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

Dean R. MACKEY, Petitioner, v. SUPERIOR COURT, etc., County of San Diego, Respondent. FARMERS INSURANCE EXCHANGE, Real Party in Interest.

No. D007840.*

Decided: May 04, 1988

Eugene A. Hooser, Oceanside, for petitioner. No appearance for respondent. Chapin & Brewer, Edward D. Chapin and Randall L. Winet, San Diego, for real party in interest.

Dean R. Mackey, petitioner, suffered serious injuries in an accident with a car driven by Daniel Rubin.   Rubin is insured by Farmers Insurance Exchange (Farmers) who settled with Mackey at the policy limits of $100,000.   Mackey then brought suit against Farmers for violation of Insurance Code 1 section 790.03, subdivision (h), fraud and emotional distress.   Farmers brought a motion for summary adjudication of issues with regard to the alleged bad faith statutory violations.   It argued that because the underlying case had been settled there had been no determination of liability and absent a determination of liability there could be no bad faith cause of action.   The court agreed and granted summary adjudication relying on Taylor v. California State Auto. Assn. (1987) 194 Cal.App.3d 1214, 240 Cal.Rptr. 107.   We disagree with Taylor and grant the relief requested.

Whether an insured's liability must be determined before suit may be brought under section 790.03, subdivision (h) is a topic of lively debate and is a question currently pending before the California Supreme Court (see cases listed in Taylor v. California State Auto Assn., supra, at p. 1218, fn. 4, 240 Cal.Rptr. 107;  Clarke v. Fireman's Fund Ins. Companies (1988) 199 Cal.App.3d 607, 611, fn. 2, 245 Cal.Rptr. 107).   The confusion stems from Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329 where the court said a third party claimant could sue the insurance company for alleged violations of section 790.03 but “suit may not be brought until the action between the injured party and the insured is concluded.”  (Id. at p. 884, emphasis added, 153 Cal.Rptr. 842, 592 P.2d 329.)   The court goes on to explain the reasons for separate suits.   If the two were tried together, there would be evidence of defendant's insurance in the bad faith action.   Evidence of insurance is typically inadmissible and its inclusion might prejudice the underlying suit as to the insured.   Next, the court pointed out the possibility of discovery problems in a suit where the plaintiff is suing the insurer at the same time the insurer is representing the defendant.   Finally, the court noted that damages caused by insurer's violations could best be assessed at the conclusion of the underlying claim.   (Id. at p. 892, 153 Cal.Rptr. 842, 592 P.2d 329.)   From this the “conclusion” of the underlying suit has been interpreted as requiring a final determination of liability.   Liability may be determined either by a final judgment (Nationwide Ins. Co. v. Superior Court (1982) 128 Cal.App.3d 711, 180 Cal.Rptr. 464) or a settlement which includes an admission of liability (Rodriguez v. Fireman's Fund Ins. Co. (1983) 142 Cal.App.3d 46, 190 Cal.Rptr. 705).   This is the law as set out in Taylor v. California State Auto Assn., supra, 194 Cal.App.3d 1214, 240 Cal.Rptr. 107, by which, at the time it ruled, the trial court was bound.

 In Taylor, the injured plaintiff offered to settle for policy limits of $25,000 at a time she believed the insurer was clearly aware of its insured's liability.   The insurer countered with an offer of $13,000, then $15,000, and finally, settled for $25,000 two days before trial.   As part of the settlement, Taylor signed a release which provided that the settlement was “a compromise and shall not be construed as an admission of liability.”   This release was offered in evidence when the insurance company brought its motion for summary judgment;  in opposition, Taylor produced no facts to support her allegation liability was reasonably clear (Taylor v. California State Auto Assn., supra, 194 Cal.App.3d at p. 1217, 240 Cal.Rptr. 107).   Here, as in Taylor, there is a release form which states, “[T]his settlement is the compromise of a doubtful and disputed claim, and ․ the payment made is not to be construed as an admission of liability ․ [but is] merely to avoid litigation․”  In opposition, Mackey produced four items of evidence from the claims file which he believes show the company, notwithstanding the language in the release, did admit liability.   In a “Summary Request for Authority” from the claims manager it says, “We view this as a case of liability on behalf of the insured․”  The “First Submission to the Home Office” states, “We see this a a clear case of liability.”   The box marked “clear liability” is checked off on the settlement advice form.   Last, there is a letter from the insurer's attorney which says the insured is clearly negligent.   Real party justifies its release clause that there was no liability on the basis there were several opinions concerning liability—from the assertion that liability was questionable to the assertion that it was clear.   However, at the time of settlement, there was no question about the fact of liability;  the only question was the extent of liability.   Can an insurer who knows its insured is at least partly liable, settle the case and escape responsibility for the way it has handled the settlement by inserting a clause in a form contract that the insureds admit no liability?   We believe the answer must be in the negative.   Otherwise, the concept of bad faith acts in the part of insurers will be meaningless insofar as insurance companies engage in settling cases.

We find support for our conclusion in Clarke v. Fireman's Fund Ins. Companies, supra, 199 Cal.App.3d 607, 245 Cal.Rptr. 107, a case which was decided after the trial court ruled on this matter.   In Clarke, although there is no mention of a release clause, there had been a pretrial settlement when Clarke sought to hold the insurer responsible for alleged statutory bad faith.   A demurrer was sustained without leave to amend.   The court opined that a determination of liability was not part of the case being “concluded” under the language of Royal Globe Ins. Co. v. Superior Court, supra, 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329, and section 790.03, subdivision (h).   It found no persuasive policy reasons to require such a finding.

 Here it is clear there is liability;  there is dispute as to the extent of liability.   The suit against the insurer is not for indemnity nor does it depend on the amount awarded in the underlying suit.   Although the extent of liability or size of the award in the liability suit may affect in some way how the claim is handled, the gravamen of the complaint is that the insurer did not act properly in the way it handled the claim.   There is no statutory strict liability because as Clarke points out, it is the liability of the insurer for statutory violations not the liability of the insured for tort that is in question.  (Clarke v. Fireman's Fund Ins. Companies, supra, 199 Cal.App.3d at p. 612, 245 Cal.Rptr. 107.)   Where there is a settlement there has been no adjudication of liability and thus, there is no problem with res judicata or duplicative litigation.   Mackey must be allowed to assert his claim under section 790.03, subdivision (h), and the trial court may determine the extent of the insured's liability for the original personal injuries.

An alternative writ or order to show cause would add nothing to the presentation.   A peremptory writ is proper.  (Code Civ.Proc., § 1088;  United Nuclear Corp. v. Superior Court (1980) 113 Cal.App.3d 359, 169 Cal.Rptr. 827;  Goodenough v. Superior Court (1971) 18 Cal.App.3d 692, 697, 96 Cal.Rptr. 165.)

Let a peremptory writ issue directing the superior court to vacate that part of its order which states that the cause of action for breach of statutory duties has no merit and to enter a new and different order denying summary adjudication of this issue.


FN1. All statutory references are to the Insurance Code unless otherwise specified..  FN1. All statutory references are to the Insurance Code unless otherwise specified.

TODD, Associate Justice.

KREMER, P.J., and WIENER, J., concur.