decision established breach of an implied covenant, that is, breach of contract, as the theoretical basis of the claim.  (50 Cal.2d at p. 659, 328 P.2d 198.)”

Nevertheless, respondent contends that even if the action be deemed to arise out of contract, the award of damages for mental suffering was proper, citing Overstreet v. Merritt, 186 Cal. 494, 200 P. 11, where the Supreme Court said:  “One who in bad faith violates his contract is liable for all damages traceable to the breach, including even those which could not be foreseen at the time of making the contract.  (Beck v. Fleitas, 37 La.Ann. 492;  Civ.Code, sec. 3333).”   But in Overstreet one contracting party was in bad faith at the time the contract was entered into, which distinguishes that case from ours.   Nor is Westervelt v. McCullough, 68 Cal.App. 198, 228 P. 734 also relied upon by respondent, controlling.   There the contract related to matters that directly concerned the comfort, happiness and welfare of one of the parties, and the court declared that damages were recoverable for physical suffering caused by the breach of such a contract.   Its facts and holding do not fit our case.

The judgment is modified by striking therefrom the award of $25,000 as damages for mental suffering, distress, anxiety, worry, impairment of health and general well-being, and as so modified the judgment is affirmed.   Each party to bear his own costs on appeal.


1.   Civil Code section 3333 provides:  “For the breach of an obligation not arising from contract, the measure of damages, except where otherwise expressly provided by this Code, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.”

SALSMAN, Justice.

DRAPER, P.J., and DEVINE, J., concur.

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