COLEMAN v. GULF INSURANCE GROUP

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

Eloise COLEMAN, et al., Minors, etc., Plaintiffs and Appellants, v. GULF INSURANCE GROUP, et al., Defendants and Respondents.

Civ. No. 68723.

Decided: March 27, 1984

King & Seligsohn and Stephen Scott King, Los Angeles, for plaintiffs and appellants. Demler & Armstrong, Edison J. Demler and Robert W. Armstrong, Long Beach, for defendants and respondents.

INTRODUCTION

Plaintiffs Eloise, Derek, Carlos, Andre and Sholanda Coleman appeal from an order of dismissal entered after the trial court sustained without leave to amend the demurrer of defendant Gulf Insurance Group (Gulf) to plaintiffs' complaint alleging the bad faith refusal to pay insurance benefits (first cause of action);  violation of Insurance Code section 790.03, subdivision (h)(5) (second cause of action);  malicious prosecution of an appeal (third cause of action) and abuse of process (fourth cause of action).

STATEMENT OF FACTS

 On demurrer, all material facts properly pleaded and all reasonable inferences which can be drawn therefrom are deemed admitted.  (Glaire v. La Lanne-Paris Health Spa, Inc. (1974) 12 Cal.3d 915, 918, 117 Cal.Rptr. 541, 528 P.2d 357;  Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713, 63 Cal.Rptr. 724, 433 P.2d 732.)   Plaintiffs' complaint discloses the following express and reasonably inferred facts:

William Coleman was killed on August 3, 1975, due to the negligence of the city of Monrovia.   At the time of William Coleman's death, the city was covered by a policy of public liability insurance issued by Gulf, which insured the city against claims arising out of the negligent maintenance of property owned, managed or controlled by the city (including a recreational and flood control facility known as Monrovia Canyon Park and Sawpit Basin).   In addition, the policy insured the city against claims arising from the negligence of its employees or other agents or representatives.   William Coleman was using the Sawpit Basin facility in a proper manner at the time of his death.

As William Coleman's heirs, plaintiffs commenced a wrongful death action against the city.   The trial of the action resulted in a verdict against the city, after which a judgment of $350,000 was entered in favor of plaintiffs on October 16, 1980.   After the city's motion for a new trial was denied on December 10, 1980, the city appealed from the judgment.   Throughout these proceedings, Gulf controlled all aspects of the litigation, including trial, settlement and appeal, and made all pertinent decisions with respect to the manner in which the litigation was conducted.

At the time the appeal was taken, Gulf knew the judgment was unflawed and consequently had no basis for believing an appeal would result in a reversal.   Gulf directed the city to undertake the appeal with the malicious and oppressive intent of postponing payment of the judgment for as long as possible, thereby depriving plaintiffs of the beneficial use of the judgment award, in the face of a favorable differential in the rate at which post-judgment interest accrued and the commercial rate of interest then prevailing for the investment of funds.   In addition, Gulf maliciously and oppressively intended to exploit its knowledge that plaintiffs were of modest financial means and had lost their principal source of financial support with the death of William Coleman, thereby exerting pressure on plaintiffs to accept a much lesser sum than the amount of the judgment in immediate settlement of the claim.

Toward this end, Gulf initially offered plaintiffs an amount equal to less than one-half the judgment sum awarded.   Thereafter, on approximately January 5, 1982, Gulf tendered to plaintiffs $300,000 in full settlement of the judgment.   Plaintiffs did not solicit the settlement offer, but due to financial pressures, were forced to accept the tender.   As a consequence, the appeal was dismissed.

CONTENTION

Plaintiffs contend the trial court erred in sustaining the demurrer in that the complaint sets forth facts sufficient to state each cause of action.   For the reasons set forth below, we agree in part.

DISCUSSION

 On appeal, the plaintiffs bear the burden of establishing a demurrer was sustained erroneously.  (Pollack v. Lytle (1981) 120 Cal.App.3d 931, 939, 175 Cal.Rptr. 81;  Stanson v. Brown (1975) 49 Cal.App.3d 812, 814.)   A ruling sustaining a demurrer is erroneous if the facts alleged entitle the plaintiffs to relief under any possible legal theory.  (See Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 103, 101 Cal.Rptr. 745, 496 P.2d 817.)   As noted, ante, all material facts pleaded in the complaint and those which arise by reasonable implication are deemed true.   (Buckaloo v. Johnson (1975) 14 Cal.3d 815, 828, 122 Cal.Rptr. 745, 537 P.2d 865;  Glaire v. La Lanne-Paris Health Spa, Inc., supra, 12 Cal.3d 915, 918, 117 Cal.Rptr. 541, 528 P.2d 357.)

I

Bad Faith Refusal to Pay Insurance Benefits

 Plaintiffs' first cause of action characterizes Gulf's conduct as a breach of the covenant of good faith and fair dealing implied in every insurance contract.  (See Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573–575, 108 Cal.Rptr. 480, 510 P.2d 1032.)   As Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937 noted at page 944, 132 Cal.Rptr. 424, 553 P.2d 584, the right of an individual who is not a party to a contract to enforcement of contractual terms must be predicated on an intent, expressed or implied in the formation of the contract, to benefit the third party.  Murphy explicated the rationale for this doctrine as follows:  “As to any provision made not for his benefit but for the benefit of the contracting parties or for other third parties, he [who seeks enforcement] becomes an intermeddler.   Permitting a third party to enforce a covenant made solely to benefit others would lead to the anomaly of granting him a bonus after his receiving all intended benefit.”  (Ibid.)

 The implied covenant of good faith and fair dealing, as embodied in an insurer's duty to settle, is intended to benefit the insured, i.e., to protect the insured from potential exposure to liability in excess of the policy limits.  (Murphy v. Allstate Ins. Co., supra, 17 Cal.3d 937, 941, 132 Cal.Rptr. 424, 553 P.2d 584;  citing Shapero v. Allstate Ins. Co. (1971) 14 Cal.App.3d 433, 92 Cal.Rptr. 244.)   There is no intent to benefit the injured third party claimant.   Hence, absent an assignment of the insured's cause of action for breach of the insurer's duty (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 661–662, 328 P.2d 198), there is no basis upon which an injured claimant may recover for the insurer's failure to settle.  (Accord, Northwestern Mut. Ins. Co. v. Farmers' Ins. Group (1978) 76 Cal.App.3d 1031, 1043, 143 Cal.Rptr. 415.)

 Inasmuch as the insurer's duty to settle a valid claim within the policy limits is simply an embodiment of the general covenant of good faith and fair dealing running from the insurer to the insured, it necessarily follows that there is no basis upon which an injured third party claimant may maintain a cause of action for any breach of the covenant.   Accordingly, the trial court correctly sustained the demurrer to the first cause of action.

II

Violation of Insurance Code Section 790.03, Subdivision (h)(5)

Plaintiffs' second cause of action characterizes Gulf's actions as a violation of Insurance Code section 790.03 which provides in pertinent part:  “The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance.

“․

“(h) Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices:

“(5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”

 It is settled that Insurance Code section 790.03 contemplates the maintenance of actions by third party claimants as well as insureds, based on the violation of its provisions.  (Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 884, 153 Cal.Rptr. 842, 592 P.2d 329.)   However, when the suit is based upon asserted violations of subdivision (h), the cause of action will not mature until the action between the injured claimant and the insured has been concluded.  (Ibid.)  After carefully analyzing Royal Globe and succeeding cases, Rodriguez v. Fireman's Fund Ins. Companies, Inc. (1983) 142 Cal.App.3d 46, 53, 190 Cal.Rptr. 705 held that the underlying action need not be concluded by obtaining a final judgment, but may be concluded by the acceptance of a settlement offer followed by a dismissal of the underlying action with prejudice.

The factual setting of Rodriguez varied significantly from the posture of the instant proceeding.   In Rodriguez, the settlement and dismissal occurred before trial of the underlying action, while the settlement and dismissal at issue here took place pending appeal.   The dissent characterizes the difference as a material distinction, taking the stance that we seek to extend liability to post-judgment settlement activities, a task more properly confided to the legislature.   We perceive the matter in another light.

We acknowledge that subdivision (h)(5) of Insurance Code section 790.03 clearly refers to settlement activity occurring before the underlying action is concluded in favor of the injured claimant.   However, that section contemplates “pre-judgment” activity only insofar as a judgment may be a final and conclusive determination of the parties' rights.   The judgment referred to in the instant proceeding is not of that ilk.   Rather, the settlement at issue here was made “post-judgment” only in the technical sense that the trial court temporarily was finished with the matter.   But while the matter was pending on appeal, the trial court's judgment was under attack and subject to the possibility of reversal and the consequent necessity to retry the action.   There was no final judgment in the sense of a judgment which carries res judicata effect.   Hence, pending final resolution of the appeal, the underlying action was not “concluded.”

In that portion of the discussion distinguishing away the result reached in Nationwide Insurance Co. v. Superior Court (1982) 128 Cal.App.3d 711, 180 Cal.Rptr. 464, Rodriguez identified the principle set forth above, noting:  “Nationwide dealt with a judgment in excess of the policy limits of the insurance contract, while on the contrary [the Rodriguez insurer] had settled within its policy limits.   More importantly, an appeal of that action was pending when plaintiff filed an action for bad faith.   Therefore, the earlier action between plaintiff and the insured definitely was not concluded.”  (142 Cal.App.3d at pp. 53–54, 190 Cal.Rptr. 705;  emphasis added.)

The Rodriguez court clearly recognized that it was this very circumstance which barred the maintenance of an action for the violation of section 790.03, subdivision (h)(5) in Nationwide.   This recognition embodies an understanding that the underlying litigation unequivocally remains open and pending when an appeal has been taken.   As a consequence, the matter must still be amenable to a compromise good faith settlement in the sense contemplated by subdivision (h)(5) of section 790.03.   Indeed, we perceive no practical difference, in terms of subdivision (h)(5), between a pre-trial statutory offer to compromise (Code Civ.Proc., § 998), a settlement offer made during trial and a settlement offer made during the pendency of an appeal.  (See also Wolfrich Corporation v. United Service Automobile Assn. 149 Cal.App.3d 1206, 197 Cal.Rptr. 446.)   Moreover, the evil inherent in barring an Insurance Code section 790.03 action where the underlying action has been concluded by settlement and dismissal, that “insurance companies ․ might entice a settlement by unfair practices, then seek to hide behind the cloak of that settlement” (Rodriguez v. Fireman's Fund Ins. Companies, Inc., supra, 142 Cal.App.3d 46, 57, 190 Cal.Rptr. 705), is the same where the dismissal is that of an appeal.

 Plaintiffs have alleged that Gulf initiated an appeal known to be unfounded (therefore, inferrably, that liability appeared clear) for the purpose of forcing a delayed, unfair and inequitable settlement.   It is further alleged Gulf did this in part to make a more beneficial use of its money in the interim, thereby raising the inference that Gulf made a practice of such tactics.   From the foregoing, it is clear plaintiffs successfully have alleged the violation of subdivision (h)(5).1  In our view, it is equally clear they have satisfied the jurisdictional requirement that the underlying action be concluded.   Acknowledging that the preferred conclusion of an action is a final judgment, Rodriguez nonetheless noted the equal efficacy of a judgment of plaintiff's dismissal with prejudice entered after the acceptance of an offer to compromise (142 Cal.App.3d at p. 53, 190 Cal.Rptr. 705), noting, “A compromise settlement can be the basis of a final judgment thereby operating as a merger and bar of all preexisting claims and causes of action.”  (Id., at p. 54, 190 Cal.Rptr. 705.)   That principle applies with equal force to a compromise settlement resulting in the dismissal of an appeal.   Accordingly, the trial court erred in sustaining a demurrer to the second cause of action.

III

Malicious Prosecution of an Appeal

 Plaintiffs' third cause of action alleges Gulf prosecuted an unfounded appeal wilfully, maliciously and oppressively.   To establish the elements of a cause of action for the malicious prosecution of a civil proceeding, a complaint must allege that the prior action (1) was commenced by or at the direction of the defendant, (2) was pursued to a final conclusion in the plaintiff's favor, (3) was brought without probable cause and (4) was initiated with malice.  (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50, 118 Cal.Rptr. 184, 529 P.2d 608.)

Plaintiffs concede that no case to date has recognized a cause of action for the malicious prosecution of an appeal, but argue that Bertero provides support for the creation of such a cause of action in its holding that an action for malicious prosecution may be predicated on the claim for affirmative relief set forth in a cross-pleading.   We disagree with plaintiffs' view of Bertero, for an appeal does not in truth seek affirmative relief, but presses forward the defensive efforts pursued below.   The distinction is critical.

 Bertero acknowledged a line of cases commencing with Eastin v. Bank of Stockton (1884) 66 Cal. 123, 4 P. 1106, which refused to recognize a tort of malicious defense, then emphasized, “We do not propose to establish such a tort by our holding here.  [These] cases protect the right of a defendant, involuntarily haled into court, to conduct a vigorous defense.   By seeking affirmative relief, however, defendants in the instant case did more than attempt to repel Bertero's attack;  they took the offensive in attempting to prosecute a cause of action of their own.”  (13 Cal.3d at pp. 52–53, 118 Cal.Rptr. 184, 529 P.2d 608.)   Inasmuch as an appeal does nothing more than perpetuate the conduct of a vigorous defense, plaintiffs have failed to state a cause of action for malicious prosecution and we perceive no error in sustaining the demurrer thereto.

IV

Abuse of Process

 Plaintiffs' fourth cause of action alleges misuse of the appeals process.   To establish the elements of a cause of action for abuse of process, a plaintiff must plead the defendant entertained an ulterior motive for use of the process and made use thereof in a wrongful manner.  (Barquis v. Merchants Collection Assn., supra, 7 Cal.3d 94, 103–104, 101 Cal.Rptr. 745, 496 P.2d 817;  Seidner v. 1551 Greenfield Owners Assn. (1980) 108 Cal.App.3d 895, 903, 166 Cal.Rptr. 803.)   The term “process” encompasses a broad range of procedures utilized in or incident to litigation, extending to the bringing of an appeal.  (Tellefsen v. Key System Transit Lines (1961) 198 Cal.App.2d 611, 615, 17 Cal.Rptr. 919;  cited with interest in Barquis v. Merchants Collection Assn., supra, 7 Cal.3d 94, 104, fn. 4, 101 Cal.Rptr. 745, 496 P.2d 817.)

 The true gravamen of the tort is the misuse of process.   As noted in Golden v. Dungan (1971) 20 Cal.App.3d 295, 302, 97 Cal.Rptr. 577;  “ ‘․ process must be used for something more than a proper use with a bad motive;’  ․ ‘if a party uses it for the immediate use for which it was intended, he is ordinarily not liable, notwithstanding a vicious or vindictive motive;’  ․ ‘if he uses the process of the court for its proper purpose, though there is malice in his heart, there is no abuse of process.’ ”  (Quoting from Pimentel v. Houk (1951) 101 Cal.App.2d 884, 887, 226 P.2d 739.)   Although plaintiffs have alleged an abundance of bad, ulterior, malicious motive, they have alleged no other use of process than the filing of an appeal.

It signifies little that the appeal may have been frivolous in nature.   As Tellefsen v. Key System Transit Lines, supra, 198 Cal.App.2d 611, 17 Cal.Rptr. 919 noted, “merely taking a frivolous appeal is not enough to constitute an abuse of process, assuming that abuse of process could apply to the appellate process ․  In appealing ․ defendant ‘has done nothing more than carry out the process [of appeal] to its authorized conclusion, even though with bad intentions ․’ and there is no liability therefor.”  (Id., at p. 615, 17 Cal.Rptr. 919.)   The facts alleged in Tellefsen bear an uncanny similarity to those alleged in the instant matter.   Here, as there, plaintiff has alleged nothing more than that defendant Gulf carried out the process “ ‘to its authorized conclusion, even though with bad intentions ․’ ”  (Ibid.)   Accordingly, the trial court correctly sustained the demurrer to the fourth cause of action.

V

Punitive Damages

Plaintiffs purport to state a “fifth cause of action” for punitive damages.   Civil Code section 3294, subdivision (a) provides:  “In an action for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.”   Our holding, ante, is that plaintiffs have alleged sufficient facts to state a cause of action for the violation of Insurance Code section 790.03, subdivision (h)(5).   That cause of action arises from the breach of a statutorily imposed obligation, which in no manner stems from a contractual obligation owed to plaintiffs.   As noted, ante, in our discussion of plaintiffs' first cause of action for breach of the implied covenant of good faith and fair dealing, Gulf was under no contractual duty to plaintiffs, either express or inferred by the application of third party beneficiary principles.

 Subdivision (c)(1) of Civil Code section 3294 defines malice as follows:  “ ‘Malice’ means conduct which is intended by the defendant to cause injury to the plaintiff or conduct which is carried on by the defendant with a conscious disregard of the rights or safety of others.”   Subdivision (c)(2) defines “[o]ppression” as “subjecting a person to cruel and unjust hardship in conscious disregard of that person's rights.”   Plaintiffs have alleged Gulf acted intentionally to deprive plaintiffs of the beneficial use of the sum awarded by judgment, for a considerable period of time, in the furtherance of Gulf's own interests and to subject plaintiffs to extreme financial hardship toward the end of forcing an unjust and unfair settlement of plaintiffs' claims.   Accordingly, plaintiffs have alleged Gulf to be guilty of both malice and oppression as defined in Civil Code section 3294, subdivision (c) and may seek punitive damages.

The order of dismissal is reversed insofar as it is grounded upon sustaining without leave to amend the demurrer to plaintiffs' second cause of action for violation of Insurance Code section 790.03, subdivision (h)(5) and purported fifth cause of action for punitive damages.   The trial court is directed to reinstate the second cause of action and the prayer for punitive damages.   In all other respects, the order of dismissal is affirmed.

I concur with that portion of the majority opinion that holds that the trial court properly sustained defendant/respondent Gulf Insurance Group's (Gulf) demurrer to the first, third and fourth causes of action of the complaint.

However, I respectfully dissent as to the majority opinion's conclusion that the trial court erred in sustaining Gulf's demurrer to the second and fifth causes of action.   I conclude that the trial court also properly sustained the second cause of action.   Having so concluded, the demurrer to the alleged fifth cause of action necessarily must be sustained since there is no remaining legally cognizable cause of action in the complaint (under any theory) to which a claim for recovery of punitive damages can be anchored.

The second cause of action, incorporates by reference the first cause of action (to which Gulf's demurrer is held to be properly sustained) and then alleges that as a general business practice, Gulf engaged in a course of unfair claims settlement practice in violation of California's Insurance Code section 790.03, subdivision (h)(5).1

I am unaware of any statutory law (including section 790.03) or any binding decisional law 2 which authorizes such a cause of action within the context of the parties' relationship and procedural posture of the case at bench.   Judicially sanctioning such a cause of action is inappropriate because 1) it is not authorized by section 790.03 and conflicts with the entire statutory scheme expressed in section 790.03, and 2) it collides head-on with the basic concept of appellate review that a losing party in the trial court is entitled as a matter of right to a review for correctness, at least once, by an impartial separate tribunal.

A reading of section 790.03 in its entirety indicates that those actions or conduct listed and defined as unfair methods of competition and unfair deceptive acts or practices by insurance companies are spelled out with some specificity.

Here, the only prohibited conduct listed under section 790.03 relied upon in the complaint as a basis for the second cause of action is contained in subdivision (h)(5) which states:  “Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”

Relevant by way of analogy to the alleged misconduct of Gulf in the instant case is the prohibited conduct described in subdivision (h)(10) of section 790.03 which states:  “Making known to insureds or claimants a practice of the insurer of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.”  (Emphasis added.)

“Black's Law Dictionary” (5th ed. 1979) page 96, defines “Arbitration” as follows:  “The reference of a dispute to an impartial (third) person chosen by the parties to the dispute who agree in advance to abide by the arbitrator's award issued after a hearing at which both parties have an opportunity to be heard.  [¶] An arrangement for taking and abiding by the judgment of selected persons in some disputed matter, instead of carrying it to established tribunals of justice, and is intended to avoid the formalities, the delay, the expense and vexation of ordinary litigation.”

In view of the overall procedures for litigating and appealing civil actions in California's system of justice, subdivision (h)(5) must reasonably be construed to refer only to pre-judgment activity on the trial court level in view of established rules and procedures for appellate review.   Moreover, why would the State Legislature in subdivision (h)(10) refer to “insureds or claimants” in reference to “appealing from arbitration awards”?   If the Legislature intended section 790.03, subdivision (h)(5) to apply to insurance company activities post-trial court judgments as distinguished from post-arbitration awards, it would have so stated that in subdivision (h)(10).

Pursuant to California Rules of Court, rule 12(a), I ordered up the Superior Court file in the underlying civil complaint (Super.Ct. No. NEC 19016) filed by Eloise Coleman on February 20, 1976, Individually and as Guardian ad litem for her four minor children (Derek—aged 17;  Andre—aged 11;  Carlos—aged 12;  and Sholanda—aged 8).   The underlying case involves a wrongful death action seeking damages for the death of William Coleman, plaintiff's husband and father of the minor children.   The decedent drowned on August 3, 1975, while attempting to rescue his son Andre (aged 11) who had fallen into water in a flood control facility operated for recreational purposes by defendant City.   Respondent Gulf, in the instant case, was the liability insurance carrier for defendant City in the underlying action and afforded counsel to defend City in the litigation.

The theories advanced in the complaint filed in the case at bench (Super.Ct. No. NEC 34119) are directed at recovering the full amount of the jury verdict and seeking punitive damages from Gulf, City's insurance carrier, for not paying off the jury verdict against City promptly instead of prolonging the litigation by filing an appeal and negotiating a settlement for less than the full amount of the judgment.3

Since the appeal of the underlying action (Super.Ct. No. NEC 19016) was settled before the record was perfected and briefs filed, there is no appellate record to assess the frivolousness, if any, of the appeal filed on behalf of City by defense counsel employed by Gulf to defend City.   However, the voluminous (three volume) Superior Court file contains moving papers entitled “Memorandum of Points and Authorities in Support of Defendants' Motion for Judgment Notwithstanding the Verdict or in the Alternative a Motion for New Trial.”   These papers probably set forth the same (or similar) grounds which would have been raised on appeal by City if the matter had not been settled and ran its course through the appellate process.

The aforementioned moving papers filed by City assert that there was no apparent conflict in the evidence as to the fact that defendant City was a government or public entity;  that the Sawpit Debris Basin, where William Coleman drowned, was used for recreational purposes and had been operating for about 4 years without any prior incidents of anyone falling in and drowning;  that the decedent William Coleman, father of Andre, knew his son could not swim and failed to adequately supervise him;  that while Andre's family were in close proximity to him, they allowed him to fall in the water and other people further away rescued Andre;  and that William Coleman was a good swimmer and apparently in no distress until he disappeared under the surface of the water.

Defendant City's position, as advanced by defense counsel, was that the jury's verdict against City was apparently a “sympathy” verdict which erroneously allowed no comparative negligence on behalf of the decedent for failure to supervise Andre.   Defendant City also contended that the verdict was against the law in that the jury ignored the instructions requiring notice, either constructive or actual, of a dangerous condition on public property (citing Gov.Code, § 835 et seq.) in that the recreational facility had been previously open for about four years with over 4,500 people utilizing the facility without mishap.

The point of the foregoing brief summary of the underlying case (Super.Ct. No. NEC 34119) is that the critical issue which a trial court would have to necessarily determine in the second cause of action in the instant case (Super.Ct. No. NEC 34119) is whether or not the appeal filed by City would be based on totally frivolous (no-merit) grounds.   However, the losing party in a civil action has the right to determine whether or not an appeal should be taken, and the issue as to whether or not an appeal is frivolous is determined by the reviewing court.   It is certainly not the function of a trial court, who had previously denied a motion for a judgment notwithstanding the verdict or in the alternative a new trial, to determine whether or not an appeal is frivolous.   In the event a frivolous appeal is filed, the appellate court is vested with the power to impose proper sanctions which adequately serves as a remedy against such an abuse.

Moreover, relevant here is the privilege aspect of Civil Code section 47, subdivision 2, and its liberal construction as expressed in Umansky v. Urquhart (1978) 84 Cal.App.3d 368, 148 Cal.Rptr. 547.   Furthermore, without elaboration, suffice to say, the cases of Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842 and Rodriguez v. Fireman's Fund Ins. Companies, Inc. (1983) 142 Cal.App.3d 46, 190 Cal.Rptr. 705, cited in the majority opinion, are inapplicable since both Royal Globe and Rodriguez are not only markedly factually distinguishable but did not consider either section 790.03, subdivision (h)(10) or Civil Code section 47, subdivision 2, as those sections apply to the procedural posture of the case at bench.

Finally, as a practical matter it would be grossly unfair and totally contrary to established judicial procedures and our adversary system of justice to arm any plaintiff, who may prevail in a civil action on the trial court level, with the threat of bringing a separate suit against the losing defendant's liability carrier for the full amount of the verdict including punitive damages, unless the losing defendant gives up the right of appeal and pays off the full trial court judgment.   Such a threat should not influence a losing defendant's decision whether or not to exercise a right to appeal.

Moreover, it is apparent that such a scenario is fraught with the potential of opening a Pandora's box of litigation and further overloading the already overloaded trial courts.   The realities are that in today's litigious society most defendants in civil suits are represented by counsel furnished by liability insurance carriers.   In any event, any reforms in this area are a matter for the State Legislature to address which is better equipped to weigh competing interests, assess cost/benefit factors, and to consider down-the-road judicial impact problems.

I would affirm the trial court's order sustaining Gulf's demurrer as to all causes of action.

FOOTNOTES

1.   The dissent makes reference to the city's moving papers in support of a new trial, intimating the existence of arguably appealable issues, and identifies the critical issue in a trial of this cause of action as whether the appeal brought in the underlying matter was totally frivolous.   In our view, the issue will be whether Gulf knew the appeal was groundless and urged its pursuit from bad faith motives.   Deciding that issue will not embroil the trier of fact in the resolution of a question of law, although plaintiffs may face considerable difficulties of proof.   We express no opinion as to whether plaintiffs will be able to prevail on the merits;  that is not our function in reviewing a demurrer sustained without leave to amend.

1.   Unless otherwise indicated, all references are to the Insurance Code.

2.   Although not binding, I am aware of Wolfrich Corporation v. United States Automobile Association (1983) 149 Cal.App.3d 1206, 197 Cal.Rptr. 446, where the court reversed an order granting summary judgment against a complaint alleging violation of Insurance Code section 790.03, subdivision (h)(5), by the insurance carrier and an order granting judgment on the pleadings against a complaint alleging a conspiracy to violate Insurance Code section 790.03, subdivision (h)(5), by the insurance carrier's attorneys.   In my view, extending liability for post-judgment settlement activities is a task for the Legislature, not the judiciary, for the reasons stated in the body of this dissenting opinion.

3.   California Courts of Appeal (statewide) are presently conducting voluntary settlement conferences of civil cases (at least one appellate district [the Third] has mandatory settlement conferences and another district [the First] is experimenting with mandatory settlement conferences).   A basic concept underpinning such settlement conferences is that until a case becomes final, it may be subject to disposition by way of settlement.   Settlement of civil cases on the Court of Appeal level often take into consideration such factors as the risk of a reversal by an appellate court, followed by the risk of loss in the event of a retrial, as well as the ever present factors of cost and delay.

SPENCER, Presiding Justice.

DALSIMER, J., concurs.