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

Laurie Irene MURPHY, Plaintiff and Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant and Respondent.

Civ. 14073.

Decided: November 19, 1975

David R. Sherer, San Diego, for plaintiff and appellant. Ruston & Nance, and Patrick A. McCormick, Jr., Fullerton, for defendant and respondent.


Plaintiff Laurie Irene Murphy appeals after the trial court granted the motion of defendant Allstate Insurance Company for judgment on the pleadings and entered a judgment dismissing Murphy's complaint.

Murphy's complaint filed February 23, 1972, sought general and exemplary damages under an automobile liability policy on the theory Allstate breached its covenant of good faith and fair dealing by refusing to settle a wrongful death action by Murphy against an insured at the policy limits. The policy was issued to Samuel Robert Pollard. The complaint alleges, among other things, that during Murphy's earlier action against Pollard for the wrongful death on March 31, 1969, of Murphy's nine-year-old only son, Billy, and while Allstate was carrying out its duty to defendant Pollard, Allstate refused to accept offers of settlement within the policy limit of $25,000.1 There followed a judgment of $85,000 in favor of Murphy. By a remittitur on a motion for new trial the judgment amount was reduced to $42,500.

The complaint also alleges that on December 15, 1971, after the judgment was entered, a supervisor of adjustors for Allstate told Murphy's attorney Allstate would pay $25,000 at that time but if Murphy did not accept this amount Allstate would appeal. Murphy rejected this proposal and by a notice of appeal of the same date Pollard appealed.2 Allstate did not post a bond on appeal and a writ of execution issued January 18, 1972, for the amount of the judgment, costs and interest. In supplemental proceedings (Code Civ.Proc. § 717) on February 15, Allstate denied owing and debt to Pollard or Murphy.

The complaint further alleges Allstate was guilty of oppression and malice, caused further costs and expenses as a result of this action and, through Pollard, owed a debt of $43,605.71 to Murphy. In a second cause of action it alleges a direct obligation from Allstate to Murphy under judgment collection provisions in Code of Civil Procedure sections 717 and 720. A third cause of action alleges the appeal in the underlying action is without substantial foundation and asks leave to amend the complaint when the judgment becomes final. It seeks judgment against Allstate in the full amount of the judgment against Pollard less any amount paid on the judgment,3 plus costs, interest and exemplary damages. Allstate answered the complaint April 3, 1972, and noticed its motion for judgment on the pleadings November 28, 1973. The motion was based on the assertions Murphy was a stranger to the relationship between Allstate and Pollard, was owed no duty by Allstate and thus could not sue in the absence of an assignment of the alleged cause of action from the insured Pollard; Murphy was not entitled to punitive damages independently and there could be no assignment of a right to punitive damages; and Allstate was not indebted to the judgment debtor Pollard since by then Allstate had paid the judgment to the limits of the policy and until there is a judgment in Pollard's favor for the excess Allstate was not within Code of Civil Procedure section 720 giving a cause of action to judgment creditors against persons indebted to judgment debtors for recovery of the debt. The dismissal from which this appeal is taken occurred January 9, 1974.

The fundamental issue of this appeal is whether an assignment from the insured of his rights against the insurer is a prerequisite to an action by an injured party who has recovered judgment against an insured in an amount exceeding the automobile liability insurance policy limits and seeks recovery from the insurer for the whole amount of the judgment, including the excess over the policy limits, based upon the insurer's failure to meet its duty to accept reasonable settlements.

The insurer has a duty to settle a claim against its insured within the policy limits whenever there is a substantial likelihood of a recovery in excess of those limits, and any failure of the insurer to settle within the limits is at its own risk of liability for the whole amount of the judgment notwithstanding policy limits (Comunale v. Traders & General Ins. Co., 50 Cal.2d 654, 659, 660, 328 P.2d 198). Even a good faith belief there is no coverage will not relieve the insurer from its duty to settle (Johansen v. California State Auto. Ass'n Inter-Ins. Bureau, 15 Cal.3d 9, 16, 123 Cal.Rptr. 288, 538 P.2d 744). The insurer's duty springs from the contractual relationship between insurer and insured, but the action for breach of the duty sounds in both contract and tort so as to prevent an insurer from avoiding liability by labeling the cause of action as one or the other (Johansen v. California State Auto. Ass'n Inter-Ins. Bureau, supra, 15 Cal.3d 9, 18, 123 Cal.Rptr. 288, 538 P.2d 744).

It is well established the injured party may bring an action directly against the insurer for failure to accept a reasonable settlement offer after obtaining judgment against the insured and getting an assignment of the insured's rights against the insurer (Comunale v. Traders & General Ins. Co., supra, 50 Cal.2d 654, 661–662, 328 P.2d 198). The right is assignable even where there is a provision against assignment in the insurance contract (Comunale, supra, 50 Cal.2d at pp. 661–662, 328 P.2d 198). The right in the insured to sue the insurer applies where, as here, the insurer assumed the insured's defense and refused the settlement offer (Johansen v. California State Auto. Ass'n Inter-Ins. Bureau, supra, 15 Cal.3d 9, 17–19, 123 Cal.Rptr. 288, 538 P.2d 744).

These principles aid but do not resolve the problem at hand. Insurance Code section 11580(b)(2), however, authorizes a direct action against the insurer by the injured party who obtains judgment against the insured.4 Neither this nor any other statute contains a requirement there be an assignment from the insured to the injured party before the action may be brought. While the section makes the injured party's right subject to the ‘terms and limitations' of the policy, the cause of action for breach of duty to make a reasonable settlement derives from the ‘implied covenant of good faith and fair dealing in every contract.’ (Emphasis added.) (Comunale v. Traders & General Ins. Co., supra, 50 Cal.2d 654, 658, 328 P.2d 198, 200.) By virtue of its nature as a contractual provision read into every insurance policy, the duty of reasonable settlement and its breach giving rise to the cause of action for the whole amount of the judgment are within the ‘terms and limitations' of the policy. Insurance Code section 11580(b)(2) thus authorizes the direct action against the insurer by the injured party who is the judgment creditor.

In this connection the injured party quite clearly is within the class of persons to be benefited by the insurance law of our state, whether one applies a contract or tort analysis to the duty involved in this case (see Barrera v. State Farm Mut. Automobile Ins. Co., 71 Cal.2d 659, 663, 676–680, 79 Cal.Rptr. 106, 456 P.2d 674). In cases involving injured third parties who are successful in their actions against the insured there would be no purpose served by a rule that in the absence of an assignment, the insured alone, and not the injured party, may sue for breach of the duty to accept a reasonable settlement. The real beneficiary of California's insurance law is the member of the public who is injured by the insured (Barrera v. State Farm Mut. Automobile Ins. Co., supra, 71 Cal.2d 659, 674–678, 79 Cal.Rptr. 106, 456 P.2d 674). It would be unconscionable to allow the insured to frustrate the public policy underlying the law by simply refusing to execute an assignment of rights. This result also obviates the charge of possible collusion between the insurer and its policyholder.

Having concluded Insurance Code section 11580(b)(2) authorizes Murphy's suit without the need for an assignment from Pollard, it is unnecessary to consider Murphy's alternative contention that the judgment collection provisions of Code of Civil Procedure sections 717 and 720 permit the suit against Allstate as a debtor of the judgment debtor Pollard.

Judgment reversed.


1.  Attachments incorporated into the complaint by reference include a November 6, 1970, letter of Murphy's attorney to Allstate's attorney reciting Allstate's offer to settle for $7,500 and rejecting that offer, and instead offering a settlment figure of $23,500. The letter pointed out Pollard, a convicted drug user, had driven his motorcycle off of the road and killed the Murphy boy who was fishing at a pond, thus making the insured Pollard's liability rather clear. It summarized data as showing the average California verdict in a wrongful death action involving a child under 10 years old was $25,898. Another letter stated an average verdict of $35,362. In a letter dated August 11, 1971, Murphy's attorney referred to an October 30, 1970 offer of $7,500 as a counteroffer, declined it and offered to settle for the policy limit of $25,000.

2.  In an opinion By the Court, filed September 18, 1972, this Court rejected Pollard's contention the award was excessive and affirmed the judgment (4 Civ. No. 11267). The Supreme Court denied a hearing on November 17, 1972.

3.  Murphy's memorandum of points and authorities in opposition to the motion for judgment on the pleadings recites Allstate paid Murphy $27,464.77 on January 5, 1973.

4.  Insurance Code section 11580 provides in part:‘. . ..‘(b) Such policy shall not be thus issued or delivered to any person in this State unless it contains all the following provisions:‘. . ..‘(2) A provision that whenever judgment is secured against the insured or the executor or administrator of a deceased insured in an action based upon bodily injury, death, or property damage, then an action may be brought against the insurer on the policy and subject to its terms and limitations, by such judgment creditor to recover on the judgment.’ (Emphasis added.)

COLOGNE, Associate Justice.

GERALD BROWN, P. J., and AULT, J., concur.