CERF v. CENTRAL LIFE ASSURANCE CO (1996)

This petition for a writ of mandate in a discovery matter seeks a stay of discovery and a writ of mandate reversing an order permitting financial condition discovery against the petitioner, Alan Cerf. At issue here is whether the real party in interest, Central Life Assurance Co. (Central Life) has provided sufficient evidence of a substantial probability that it will prevail on claims of intentional misconduct, so as to warrant discovery into Cerf's financial condition.  (Civ.Code, §§ 3294, subd. (a), 3295, subd. (c).) ¹

Record

Central Life brought this action against Cerf for negligence, “twisting” (Ins.Code, § 781), interference with economic advantage and with contractual relations, violation of Insurance Code section 790.03, subdivision (a), and related relief.

Central Life moved for court permission to conduct discovery into Cerf's financial condition.   It sought to satisfy the statutory requirement that it establish a prima facie showing of malice, oppression or fraud within the meaning of Civil Code section 3294, subdivision (a), so as to be entitled to this discovery under Civil Code section 3295 subdivision (c).

It tendered facts that Cerf worked as an agent for Central Life from about 1985 to 1992.   Central Life terminated the relationship near the end of 1992.   Around August of 1992, according to Central Life, Cerf began a course of conduct designed to replace as many policies sold by him on behalf of Central Life as possible, in order to increase his personal income by earning 75 percent to 100 percent commissions replacing policies, rather than a simple 2 percent to 8 percent by renewing policies already in place.

Central Life contends that Cerf's pursuit of large first-year commissions, a practice it refers to as “twisting,” ² injured Central Life and its policyholders.

Further, Central Life says the replacement of the policies was accompanied by misrepresentations.   Cerf did not disclose to the policyholders the adverse consequences to them of replacements and he allegedly actively misrepresented the financial stability of the company and its competence and integrity.

An alleged specific misrepresentation was that Cerf did not tell the policyholders that replacing their Central Life policies would result in substantial cash surrender charges.

Cerf opposed the motion for financial condition discovery and alleged that Central Life had not made the requisite showing under the statutes.   Cerf alleged that after an investigation conducted for nearly a year at a purported cost of $100,000, Central Life had been able to locate “only a handful” of disgruntled policyholders who might support its claims in a few isolated cases.   Further, Cerf said there is no evidence to support the claims that Cerf engaged in a campaign to discredit Central Life and induce policyholders to change their policies out of fear of the company's precarious financial condition.

Cerf therefore argued that there was no showing of a “substantial probability” that Central Life would prevail on the claim as required by Civil Code section 3295, subdivision (c).

When the trial court first examined this matter, it believed Looney v. Superior Court (1993) 16 Cal.App.4th 521, 20 Cal.Rptr.2d 182, decided under a different statute, was controlling.  Looney interprets a statute, Code of Civil Procedure section 425.13, which has the same language as Civil Code section 3295, subdivision (c), namely, the requirement of demonstrating a substantial probability of prevailing before one may allege a punitive damages claim against a health care provider.  Looney v. Superior Court, supra, interpreted the statutory language before it somewhat permissively, requiring only enough evidence to survive summary judgment.   In the opinion of the discovery master, this standard is a lesser standard than the “substantial probability” standard of Civil Code section 3295, subdivision (c);  but, given the identical language of the two statutes, the court decided it was bound by Looney and granted Central's motion for financial discovery.   However the discovery master did say that he would, when confronted by specific demands for information, issue any and all protective orders as appropriate.   He specifically said that if his ruling were affirmed, “we will talk further about a protective order, the scope.”

His formal order similarly provided that after any review of the order, Cerf should submit a form of protective order as to the discovery and the parties could then argue the scope of discovery.

It was thus clear, even though the discovery master felt bound by Looney to grant the motion, that he fully intended to limit such discovery and to try to prevent prejudice.

The order was signed October 9, 1995.

Later, on November 15, 1995, more than a month after signing the order, the discovery master wrote a letter to the parties which said that he had discovered another decision which he felt allowed him to deny Central's motion, namely, our decision in Kerr v. Rose (1990) 216 Cal.App.3d 1551, 1565, 265 Cal.Rptr. 597.   He asked the parties to address the issue at a scheduled hearing on December 6.

Kerr v. Rose, supra, 216 Cal.App.3d at page 1565, 265 Cal.Rptr. 597, does have language directly construing Civil Code section 3295 and opining that even where the plaintiff has sufficient evidence to survive summary judgment on an intentional fraud claim, it may nevertheless fail to meet the substantial probability standard for discovery.

At the second hearing the discovery master said that the language in Kerr v. Rose would have justified his denying the discovery motion originally.

Discussion

 We agree that the language in Kerr v. Rose would have justified denying the discovery motion originally.   We also think the discovery master could have distinguished Looney because Looney involved the standard for pleading a claim, whereas Civil Code section 3295 involves the standard for obtaining personal financial information in discovery.   Clearly the latter procedure is the more intrusive.   Having to divulge sensitive personal financial information is a greater loss of privacy than being subjected to a lawsuit.   Even though the statutes use the same language, we do not believe Looney was binding.

However, the discovery master also believed that because there was no new law nor new facts warranting reconsideration under Code of Civil Procedure section 1008, he had no power to reconsider his ruling.   On that basis, reluctantly, he reaffirmed his initial ruling.

Plainly it would have been better not to grant this discovery.   Central Life apparently produced only about nine disgruntled policyholders out of some 1600 of Cerf's customers who had some problems with what they had been told when they switched policies.   We agree with the discovery master that this hardly amounts to a substantial probability of recovery on the intentional misconduct claims.

 The discovery master was correct in his belief that in light of the jurisdictional language incorporated in Code of Civil Procedure section 1008, reconsideration was not available for what amounts simply to judicial oversight.   Prior law held that a judge has inherent power at any time to correct an interim order.  (Magallanes v. Superior Court (1985) 167 Cal.App.3d 878, 882, 213 Cal.Rptr. 547.)   But by amendment in 1992 specific language was added to section 1008 overruling that result and expressly providing that the statute is jurisdictional with regard to applications for reconsideration.  (Code Civ. Proc., § 1008, subd. (e).)

Accordingly it falls to us to correct the error.

Conclusion

We conclude that the discovery master erred in granting financial condition discovery on the showing here and that he should therefore be mandated to reconsider the matter in light of controlling law.

Let a writ of mandate issue as prayed for directing respondent to reverse its granting of the motion to discover financial condition of the petitioners and to reconsider the motion in light of the principles expressed in this opinion.   Petitioner is the prevailing party and shall have costs.   Our temporary stay shall remain in effect until this opinion is final.

FOOTNOTES

1.   Although the parties have not raised the issue, this court is concerned that the court order we are asked to review may not actually be the order of the superior court, but may rather be the recommendation of a discovery master which requires the approval of the superior court before achieving the status of a court order suitable for our review.   Appointment of a discovery master has been characterized as a special reference, and such a discovery master has been held not to have the authority to make court orders.  (See e.g. Bird v. Superior Court (1980) 112 Cal.App.3d 595, 600, 169 Cal.Rptr. 530;  Ellsworth v. Ellsworth (1954) 42 Cal.2d 719, 723, 269 P.2d 3;  Marathon Nat. Bank v. Superior Court (1993) 19 Cal.App.4th 1256, 1258, 24 Cal.Rptr.2d 40.)   However, because the parties have not raised this issue, and we have already elected to consider this matter on its merits, in the interests of efficiency and judicial economy we will decide it on its merits.

2.   See Insurance Code section 781.

ELIA, Associate Justice.

PREMO, Acting P.J., and MIHARA, J., concur.