Chappelle v. >Alliance> United Ins.





















Filed 6/21/12 Chappelle v. Alliance United Ins. CA2/4

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>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115>.







IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA



SECOND APPELLATE DISTRICT



DIVISION FOUR




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PATRICIA A. CHAPPELLE, Plaintiff and Appellant, v. ALLIANCE UNITED INSURANCE COMPANY, Defendant and Respondent.

B235585 (Los Angeles County Super. Ct. No. BC457071)

APPEAL from a judgment of the Superior Court of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Los Angeles
County, Ramona G. See, Judge.
Affirmed.

Engstrom, Lipscomb & Lack and
Scott A. Marks for Plaintiff and Appellant.

Demler, Armstrong & Rowland, David
A. Ring and Robert W. Armstrong for Defendant and Respondent.







Plaintiff and appellant Patricia A.
Chappelle appeals from the judgment entered following the trial court’s order
sustaining without leave to amend the demurrer filed by defendant and
respondent Alliance United Insurance Company.
We affirm.



FACTUAL AND PROCEDURAL
BACKGROUNDhref="#_ftn1" name="_ftnref1" title="">[1]

Sometime before March
4, 2009,
respondent issued to Maria M. Marquez Cardoza (Marquez) an automobile insurance
policy with bodily injury
policy limits of $15,000 per accident.
On March 4, 2009, Marquez gave Alvaro Escobar Corado
(Corado) permission to drive her car while she rode as a passenger. Corado got into an accident with appellant,
and police officers determined that Corado was at fault. Appellant was taken to the hospital because
of head, neck, and back pain. She
retained the law firm of Waterman & Harris to represent her in connection
with the injuries she suffered.

Respondent’s claims adjuster sent
appellant an authorization form, asking for authorization for respondent to
obtain appellant’s records. On April
24, 2009,
appellant’s counsel responded that they would not have appellant execute the
authorization form.

On May 14, 2009, appellant’s counsel sent respondent
a letter, enclosing appellant’s accident-related medical bills to date, which
totaled $2,160. The letter demanded
$50,000 or the policy limit and stated that the offer would be open for 15
days. On May 27, 2009, appellant’s counsel sent respondent
another letter, claiming an additional $8,250 in medical costs. On June 2, 2009, appellant’s counsel sent another
letter, stating that they would extend the offer for 10 days. Appellant’s counsel sent additional letters
on June 23 and July 2, 2009, providing more medical information to respondent,
claiming another $2,000 in medical costs, and asking respondent to reply as
soon as possible before the offer expired.


Appellant’s counsel sent respondent a
letter on July 22, 2009, describing the findings of
appellant’s doctors, her medical treatment and further costs, and demanding
$75,000 or the policy limits. The letter
indicated that the offer would be open for 10 days and then withdrawn. On July 30 and August 11,
2009, respondent
offered appellant $10,000 under the policy to settle her claims against
Corado. On August 17,
2009,
respondent offered appellant the $15,000 bodily injury policy limit to settle
her claims against Corado.

On September
15, 2009,
appellant filed a lawsuit against Corado and numerous Does. In June and July 2010, appellant and Corado
executed a “Settlement Agreement, Stipulated Judgment, Covenant Not to Execute
and Agreement to Assign Actions Related to a Bad Faith Failure to Settle.” The stipulated judgment purported to settle
appellant’s claim against Corado for $1,715,000, with $15,000 to be paid upon
execution of the agreement.href="#_ftn2"
name="_ftnref2" title="">[2] Appellant agreed not to attempt to execute
any judgment against Corado, and Corado assigned to appellant his rights against
respondent “for failing in bad faith to settle within the policy limits when
they had an opportunity to do so.” The
agreement was signed by appellant, Howard Harris (attorney for appellant),
Corado, and Philip Bloeser (attorney for Corado).href="#_ftn3" name="_ftnref3" title="">>[3] Respondent issued a check to appellant in the
amount of $15,000, dated July 1, 2010.


On March 10,
2011,
appellant filed a complaint against respondent for breach of the implied
covenant of good faith and fair dealing.
Appellant alleged that respondent breached the implied covenant of good
faith and fair dealing when it failed to accept her policy limit demands within
the time frame she set forth. According
to the complaint, respondent owed a duty to Corado to promptly investigate and
evaluate appellant’s claims because a reasonable investigation would have
revealed that the value of her claims was greatly in excess of the policy
limits. Appellant further alleged that
respondent breached the implied covenant in numerous other respects, including
failing to request an interview or recorded statement from appellant, and
failing to request an extension of time from appellant’s counsel in order to
complete an investigation and evaluation of appellant’s claim before the
expiration of her policy limit settlement offer.

Respondent filed a demurrer to the
complaint. Respondent argued that it
could not be bound by the settlement agreement because it had not participated
in the agreement and did not agree to it.


Appellant opposed the demurrer and
requested leave to amend the complaint.
In support of the opposition, appellant attached correspondence between
her counsel and Corado’s counsel.

After holding a hearing, the trial
court sustained respondent’s demurrer without leave to amend. The court relied on the express language of
the stipulated judgment, stating that the parties to the agreement were
appellant and Corado, not respondent.
The court also reasoned that counsel for the insured signed the
agreement as attorney for Corado, not for respondent, and therefore found that
the insurer had not consented to and participated in the stipulated
judgment. The court entered judgment in
favor of respondent. Appellant filed a
timely notice of appeal.



DISCUSSION

“On appeal from a judgment after a
demurrer is sustained without leave to amend, we assume the truth of the facts
alleged in the complaint, as well as those facts that reasonably can be
inferred from those expressly pleaded, and the facts of which judicial notice
can be taken. We determine de novo whether
the complaint states facts sufficient to state a cause of action and does not
disclose a complete defense.
[Citations.] We affirm the
judgment if it is correct on any ground stated in the demurrer, regardless of
the trial court’s stated reasons. [Citation.] [¶] It
is an abuse of discretion to sustain a demurrer if there is a reasonable
probability that the defect can be cured by amendment. [Citation.]
The burden, however, is on the plaintiff to demonstrate how the
complaint can be amended to state a valid cause of action. [Citation.]”
(Wolkowitz, >supra, 112 Cal.App.4th at pp.
161-162.) “‘[S]uch a showing can be made
for the first time to the reviewing court . . . .’ [Citation.]”
(Gomes v. Countrywide Home Loans,
Inc. (2011) 192 Cal.App.4th 1149, 1153-1154.)

We agree with the trial court that
respondent cannot be bound by the stipulated judgment because it did not
consent to or participate in the agreement.
We further conclude that appellant has failed to demonstrate how the
complaint could be amended to state a valid cause of action. We therefore affirm.



I. Breach of the Duty of Reasonable
Settlement

“The failure of a liability insurer to
perform its implied duty to accept a reasonable settlement offer of a covered
claim gives rise to a claim for the insured against the insurer for breach of
the covenant of good faith and fair dealing, or a ‘bad faith’ claim, based on
the insurer’s refusal to settle the third party claim.” (DeWitt
v. Monterey Ins. Co. (2012) 204 Cal.App.4th 233, 236.)

“An insurer that breaches its duty of
reasonable settlement is liable for all the insured’s damages proximately
caused by the breach, regardless of policy limits. [Citations.]
Where the underlying action has proceeded to trial and a judgment in
excess of the policy limits has been entered against the insured, the insurer
is ordinarily liable to its insured for the entire amount of that judgment
[citations], excluding any punitive damages awarded [citation]. The insured’s action for breach of the
contractual duty to settle may be assigned to the claimant, regardless of
whether assignments are permitted by the policy. [Citation.]”
(Hamilton v. Maryland Casualty Co.
(2002) 27 Cal.4th 718, 725 (Hamilton).)

Here, however, the underlying action
did not proceed to trial, but instead was “terminated by settlement, resulting
in a stipulated judgment coupled with
a covenant not to execute against the insured.”
(Hamilton, >supra, 27 Cal.4th at p. 725.) This case therefore comes within the purview
of Hamilton, which held that “where
the insurer has accepted defense of the action, no trial has been held to
determine the insured’s liability, and a covenant not to execute excuses the
insured from bearing any actual liability from the stipulated judgment, the
entry of a stipulated judgment is insufficient to show, even rebuttably, that
the insured has been injured to any
extent by the failure to settle, much less in the amount of the stipulated
judgment. In these circumstances, the
judgment provides no reliable basis to establish damages resulting from a
refusal to settle, an essential element of plaintiffs’ cause of action. [Citation.]”
(Id. at p. 726.)

The facts of this case are similar to
those in Hamilton. The insured in Hamilton tendered the defense of invasion of privacy claims to its
insurer, which retained an attorney for the insured. The claimants demanded $1 million to settle
their claims, but the insurer countered with an offer to settle for $150,000. The claimants then entered into a settlement
agreement with the insured, which agreed to have a stipulated judgment entered
against it for $3 million and to assign to claimants any breach of contract
claim it might have against the insurer.
As occurred here, the claimants agreed not to execute the judgment against
the insured. The claimants, acting as
the insured’s assignees, then brought suit against the insurer for breach of
the insurance contract for the insurer’s failure to accept their settlement
offers.

The court acknowledged that a
“policyholder denied a defense for covered claims by its liability insurer may
make a reasonable settlement with the plaintiff, in good faith, and then
maintain (or assign) an action against the insurer for breach of its defense
duties.” (Hamilton, supra, 27
Cal.4th at p. 728.) However, “[a] >defending insurer cannot be bound by a
settlement made without its participation and without any actual commitment on
its insured’s part to pay the judgment, even where the settlement has been
found to be in good faith for purposes of [Code Civ. Proc.] section
877.6.” (Id. at p. 730, italics added.)
Hamilton explained that “‘the
breach of duty to settle within policy limits present[s] only the possibility
that a judgment might be rendered in excess of policy limits.’ [Citation.]”
(Id. at p. 726.) Because it is possible that the insurer could
successfully defend the underlying litigation, “resulting in a defense judgment
or a judgment for the claimants lower than the policy-limits settlement offer,”
a settlement that is reached without the insurer having such opportunity is
predicated only on the possibility that damage would result from the breach of
the duty to settle. (>Id. at pp. 726-727.)

As in Hamilton, respondent here offered a defense to its insured,
Corado. “Where, as here, the insured,
without the insurer’s agreement, stipulates to a judgment against it in excess
of both the policy limits and the previously rejected settlement offer, and the
stipulated judgment is coupled with a covenant not to execute, the agreed
judgment cannot fairly be attributed to the insurer’s conduct, even if the
insurer’s refusal to settle within the policy limits was unreasonable.” (Hamilton,
supra, 27 Cal.4th at p. 731.) Respondent therefore cannot be bound by the
stipulated judgment signed by appellant and Corado. (Id.
at p. 730; see also Wolkowitz, >supra, 112 Cal.App.4th at p. 166
[concluding that “for purposes of an action against the debtor’s insurer based
on an unreasonable refusal to settle, the bankruptcy court’s approval of an
uncontested claim without an evidentiary hearing provides no reliable basis to
establish damages resulting from the refusal to settle.”].)

Appellant attempts to distinguish >Hamilton by arguing that respondent’s
participation in the agreement is evidenced by its payment of the $15,000
policy limit to her. We disagree.

Appellant contends that respondent was
not obligated to pay the policy limit because of the settlement, relying on> Travelers Casualty & Surety Co. v.
Superior Court (2005) 126 Cal.App.4th 1131, 1141: “[W]hen the insurer is defending its insured,
and the insured settles with a plaintiff without the insurer’s consent or
participation, and the settlement contains a covenant by the plaintiff not to
execute in exchange for an assignment of the insured’s policy rights against
the insurer, the insurer has no obligation to pay. In essence, coverage is forfeited.” She argues that, because respondent had no
obligation to pay the $15,000 policy limit, its payment of that amount is
“compelling evidence” respondent participated in and consented to the
agreement.

We disagree. Respondent’s payment of the policy limit to
appellant does not reasonably suggest that the insurer participated in or
agreed to be bound by the stipulated judgment, which was greatly in excess of
the policy limit. Moreover, the
allegations in the complaint indicate that respondent offered the policy limit
to appellant as early as August 17, 2009.


More importantly, the fact that
respondent paid the policy limit does not address the primary concern of >Hamilton that “a settlement between the
insured and third party claimants that was entered into without the >defending insurer’s consent or
participation, and where the insured had no obligation to pay the judgment . .
. provided no reliable basis to establish damages proximately caused by the
refusal to settle. [Citation.]” (Wolkowitz,
supra, 112 Cal.App.4th at p. 163.)

“An essential element of a cause of
action for breach of the implied covenant based on the refusal to settle is
resulting damages. [Citation.]” (Wolkowitz,
supra, 112 Cal.App.4th at p.
162.) Corado has suffered no damages for
respondent’s alleged breach of the duty of reasonable settlement.

The $1,715,000 stipulated judgment
here illustrates the concern expressed by the court in Pruyn v. Agricultural Ins. Co. (1995) 36 Cal.App.4th 500, 518, that
“a stipulated or consent judgment which is coupled with a covenant not to
execute against the insured brings with it a high potential for fraud or
collusion. ‘With no personal exposure
the insured has no incentive to contest liability or damages. To the contrary, the insured’s best interests
are served by agreeing to damages in any amount as long as the agreement
requires the insured will not be personally responsible for those damages.’ [Citation.]”
Corado had no incentive to contest liability and so agreed to a
$1,715,000 judgment that did not have any relation to the medical costs
appellant alleged she had submitted to respondent.



II. Dual
Representation of Insurer and Insured

Appellant also argues that respondent
is bound by the agreement because Bloeser, the attorney hired to represent
Corado, was acting on behalf of both Corado and respondent. We disagree.

“In California, it is settled that
absent a conflict of interest, an attorney retained by an insurance company to
defend its insured under the insurer’s contractual obligation to do so
represents and owes a fiduciary duty to both the insurer and insured. [Citations.]
‘It is a well accepted and oft repeated principle that the attorney
retained by the insurance company for the purpose of defending the insured
under the insurance policy owes the same duties to the insured as if the
insured had hired the attorney him or herself.’
[Citations.]” (>Gafcon, Inc. v. Ponsor & Associates
(2002) 98 Cal.App.4th 1388, 1406-1407.)

“In this ‘usual tripartite
relationship existing between insurer, insured and counsel, there is a single,
common interest shared among them. Dual
representation by counsel is beneficial since the shared goal of minimizing or
eliminating liability to a third party is the same.’ (San
Diego Federal Credit Union v. Cumis Ins. Society, Inc. [(1984) 162
Cal.App.3d 358,] 364 (Cumis).) [¶]
Under certain circumstances, however, a conflict of interest or
potential conflict of interest may impose upon the insurer a duty under [Civ.
Code] section 2860 to provide independent counsel, commonly referred to as ‘>Cumis counsel,’ for the insured. . .
. [I]n order to ‘“eliminate the ethical
dilemmas and temptations that arise along with conflict in joint
representations,”’ the insurer is required to provide its insured with
independent counsel of the insured’s choosing ‘who represents the insured, not the insurer’; and the insured may
thereafter control the defense of the case.
[Citations.]” (>Long v. Century Indemnity Co. (2008) 163
Cal.App.4th 1460, 1468-1470, fns. omitted.)

Here, Corado’s and respondent’s
interests in the stipulated judgment clearly were in conflict. In representing Corado, therefore, Bloeser’s
duty was to Corado, not to respondent.

Appellant argues that the settlement
was under respondent’s control and that she had no right to interfere with
respondent’s defense of the case, citing the following language from >Safeco Ins. Co. v. Superior Court (1999)
71 Cal.App.4th 782, 787 (Safeco): “When the insurer provides a defense to its
insured, the insured has no right to interfere with the insurer’s control of
the defense, . . . [¶] In the present case, [the insurer]
indisputably provided a defense and, accordingly, had the right to control that
defense and to decide on its own whether or not to settle. The [insured] had no authority to settle the
matter without the consent of Safeco.”

Appellant omits the pertinent language
from Safeco, which, in addition to
the above, states that “a stipulated judgment between the insured and the
injured claimant, without the consent of the insurer, is ineffective to impose
liability upon the insurer.
[Citations.]” (>Safeco, supra, 71 Cal.App.4th at p. 787.)
The court added that “‘the potential for abuse [is] apparent in a
situation where an insurer, in the absence of a breach of its duty to its
insured, could be bound by a consent judgment of this nature.’ [Citations.]”
(Ibid.) The court thus concluded that a stipulated
judgment reached by the claimant and the insured was not enforceable against
the insurer because the insurer “indisputably provided a defense” to the
insured. (Ibid.) Safeco accordingly does not support appellant’s position.



III. Appellant’s Proposed Amendments

On appeal, appellant contends that she
can allege additional facts to amend the complaint sufficient to overcome the
demurrer. We disagree.

The amendments appellant proposes to
make to the complaint do not cure the complaint of the essential flaw found in >Hamilton: no reliable basis to show damages.

The allegations appellant proposes to
add indicate only that respondent may have agreed to pay appellant the $15,000
policy limit. For example, appellant
alleges that Eve Korff, the first attorney hired by respondent to represent
Corado, told Harris that respondent would consider the proposed settlement
agreement. However, according to
appellant, respondent’s response to the proposal was to hire Bloeser to represent
Corado, an allegation that supports the inference that Bloeser was representing
Corado’s interests, not respondent’s.

In addition, appellant alleges that,
because the agreement did not specify who was responsible to pay the $15,000
policy limit, appellant’s counsel, Harris, contacted Bloeser to confirm the
understanding that respondent was paying the policy limit pursuant to the
agreement. Appellant alleges that
Bloeser responded to this query by telling Harris that respondent had agreed to
pay the policy limit as part of the agreement.
Appellant further alleges that respondent sent the $15,000 policy limit
check to Bloeser, with instructions to send the check to Harris only after the
agreement was signed and a dismissal as to any claim against Loaiza was
provided.

These allegations, if proven, would
establish only that respondent agreed to pay appellant the $15,000 policy
limit, not that respondent agreed to a $1,715,000 judgment. The complaint already alleged that respondent
offered to pay appellant the $15,000 policy limit. The amendments appellant alleges she can make
to her complaint do not alter the fact that Corado has not suffered any
damages.

Appellant has failed to demonstrate
how the complaint can be amended to state a valid cause of action. We therefore affirm the judgment of
dismissal.



>DISPOSITION

The judgment is
affirmed. Respondent shall recover href="http://www.mcmillanlaw.com/">costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS





WILLHITE,
Acting P. J.





We concur:







MANELLA, J.







SUZUKAWA, J.