RIVERSIDE STEEL CONSTRUCTION COMPANY, Cross-Complainant and Appellant, v. WILLIAM H. SIMPSON CONSTRUCTION COMPANY, Cross-Defendant and Respondent.
Cross-Complainant Riverside Steel Construction Company appeals from “the judgment ․ dismissing defendant, cross-complainant and cross-defendant WILLIAM H. SIMPSON CONSTRUCTION CO. [hereafter Simpson] from the action and also appeals from the order of January 19, 1984, finding that the settlement between WILLIAM H. SIMPSON CONSTRUCTION CO., LIBERTY MUTUAL INSURANCE COMPANY, and their agents, servants, successors, heirs, executors, ․ and plaintiff ROBERT SEWARD was a good faith settlement; ․ as to defendant WILLIAM H. SIMPSON CONSTRUCTION CO. only; that the Cross-Complaint of WILLIAM H. SIMPSON CONSTRUCTION CO. be dismissed with prejudice as to all cross-defendants; and that the Cross-Complaint of RIVERSIDE STEEL CONSTRUCTION be dismissed with prejudice as to the cross-defendant WILLIAM H. SIMPSON CONSTRUCTION CO. only.” 1
Plaintiff was injured when he fell from the eighth floor of the Allstate Savings and Loan Association building in Glendale, California, during its construction. At the time of his fall, plaintiff was employed as an iron worker for the H.H. Robertson Construction Company (hereafter Robertson), the steel decking subcontractor for the construction project.
Plaintiff filed a complaint for his personal injuries and damages against respondent Simpson, the general contractor, and appellant Riverside Steel Construction Company (hereafter Riverside), the structural steel subcontractor on the construction project, and Does 1–50 for their negligence in the maintenance, operation, control, custody, supervision, and direction of said work on said jobsite involved in the accident herein, in that among other things, the defendants, and each of them, knew that workmen were working on a portion of said construction site which did not have perimeter guard rails, safeguards, and building procedures and inspections, so that as a proximate result thereof, plaintiff, during the course and scope of his employment, fell off the edge of said building and was injured.
Riverside filed a general denial to the allegations of the complaint and a cross-complaint for complete or partial indemnity against Simpson and Does 1–10.
Simpson denied generally the allegations of plaintiff's complaint and the allegations of Riverside's cross-complaint and filed “a Cross-Complaint for Express and Implied Indemnity, Equitable and Implied Contribution, Breach of Contract, Credit and Declaratory Relief” against Robertson, Liberty Mutual Life Insurance Company (hereafter Liberty Mutual) and Does 1–20. Thereafter Simpson amended its cross-complaint naming Riverside as Doe 1 and dismissed without prejudice its cross-complaint against Robertson and Liberty Mutual. Riverside filed a general denial to the allegations of Simpson's cross-complaint.
Plaintiff and Simpson then entered into a sliding scale recovery agreement which provided in pertinent part:
“FOR AND IN CONSIDERATION of the sum of THREE HUNDRED FIFTY THOUSAND & NO/100 ($350,000.00) [Exclusive of any Workers' Compensation Lien], as a Guarantee against any verdict rendered against defendant RIVERSIDE STEEL, ․ plaintiff, ROBERT E. SEWARD, ․ release[s] ․ WILLIAM H. SIMPSON CONSTRUCTION COMPANY, LIBERTY MUTUAL INSURANCE COMPANY, ․ from any and all claims, actions, causes of action, ․ which the undersigned now have or which may hereafter accrue on account of ․ the accident, casualty or event which occurred on the 11th day of September, 1978, at or near the Allstate Savings building under construction in the City of Glendale․
“Said guarantee is to operate as follows: [¶ ] 1. In the event plaintiff obtains a verdict against RIVERSIDE STEEL in the amount of $350,000.00 or above, defendant SIMPSON will owe plaintiff nothing; [¶ ] 2. In the event of a defense verdict in favor of RIVERSIDE STEEL and against plaintiff, SIMPSON will pay plaintiff $350,000.00; [¶ ] 3. In the event of a verdict in favor of plaintiff SEWARD and against defendant, RIVERSIDE STEEL, in an amount less than $350,000.00, SIMPSON will pay plaintiff the difference between the verdict and $350,000.00.
“Plaintiff is to dismiss, with prejudice, the complaint filed against SIMPSON, and each side to this agreement is to bear their own costs.
“The foregoing agreement is contingent on the following: [¶ ] 1. That the Court determine the above settlement to be in ‘GOOD FAITH’; [¶ ] 2. That the Court order RIVERSIDE's cross-complaint against SIMPSON dismissed in its entirety; [¶ ] 3. That in the event plaintiff chooses to settle with RIVERSIDE prior to a verdict, for a sum less than $350,000.00, the above Guarantee becomes null and void. SIMPSON may, at its option, attempt to settle with plaintiff for a sum that will not exceed the difference between the settlement with RIVERSIDE and $350,000.00; [¶ ] 4. In the event plaintiff chooses to settle with RIVERSIDE prior to a verdict for the sum of $350,000.00, or above, defendant SIMPSON will pay plaintiff nothing.”
Simpson then filed a “Notice of Hearing on Issue of Good Faith Settlement and on Request for Order that Such Settlement Bars the Indemnity Claim of Riverside Steel Construction Co. as directed to William H. Simpson Construction Co. by way of cross-complaint for indemnity and on Request for Order Dismissing the Cross-Complaint for Indemnity of Riverside Steel Construction Co. as directed to William H. Simpson Construction Co.; ․”
Riverside opposed Simpson's motion supported by the declaration of Stephen Flaherty, counsel for Riverside as its sole evidence. That declaration stated in pertinent part that:
The subcontract between Robertson and Riverside provided that Robertson was to have Riverside named as an additional insured in its policy with Liberty Mutual.
When Liberty Mutual acknowledged its duty to defend Simpson, Simpson dismissed its cross-complaint against Robertson and Liberty Mutual and added Riverside as a cross-defendant.
“[A]t the eve of trial” Simpson decided to settle. The contract between Allstate, the owner, and Simpson made Simpson responsible for the safety of the premises and the workers.
Mr. Flaherty characterized the deposition testimony of one Mr. Wells, a Simpson supervisor, as follows: “[T]he decking contractor [Robertson] was responsible for coordinating with the steel erectors [Riverside] to effect the use of the deck as safety planking for areas covered by decking. [I]t was [Mr. Wells'] understanding that the decking was to be used by the people to string the perimeter cables to work from as they actually strung the cables.”
Mr. Flaherty also included the following excerpt from plaintiff's deposition: “As far as working on the perimeter, laying deck, you can't hook off, you will get hurt. But if you are going to be there for a couple of minutes or so, then you hook off. But if you are just going to be there for a second and then move on, you don't want to hook off.”
Mr. Flaherty then set forth a portion of the deposition of one Bobby Ray Ragan, “the only eyewitness to the accident,” as follows: Plaintiff “had been asked by Mr. Ragan to move a piece of decking onto the mark and was walking over to the piece of decking, still in motion, when he reached down to move it with his hand. He then fell over the edge of the building.”
Mr. Flaherty's declaration concluded that “it is clear that the contract required Riverside to install the perimeter safety cable, but that Riverside was complying with the provisions of the contract requiring that the decking be laid first. Riverside was also complying with the instructions of Wells in using the decking as a safety planking from which to work while stringing the cables. Riverside therefore complied with all contractual and written contractual requirements regarding the stringing of the cables and the timing of the stringing of the cables. Plaintiff now complains that if the cable had been in place, he would have hooked off to it in order to prevent the fall. Such is not the case by the plaintiff's own testimony, and therefore is no proximate causal relationship between the lack of the cable in the happening of plaintiff's accident.” 2
Before the hearing on the determination of the good faith of the sliding scale recovery agreement, two very able and experienced trial judges had expressed their opinion that the total value of plaintiff's case against all parties for settlement purposes was $350,000.
After the hearing the trial court granted Simpson's motion, ruling that “the settlement between WILLIAM H. SIMPSON CONSTRUCTION CO., Liberty Mutual Insurance Company ․ and plaintiff ROBERT SEWARD was a good faith settlement. [¶] Based upon the foregoing, it is hereby ORDERED: [¶] 1. That the complaint of ROBERT SEWARD be dismissed with prejudice as to defendant WILLIAM H. SIMPSON CONSTRUCTION CO. only; [¶] 2. That the cross-complaint of WILLIAM H. SIMPSON CONSTRUCTION CO. be dismissed with prejudice as to all cross-defendants; and [¶] 3. That the cross-complaint of RIVERSIDE STEEL CONSTRUCTION be dismissed with prejudice as to cross-defendant WILLIAM H. SIMPSON CONSTRUCTION CO. only.” From that order Riverside appeals.
Riverside raises the following contentions on appeal: (1) “Code of Civil Procedure section 877.5 violates the equal protection clauses of the state and federal Constitutions in that there is no rational basis for allowing non-settling defendants under Code of Civil Procedure section 877 to reduce a judgment against them by the amount of settlement while prohibiting non-settling defendants under Code of Civil Procedure section 877.5 from recovering any such set-off.” (2) “The sliding scale agreement, which allowed Simpson to escape all liability, was not in good faith under Code of Civil Procedure section 877, and Simpson must therefore contribute to the judgment entered against Riverside.” (3) “It constitutes collusion and bad faith for an insurer to control one of its insureds to remove another one of its insureds, a primarily culpable party, from a lawsuit.”
Riverside first contends that “Code of Civil Procedure section 877.5 violates the equal protection clauses of the state and federal constitutions in that there is no rational basis for allowing non-settling defendants under Code of Civil Procedure section 877 to reduce a judgment against them by the amount of settlement while prohibiting non-settling defendants under Code of Civil Procedure section 877.5 from recovering any such set-off.” 3
Riverside's assertion is based upon its perception that nonsettling defendants under a sliding scale recovery agreement are given treatment disparate from that which nonsettling defendants receive under a traditional section 877 release.4
We note initially that any potential for disparate treatment results, not from the broad categories of sliding scale and nonsliding scale recovery agreements, but rather from the nature of the particular settlement agreement involved.
It is easy to conceive of a good faith sliding scale recovery agreement under the terms of which the nonsettling defendants are put in a better position than that held by the nonsettling defendants in a “traditional” good faith release situation. One example would be where a sliding scale recovery agreement provides for a larger minimum unconditional payment by the settling defendant than the amount of the total settlement in the traditional release agreement.
Assuming for the sake of argument, however, that nonsettling defendants under a sliding scale recovery agreement are given disparate treatment compared to nonsettling defendants under a traditional release, we conclude that this differing treatment does not violate the equal protection clauses of the state or federal constitution.
No “suspect classification” or “fundamental right” is involved in the case at bench. The “rational relation test” is therefore the appropriate one we use to determine whether the classification in the case at bench is violative of equal protection. (Citizens Against Forced Annexation v. Local Agency Formation Com. (1982) 32 Cal.3d 816, 822, 187 Cal.Rptr. 423, 654 P.2d 193.)
In determining whether a statute passes the rational relation basis test for equal protection “there is a presumption of constitutionality ‘requir [ing] merely ․ that ․ distinctions drawn by a challenged statute bear some rational relationship to a conceivable legitimate state purpose.’ (Gray v. Whitmore (1971) 17 Cal.App.3d 1, 22 [94 Cal.Rptr. 904].)” (Goggin v. State Personnel Bd. (1984) 156 Cal.App.3d 96, 107, 202 Cal.Rptr. 587.) The Legislature had wide discretion in enacting sections 877, 877.5, and 877.6, and any possible resulting classifications that resulted from the enactment of those sections may only be overthrown by a clear affirmative showing that they were palpably arbitrary and beyond rational doubt, erroneous. (Johnson v. Superior Court (1958) 50 Cal.2d 693, 699, 329 P.2d 5.) There has been no such showing here.
Numerous articles and several cases have discussed the wisdom of this legislation. The wisdom of the legislation involved is, of course, a matter for the Legislature and not for the courts. (See Fein v. Permanente Medical Group (1985) 38 Cal.3d 137, 157–164, 211 Cal.Rptr. 368, 695 P.2d 665; American Bank & Trust Co. v. Community Hospital (1984) 36 Cal.3d 359, 368–369, 204 Cal.Rptr. 671, 683 P.2d 670.)
Riverside urges that sliding scale recovery agreements discourage the complete settlement of cases because they make the price of settlement too high for the parties who are not parties to the sliding scale agreement. This is a mistaken belief which has crept into some law review articles and even into a few cases. To the contrary, experienced trial judges, and particularly those who have spent a great deal of time in settlement work, know that only a small percentage of multi-defendant cases ever go on through a completed trial once there has been a settlement or a sliding scale recovery agreement by one or more, but less than all, of the defendants in any given case. In fact the argument is often used by defendants who are not parties to settlements with less than all defendants on sliding scale recovery agreements that by virtue of them they are subjected to acute financial pressures bordering on extortion to avoid an unshared judgment. (See, e.g., River Garden Farms, Inc. v. Superior Court, supra, 26 Cal.3d at p. 994, 103 Cal.Rptr. 498, and Comment, Settlements (1966) 18 Stan.L.Rev. 490.)
Sliding scale recovery agreements are rationally related to the state's legitimate interest in the disposition of cases, the maximization of recovery to injured plaintiffs, the encouragement of complete settlement and do not defeat equitable apportionment of liability 5 among joint or concurrent tortfeasors. (See Sears, Roebuck & Co. v. International Harvester Co. (1978) 82 Cal.App.3d 492, 496, 147 Cal.Rptr. 262.) Accordingly, we conclude that section 877.5 does not violate the equal protection clauses of either the California or federal Constitutions and reject Riverside's contention to the contrary.
Riverside next contends that “the sliding scale agreement, which allowed Simpson to escape all liability, was not in good faith under Code of Civil Procedure section 877, and Simpson must therefore contribute to the judgment entered against Riverside.”
In Tech-Bilt, Inc. v. Woodward-Clyde & Associates, supra, 38 Cal.3d 488, 213 Cal.Rptr. 256, 698 P.2d 159, the Supreme Court was faced with the necessity of making a determination of whether a settlement, not a sliding scale recovery agreement, between the plaintiff and a defendant who had an absolute defense to plaintiff's action was made in good faith. The sole consideration from defendant for the settlement was its waiver of any costs incurred in defending the action. Despite the fact that the settling defendant had an absolute defense to the plaintiff's case against it, a codefendant had a potentially meritorious claim for indemnity against the settling defendant. The Tech-Bilt court determined that the settlement was not in good faith within the meaning of sections 877 and 877.6. In so doing it 6 disapproved cases which held that the sole meaning of good faith as used in those sections was the absence of collusive or tortious conduct. The Tech-Bilt court concluded:
“A more appropriate definition of ‘good faith,’ in keeping with the policies of American Motorcycle [Assn. v. Superior Court (1978) 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899] and the statute, would enable the trial court to inquire, among other things, whether the amount of the settlement is within the reasonable range of the settling tortfeasor's proportional share of comparative liability for the plaintiff's injuries. This is not to say that bad faith is ‘established by a showing that the settling defendant paid less than his theoretical proportionate or fair share.’ (Cf. Dompeling [v. Superior Court (1981) ], supra, 117 Cal.App.3d at p. 809 [173 Cal.Rptr. 38].) Such a rule would unduly discourage settlements. ‘For the damages are often speculative, and the probability of legal liability therefor is often uncertain or remote. And even where the claimant's damages are obviously great, and the liability therefor certain, a disproportionately low settlement figure is often reasonable in the case of a relatively insolvent, and uninsured, or underinsured, joint tortfeasor.’ (Stambaugh v. Superior Court (1976) 62 Cal.App.3d 231, 238 [132 Cal.Rptr. 843].) Moreover, such a rule would tend to convert the pretrial settlement approval procedure into a full-scale minitrial (cf. Dompeling, supra, 117 Cal.App.3d at p. 810).
“But these considerations do not lead to the conclusion that the amount of the settlement is irrelevant in determining good faith. Rather, the intent and policies underlying section 877.6 require that a number of factors be taken into account including a rough approximation of plaintiffs' total recovery and the settlor's proportionate liability, the amount paid in settlement, the allocation of settlement proceeds among plaintiffs, and a recognition that a settlor should pay less in settlement than he would if he were found liable after a trial. Other relevant considerations include the financial conditions and insurance policy limits of settling defendants, as well as the existence of collusion, fraud, or tortious conduct aimed to injure the interests of nonsettling defendants. [Citation.] Finally, practical considerations obviously require that the evaluation be made on the basis of information available at the time of the settlement.” (Tech-Bilt, Inc. v. Woodward-Clyde & Associates, supra, 38 Cal.3d at p. 499, 213 Cal.Rptr. 256, 698 P.2d 159.)
The Tech-Bilt majority disapproved Dompeling v. Superior Court (1981) 117 Cal.App.3d 798, 173 Cal.Rptr. 38, and its progeny including Cardio Systems, Inc. v. Superior Court (1981) 122 Cal.App.3d 880, 176 Cal.Rptr. 254, and Burlington Northern R.R. Co. v. Superior Court (1982) 137 Cal.App.3d 942, 187 Cal.Rptr. 376, only to the extent they were inconsistent with that opinion. (Tech-Bilt, Inc. v. Woodward-Clyde & Associates, supra, 38 Cal.3d 488, 500, fn. 7, 213 Cal.Rptr. 256, 698 P.2d 159.)
Appellant would have us conclude that the Supreme Court meant to disapprove of all sliding scale agreements that did not contain a minimal unconditional payment equal to the agreeing defendant's proportionate share, rather than merely disapproving of the language in those two cases saying good faith meant no more than refraining from collusive or tortious conduct to the other defendants. We decline to do so, because the Tech Bilt majority did not say so, and because we do not believe that the Tech-Bilt majority intended to cavalierly overturn a legislative enactment in a footnote without discussing that subject. Both Dompeling and Burlington involved sliding scale recovery agreements and both concluded that “[t]he settling parties owe the nonsettling defendants a legal duty to refrain from tortious or other wrongful conduct; absent conduct violative of such duty, the settling parties may act to further their respective interests without regard to the effect of their settlement upon other defendants.” (Dompeling v. Superior Court, supra, 117 Cal.App.3d at pp. 809–810, 173 Cal.Rptr. 38; see Burlington Northern R.R. Co. v. Superior Court, supra, 137 Cal.App.3d at p. 946, 187 Cal.Rptr. 376.)
Appellant urges that the good faith of a sliding scale recovery agreement must necessarily be determined only by the minimum amount the defendant party to that agreement unconditionally agrees to pay, and not by the maximum amount it guarantees the injured plaintiff will recover.
Respondent Simpson, on the other hand, urges that the Tech-Bilt analysis merely focuses on the settlor's proportionate share of liability as one factor in determining whether a settlement is in good faith. It urges that in order to retain the viability of sliding scale recovery agreements, it is necessary to conclude that a sliding scale recovery agreement is not per se in bad faith merely because it does not provide for a minimum unconditional payment. We agree.
Where, however, a nonsettling defendant is able to prove that the total value of a sliding scale recovery agreement, irrespective of whether it contains an unconditional payment provision, is not in “the ball park” of the settling defendants proportionate share of liability, and that figure is viewed together with other factors emphasized by the Tech-Bilt court, that “settlement” may be in bad faith. The value of the guarantee is obviously worth a determinable amount as is perhaps best illustrated in the analogous situation where a person buys liability insurance and is willing to pay a “premium” to have the insurance company agree to discharge his legal liability or to indemnify him in the event of a loss. That agreement of the insurance company has a large value to the insured for which he is willing to pay a premium even though he realizes that the probabilities are that the insurance company will not have to pay anything to discharge its responsibility to him in any given policy year. The pragmatic difference is that the insurer is usually able to spread its risks among thousands of insureds, the guarantor is not.
We have had few California appellate decisions involving sliding scale recovery agreements but those that have discussed the matter after the enactment of section 877.5 have done so on the premise that a good faith determination is required as to such agreement. We agree with that premise. The law is not yet settled, however, as to what standards are to be used by the trial court in determining the good faith of a sliding scale recovery agreement.
The threshold question is whether a sliding scale recovery agreement entered into without a minimum unconditional payment by the defendant who is party to the agreement constitutes an actual settlement so as to require consideration of the Tech-Bilt factors, including consideration of whether that so-called “settlement” is within the reasonable range of that tortfeasor's proportional share of the liability.
The only case which has addressed itself to the resolution of the question of whether a sliding scale recovery agreement constitutes a “settlement” is Pease v. Beech Aircraft Corp. (1974) 38 Cal.App.3d 450, 113 Cal.Rptr. 416, which held before the enactment of section 877.5 that no evidence of a sliding scale agreement could be admitted in the trial of that action because “․ there was no amount or consideration actually paid, and the amounts agreed to be paid conditionally could not be deducted from the verdicts. The jury could not place a value on the agreements for the conditional payments, nor could they reasonably consider those agreements as evidence on the issue of liability or as to the amount of damages sustained.” (Id., at p. 473, 113 Cal.Rptr. 416.) We agree with the Pease court that a sliding scale recovery agreement which does not provide for an unconditional minimum payment does not constitute a settlement unless a value is ascribed to the giving of the guarantee.
Appellant would have us assume that a sliding scale recovery agreement is a settlement. It further urges that for a sliding scale recovery agreement to be considered to have been entered into in good faith, the only figure that should be considered by the court as the value of the agreement is the minimum amount agreed to be paid unconditionally by the agreeing defendant which minimum amount, it urges, must be within the reasonable range of that agreeing defendant's proportional share of the total value of the plaintiff's case against all tortfeasors.
That argument appears to be without merit, for it is extremely unlikely that a knowledgeable defendant or insurer represented by knowledgeable counsel would enter into a sliding scale recovery agreement by the terms of which it would have to unconditionally pay the full amount of its proportional share of liability and still be left with an upside risk, limited only by the then perceived total settlement value of the plaintiff's case against all tortfeasors, of having to pay the total judgment value of the case against all tortfeasors. Any insurer that would agree to such a disposition might thereby also expose its insured to a later judgment by the plaintiff and the other tortfeasors in excess of its policy limits and might thereby expose itself to a bad faith claim by its insured. In other words, it would make no sense for a defendant or its insurer to enter into such an agreement.
It would also encourage greater recalcitrance on the part of the least forthcoming of tortfeasors and thus discourage settlements because such recalcitrant tortfeasors would have the benefit of the amount of minimum unconditional contribution by the agreeing defendant and still have the opportunity to escape all, or their proportionate part of, the liability themselves.
We believe that in large part the confusion surrounding sliding scale recovery agreement requirements arises from the unwarranted placement of section 877.5 in title 11, among sections 875 to 880, entitled “Releases From And Contribution Among Joint Tortfeasors.” These various sections added in 1957 provide in the main: (1) for contribution among joint money judgment tortfeasors without impairing any right of indemnity (and indeed proscribe contribution in the face of a right to indemnity (§ 875)); (2) for equal pro rata share contribution of joint money judgment tortfeasors except in those cases where one such tortfeasor is held liable solely for the tort of one of them or another in which case they were to contribute a single joint pro rata share between them, as to which share indemnity could apply between them as to which there could be indemnity (§ 876); (3) in the event of a release, dismissal, or covenant not to sue or not to enforce judgment, given in good faith before judgment to one or more of a number of tortfeasors claimed to be liable for some tort, provided that no such other tortfeasor was discharged from liability unless the terms of the document so provided, but provided for the reduction of the claims against the others in the amount stipulated by the release, the dismissal or the covenant, or in the amount of the consideration paid for it, whichever is greater, and provided for the discharge of the tortfeasor to whom it was given from all liability to any other tortfeasor. (§ 877.)
Of course, when it enacted title 11 in 1957, the Legislature could not have contemplated the later adoption of the comparative fault doctrine enunciated in Li v. Yellow Cab Co. (1975) 13 Cal.3d 804, 119 Cal.Rptr. 858, 532 P.2d 1226, or the doctrine of equitable apportionment of fault among joint tortfeasors first enunciated in American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899, the progeny of those two cases, or the problem of sliding scale recovery agreements first regulated by section 877.5 in 1977 some 20 years after the enactment of the rest of then extant title 11. Nor does it seem more likely that when it added section 877.5 in 1977, the Legislature could have intended to regulate what it thought to be an unlawful or “nefarious” sort of agreement. It would appear to us then, as it did to the Pease court, that a sliding scale recovery agreement which has no minimum unconditional payment provision is not a settlement.
We need not, however, decide those thorny issues discussed in “A” above since Riverside, as the party asserting lack of good faith, had the burden of proof on that issue and failed to sustain that burden.
Two very able and experienced trial judges including the one conducting the good faith hearing had expressed their independent opinions that the total value of plaintiff's cases against all other parties for settlement purposes was $350,000. (RT 16) (§ 877.6, subd. (d).) The determination of whether the sliding scale recovery agreement was entered into in good faith was a question of fact for the trial court to determine.7 Widson v. International Harvester Co. (1984) 153 Cal.App.3d 45, 58, 200 Cal.Rptr. 136.) Issues of fact must be raised in the trial court or they are waived on appeal. (See 6 Witkin, Cal. Procedure (2d ed. 1971) Appeal, § 276, p. 4264.)
The record on appeal in the case at bench is devoid of any indication that Riverside urged in the trial court that the value of the sliding scale recovery agreement entered into was not within the reasonable range of Simpson's liability. Because the determination of whether it was in good faith requires the balancing of several factors among which but one is the total value of the agreement and not just focusing on the fact that Simpson did not unconditionally commit itself to pay a minimum unconditional amount of money, we conclude that Simpson's failure to do so does not render the sliding scale recovery agreement a bad faith agreement as a matter of law.
In addition to the other factors earlier cases have set forth, an important additional factor which should be considered in determining the good faith of a settlement or sliding scale recovery agreement is what amount of money the party objecting to the determination of good faith then sets as the total value of the injured plaintiff's case for settlement purposes is, and what amount of money that party then stands ready to contribute toward an overall settlement. Despite some speculative remarks by appellant's counsel at the hearing, the record discloses no unconditional offer by appellant.
Riverside failed to raise proportionality in the trial court. We cannot conclude that the trial court erred in determining that the settlement was in good faith despite the fact that Simpson made no unconditional minimum payment. We, therefore, reject Riverside's contention to the contrary. In doing so, we do feel compelled to comment that provisions in sliding scale recovery agreements obviously designed to interfere with settlements with the tortfeasors who are not parties to the agreement are to be discouraged as violative of the public policy of this state which is to encourage settlement.8
Appellant asserts that “[t]he trial court in this action determined only that there was an absence of collusion in this case.” (Emphasis in original.) That assertion is patently incorrect. The trial judge who presided at the hearing to determine the good faith of the sliding scale recovery agreement, after commenting on his long familiarity with the case and with the settlement negotiations, stated:
“THE COURT: No. I have heard this matter. I don't say anybody was acting in bad faith during the negotiations, at least in my dealings. I think we all worked long and hard on it․
“Under the circumstances, I don't think there's any collusion. I don't think there's any bad faith. I think that everyone dealt at arm's length.
“I'm going to grant the motion. I'm going to call it a good-faith settlement.”
Riverside finally contends that “[i]t constitutes collusion and bad faith for an insurer to control one of its insureds to remove another one of its insureds, a primarily culpable party, from a lawsuit.”
Riverside urges that the subject settlement was the result of backstage maneuvering of Liberty Mutual in order for it to exculpate its named insured Robertson of any liability.
In support of this assertion, Riverside relies primarily on our decision in Henderson v. Superior Court (1984) 162 Cal.App.3d 297, 208 Cal.Rptr. 484. Henderson is totally inapposite to appellant's contention against Liberty Mutual Insurance Company.
In Henderson, plaintiff John Fallon sued one Zimmelman for injuries allegedly inflicted by Zimmelman in the course of a gang encounter. Zimmelman cross-complained against one Henderson and against Karen Fallon for injuries he allegedly sustained in the same incident. Henderson and Karen Fallon settled with John Fallon for $10,000 and $8,000 respectively. The settlors made a motion in the trial court for a determination that the settlement was in good faith, which motion the trial court denied.
We affirmed the trial court's ruling reasoning as follows: Karen Fallon is the sister of John Fallon. Henderson and John Fallon are close personal friends, seeing each other ordinarily every day. Henderson and both Fallons are members of, or affiliated with, the gang against which Zimmelman is alleged to have driven his car. At no time had John Fallon ever suggested that he had any claim for damages against either Henderson or Karen Fallon. Moreover, John Fallon did not join either of them as defendants in the action against Zimmelman. The only possible motive for the settlement in that case was to insulate John Fallon's sister and friend from possible liability to Zimmelman on the cross-complaint. In Henderson, we described that as “exactly the ‘collusion’ which earlier cases have held amounts to bad faith.” (Henderson v. Superior Court, supra, 162 Cal.App.3d at p. 300, 208 Cal.Rptr. 484.)
Henderson is clearly distinguishable from the case at bench. In Henderson we upheld the trial court's determination of bad faith based solely on the clearly collusive nature of that settlement. In the case at bench, while Riverside purports to envision a possible collusive scheme behind the subject settlement, the evidence of that collusion in the record is nonexistent. Simpson and Liberty Mutual exposed themselves to payment of $350,000, in the event Riverside was successful in persuading a jury that it in fact was not required to put up the perimeter safety cable until after the decking had been laid. Furthermore, the trial court was entitled to resolve any possible conflicting inferences in the evidence to conclude that the settlement was not collusive.
Were we to agree with appellant's contention, we would have to extend the bad faith doctrine a long step beyond its present limits. Appellant would have us hold that a third party joint tortfeasor can bring direct claim for bad faith against the insurer of another joint tortfeasor in the absence of a claim under Insurance Code section 790.03, for a violation of that section. Where an insurer is not itself a joint tortfeasor, no California case has ever so held,9 and we decline to so hold now.
To the contrary, a unanimous California Supreme Court in Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 940, 132 Cal.Rptr. 424, 553 P.2d 584, held that while “ ‘[i]n every contract there is an implied covenant of good faith and fair dealing that neither party [to the contract] will do anything which injuries the right of the other to receive the benefits of the agreement’ (Brown v. Superior Court (1949) 34 Cal.2d 559, 564 [212 P.2d 878]” that duty on the part of the insurer runs only to the direct benefit of the insured and not to the direct benefit of the third party claimant.10
The Murphy court therefore held that the third party claimant could not sue the liability insurer directly in the absence of an assignment of the insured's cause of action for the insurer's breach of its duty to its insured. (Murphy v. Allstate Ins. Co., supra, 17 Cal.3d at p. 942, 132 Cal.Rptr. 424, 553 P.2d 584.) We, accordingly, conclude that the trial court did not err by impliedly finding that the subject settlement was not collusive and reject Riverside's contention to the contrary.
The judgment (order of dismissal) is affirmed.
1. This order (judgment) was entered prior to the effective date of the amendment of Code of Civil Procedure section 877.6 by the inclusion of new subdivision (e) which provides that the party aggrieved by a determination of the good faith or lack of good faith of settlement may petition the proper court to review the determination by writ of mandate.
2. Pursuant to Riverside's request, we take judicial notice of the relevant portions of the superior court file. (Evid.Code, § 452.) In its brief Riverside summarizes the results of the trial between it and plaintiff. Because the evaluation of whether a settlement is in good faith is “made on the basis of information available at the time of settlement” (Tech-Bilt, Inc. v. Woodward-Clyde & Associates (1985) 38 Cal.3d 488, 499, 213 Cal.Rptr. 256, 698 P.2d 159), and not at a later time, we do not consider the results of the subsequent trial, as that then unknown result obviously could not possibly have entered into the determination of the good faith of the sliding scale recovery agreement. Moreover, as was stated in River Garden Farms, Inc. v. Superior Court (1972) 26 Cal.App.3d 986, 997, 103 Cal.Rptr. 498: “In advance of a jury verdict, most cases permit only a rough assessment of value. When one tortfeasor chooses to settle and another chooses to litigate, inequality in the ultimate cost does not signalize bad faith. [Citation.]”
3. All further statutory references will be to the Code of Civil Procedure unless otherwise indicated.The record is devoid of any indication that Riverside raised this contention in the trial court. While constitutional questions in civil cases must normally be raised at the earliest opportunity or be waived, because this issue concerns public interest and because Simpson has not asserted a waiver of this contention in its brief, we decide this contention on its merits. (See Hale v. Morgan (1978) 22 Cal.3d 388, 394, 149 Cal.Rptr. 375, 584 P.2d 512.)
4. Section 877.5, subdivision (b) defines sliding scale recovery agreement as “an agreement or covenant between a plaintiff ․ and one or more, but not all, alleged tortfeasor defendants, where the agreement limits the liability of the agreeing tortfeasor defendants to an amount which is dependent upon the amount of recovery which the plaintiff is able to recover from the nonagreeing defendant or defendants.”Section 877 provides in the part pertinent to this discussion: “Where a release, dismissal with or without prejudice, or a covenant not to sue or not to enforce judgment is given in good faith before verdict or judgment to one or more of a number of tortfeasors claimed to be liable for the same tort—[¶] (b) It shall discharge the tortfeasor to whom it is given from all liability for any contribution to any other tortfeasors.”Section 877.6, subdivision (c) “bar[s] any other joint tortfeasor from any further claims against the settling tortfeasor for equitable comparative contribution, or partial or comparative indemnity, based on comparative negligence or comparative fault.”
5. Appellant equates the act of a defendant who enters into a settlement or a sliding scale recovery agreement to avoid further exposure to the necessity of paying a later sum of money with an “escape” from “all liability” for its acts of negligence. Not so! A settlement by a defendant simply sets a limit on a plaintiff's recovery against it by the payment of a sum of money or some other consideration. A sliding scale recovery agreement accomplishes the same thing by limiting the amount that can be recovered against that defendant in exchange for the consideration of that defendant's guaranteeing plaintiff's recovery of a certain sum of money. Sometimes that guarantee is coupled with the unconditional payment of a minimum amount of money and sometimes it is not. The giving of that consideration is no more an “escape of all liability” than is a defendant's payment of the full amount of a judgment in exchange for a satisfaction of judgment.
6. Tech-Bilt, Inc. v. Woodward-Clyde & Associates, supra, 38 Cal.3d at page 500, 213 Cal.Rptr. 256, 698 P.2d 159, footnote 7 states: “We disapprove of Dompeling and its progeny, including Cardio Systems [Inc. v. Superior Court (1981) 122 Cal.App.3d 880, 176 Cal.Rptr. 254], supra, and Burlington Northern R.R. Co. v. Superior Court (1982) 137 Cal.App.3d 942 [187 Cal.Rptr. 376], to the extent that those cases are inconsistent with this opinion.”
7. Merely because the Legislature had delineated the procedure for the disclosure of sliding scale recovery agreements in section 877.5, does not automatically render them in good faith for purposes of sections 877 and 877.6. A sliding scale recovery agreement in good faith must still be entered into in good faith.
8. Such a provision occurred in the subject sliding scale recovery agreement as it provided in part: “3. That in the event plaintiff chooses to settle with RIVERSIDE prior to a verdict, for a sum less than $350,000, the above Guarantee becomes null and void.”
9. In factual terms, this would mean that in this case appellant Riverside, which concedes that it is barred from bringing a direct claim against plaintiff's employer, Robertson, could bring a direct action against Liberty Mutual Insurance Company, Robertson's and Simpson's liability insurer for bad faith for so acting as to procure Robertson's dismissal from the express written indemnity claims of Simpson against Robertson.
10. Royal Globe, Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, later allowed a third party claimant to sue an alleged tortfeasor's insurance company directly for unfair claims practices under Insurance Code section 790.03 after the conclusion of the underlying case, but no claim under that section was made in the case at bench.
McCLOSKY, Associate Justice.
WOODS, P.J., and ARGUELLES, J., concur.