NORCAL MUTUAL INSURANCE COMPANY v. RAHN (1996)

Francine Rahn appeals from the denial of her petition to compel arbitration made on the basis of an arbitration provision in a professional malpractice insurance policy issued by NORCAL Mutual Insurance Company, to Paul Lowinger, M.D., a psychiatrist who treated Rahn.

Ms. Rahn was one of three female patients who in 1992 brought professional negligence claims against Dr. Lowinger.   Rahn's case went to trial and she received a jury verdict in excess of $7 million;  that verdict was final by early November 1994.

While NORCAL was defending Lowinger against the claims of the three patients, it filed an action for declaratory relief in January 1993 naming among the defendants Lowinger, Rahn and the two other patients.   In December l993 the defendants successfully stayed the declaratory relief action pending resolution of the three patient claims.

Once Rahn obtained a final judgment against Lowinger she sought recovery of the judgment from NORCAL.   By letter dated November 14, 1994, NORCAL informed Ms. Rahn that there was no coverage under its policy for the judgment.   One month later Rahn filed this petition to compel arbitration, as assignee of Lowinger's rights under the policy.¹  Her petition was denied on two grounds:  first, that “[t]here is no written agreement to arbitrate between plaintiff NORCAL Mutual Insurance Company ․ and defendant Francine Rahn” and second, that “the petition does not present an arbitrable dispute.”   This appeal followed.

Discussion

Our review is de novo.   The questions to be resolved involve the interpretation of an insurance policy, a statute and undisputed facts—all questions of law.  (Slaught v. Bencomo Roofing Co. (1994) 25 Cal.App.4th 744, 748, 30 Cal.Rptr.2d 618;  City of Petaluma v. County of Sonoma (1993) 12 Cal.App.4th 1239, 1244, 15 Cal.Rptr.2d 617;  University of San Francisco Faculty Assn. v. University of San Francisco (1983) 142 Cal.App.3d 942, 946, 191 Cal.Rptr. 346.)

 Insurance Code section 11580 ² provides in pertinent part that every insurance policy issued in this state shall contain “[a] provision that whenever judgment is secured against the insured ․ in an action based upon bodily injury ․ then an action may be brought against the insurer on the policy and subject to its terms and limitations, by such judgment creditor to recover on the judgment.” (§ 11580, subd. (b)(2).)

Normally this section is used offensively by an injured third party who, having obtained a judgment against an insured, then institutes a direct action under the statute against the insurer to recover the policy proceeds.  (Rose v. Royal Ins. Co. (1991) 2 Cal.App.4th 709, 718, 3 Cal.Rptr.2d 483.)   Here, in contrast, the section was not used offensively by Rahn once she became a judgment creditor.   Instead of filing a cross-complaint in the declaratory relief action to assert her section 11580 claim, she moved to compel arbitration on the twin theories that she was an assignee of the insured psychiatrist and a third party beneficiary of his malpractice policy.   In opposing her motion to compel arbitration, it was NORCAL which relied defensively upon section 11580 to argue that the petition to compel arbitration of an insurance policy to which she was not a signatory was an inappropriate means of redress for a judgment creditor seeking to recover on the policy.

 On appeal Rahn argues, quite correctly under the applicable case law, that the effect of section 11580 is to make an injured party who obtains a final judgment against the insured a third party beneficiary of the insurance contract between the insured and his or her carrier.  (Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 943, 132 Cal.Rptr. 424, 553 P.2d 584;  Hand v. Farmers Ins. Exchange (1994) 23 Cal.App.4th 1847, 1858, 29 Cal.Rptr.2d 258.)

It is also, however, the law that a third party beneficiary is allowed to enforce only the specific provisions of a contract which are made expressly for his or her benefit, and this rule has been imported into the context of the judgment creditor seeking to recover under section 11580.  (Civ.Code, § 1559;  Coleman v. Gulf Ins. Group (1986) 41 Cal.3d 782, 795, 226 Cal.Rptr. 90, 718 P.2d 77;  Lucas v. Hamm (1961) 56 Cal.2d 583, 590–591, 15 Cal.Rptr. 821, 364 P.2d 685;  Cancino v. Farmers Ins. Group (1978) 80 Cal.App.3d 335, 344, 145 Cal.Rptr. 503;   Murphy v. Allstate Ins. Co., supra, 17 Cal.3d at pp. 943–944, 132 Cal.Rptr. 424, 553 P.2d 584.)  “A third party should not be permitted to enforce covenants made not for his benefit, but rather for others.”  (Id. at p. 944, 132 Cal.Rptr. 424, 553 P.2d 584.)   Here it can scarcely be argued that the agreement to arbitrate “any dispute arising out of this policy” was designed expressly to benefit individuals who might be injured by the psychiatrist's malpractice.   Rahn was not, therefore, entitled as a third party beneficiary to enforce the arbitration clause.

The trial court did not err in concluding that there was no agreement between NORCAL and Rahn, and thus Rahn's motion to compel arbitration was properly denied on the basis that there was no predicate agreement to arbitrate between these parties.  (Code Civ. Proc., § 1281.2.)

 Before the trial court Rahn also asserted she was entitled to enforce the arbitration clause because she had received an assignment from Dr. Lowinger of all rights “contractual, or otherwise” which he possessed against NORCAL.   However, the NORCAL policy provides in pertinent part:  “Neither you nor anyone else insured under this policy can assign or transfer your interest under it without NORCAL's written consent.”   Both that assignment and the policy were before the court and it was undisputed that NORCAL had not given Lowinger its consent to assign.   We concur in the trial court's implicit rejection of the validity of the assignment as to Lowinger's right to arbitrate.

Disposition

The judgment is affirmed.

FOOTNOTES

1.   As of that time both of the other two patients no longer had claims pending against Dr. Lowinger.   The complaint of one had been dismissed and the claim of the other settled.

2.   Unless otherwise indicated all further statutory references are to the Insurance Code.

POCHÉ, Acting Presiding Justice.

REARDON and HANLON, JJ., concur.