STANTON v. CONTINENTAL CASUALTY COMPANY (1988)

Cross-defendant Continental Insurance Company (Continental) appeals from a judgment awarding cross-complainant Joseph Eddie Stanton (Stanton) $60,000 in compensatory damages and $5,000,000 in punitive damages.   We reverse and direct entry of judgment in favor of Continental.   We find, as a matter of law, there was no showing Stanton suffered actual damages.

I

STATEMENT OF THE CASE

The genesis of this litigation was a September 5, 1978, traffic accident.   Stanton was driving a tractor hooked up to a trailer.   The tractor belonged to Stanton.   The trailer belonged to Target Express (Target).   On the day in question, Stanton was hauling the trailer pursuant to a written subhaul agreement with Target.   While driving on the freeway, Stanton lost control of the rig and struck a vehicle driven by Luis Zoque.   Zoque was killed, leaving as his heirs his wife and two minor children.

At the time of the accident, Stanton was personally insured by Allstate Insurance Company (Allstate) and Fireman's Fund Insurance Company (Fireman's Fund).   Each policy had liability limits of $100,000 per accident.   Concurrently in effect was a policy which Continental had issued to Target with automobile liability limits of $1,000,000 per accident.

The accident was reported to all three insurers.   Allstate and Fireman's Fund acknowledged the applicability of their respective policies and commenced investigation.   Continental, however, for reasons which we shall set forth infra, asserted the accident was not within the ambit of coverage of its policy to Target.   Such dispute generates the evidence which is the crux of Stanton's claim.   He urges Continental wrongfully and tortiously refused for several years to afford him a defense.

Zoque's heirs filed a wrongful death action in August 1979.   Allstate and Fireman's Fund commenced negotiations to settle the Zoques' claims.

In June 1980, Stanton filed, but did not serve, a cross-complaint seeking from Continental, in the form of declaratory relief and money damages, relief for the breach by Continental of the implied covenant of good faith and fair dealing which he contends was embraced in Continental's insurance contract with Target, and for intentional infliction of emotional distress.

In September 1981, the court approved a $400,000 settlement in favor of the Zoques;  Allstate and Fireman's Fund each contributed $100,000, the maximum coverage on their respective policies.   The settlement included a stipulated judgment for an additional $200,000 against Stanton.   The Zoques agreed, however, not to enforce that part of the judgment until Stanton had resolved the cross-complaint he had filed against Continental.

In December 1981, Stanton served his cross-complaint on Continental.

The trial on Stanton's cross-complaint against Continental underlies this appeal.   By the time trial had commenced in 1985, during the four-year span since the 1981 judicially approved settlement of $400,000 in favor of the Zoques, Continental had recognized the policy issued to Target did create a duty to defend Stanton for the 1978 accident, and then as a consequence in 1983, it did satisfy the unpaid balance on the Zoques' settlement of their action against Stanton.   Thus, the only major issue at trial for a judge or the jury to decide was whether Continental's conduct with respect to its initial refusal to defend had been tortious.¹

At the close of the trial before a jury, the court granted Stanton's motion for a directed verdict on the issue of liability.   That is, the court instructed the jury that defendant Continental had, as a matter of law, breached the implied covenant of good faith and fair dealing and had engaged in three unfair practices prohibited by Insurance Code section 790.03, subdivision (h), in that it [1] “failed to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;  [2] did not attempting [sic] in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear;  [and 3] failed to provide promptly a reasonable explanation of the basis relied on in the insurance policy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement.” ²

The court also instructed the jury the only issues for it to consider were Stanton's right to recover compensatory damages for emotional distress and whether or not Continental's actions equated with such bad faith as would warrant punitive damages and if so, in what amount.   The court also granted Continental's motion for a directed verdict negating Stanton's claim for intentional infliction of emotional distress.   By a vote of ten to two, the jury awarded Stanton $60,000 compensatory damages for emotional distress and $10,000,000 in punitive damages.   The trial court denied Continental's subsequent motion for a new trial, on condition Stanton accept a reduction of the punitive damages award from $10,000,000 to $5,000,000.   Stanton did.   This appeal by Continental followed.

Stanton initially filed a cross-appeal.   During the pendency of this appeal, it was dismissed pursuant to the parties' stipulation.

II

THE FACTSA.THE EVIDENCE OF CONTINENTAL'S HANDLING OF STANTON'S CLAIM

To place the issues in proper perspective, we begin by briefly summarizing the parties' respective positions.

The accident was reported to Continental approximately at the same time it was reported to Allstate and Firemen's Fund and, like the other two, Continental almost immediately commenced to research the facts and law to determine its liability.   From the outset, Continental's concern was whether or not the policy it had issued to its insured, Target, obligated it to defend Stanton for the accident.   As a consequence, Continental's investigation of the matter was directed at determining the requisite factual and legal data necessary to make such a determination.   As noted earlier, Continental decided it had no obligation to Stanton.   Although Continental eventually recognized the error of that conclusion, it urged its initial decision had been in good faith and reasonable in light of the information available to it.

Stanton, on the other hand, claimed that Continental did not exercise good faith in its investigation of the matter;  that Continental intentionally sought to find a basis upon which to avoid liability;  and Continental, knowing that Fireman's Fund and Allstate were defending Stanton, deliberately refrained from participating in the settlement of the Zoques' lawsuit against Stanton.

On September 5, 1978, when the accident occurred, it was immediately reported to Continental and it opened a file thereon.   Mario Martins, a Continental claims supervisor, directed Darryl Marchand, a claims adjuster, to commence investigation and specifically to obtain a copy of the subhaul agreement executed between Stanton and Target.   Martins further advised of the potential applicability of Smith v. Travelers Indemnity Co. (1973) 32 Cal.App.3d 1010, 108 Cal.Rptr. 643 as that case and the facts upon which it was decided could have an important bearing upon Continental's duty to defend.

In Smith, a motorist was driving a pickup truck with a horse trailer in tow.   The pickup truck was covered by a comprehensive automobile liability policy.   The trailer owner's automobile insurance policy insured permissive users of “owned automobiles” and defined automobile to include a trailer.   The motorist was a permissive user of the trailer.   The motorist was involved in a traffic accident.   Thus, as at bench, the issue presented was whether the insurer of the trailer had a duty to defend the motorist in the lawsuit arising from her accident.   The Smith court concluded towing of the horse trailer was a contemplated “use” of the trailer and the insurer which had issued the trailer policy had the duty to defend the motorist on a pro rata basis with the insurer of the pickup truck.  (Accord Mission Ins. Co. v. Hartford Ins. Co. (1984) 155 Cal.App.3d 1199, 1209–1213, 202 Cal.Rptr. 635.)

Approximately a month after receiving Martins' directive, Marchand reported back to Martins that Stanton was a “hauler” for Continental's insured, Target, and had been so engaged during the accident.   Marchand thereupon recommended closing the file without payment because Fireman's Fund was handling Stanton's claim.

Martins responded the file could not “yet” be closed without examination of the subhaul agreement executed by Stanton and Target and in effect at the time of the accident because Smith, supra, might mandate coverage by Continental.

In February 1979, after Marchand had made two telephonic requests to Target to provide Continental with a copy of the subhaul agreement, Target sent him an undated agreement signed by Stanton and the President of Target.   That agreement obligated Stanton “to keep public liability and property damage insurance policies in effect at all times in the amounts of $300,000 and $100,000.00” and further provided:  “Subhauler [Stanton] holds the carrier [Target] harmless of any liability to himself or any third party arising from the operation of his equipment during the performance of work for the carrier.”

Unbeknownst to Marchand, the subhaul agreement mentioned above was not the agreement which was in effect at the time of the accident.   As no Continental employee ever made any effort to authenticate or verify it, this error was not discovered by Continental until outside counsel retained by Continental was engaged to handle the matter.

In March 1979, Marchand wrote to Orient Melone, Senior Claims Analyst at Continental's home office in Chicago.   He recounted the facts of the accident, referred to the above described subhaul agreement and its “hold harmless” provision, noted that Fireman's Fund and Allstate were handling the matter on Stanton's behalf, stated that it appeared “to be a case of no liability as far as our insured [Target] is concerned” and concluded, under the heading of Intended Disposition:  “Due to the fact that All State [sic] has assumed the handling and defense of this matter, we are keeping a low profile on this loss.”

The next month Melone responded.   He sought to learn whether Stanton had been operating under a permit issued by the Public Utilities Commission to Target and the legal significance of such fact.   He also inquired as to the impact of Smith, supra.

Marchand had also written to both Allstate and Fireman's Fund asking for written confirmation that each had issued Stanton liability insurance and had assumed his defense.

On July 11, 1979, a representative of Allstate wrote to Marchand and asked:  “By virtue of Smith v. Travelers Indemnity Company, 32 Cal.App.3d 1010, 108 Cal.Rptr. 643 would you kindly advise if you are going to participate in the defense of this matter.   If so, would you kindly advise the limits of coverage.”

Marchand responded:  “[P]lease be advised that our company has no interest in participating in the defense or settlement of this matter.  [¶] The sub-hauling agreement, [sic] clearly states that our insured will be held harmless in the event of a third party action against the sub-hauler, your insured [Stanton].”

On July 25, 1979, Marchand wrote to Melone that Allstate was handling Stanton's defense and that he and Martins had informed Allstate that Continental would not be involved because of the “hold harmless” provision in the subhaul agreement.

In August 1979, the Zoques filed a wrongful death action against Stanton.   Fireman's Fund and Allstate agreed to retain common defense counsel and share the expense of Stanton's defense.

Immediately after the accident, Stanton had furnished an Allstate investigator with the undated subhaul agreement in effect at the time of the accident.   Allstate sent a copy to Fireman's Fund.   The agreement did not contain a hold-harmless provision.   Consequently, in September 1979, Fireman's Fund wrote Marchand formally requesting Continental's participation based upon Smith, supra, and stating that in the subhaul agreement it “could find no specific clause that could be interpreted as a Hold Harmless Agreement running in your [Continental's] favor.”   At this juncture, Fireman's Fund concluded Stanton's liability was “clear” and placed it at $350,000 to $400,000.   It requested Continental's participation because the combined $200,000 available from its policy and that of Allstate was exhausted.   In that type of situation, it is normal practice to tender defense to the carrier which has the greatest financial exposure to permit it to take over the defense of the matter.   Allstate and Fireman's Fund were prepared to pay their policy limits and to permit Continental to settle the case.   Fireman's Fund did not know the face limits of Continental's policy but believed it to be a “five figure” amount.

After a follow-up conversation with a representative from Fireman's Fund, Marchand wrote to his supervisor, Ken Batemen, in October 1979.   He advised him that Fireman's Fund had agreed “they certainly should handle the defense” but still expected a contribution from Continental.   He recommended standing “firm” on the hold harmless provision.

Subsequently, Fireman's Fund and Allstate attempted to arrange a voluntary settlement conference in regard to the Zoques' action.   Marchand informed them that Continental did not wish to participate because it believed it had “no exposure based on the hold harmless agreement” with Stanton.

A December 1979 entry in the file from Martins states:

“I am still of opinion that our hold harmless is still good.   My understanding of Smith vs. Travelers is that it is the law in the 5th [Appellate] District only.   It has never been decided by the Supreme Court of California.

“As I see the legal situation, we might have to contribute something but would then have the right to sue the other defendants under the hold harmless agreement.”

Soon thereafter, Martins formally transferred the matter to Angelo Pappas, a claims specialist, to further investigate and clarify the issues.   Pappas read and reviewed the file, including a copy of Smith, supra, and decided said opinion did “not address [their] situation” because the case did not involve a contractual arrangement.   An April 1980 entry from Pappas in the file concludes:  “Continue to resist joining till served.   Due to agreement and hold harmless, we are off-point with Smith vs. Travelers.”

In June 1980, Stanton filed, but did not serve, his cross-complaint against Continental.

The same month, the Zoques amended their complaint to add Target as a defendant.   Target subsequently successfully moved to be dismissed from the lawsuit because the Zoques' claim was barred by the statute of limitations.   Within two weeks of the Zoques' filing of the amendment to their complaint, Melone, after discussing the coverage issue with the Los Angeles office and others, directed Martins to submit the file to Continental's in-house counsel for their analysis.

The matter was assigned to attorney Anne G. Koza.   Previously, she had prepared opinion letters on questions of insurance coverage and had researched bad faith insurance cases.   She testified that when the matter was assigned to her she was not requested to reach specific conclusions.   She spoke with the attorney for the Zoques, the President of their insured, Target, and a representative of the California Public Utilities Commission.

An August 1980 memo from Martins to Melone stated he was still awaiting Koza's written opinion but that she had told him, “the more research she does, the more confused she gets.”   He stated he and Koza had concluded that now that Target had been named as a defendant by the Zoques, Smith, supra, mandated Continental's defense of the lawsuit.

In September 1980, Koza submitted a twelve-page memorandum to Pappas, to whom the file had been assigned earlier that year, in which she concluded Stanton was not entitled to coverage under the policy Continental had issued to Target.   As Continental has implicitly conceded her legal analysis was erroneous, we briefly set forth her reasoning.   Essentially, she relied upon the hold-harmless provision in the subhaul agreement, a portion of the Continental policy issued to Target which excluded coverage for “hired automobiles,” and an opinion from the United States Court of Appeals for the Fourth Circuit.   She specifically stated her conclusion was based on the factual predicates that (1) the subhaul agreement under review was the one in effect at the time of the accident;  and (2) Stanton's status, vis-a-vis Target, was that of an independent contractor instead of an employee.   She also concluded Target was not entitled to coverage for the incident.   However, her memo contained no analysis of Smith, supra.

In reliance upon Koza's memorandum, Martins and Pappas reiterated their earlier conclusion Continental had no duty to defend Stanton.   The home office agreed and the file on Stanton's claim was “closed.”   Inexplicably, however, Continental rejected Koza's conclusion in regard to Target and decided to afford it coverage.

Thereafter, nothing significant happened until September 1981 when Fireman's Fund and Allstate entered into the stipulated judgment which provided the Zoques would not attempt to execute upon Stanton's assets for the remaining $200,000 due until there had been a resolution of the cross-complaint filed by Stanton against Continental.   The two insurers now had increased the value of the Zoques' claim from $350,000 to $600,000 to $750,000 based upon receipt of new information in regard to special damages.   Neither insurer had notified Continental of the negotiations which culminated in this settlement.

At that point outside counsel, who had been hired to defend against the Zoques' action filed against Target, was asked to defend Continental on the cross-complaint.   After investigating the matter, he wrote to Continental in May 1982 and advised that because Stanton had been a permissive user of the trailer belonging to Target, he was afforded coverage by the policy issued to Target.   Counsel further noted the subhaul agreement upon which Continental employees had been relying was, in fact, not in effect on the date of the accident and that the operative agreement did not contain a hold harmless clause.   Based upon these circumstances, counsel sought permission to settle the matter with the Zoques.

Pappas and Martins concurred and authorized counsel to settle the case.   In February 1983, counsel for Continental obtained a full satisfaction of the outstanding balance on the judgment against Stanton in return for Continental's payment of $150,000.

B.

THE EVIDENCE OF STANTON'S ACTUAL DAMAGES

 The thrust of Stanton's bad faith action was his claim for punitive damages.   Punitive damages are recoverable only if the plaintiff suffers actual damages.  (Civ.Code, § 3294, subd. (a);  Werschkull v. United California Bank (1978) 85 Cal.App.3d 981, 1002, 149 Cal.Rptr. 829.)   Thus, it was necessary for Stanton to establish some form of actual damages.   As we shall explain, his showing in that regard was inadequate as a matter of law.   It was based solely on his own uncorroborated and often contradicted testimony.

Stanton was always adequately defended by Allstate and Fireman's Fund at no cost to himself.   He never had to nor did he ever pay one cent to the Zoques.   Moreover, Stanton neither at trial nor on this appeal has indicated, nor is there anything in the record to show, how a better settlement could have been reached if Continental had participated earlier in the defense of the Zoques' action.   Stanton's own witnesses placed a value on the Zoques' claim against him at between $400,000 and $750,000.   In any event, the point is that Continental satisfied the remainder of the stipulated judgment entered against Stanton.   In short, Continental's conduct caused no pecuniary damages to Stanton.   The only parties who would have standing to claim injuries proximately caused by Continental's actions would be the Zoques.   The trial judge himself recognized this when, in an in-chambers conference toward the close of trial, he stated to Stanton's trial attorney:  “[T]his is a manufactured punitive damage case, manufactured by [the attorney retained by Fireman's Fund who had filed on behalf of Stanton the cross-complaint against Continental but delayed its service] so he could control it and get a piece of the money, and if the widow [of Zoque] went somewhere else, he wouldn't get any attorneys' fees, and he wanted to send it to you so he could share in the recovery if there was one, because under normal circumstances, if there was a punitive damage case, it should have been filed by the widow, not by the guy who did the killing.” ³

 In light of the above, Stanton, by necessity, made a two pronged claim of actual damages which focused solely on his personal situation.   First, he urged he had suffered emotional distress because at an unspecified time, he realized he could potentially incur personal financial liability to the Zoques if Continental did not defend him because the Zoques' claims were in excess of the insurance coverage afforded by Fireman's Fund and Allstate.   This allegedly put a strain on his marriage and as a result, he became “irritable and temperamental” and delayed purchasing a home until all the litigation was resolved.   In response to the following leading question from his attorney, “Do you feel, Mr. Stanton, that you suffered emotionally from having this claim drag on for the years that it took to get the Zoques paid off?”, Stanton answered, “Yes, sir.”

But Stanton adduced no evidence that he ever consulted a doctor or any professional about his emotional distress.   Because Stanton never offered the testimony of family or friends, he introduced no evidence to corroborate his testimony about anxiety or the purported delayed purchase of a home.   As Evidence Code section 412 states:

“If weaker and less satisfactory evidence is offered when it was within the power of the party to produce stronger and more satisfactory evidence, the evidence offered should be viewed with distrust.”

Furthermore, Stanton never set forth the exact time frame in which he suffered this alleged emotional distress.   He merely testified that shortly after the accident, he learned Target had insured the trailer and consequently he expected that insurance “would somehow come into play ․”  At some point thereafter, he learned from the President of Target “there was some sort of coverage dispute.”   Subsequently at an unspecified time, his knowledge that the Zoques' claim exceeded the insurance coverage afforded by Fireman's Fund and Allstate caused him emotional distress.   On cross-examination, he conceded the first time he could recall learning about the coverage dispute was in August 1979 when the Zoques served him with their complaint.   Stanton's inability to identify when many of these key events occurred is particularly significant because he testified that between the September 1981 entry of the stipulated judgment and Continental's 1983 satisfaction of the outstanding balance, he “․ had no reason to believe that anybody was going to take anything from [him] ․” and that following the 1983 satisfaction he had no “․ more concerns about paying anything to the Zoques.”

Hence, the only time period in which he could have sustained the alleged emotional distress was some time after the accident, September 1978, but before June 1980, when he filed the cross-complaint against Continental seeking damages for emotional distress.   But when?   In this regard, it is noteworthy that nothing in the present record indicates that any of the correspondence between the insurers on the question of Continental's duty to defend was ever sent to Stanton or that Stanton ever directly communicated with Continental.   In fact, Marchand, the Continental claims adjuster, testified he never had any contact with Stanton or Stanton's attorney.   Nor was there any testimony that the lawyer who filed Stanton's cross-complaint against Continental ever communicated with Stanton about the ongoing disagreement.   How and when did Stanton truly learn of the dispute, its contours, or its implications?   These evidentiary gaps underscore the inherent improbability of the actuality and severity of Stanton's suffering.   His inflammatory claim, set forth in his brief on appeal, that Continental “forced [him] to sweat out resolution of the Zoques' wrongful death action brought against him,” finds no solid support in the record.

Sheer logic dictates the only event Stanton was “sweating out” was whether Continental's legal position, if persisted in, would help his hope to hit the jackpot with his punitive damages cross-complaint against Continental.   Thus, it was Continental's firmness of position, not his purported emotional distress, which was the sole basis of his cross-complaint.   It takes no stretch of the imagination to conclude that Stanton, if he were truly affected by mental suffering, would have sought advice from a medical doctor, psychiatrist, or psychologist.   Logically, he was sustained by a euphoria inherent in his lawsuit arising fortuitously from the death of a human being brought about by his negligence.

 Secondly, Stanton claims that Continental's action caused him to lose his job with Target.   The record demonstrates his claim to be patently without merit.   Target terminated Stanton as a subhauler in April 1983.   At that point, the Zoques' lawsuit for the accident had been completely resolved.   Although the Zoques had sued Target, it had successfully moved approximately two years prior to be dismissed from the lawsuit on statute of limitations grounds.   Moreover, Continental has satisfied the Zoques' remaining claim against Stanton.   Hence, the only litigation pending at the time of Stanton's discharge, was his cross-complaint against Continental.

In the month of Stanton's discharge, Stanton's attorney had noticed the deposition of the President of Target in order to prepare Stanton's case against Continental.   Stanton surmises that as a result of Target's frustration at being drawn into the vortex of his action against Continental, he was fired.   Quite apart from the fact that said allegation, even if it be true, merely demonstrates that Stanton's own legal maneuverings may have contributed to his dismissal, the record establishes legitimate job-related reasons for Stanton's termination.   The President of Target testified Stanton was not fired because of the lawsuit.   Instead, he explained Stanton had a pattern of refusing to do assigned tasks;  that on the day before his termination, Stanton had refused to move a trailer in the yard of Target;  and that Stanton was terminated because of “lack of cooperation.”   Stanton's own testimony admitted his earlier reprimand and that his discharge had followed his refusal to move the trailer.   In addition, the fact that Stanton had been involved in an accident resulting in a fatality could not have enhanced his job security.

 An appellate court can sustain a jury's findings only if supported by substantial evidence.   Substantial evidence is evidence of ponderable legal significance, reasonable in nature, credible and of solid value.   Substantial evidence is not synonymous with any evidence.  (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873, 197 Cal.Rptr. 925 and cases cited therein.)   Our foregoing analysis of Stanton's evidentiary showing in regard to his claim of actual damages forces us to conclude it does not rise to the level of substantial evidence.   This failure of proof is fatal to the judgment rendered upon his cross-complaint.   Without actual damages, Stanton is not entitled to recover punitive damages.   We therefore reverse the judgment in favor of Stanton and direct the trial court to enter judgment in favor of Continental.

III

CONCLUSION

The judgment under review represents a gross miscarriage of justice.   Based upon self-serving and uncorroborated evidence of emotional distress and job loss, Stanton was able to convince a jury that he had in fact suffered compensable damages and in addition Continental acted in such bad faith that an award of punitive damages was required.   The end result is that Stanton, who caused the death of Luis Zoque, has been awarded a judgment in excess of five million dollars.   Zoque's widow and children have been paid less than ten percent of that amount to compensate them for Zoque's death.   As Justice Elkington has noted:  “I am fearful that the law of punitive damages as it has developed in this state no longer serves any public policy, or the legitimate interests of the unentitled recipients of its constantly accelerating largess.”  (Rosener v. Sears, Roebuck & Co. (1980) 110 Cal.App.3d 740, 758, 168 Cal.Rptr. 237 (conc. opn. of Elkington, J.);   emphasis added.)

 Moreover, the record strongly suggests that Stanton in bad faith knowingly and with calculation filed his cross-complaint against Continental.⁴

 In June 1980, while Continental was still evaluating its factual and legal position, the attorneys retained by Fireman's Fund to defend Stanton filed a cross-complaint in his name against Continental seeking declaratory relief and money damages based upon Continental's refusal to defend.   Thus his alleged compensable damages had accrued before that date.   But the cross-complaint was not then served upon Continental.   In February 1981, Stanton formally retained these attorneys on a contingency fee basis to prosecute his cross-complaint.   Nonetheless, it was not until December 1981, several months after Fireman's Fund and Allstate had executed their settlement agreement with the Zoques on Stanton's behalf, that the pleading was ultimately served on Continental.   This delay was significant, for had the cross-complaint been promptly served, a declaratory relief action, which is given statutory priority (Code Civ.Proc., § 1062.3), could have reasonably resolved the question of Continental's duty to defend.   The delay in service until after a settlement had been reached with the Zoques strongly suggests Stanton did not want Continental to know he was planning an action against it and that he was deliberately maneuvering to turn what was essentially a dispute among three insurers as to Continental's duty to defend into a bad faith action by the insured.   With knowledge and calculation, Stanton engineered a situation in which he worked toward forming the basis of a punitive damages claim.

Furthermore, the fact that Stanton's attorney, who drafted the cross-complaint and negotiated with the Zoques, did not obtain from the Zoques a release of Stanton from liability in return for an assignment of his rights against Continental, a procedure often employed, supports the view that Stanton wished to keep his exposure “open” so as to be able to claim the situation created anxiety and emotional distress.

We have already sequentially enumerated the litigation history of this case.   It demonstrates delay was endemic to the prosecution of the lawsuit, a delay which inured only to the benefit of Stanton.   As previously noted, one of the key delays was the 18 month hiatus between the filing and service of Stanton's cross-complaint upon Continental.   But the present record raises many other unanswered questions.   Fireman's Fund and Allstate knew Continental was basing its decision not to defend Stanton on the hold harmless provision in the subhaul agreement and that the subhaul agreement in their possession did not contain any hold harmless provision.   Why did those two companies fail to call Continental's attention to the fact that it, Continental, possessed the wrong subhaul agreement?   Why did it take Allstate and Fireman's Fund three years to settle with the Zoques when those two insurers quickly recognized their liability and the fact that the Zoques' claim exceeded their combined $200,000 policy limits?   Why did the Zoques wait until 21 months after the accident to add Target as a named defendant in their complaint in addition to Stanton when Target's identity and potential liability was clear from the outset?   Was the Zoques' attempted amendment a last-ditch effort to pull Continental and its $1 million policy issued to Target into the litigation at a time when Continental was questioning its duty to defend?   Who was behind the untimely amendment to add Continental, an effort which the trial court properly ruled was barred by the statute of limitations?   Was it Fireman's Fund and Allstate, who were represented by the same attorney who Stanton retained to file and litigate his cross-complaint against Continental?   Because Continental did not choose to probe these issues at trial, they remain unanswered.   But what is clear is that at the center of this malestrom was Stanton's attorney and Stanton's lawsuit against Continental, the value of which increased as each day passed without matters being resolved.

This situation underscores the validity of Justice Kaus' observation that “[the] problem is not so much the theory of the bad faith cases, as its application.   It seems to [us] that attorneys who handle policy claims against insurance companies are no longer interested in collecting on those claims, but spend their wits and energies trying to maneuver insurers into committing acts which the insureds can later trot out as evidence of bad faith.”  (White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 900, fn. 2, 221 Cal.Rptr. 509, 710 P.2d 309 (dis. opn. of Kaus, J.).)

IV

DISPOSITION

The judgment is reversed and the superior court is directed to enter a judgment in favor of cross-defendant Continental.   Cross-defendant Continental to recover its costs on appeal.

FOOTNOTES

1.   After the jury returned its verdict, the court ruled on the question reserved for its determination of the allocation of payment between the three insurance companies.   Continental had already paid $150,000 to the Zoques to settle their $200,000 claim against Stanton.   Because the court found each insurer to be equally responsible for the $350,000 paid to the Zoques, it ruled Continental had no obligation to reimburse either Allstate or Fireman's Fund.

2.   The grant of Stanton's motion for a directed verdict on the question of Continental's liability was clearly reversible error.   That motion could only have been granted if, as a matter of law, there was no reasonable conclusion legally deducible from the evidence other than that Continental's liability to Stanton had been established.  (See, e.g., Dailey v. Los Angeles Unified School Dist. (1970) 2 Cal.3d 741, 745, 87 Cal.Rptr. 376, 470 P.2d 360.)   As we shall demonstrate in our statement of the facts, the evidence on the question of Continental's handling of Stanton's claim clearly could have supported a finding that Continental's investigation and handling of the claim was prompt, fair, and in good faith.   The trial court improperly took away from the jury the very role for which it had been impaneled.However, we do not base our disposition of Continental's appeal on our analysis of that contested ruling.   Instead, we follow an approach which takes us to the very heart of this lawsuit:  the fraudulent nature of Stanton's claim.The result in this case was made possible by the distortion and departure from both common sense and the true purpose of the law which has developed in tort litigation—distortion which cries out for legislative correction.The possibility of such untoward results hangs like an ominous cloud over this area of tort law and can only serve to warp the settlement process.   Since the courts themselves have, in large measure, helped to create the problem, the solution is clearly a matter for the Legislature.

3.   As already pointed out in the text, the attorney who was retained by Fireman's Fund also represented Stanton.   In June 1980, he filed a cross-complaint on Stanton's behalf against Continental.   In September 1981, the court approved a $400,000 settlement of the Zoques' claim to which Allstate and Fireman's Fund each contributed $100,000.   In December 1981, the cross-complaint was finally served upon Continental.   The record contains no explanation for the delay in service between the filing and serving of the cross-complaint.

4.   The trial court improperly precluded Continental from definitely establishing this point.

ROTH, Presiding Justice.

COMPTON and FUKUTO, JJ., concur.