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Court of Appeal, Second District, Division 4, California.

Wilma A. PALMER, Plaintiff and Appellant, v. R.L. KAUTZ & COMPANY, et al., Defendants and Respondents.

Civ. 65346.

Decided: March 24, 1983

Munns, Kofford, Hoffman, Hunt & Throckmorton and Jerome D. Meier, Pasadena, for plaintiff and appellant. Gibson, Dunn & Crutcher, Richard Chernick, Kirk A. Patrick and Peter H. Van Veen, Los Angeles, for defendants and respondents.

Plaintiff Wilma A. Palmer appeals from the order of dismissal entered pursuant to section 581, subdivision (3) of the Code of Civil Procedure as to defendants Fremont Indemnity Company, R.L. Kautz & Company, and Bonnie Stutters, an employee of R.L. Kautz, after the court sustained a demurrer to the complaint without leave to amend.


Plaintiff contends that (1) the allegations of the complaint are sufficient to state a cause of action against the defendants;  (2) defendants' points and authorities in opposition to the demurrer were largely inapplicable as they were against an employer not an insurer, or claims adjusting company or its employee;  (3) defendants' suggestion that the “[workers' compensation] insurer” is synonymous with the “employer” is improper;  (4) the trial court improperly relied on Everfield v. State Comp. Ins. Fund (1981) 115 Cal.App.3d 15, 171 Cal.Rptr. 164, to support its decision;  (5) Everfield “ruled on a cause of action for intentional infliction of emotional stress [sic ] whereas in the instant case, the action is brought pursuant to the specific provisions of [Ins.Code §] 790.03 ․”;  (6) developments in other areas of the law and in other jurisdictions all suggest the tightening of liability on workers' compensation carriers who deal unfairly;  and (7) defendants' suggestion that R.L. Kautz & Company should not be held responsible is not well taken.

Defendants contend that (1) plaintiff's first and second causes of action against defendants fail to state facts sufficient to constitute a cause of action and fail to confer jurisdiction upon the superior court because plaintiff's exclusive remedy lies with the Workers' Compensation Appeals Board, as plaintiff has not, and cannot, state facts sufficient to involve the Unruh exception to the Board's exclusive jurisdiction;  (2) plaintiff's first cause of action fails to state facts against Kautz because Kautz is not a party to the contract;  and (3) plaintiff's “second cause of action fails to state facts sufficient to constitute a cause of action against Kautz and Bonnie Stutters because they are not parties to the [workers' compensation insurance] contract.”


The complaint named as defendants R.L. Kautz & Company, Fremont Indemnity Company, Bonnie Stutters, and Does 1 through 50.   In two purported causes of actions (the first against Kautz, Fremont and the Does, and the second against all defendants), spread over 16 pages, plaintiff alleged that:

Defendant Fremont Indemnity Company was the workers' compensation carrier for plaintiff's employer;  defendant R.L. Kautz & Company administered and adjusted the claim for Fremont, and defendant Bonnie Stutters was an employee of Kautz and handled the claim in question;  plaintiff Wilma A. Palmer, while an employee of the insured employer Rancho Market, was injured on her job and filed a workers' compensation claim with defendants;  defendants investigated and handled plaintiff's workers' compensation claim, paid benefits, authorized household help, and authorized a charge account at a drug store for medical bills, for a period of several months after the injury.

We summarize the allegations of the complaint.   The gist of the first cause of action of the complaint was that defendants unreasonably, unfairly, and in bad faith handled plaintiff's claim, and harassed her with the specific motive of depriving plaintiff of needed benefits to which she was entitled in order to force her to enter into an early settlement of the case for an amount less than its fair value under the policy of insurance.

To accomplish those ends defendants authorized plaintiff to obtain and pay for household help indicating that they would pay for it upon submission of invoices.   When plaintiff obtained and paid for that help upon that authorization, the defendants refused to pay the bills.   As a result, plaintiff had to do without her household help.   Knowing plaintiff had a need for nearly constant drugs and medication, defendants arranged a charge account at a drug store at which plaintiff was to pick up her drugs as needed.   They then failed to pay the outstanding bill, as a result of which the drug store refused to provide plaintiff with her sorely needed medication.

With the same motivation, defendants failed to pay for temporary disability, or for necessary medical appliances;  plaintiff's attorney made numerous inquiries of defendants, only to receive double-talk, promises, and no action for a period of nearly eight months.

Plaintiff became severely financially depressed, had to borrow money from friends and undertake other “desperate” means in order to sustain her daily existence even though defendants were actually expressly notified by various health care providers that plaintiff's physical and mental well being were being seriously threatened and irreparably injured and damaged as a result of defendants' failure to pay their various obligations.

Defendants engaged in this malicious and oppressive conduct in the belief that they would maintain their conduct with virtual impunity so that they could not be held accountable, that their conduct and any possible penalty under the Labor Code was seen by defendants as little more than a cost of doing business, and in the belief that punitive or exemplary damages could not be assessed against them, and that they therefore had nothing to lose.

Further, this “unreasonable, unfair, wrongful, fraudulent and bad faith breach” and refusal to pay benefits due by defendants caused her “great emotional and mental distress,” and prevented her from procuring necessary and vital medical and other related health services from said health care providers who refused to render said services to plaintiff because past bills had gone unpaid and because they were aware of defendants' refusal to pay for any such services.

In the second cause of action of her complaint, plaintiff incorporated all the allegations of the first cause of action and alleged that the defendants, and each of them, were persons engaged in the business of insurance and as such were subject to the provisions of section 790.03, subdivision (h) 1 of the California Insurance Code and violated their statutory duties thereunder to plaintiff in certain enumerated respects.

In that second cause of action, plaintiff sought compensatory and “punitive and exemplary damages” for defendants' aforesaid conduct, which it alleged was and is wilful, wanton, malicious, oppressive, fraudulent, and carried out with the intent to vex, injure and annoy the plaintiff and, in effect, to compel plaintiff to institute litigation in order to receive the benefits to which she was entitled under their policy.

The trial court sustained the demurrer to each cause of action to the complaint without leave to amend, stating it was doing so “on the ground of CCP 430.10(e).  (See Everfield v. State Compensation Insurance Fund (1981) 115 Cal.App.3d 15, 171 Cal.Rptr. 164.  [¶] Action is dismissed as to Moving Defendants per CCP 581(3).)”


 Defendants contend that “appellant's purported first cause of action fails to state facts sufficient to constitute a cause of action against Kautz because Kautz is not a party to the contract.”   We agree.

Plaintiff's first cause of action against Kautz and Fremont is grounded on alleged breach of the implied covenant of good faith contained in Fremont's policy of insurance.   Neither Kautz nor its employee, Stutters, were parties to that contract of insurance.   They are, therefore, not subject to its implied covenant of good faith and may not be held liable on the basis of a breach of the promise of that insurance contract.  (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 824, 169 Cal.Rptr. 691, 620 P.2d 141, app. dism. and cert. den., Mutual of Omaha Ins. Co. v. Egan (1980) 445 U.S. 912, 100 S.Ct. 1271, 63 L.Ed.2d 597;  Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032.)


 Does The Purported First Cause of Action State a Cause of Action Against Fremont?

 At oral argument, plaintiff's counsel conceded that it did not, by conceding that the entire complaint states only one cause of action,—that based on defendants' violations of section 790.03.2

Even without that implied concession by plaintiff, we necessarily conclude that the first cause of action fails to state facts sufficient to constitute a cause of action against Fremont.

Plaintiff neither alleged in her complaint nor contends on appeal that there was ever an assignment to her of her actual employer's cause of action against Fremont for a breach of the insurer's implied covenant of good faith to it.   Absent such an assignment no cause of action by plaintiff for bad faith or breach of the implied covenant of good faith lies against Fremont for that breach, and the first cause of action necessarily fails as to both Fremont and Kautz.  (See Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 942, 132 Cal.Rptr. 424, 553 P.2d 584.)   Equally applicable to the discussion of the purported first cause of action is the Labor Code's “exclusive remedy” provision, post.

In sum, we conclude that the trial court correctly sustained the demurrer to the first cause of action.


 In her purported second cause of action, which incorporates the allegations of the purported first cause of action, plaintiff pled that defendants, and each of them, knowingly violated certain provisions of section 790.03, subdivision (h) 3 in several particulars, which were in large part based on the factual allegations in the first cause of action as set forth above and incorporated in the second cause of action.

“Labor Code section 3600 states in pertinent part that liability for compensation provided by the workers' compensation act is ‘in lieu of any other liability whatsoever,’ and section 3601 states:  ‘Where the conditions of compensation exist, the right to recover such compensation, pursuant to the provisions of this division is ․ the exclusive remedy for injury or death of an employee against the employer’ with certain exceptions.   And, while an employee's claim or right of action for damages proximately resulting from such injury or death ‘against any person other than the employer’ is not barred by his claim for compensation under the act (Lab.Code, § 3852), the term ‘employer’ is defined in section 3850, subdivision (b) to include the insurer.   Finally, section 5814 provides:  ‘When payment of compensation has been unreasonably delayed or refused, either prior to or subsequent to the issuance of an award, the full amount of the order, decision or award shall be increased by 10 percent.’ ”  (Ricard v. Pacific Indemnity Co. (1982) 132 Cal.App.3d 886, 891–892, 183 Cal.Rptr. 502, opn. mod. 134 Cal.App.3d 787d, 183 Cal.Rptr. 502 [as modified].)

In Unruh v. Truck Insurance Exchange (1972) 7 Cal.3d 616, 102 Cal.Rptr. 815, 498 P.2d 1063, the insurer, in the course of a deceitful and reprehensible investigation, through an agent who established an ostensible romantic relationship with the applicant, took her to Disneyland and when she was on rope and barrel bridges, shook them to her injury.   As he did so, his cohort took “undercover” motion pictures of her and these were later displayed to adversely affect her claim.   Instead they caused her further injury.

The Unruh court stated:  “․ an employee cannot bring an action at law against his employer for damages for injuries intentionally inflicted by the employer upon the employee and incurred by the latter in the course of his employment.  [Citations.]  But, as already noted, the ‘exclusive remedy’ provisions of section 3601 nowhere extend the employer's immunity to cover the compensation insurer․”  (Unruh v. Truck Insurance Exchange, supra, 7 Cal.3d at pp. 629–630, 102 Cal.Rptr. 815, 498 P.2d 1063.)   It went on to hold that where a workers' compensation insurer acts negligently, in investigating claims, it is still acting as an insurer, within the Labor Code definition of “employer,” and as such, protected by the Labor Code's “exclusive remedy” provisions.  (See also Lab.Code, §§ 3600, 3601, 3850 and 3852.)   Unruh quoted with approval Redner v. Workmen's Comp. Appeals Bd. (1971) 5 Cal.3d 83, 95, 95 Cal.Rptr. 447, 485 P.2d 799, in which it said:  “ ‘Evidence obtained by fraud and deceit in violation of the rights of the applicant, however, is not “best calculated to ascertain the substantial rights of the parties and carry out justly the spirit and provisions” of the workmen's compensation laws.   The high purposes of the compensation law should not be perverted by resort to evidence perfidiously procured.’  (Original italics.)”   (Unruh v. Truck Insurance Exchange, supra, 7 Cal.3d at p. 630, 102 Cal.Rptr. 815, 498 P.2d 1063.)

The Unruh court made clear, however, that it was “․ unable to conclude that a compensation insurer remains within its proper role as such, when, as in the instant case, through its agents or others employed by it, such insurer intentionally embarks upon a deceitful course of conduct in its investigations which causes injury to the subject of the investigation.”   It stated:  “We cannot give our approval to such misconduct which tramples upon the employee's rights, by deeming it no more than the normal behavior of the insurer․  A deceitful investigation, in place of an honest one, frustrates the laudable objectives of the workmen's compensation law.   Permitting the employee to maintain an action at law for the insurer's intentional torts will subserve these objectives but at the same time will not discourage the insurer from fulfilling its proper role in the compensation scheme.”  (Unruh v. Truck Insurance Exchange, supra, 7 Cal.3d at p. 630, 102 Cal.Rptr. 815, 498 P.2d 1063.)

We believe that that statement in Unruh regarding a deceitful investigation is just as applicable to intentional perfidious claims handling committed against a workers' compensation applicant.   Such conduct, however, must consist of more than what appears in the complaint before us to be no more than negligent delay and rejection of what it considers exaggerated claims for benefits.   To paraphrase what was aptly stated in Ricard v. Pacific Indemnity, supra, 132 Cal.App.3d at p. 893, 183 Cal.Rptr. 502:  The carrier's conduct becomes additionally improper only through plaintiff's allegations as to the state of mind which accompanied it, and even on that basis it does not reach the level of reprehensibility condemned in Unruh.

The Supreme Court in Unruh explained the rationale for holding that such conduct does not provide an injured applicant with a basis for an independent lawsuit by quoting then appellate Justice Tobriner's observation in Noe v. Travelers Ins. Co. (1959) 172 Cal.App.2d 731, 737, 342 P.2d 976:  “ ‘[W]e must point out that if delay in medical service attributable to a carrier could give rise to independent third party court actions, the system of workmen's compensation could be subjected to a process of partial disintegration․  The uniform and exclusive application of the law would become honeycombed with independent and conflicting rulings of the courts.   The objective of the Legislature and the whole pattern of workmen's compensation could thereby be partially nullified.’ ”  (Unruh, supra, 7 Cal.3d at p. 628, 102 Cal.Rptr. 815, 498 P.2d 1063.)

An unbroken line of cases since Unruh (Everfield v. State Comp. Ins. Fund, supra, 115 Cal.App.3d 15, 171 Cal.Rptr. 164;  Ricard v. Pacific Indemnity Co., supra, 132 Cal.App.3d 886, 183 Cal.Rptr. 502, opn. mod., 134 Cal.App.3d 787d, 183 Cal.Rptr. 502 [as modified];  Fremont Indemnity Co. v. Superior Court (1982) 133 Cal.App.3d 879, 184 Cal.Rptr. 184;  Depew v. Hartford Acc. & Indem. Co. (1982) 135 Cal.App.3d 574, 185 Cal.Rptr. 472;  Droz v. Pacific National Insurance Company (1982) 138 Cal.App.3d 181, 188 Cal.Rptr. 10 (time for granting or den. hg. extended to Apr. 15, 1983) and Denning v. Esis Corp. (1983) 139 Cal.App.3d 946, 189 Cal.Rptr. 118) has held that the exclusive remedy for conduct of a carrier akin to that pled in the case at bar is under the Labor Code.

Without expressly saying so, each of those cases impliedly concludes that the principle of Unruh, though framed in terms of the intentional conduct of an insurer, is actually to be found by taking account of the facts treated by the Unruh court as material and its decision based on them.  (See Achen v. Pepsi-Cola Bottling Co. (1951) 105 Cal.App.2d 113, 233 P.2d 74.)   In that case, the conduct of the insurer and its agent were, and are, best described as perfidious.   Examining the expressions in the Unruh opinion in the light of its facts and its decision (see Childers v. Childers (1946) 74 Cal.App.2d 56, 61, 168 P.2d 218, and 6 Witkin, Cal. Procedure (2d ed. 1971) Appeal, § 677, p. 4591), we are still not rash enough to conclude that the Supreme Court was engaging in mere dicta in drawing the line between negligent conduct of an insurer to keep an insurer's tortious conduct within the “exclusive remedy” protective umbrella of Labor Code sections 3600 and 3601 and intentional tortious conduct of an insurer which leaves it outside that protection.

Yet, then appellate Justice Grodin in Ricard, and Division Two of this District deciding the cases of Everfield, Fremont Indemnity, and Denning, and Division Three of this District in Droz, and Division Five of this District in Depew have all read Unruh to limit its applicability to cases involving perfidious or outrageous tortious acts by the insurer, factually alleged without the aid of conclusional language.

It would be intolerable if we were to interpret Unruh differently than have other divisions of this district, for such an interpretation by us would deliberately create a situation whereby the applicability of the exclusive remedy provisions of sections 3600 and 3601 of the Labor Code would depend upon which division of this district received the case for determination.

We therefore conclude that the second cause of action (for violations of certain provisions of section 790.3, subdivision (h)) against Fremont is barred by the provisions of the Labor Code discussed above.


 Applicability of Sections 790.01 and 790.03 to Kautz and Stutters

 By its terms section 790.01 (of the Unfair Practices Act) provides that the act “applies to ․ agents, brokers, solicitors, surplus line brokers and special lines surplus line brokers as well as all other persons engaged in the business of insurance.”  (Emphasis added.)

The complaint alleges that Kautz was the agent of Fremont, and that Stutters worked as a claims representative, processing claims in Kautz's compensation claims department;  that while so acting in the course and scope of her employment by Kautz she processed and handled the workers' compensation claim of plaintiff against Fremont.   That allegation is sufficient to bring Kautz and Stutters within the ambit of section 790.01.   Claims processing and handling are inextricable portions of the “business of insurance.”   Therefore, not only insurance companies, but also companies engaged in claims handling together with their employee claims representatives, handling claims for or on behalf of insurance companies, are “persons engaged in the business of insurance.”

We conclude that Kautz, Stutters, and Fremont were each, at all pertinent times, engaged in the business of insurance within the meaning of section 790.01, and as such, bound by the provisions of section 790.03, subdivision (h).   They are also bound by the rule enunciated by our Supreme Court in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329.  (See also Delos v. Farmers Insurance Group (1979) 93 Cal.App.3d 642, 652–653, 155 Cal.Rptr. 843.)   Defendants have not called to our attention any cases or statutes under the authority of which either Kautz or Stutters may be included within the umbrella of protection of the “exclusive remedy” provisions of the Labor Code.   Our research has disclosed none.

Royal Globe holds that a private litigant may bring an action against persons engaged in the businesses of insurance to impose civil liability for the violation of section 790.03.  “The purpose of the act [the Unfair Practices Act (Ins.Code, § 790 et seq., ․) ] is ‘to regulate trade practices in the business of insurance ․’ ”  (Royal Globe Ins. Co. v. Superior Court, supra, 23 Cal.3d 880 at p. 884, 153 Cal.Rptr. 842, 592 P.2d 329.)

Defendants cite Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809, 169 Cal.Rptr. 691, 620 P.2d 141, for the proposition that there can be no imposition of liability on either Kautz or Stutters because they were not parties to the workers' compensation insurance contract involved and the breach of that contract could be the only ground for imposing liability on them.   Egan is inapposite, for no theory of recovery in that case was based upon a violation of any of the provisions of section 790.03, subdivision (h).   Defendants also cite us to our holding in Trunk v. Orr (1979) 94 Cal.App.3d 761, 156 Cal.Rptr. 662, for the proposition that we there refused to create a cause of action for a bad faith breach of section 1063 et seq.   That misses the point.  Trunk did not involve an alleged violation of the provisions of section 790.03, subdivision (h).

Royal Globe did.   It did not purport to create a new cause of action for bad faith breach of duty based on breach of an insurance contract against an insurer or its employee or agent.   When read together with section 790.01, that holding can only mean that a private litigant may bring an action against persons engaged in the business of insurance based on their violation of any of the provisions of section 790.03, subdivision (h).

 We conclude, however, that the second cause of action as pled fails to state a cause of action against either Kautz or Stutters, because its conclusional language fails to sufficiently and factually identify the particular acts and circumstances or conduct which constitutes a violation of any statutory duty by them to plaintiff.  (Cf. Semole v. Sansoucie (1972) 28 Cal.App.3d 714, 104 Cal.Rptr. 897.)

 “[A] general demurrer [, however,] should not be sustained if the pleading, liberally construed, states a cause of action on any theory.   [Citations.]  [¶] ․  [¶]  An amendment should be allowed where the defect, though one of substance, may possibly be cured by supplying omitted allegations, and the plaintiff has not had a fair opportunity to do so, as where the demurrer was sustained to his first complaint.  [Citations.]”  (3 Witkin, Cal. Procedure (2d ed. 1971) Pleading, §§ 844, 845, pp. 2449, 2450.)   Consequently, “ ‘[a]n order sustaining a demurrer without leave to amend “ordinarily constitutes an abuse of discretion, if there is a reasonable possibility that the defect can be cured by an amendment.”  [Citations.]’ ”  (Cordonier v. Central Shopping Plaza Associates (1978) 82 Cal.App.3d 991, 999, 147 Cal.Rptr. 558.)

In the case at bench, the trial judge sustained the demurrer to the original complaint, as to all defendants, without leave to amend.   This constituted an abuse of discretion insofar as the court's order relates to defendants Kautz and Stutters.   Plaintiff should be afforded an opportunity to file an amended complaint setting forth the specific factual basis of her allegations of violations of section 790.03, subdivision (h) against defendants R.L. Kautz and Company and Bonnie Stutters.

The judgment (order of dismissal) is affirmed as to defendant Fremont Indemnity Company and is reversed as to defendants R.L. Kautz and Company and Bonnie Stutters.   The matter is remanded to the superior court for further proceedings consistent with the views expressed herein.


1.   All statutory references herein are to the California Insurance Code, unless otherwise expressly noted.

2.   She also stated on pages 9 and 10 of her opening brief:  “THE EVERFIELD CASE IS LIKEWISE INAPPLICABLE IN THAT IT RULED ON A CAUSE OF ACTION FOR INTENTIONAL INFLICTION OF EMOTIONAL STRESS [sic] WHEREAS IN THE INSTANT CASE, THE ACTION IS BROUGHT PURSUANT TO THE SPECIFIC PROVISIONS OF SECTION 790.03 OF THE CALIFORNIA INSURANCE CODE.  [¶]  The Everfield case was brought on a common law theory alleging a tort of emotional distress.   The instant case alleges statutory violations which do not require the same type of pleading.”

3.   Section 790.03, subdivision (h) provides in pertinent part that among other enumerated acts, the following constitute unfair claims and settlement practices:“(1) Misrepresenting to claimants pertinent facts ․ at issue.“(2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.“․“(5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.“(6) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds, when such insureds have made claims for amounts reasonably similar to the amounts ultimately recovered.”

McCLOSKY, Associate Justice.

WOODS, P.J., and AMERIAN, J., concur.