TRAVELERS COMPANIES v. SKINNER (1989)

In this Royal Globe action (Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329), the defendant insurance companies seek a writ of mandate to compel the trial court to grant their motion for summary judgment.   We initially denied the petition summarily, but the Supreme Court granted review and retransferred the matter with directions to issue an alternative writ.   We informed the parties that “[t]he Supreme Court's direction that we issue the alternative writ, after our denial, is an expression on the part of the Supreme Court that we examine the contentions raised by petitioner and write an opinion evaluating those contentions.”  (Charlton v. Superior Court (1979) 93 Cal.App.3d 858, 861, 156 Cal.Rptr. 107.)   We further informed the parties that in our view, we did not require oral argument to accomplish this directive in this case.   We gave real party in interest sufficient time within which to file opposition to the petition, and informed the parties our decision would be to either grant or deny the peremptory writ.  (See Palma v. U.S. Industrial Fasteners, Inc. (1984) 36 Cal.3d 171, 177–180, 203 Cal.Rptr. 626, 681 P.2d 893.)   There has been no objection to this procedure or request for oral argument, and accordingly oral argument is deemed waived.   We deny the peremptory writ.

Petitioners The Travelers Companies, the Charter Oak Fire Insurance Company, David M. Collins, Rod Edmonds and John Campbell (Travelers) are defendants in a Royal Globe action brought by real party in interest Toni Skinner.   Skinner's complaint alleges that her automobile caught fire while being towed by Travelers' insured, and that Travelers was guilty of bad faith in its handling of Skinner's claim.   Specifically, Skinner alleges numerous violations of the bad-faith statute:  misrepresentation to plaintiff facts and provisions relating to coverage (Ins.Code, § 790.03, subd. (h)(1));  failure to acknowledge and act reasonably promptly upon communications from plaintiff with respect to the claim (Ins.Code, § 790.03, subd. (h)(2));  failure to adopt and implement reasonable standards for the prompt investigation and processing of claims such as plaintiff's (Ins.Code, § 790.03, subd. (h)(3));  failure to affirm or deny plaintiff's claim within a reasonable time after proof of loss requirements were completed and submitted by plaintiff (Ins.Code, § 790.03, subd. (h)(4));  failure to attempt in good faith to effectuate a prompt, fair and equitable settlement of plaintiff's claim in which liability had become reasonably clear (Ins.Code, § 790.03, subd. (h)(5));  delaying the investigation or payment of plaintiff's claim by requiring plaintiff to submit a claim and then requiring submission or subsequent formal proofs of loss, containing substantially the same material as the original claim (Ins.Code, § 790.03, subd. (h)(11));  and failure to promptly provide a reasonable explanation of the basis relied upon for the denial of plaintiff's claim (Ins.Code, § 790.03, subd. (h)(13)).   Skinner seeks, inter alia, damages for mental and emotional distress.

Travelers moved for summary judgment.   Its separate statement of material facts omits the first several months of its dealings with Skinner, whose own separate statement provides the facts of the early dealings which are essentially ignored by Travelers.   The record reveals that Skinner's 1974 Mercury Capri broke down on Interstate 580 in Oakland on January 8, 1983.   The next day Skinner's car was towed by Pizzagoni's Lakeshore Towing, Traveler's insured.   After being towed several hundred yards the car caught fire and was totally destroyed.  (Travelers maintained in its motion that “[t]he CHP and Fire Department reports stated the cause of the fire was unknown,” but it appears neither report was presented to the trial court and they do not appear in the present record.)

Skinner believed that negligence on the part of Pizzagoni's was the cause of the vehicle fire, and so stated to the towing company.   Travelers' motion suggests that Skinner's claim was not tendered to them for investigation until December 9, 1983, when Skinner made a settlement offer.   The record shows otherwise.   Skinner's opposition to the motion states she contacted Travelers March 3, 1983.   The record shows that a Travelers claim file was opened on Skinner's case on that date.   Petitioner Edmonds, a Travelers adjuster, admitted at his deposition that as of March 21, 1983, he had concluded that “it's a possibility that some liability may be attributable to our driver.”   Edmonds quoted a file entry in his testimony that the driver had told him he saw oil all over the engine of the car, and someone, presumably Edmonds, had opined that the fire could have been caused by a spark and that the car should not have been towed with its engine covered with oil.

Notwithstanding the conclusion of possible liability, Edmonds told Skinner by telephone March 24, 1983, that her claim was denied for “no proven liability on the part of our insured.”   Edmonds testified in deposition that his change of opinion was based on “further investigation.”   Edmonds noted in the file on this occasion, and perhaps one other, that Skinner was “upset.”

Skinner then retained an attorney who wrote two letters to Pizzagoni's, on August 25, 1983, and September 15, 1983.   Both letters were referred to Edmonds but received no response.   Skinner's counsel then wrote two letters directly to Travelers, on September 27, 1983, and October 21, 1983.   Neither letter was answered.   On November 4, 1983, the attorney spoke to Edmonds, who denied liability.   On November 21, 1983, counsel spoke to petitioner Campbell, another adjuster, who was unaware of the letters or the conversation with Edmonds.

On December 9, 1983, Skinner's counsel wrote Edmonds and Campbell stating his opinion that the fire was due to the negligence of Traveler's insured, and that Travelers was guilty of bad faith for its “failure to acknowledge this legitimate claim ․ and to investigate this claim․”  Counsel demanded $1,900 in settlement, $1,400 for the value of Skinner's car and $500 in attorney fees.   Travelers responded on December 20, 1983, that their investigation showed there was no negligence on the part of the towing company and the fire must have been caused by a preexisting defect in the vehicle.   Because there was no counteroffer, Skinner again became upset and suffered aggravation of her nervous stomach.

Skinner filed suit against Pizzagoni's on January 18, 1984.   Travelers hired two experts for the litigation who submitted reports concluding the fire was caused by a thrown piston rod, not negligent towing.   These reports were evidently not presented to the trial court and are not in the record of this writ proceeding.

On March 27, 1985, at a prearbitration settlement conference, Skinner demanded $10,000 to settle:  $2,000 in damages and $8,000 for Travelers' bad faith.   Travelers rejected the offer.   The insurance company's failure to engage in settlement negotiations further aggravated Skinner's nervous stomach.   According to her declaration, throughout these dealings with the company she felt that Travelers was “just shucking me off like I was a small guy and I didn't make any difference.”

On August 28, 1985, the day before arbitration, Travelers made an oral counteroffer of $900.   Skinner rejected this offer.   One of her attorneys stated in a declaration that Skinner had already incurred $900 in litigation costs, and that Skinner was disinclined to accept Traveler's condition that the settlement not be accompanied by an admission of liability, a condition Skinner thought would jeopardize a subsequent bad faith action.

 On August 29, 1985, the suit was heard by an arbitrator, who rendered an award for Skinner for $500.   Neither party requested a trial de novo, and the award accordingly became final.   Skinner subsequently filed the present bad faith action under the aegis of Royal Globe.¹

Travelers' motion for summary judgment failed to state the numerous operative facts concerning its handling of the Skinner claim between January and December 1983.   Travelers began its statement of material facts with the December 9, 1983, letter, and focused entirely on Skinner's rejection of the $900 offer in 1985.   Travelers argued it was entitled to judgment as a matter of law because no bad faith conduct it may have committed could have proximately caused Skinner's damages.   First, Travelers contended the $900 settlement offer was reasonable as a matter of law because the arbitrator assessed Skinner's damages at $500.   Second, Travelers pointed to deposition testimony of Skinner in which she stated that by the time of the December 9, 1983, letter she would not have accepted any offer less than $1,900;  thus, went the argument, Skinner would not have accepted the eventual eve-of-arbitration $900 settlement and Skinner cannot, as a matter of law, establish proximate cause for any damages suffered as a result of Travelers' bad faith.²

The trial judge took the view that the issue was whether Skinner had been treated in bad faith throughout the pendency of the claim transaction, not whether the insurance company was to escape liability because of the happenstance that its settlement offer was greater than the subsequent arbitration award.   When Travelers' attorney argued, “I can't believe that that can be the state of the law in California that an insurance company has to settle a case by paying more than the trier of fact determines the case to be at the end,” the trial judge responded, “That's not what the issue is.   The issue is the insurance company has to deal with the claimant in good faith.”   Later the court noted the issue was “the conduct of the insurance company during the transaction.”

Travelers petitioned for writ review of the trial court's denial of its motion for summary judgment.   The legal argument of its petition consumed only four pages.   We evaluated the arguments and concluded they were without merit, especially since Travelers sought the remedy of an order granting summary judgment, which “inasmuch as it denies the right of the adverse party to a trial, is drastic and should be used with caution.”   (Mann v. Cracchiolo (1985) 38 Cal.3d 18, 35, 210 Cal.Rptr. 762, 694 P.2d 1134.)   Travelers petitioned the Supreme Court for review, employing about three pages of legal argument, and review was granted without seeking opposition to the petition from real party in interest.   Under compulsion of the Supreme Court's transfer order, we again examine the contentions of Travelers' petition.

 Travelers first contends that its $900 settlement offer was “fair and equitable as a matter of law.”   The contention is grounded upon the premise that the total value of Skinner's case against Pizzagoni was determined by the arbitrator to be $500, making the $900 offer a rather generous settlement inducement of almost double the value of Skinner's claim.   We cannot accept this argument as a matter of law.

Travelers' own appraiser valued Skinner's car at $1,550.   While the appraisal report, which is attached to real party's opposition to the petition, was not in evidence below, it was discussed at some length at oral argument, along with a stipulation for arbitration purposes that the market value of the car was $1,400 to $1,650.  (The stipulation was not submitted to the trial court, but has been attached to the opposition without Travelers' objection, and is presumably subject to our judicial notice.)   At oral argument, Travelers' counsel appeared to take the position that the appraisal value may have been accurate, but applied to Skinner's car only before it supposedly broke down by throwing a piston rod.  “[O]nce it ended up on the freeway with a thrown rod [and] Travelers' insured had to tow it, what the appraiser [sic ] found was at that point the car was only worth $500, and if they towed it and caused any damage, they're [sic ] only damage was to a car worth $500, not $1400.”  (The appraiser did not indicate a thrown rod in his report and did not devalue the car to $500;  the reference to “appraiser” in the transcript obviously was meant to be a reference to the arbitrator.)   Again, we note that this record does not establish the fact that the car was damaged by a thrown piston rod.

It is by no means clear why the arbitrator returned an award at substantial variance with the stipulation or the car's apparent value.   It was suggested at the hearing, and is suggested in the opposition, that the arbitrator chose to ignore the stipulation.   Whatever the rationale of the $500 award, we simply are in no position to conclude as a matter of law that for purposes of this bad-faith action the $500 figure is set in stone as the reasonable value of Skinner's case.³  Even if it were, however, Travelers still cannot prevail—what is more, this is made clear from the very decision on which Travelers primarily relied in its petition and its petition for review.

 Travelers argues that the timing of its settlement offer did not proximately cause Skinner's damages.   The company contends that since the facts are undisputed and only one legal conclusion may be drawn from them, the issue of proximate cause may be decided as a question of law.  (Whinery v. Southern Pacific Co. (1970) 6 Cal.App.3d 126, 85 Cal.Rptr. 649.) ⁴  Travelers argues that Skinner's own deposition testimony establishes that she would not have accepted the $900 settlement offer at the time it was made, and thus contends it is ipso facto entitled to judgment as a matter of law.

Apparently we are asked to compel the drastic remedy of summary judgment because of the fortuity that a problematic, 11th–hour settlement happened to be more generous than the value of the case determined by the trier of fact.   We decline to do so.  Schlauch v. Hartford Accident & Indemnity Co. (1983) 146 Cal.App.3d 926, 194 Cal.Rptr. 658, cited in the petition and comprising the intellectual premise of the petition for review, is almost directly on point in Skinner's favor.

In Schlauch the insurance company rejected the plaintiff's settlement offer, and then engaged in bad-faith conduct by refusing to make a reasonable settlement.   Rather late in the day of the case, as the plaintiff was about to go to trial against the company's insured, the company tendered the policy limits.   The Schlauch court rejected the plaintiff's contention that having refused the settlement offer the company was obliged to pay all subsequent damages and in effect finance the plaintiff's litigation against the insured.   The court went on, however, to reject the insurer's argument that having tendered the policy limits—however late in the day—the insurer was absolved of all liability for lack of proximate cause because the plaintiff obtained a net zero judgment.

The court concluded that if refusal to tender the policy limits was a violation of a statutory duty under Insurance Code section 790.03, “that violation ceased when [the insurer] tendered those limits.”  (146 Cal.App.3d at p. 935, 194 Cal.Rptr. 658.)  “While we hold that an insurer may correct an initial failure and will not be liable for damages a claimant incurs thereafter, we decline to hold that all liability and damages for a breach of duty may be cured by a subsequent offer of settlement.   To accept such an argument would permit the intentional violation of the duties owed by an insurer to a claimant, so long as a tender was ultimately made before final judgment.   As we noted in the context of a breach of the implied covenant of good faith suit, ‘[e]ven if the insurer attempts to resume negotiation by a belated offer of the policy limit, that action does not necessarily relieve it of the onus of an earlier bad faith rejection.’  (Critz v. Farmers Ins. Group [ (1964) ] 230 Cal.App.2d [788,] 798 [41 Cal.Rptr. 401.])  That rule, subject to the doctrine of mitigation of damages, should also apply to Royal Globe suits.   We therefore hold that a claimant may recover damages which accrue before the insurer rectifies an initial violation of duties under Insurance Code section 790.03.”  (Id. at pp. 935–936, 194 Cal.Rptr. 658, emphasis added.)

Schlauch has been properly interpreted as governing California law by the Ninth Circuit in reversing the grant of summary judgment for an insurer.   “[The insurer] argues that because the jury awarded less than [plaintiffs'] settlement offer, it cannot have been bad faith to reject the offer.   Assuming this to be true, it might still have been bad faith for [the insurer] not to investigate the claim, offer to settle earlier, or make a counteroffer.   [Citation.]  Similarly, the fact that the plaintiffs' settlement offer exceeded the jury's award does not establish as a matter of law that [plaintiffs] suffered no damage from [the insurer's] actions.”  (Pray By and Through Pray v. Foremost Ins. Co. (9th Cir.1985) 767 F.2d 1329, 1330.)

In this case, according to the facts proffered by Skinner and essentially ignored by Travelers, numerous acts of alleged bad faith occurred once Skinner presented her claim, and several are linked to aggravation of a nervous disorder.   Travelers rejected settlement offers and did not make its own offer until 29 months after Travelers' adjuster determined the potentiality of liability on the part of its insured, and literally on the eve of arbitration.   Under the controlling law (ironically relied upon by Travelers itself), Travelers simply cannot be heard to argue that it enjoys no liability for any alleged bad faith at any stage of the transaction between it and Skinner.   A grant of summary judgment would absolve Travelers of liability as a matter of law for the period between the presenting of the claim and the belated offer of settlement;  such a result would be utterly unwarranted.

Moreover, Travelers' eventual $900 offer is not as generous as the company depicts.   The offer was unwritten and, most significantly, failed to include an admission of liability on the part of Travelers' insured, a lapse which could indeed have been a calculated attempt to short-circuit the filing of an action for bad faith.

Travelers' proximate cause argument grossly oversimplifies the case into a glib mathematical proposition.   We reject the argument and deny the petition.   Real party shall recover costs.⁵

I concur in the result.

FOOTNOTES

1.   Royal Globe, of course, has been disapproved by Moradi–Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 250 Cal.Rptr. 116, 758 P.2d 58.  Moradi–Shalal, however, provided for the continuing application of Royal Globe to “cases filed prior to the finality of [this] opinion,” where there has been “a final judicial determination of the insured's liability.”  (46 Cal.3d at p. 313, 250 Cal.Rptr. 116, 758 P.2d 58.)   Skinner's bad faith complaint was filed over two years before Moradi–Shalal was decided.   The arbitration award, upon the expiration of the time of requesting trial de novo, became final and achieved “the same force and effect as a judgment in any civil action or proceeding.”   (Code Civ.Proc., § 1141.23;  see State Farm Mut. Auto. Ins. Co. v. Superior Court, 211 Cal.App.3d 5, 259 Cal.Rptr. 50 (1989).)   We assume that for Royal Globe purposes the arbitration award stands as a final judicial determination of Pizzagoni's liability to Skinner.   Travelers does not contend otherwise and does not dispute the vitality of Royal Globe in this proceeding.

2.   As Travelers stated at the hearing below, “the thrust of our motion for summary judgment was not on whether or not there had been acts of bad faith—but for the purpose of this motion we'll concede there may be triable issues of fact․”  (Emphasis added.)

3.   Skinner also argues, but without verification from the record, that the arbitrator failed to consider or award damages for loss of use.

4.   Travelers couches its petition solely in terms of proximate cause.   As noted supra, Travelers conceded below there could be triable issues of fact regarding bad faith conduct.   Travelers has not attempted to assert in this court that it is blameless of bad faith because liability of its insured was not reasonably clear.   The record suggests a triable issue of fact on that point, especially given Travelers' conclusion of possible liability and its sudden reversal only three days later.  (See Beckham v. Safeco Ins. Co. of America (9th Cir.1982) 691 F.2d 898, 903 & fn. 3.)

5.   We again find ourselves puzzling over a Supreme Court transfer order.   In this case the petition for review obviously ignores key facts in the record and actually relies heavily on a case fatal to its premises.   Yet an alternative writ was ordered to issue without the typical step of seeking opposition points and authorities from real party in interest.   We recall the comment of Justice Thompson in Krueger v. Superior Court (1979) 89 Cal.App.3d 934, 939 fn. 2, 152 Cal.Rptr. 870:  “Presumably, some career member of the legal staff of a Supreme Court justice or some law student extern working for him knows something we do not.”

KING, Associate Justice.

LOW, P.J., concurs.