Sawyer v. Superior Court (Continental Assurance Co.)
March 23, 2001
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
NOT TO BE PUBLISHED
LAURA SAWYER, No. B144147
Petitioner, (Super. Ct. No. BC210955)
v.
THE SUPERIOR COURT
OF LOS ANGELES COUNTY,
Respondent,
CONTINENTAL ASSURANCE
COMPANY et al.,
Real Parties in Interest.
(COURT OF APPEAL - SECOND DlST., FILED MAR 23, 2001, Joseph A. Lane…..….Clerk)
ORIGINAL PROCEEDINGS in Mandate. David Horowitz, Judge. Petition granted.
Quisenberry & Kabateck, Brian S. Kabateck, Heather M. Mason, and Jerilyn Jacobs for Petitioner.
No appearance for Respondent.
Galton & Helm, Robert F. Keehn, and Michael B. Bernacchi for Real Parties in Interest.
In this case we hold that the trial court erred in granting the motion for summary adjudication brought by defendants and real parties in interest, Continental Assurance Company and Valley Forge Life Insurance Company, to strike the claim for punitive damages from the complaint brought by plaintiff and petitioner, Laura Sawyer. Accordingly, we grant Sawyer's petition for writ of mandate.
FACTUAL AND PROCEDURAL SUMMARY
Sawyer brought this action for breach of contract, negligence, and breach of the implied covenant of good faith and fair dealing after defendants denied the existence of life insurance coverage. Sawyer alleged that defendants failed to properly investigate her claim for death benefits due her after her fiance, Joel Liner, submitted an application and initial premium payment to defendants' agent. Liner died shortly thereafter and before the policy issued. Defendants ultimately paid these benefits after Sawyer's complaint was filed and discovery commenced.
Sawyer seeks a writ of mandate to overturn the trial court's order granting summary adjudication for defendants on her claim for punitive damages. The trial court also granted defendants' summary adjudication motion on Sawyer's breach of contract and negligence claims and denied summary adjudication on her claim for bad faith denial of benefits. The parties have not challenged these rulings. Only the claim for punitive damages is at issue.
A. Factual Background
Sawyer lived with her fiance, Joel Liner, along with four minor children from the couple's prior marriages. On October 21, 1998, Sawyer and Liner met with Robin Ramirez, an insurance agent, to purchase a life insurance policy for Liner. Ramirez initially accepted an application and premium check from Liner for life insurance from Security Connecticut Life Insurance Company, but Ramirez thereafter discovered he was unable to place applications with that company.
Ramirez met again with Liner in November 1998 to complete another application for CNA (a trademark name for several insurance companies, including defendants), for whom Ramirez was an authorized agent.1 Ramirez had forgotten to bring the original check and Liner did not have his checkbook at this second meeting. Because Liner and Ramirez could not meet later in the day and Liner was anxious to have coverage commence, the parties agreed that Ramirez should simply alter the original check and make it payable to CNA.2 Ramirez claims he submitted the application and interlineated check to defendants' managing general agent, Financial Brokerage, Inc. (FBI). In early December 1998, prior to issuance of the policy, Liner suffered a cerebral hemorrhage and died.
In his deposition, Ramirez testified that during both meetings with Liner he told Liner that he would have "interim" or "contingent" coverage starting the day after the application date. There is a dispute whether Ramirez gave Liner CNA's "conditional premium receipt." No original or copy of that document was ever found. CNA's conditional premium receipt is attached to the application and may be torn off at the perforation and given to the applicant. According to defendants, CNA's generic conditional premium receipt provides that no coverage is in effect until all underwriting conditions are met, including a physical examination, and tender of the premium, regardless of the representations of an agent to the contrary.3 Ramirez could not remember whether he gave the contingent premium receipt to Liner. Sawyer testified, however, that Liner had told her he had received no "paperwork" from Ramirez at the second meeting.4
Sawyer called Ramirez immediately after Liner's death to inquire about obtaining the policy’s death benefits. Ramirez, in turn, informed CNA's managing general agent FBI. FBI could not find evidence in its records that it had received the application and premium check. Ultimately, the claim was sent to the underwriting department at CNA's Tennessee headquarters where it was handled by Executive Vice-President of Underwriting, Lawrence Worthey. Worthey testified that he spent about one hour over the course of two months investigating the claim and consulting with colleagues at CNA and FBI. Worthey's primary objective was to determine if CNA had ever received the application and premium check. He admits he did not consult with either Ramirez or Sawyer, although he understood that Ramirez had supplied a copy of the application and check to FBI following Liner's death. Worthey did ask FBI to provide him with the agent's (Ramirez's) version of the events, but FBI did not respond to this request, and Worthey did not follow through with his inquiry. Worthey determined that CAN had never received the application and check, and based on the evidence before him--without any indication of what that evidence might be--he “[made] the assumption the conditional receipt was given" to Liner. 5
In February 1999, two months after Sawyer's initial inquiry to Ramirez and her repeated requests for information from Ramirez, FBI, or defendants, Worthey sent a letter to Sawyer explaining that CNA had concluded there was no insurance coverage on Liner's life. Worthey stated in the letter that CNA and FBI had both searched their records for evidence of an application from Liner: "After a thorough search of both companies, no indication could be found that an application was received, either at Financial Brokerage or CNA. Financial Brokerage asked Mr. Ramirez to fax a copy of the application and any other documents that he had to them.[¶] The copies were received and subsequently sent to CNA. Neither Financial Brokerage nor CNA has the original application. The copy sent to us also had a copy of a check dated October 21, 1998 originally made out to another insurance company with that payee crossed out and CAN inserted. This of course[] would not have been cashed even if we had received the original. Since we could not have cashed this check, the Conditional Receipt, if given, would have been void from the onset. [¶] Additionally, to complete the underwriting for this application, Mr. Linor6 would have had to provide a sample of blood and urine for analysis at our lab. We have been told that this was not completed… nor does our lab have any record of receiving it. [¶] This letter is to inform you that no Life Insurance Contract exists, with CNA, on the life of Mr. Linor, and that we are closing our handling on this application since the underwriting requirements were never met and the Conditional Coverage was never in effect as described." Worthey expended between 8 and 16 hours composing this one-page letter, contrasted with his one hour of investigation.
B. Procedural History
In May 1999, Sawyer filed the instant action against CNA, Continental Assurance Company, FBI, Robin Ramirez, and various Doe defendants.7 She sought compensatory damages for breach of contract and negligence and compensatory and punitive damages for breach of the implied covenant of good faith and fair dealing. Her primary allegations, which frame the issues on summary judgment (see Hejmadi v. AMFAC, Inc. (1988) 202 Cal.App.3d 525, 536), are that Ramirez's representations to Liner and his acceptance of the application and check effected immediate coverage and that defendants failed to adequately investigate Sawyer's claim and placed its interests above her own in denying coverage.
In February 2000, after the deposition of Ramirez revealed that he had told Liner he would have interim coverage effective immediately and that he did not know if he gave Liner the conditional premium receipt, defendants paid Sawyer $440,000--the amount of the death benefit under the policy--plus statutory interest. Payment was made without a reservation of rights, but with a disclaimer of liability.
Defendants moved for summary judgment in the instant action, arguing that Worthey's conduct in investigating Sawyer's claims and CNA's ultimate payout of the death benefits met all contractual and good faith obligations. Defendants relied on the same purportedly undisputed facts for all causes of action. Defendants argued that punitive damages could not be awarded because there was no breach of the implied covenant of good faith and fair dealing, and that, at any rate, there was no evidence of malicious or oppressive conduct to support Sawyer's claim for punitive damages.
Sawyer, on the other hand, argued that defendants' investigation was conducted solely to reach a result favorable to CNA and evinces malice and oppression as well as bad faith on the part of defendants. Sawyer complained that Worthey did not consult the claims handling manual, nor anyone in the claims department for advice, and he spent only one hour investigating the facts over a two-month period. As particularly egregious, Sawyer pointed to Worthey's failure to consult with Ramirez when there was no dispute that Ramirez was CNA's agent with authority to bind the company. An inquiry of Ramirez would have revealed not only that Ramirez had accepted a signed policy application and check from Liner, but also would have given CNA notice that Ramirez was not certain he tendered the conditional premium receipt. Ramirez's deposition testimony confirmed that he had informed Liner he had immediate coverage upon payment of the premium. All of this information would have been pivotal to Worthey's decision to deny coverage.
Sawyer also contended that summary adjudication of the punitive damages claims was not appropriate because defendants had merely argued that there was no tort liability, and thus no punitive damages liability. According to Sawyer, in so doing, defendants failed to carry their burden to show Sawyer could not establish malice, oppression, or fraud.
Finally, Sawyer argued that malice was evident in light of defendants' awareness of the dire consequences of the denial of benefits. Before CNA decided to deny coverage, Sawyer had personally spoken to the vice-president of marketing at FBI and followed up with letters to FBI and CNA explaining that she was the legal guardian of Liner's two minor children, as well as two of her own, "needed money" and was "extremely concerned" about the lack of response she had received to previous inquiries: "I have four small children and am unemployed and money is of vital importance." No one responded to her letter.
Following denial of coverage and the filing of the complaint, Sawyer and her counsel repeatedly informed CNA of the details of the family's hardship (i.e., that one of the four minor children was terminally ill with cystic fibrosis, Sawyer was unable to pay for the ill child's medical plan and had to settle for a more mediocre plan, Sawyer lost the opportunity to buy the home in which the family lived, was unable to pay bills and earned a poor credit history and the ire of creditors.)
The trial court granted summary adjudication as to the breach of contract claim, since payment of the policy benefits had been made. The trial court determined the negligence cause 'of action was duplicative of the claim for bad faith and granted summary adjudication on that claim as well. The court denied the motion on the claim for bad faith, finding disputed facts as to the "reasonableness" of the investigation: "Triable issues of material fact exist concerning the investigation conducted by Defendants; whether Defendants 'received' the application and first premium payment; whether Defendants would have 'accepted' the premium check; whether Liner was given a conditional premium receipt; whether Liner reasonably could believe he had interim coverage; and whether [it] was reasonable for Worthey to assume that Liner had received the conditional premium receipt."
Although the claim for bad faith was to remain in the case, the trial court granted summary adjudication on Sawyer's claim for punitive damages, concluding, in part, that '"[e]vidence that an insurer has violated its duty of good faith and fair dealing does not thereby establish that it has acted with the requisite malice, oppression or fraud to justify an award of punitive damages.' [(Quoting Mock v. Michigan Millers Mutual Ins. Co. (1992) 4 Ca1.App.4th 306,328.).] [¶]. . . [¶] There is no evidence or disputed material facts demonstrating malice or oppression… There is no evidence that Plaintiffs claim was mishandled as part of Defendant's course of conduct. [Citation.] There is no evidence of an established practice on the part of Defendants to ignore an insured's claim or to conduct an inadequate investigation. [Citation.] ... [¶]... [¶] [T]he allegedly wrongful acts of Defendants may add up to bad faith, but ['t]here was nothing done, however, which could be described as evil, criminal, recklessly indifferent to the rights of the insured, or with a vexatious intention to injure. There is simply no evidence supporting a punitive damage award in this case. "' (Quoting Tomaselli v. Transamerica Ins. Co. (1994) 25 Ca1.App.4th 1269, 1288.)
Sawyer moved for reconsideration of the order granting summary adjudication on the punitive damages claim. When the trial court denied her motion, she filed the instant petition for writ of mandate. We issued an order to show cause, stayed the proceedings below, and set the matter for briefing and oral argument. We conclude that the trial court erred. Defendants failed to make an affirmative showing that there was no evidence of malice or oppression; moreover, Sawyer proffered evidence which raises a triable issue of fact as to the justification for punitive damages in, this case. We therefore grant Sawyer's petition for extraordinary writ.
DISCUSSION
A. Summary Judgment Standard
Summary judgment may be granted where it is shown that the "action has no merit or that there is no defense” thereto. (Code Civ. Proc., § 437c, subd. (a).) To make this showing, the moving party must set forth admissible evidence establishing "that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." (§ 437c, subd. (c).) The criteria for granting a motion for summary adjudication are similar; "[a] party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if that party contends that the cause of action has no merit or that there is no affirmative defense thereto, or that there is no merit to an affirmative defense as to any cause of action, or both, or that there is no merit to a claim for damages, as specified in Section 3294 of the Civil Code, or that one or more defendants either owed or did not owe a duty to the plaintiff or plaintiffs." (Code ofCiv. Proc., § 437c, subd. (f)(1).) In such a motion the moving party must show that there is no merit or defense to a cause of action, an affirmative defense, a claim for damages, or an issue of duty. (Ibid.)
Once the moving party makes such a showing, the opposing party must come forth with evidence sufficient to establish a prima facie case on the cause of action or issue. (Addy v. Bliss & Glennon (1996) 44 Cal.App.4th 205,214.) A defendant moving for summary judgment cannot shift the burden to the plaintiff simply by suggesting the possibility that the plaintiff cannot prove his or her case, but must make an affirmative showing in support of the motion for summary judgment. (Ibid.) "[A] defendant who cannot negate an element of the plaintiff's case should be required to produce direct or circumstantial evidence that the plaintiff not only does not have but cannot reasonably expect to obtain a prima facie case." (Hagen v. Hickenbottom (1995) 41 Cal.App.4th 168, 186.)
Since summary judgment involves pure matters of law, we review a summary judgment or summary adjudication ruling de novo to determine whether the moving and opposing papers show a triable issue of material fact. (Edward Fineman Co. v. Superior Court (1998) 66 Cal.App.4th 1110, 1116.) But that is our sole function; we do not decide the merits of the issues themselves. (Molko v. Holy Spirit Assn. (1988) 46 Ca1.3d 1092, 1107.) The affidavits of the moving party are strictly construed, and those of the opponent liberally construed. Any doubts as to the propriety of granting the motion are resolved in favor of the party opposing the motion. (Ibid.)
B. Summary Adjudication of Punitive Damages
In this case, the outcome of Sawyer's petition turns on whether there are triable issues of fact with respect to defendants' alleged misconduct sufficient to withstand summary adjudication on punitive damages.
Under Civil Code section 3294, punitive damages may be recovered "where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice. . .." (§ 3294, subd. (a).)8 Malice is defined as either (1) "conduct which is intended by the defendant to cause injury to the plaintiff' or (2) "despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others." (§ 3294, subd. (c)(1).) Oppression is "despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights." (§ 3294, subd; (c)(2).)
Sawyer has not claimed that defendants acted with the intent to harm her. Accordingly, Sawyer's claim for punitive damages, and defendants' motion for summary adjudication, turns on whether there is evidence that defendants' conduct was "despicable." "Despicable conduct" has been described as conduct which is '''. . . so vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by ordinary decent people.'" (Mock v. Michigan Millers Mutua/Ins. Co., supra, 4 Cal.AppAth 306,331, quoting BAJI No. 14.72.1 (1989 rev.).)
Since the 1987 amendments to Civil Code section 3294, evidence of malice must be proven by "clear and convincing" evidence. These amendments indicate that the Legislature intended the evidentiary standard to provide a statutory limitation on the award of punitive damages. (Mock v. Michigan Millers Mutual Ins. Co., supra, 4 Cal.App.4th at p. 331.)9 In ruling on a summary judgment or summary adjudication motion, "the judge must view the evidence presented through the prism of the substantive [clear and convincing] evidentiary burden. . . . [¶] [This] holding that the clear-and-convincing standard of proof should be taken into account in ruling on summary judgment motions does not denigrate the role of the jury. It by no means authorizes trial on affidavits. Credibility determinations, the weighing of evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge, whether he is ruling on a motion for summary judgment or for a directed verdict." (Anderson v. Liberty Lobby, Inc. (1986) 477 U.S. 242, 254-255; see also Stewart v. Truck Ins. Exchange (1993) 17 Cal.App.4th468, 482 [citing Anderson with approval].)
Accordingly, although the "clear and convincing" evidentiary standard is a stringent one, it does not impose on a plaintiff the obligation to "prove" a case for punitive damages at summary judgment." (Cf. Rowe v. Superior Court (1993) 15 Cal.App.4th 1711, 1734-1735 [a motion to amend a complaint to add a claim for punitive damages against a religious organization under Code Civ. Proc., § 425.14 is similar to opposing summary judgment in that Sawyer must demonstrate the existence of sufficient evidence of a prima facie right to recover punitive damages by clear and convincing evidence, but Sawyer is not required to prove a "winning case" and trial court erred in "weighing" evidence].)
C. The lnsurer's Duty of Good Faith and Fair Dealing
We are not asked to determine in this proceeding whether the trial court correctly determined that Sawyer's bad faith claim could not be summarily adjudicated because a triable issue of fact remains as to the "reasonableness" of defendants' investigation of Sawyer's claim for benefits. Because, however, Sawyer's claim for bad faith is the touchstone for her claim for punitive damages, a brief discussion of the scope of an insurer's duty of good faith is in order.
The nature of the duty of an insurer's good faith has been articulated in several opinions of our Supreme Court. Reduced to its essence the duty imposed on a first party insurer is "a duty not to withhold unreasonably payments due under a policy." (Gruenberg v. Aetna Ins. Co. (1973) 9 Ca1.3d 566, 573.) Insurers are '''[s]uppliers of services affected with a public interest[, and as such] must take the public's interest seriously, where necessary placing it before their interest in maximizing gains and limiting disbursements.... [A]s a supplier of a public service rather than a manufactured product, the obligations of insurers go beyond meeting reasonable expectations of coverage. The obligations of good faith and fair dealing encompass qualities of decency and humanity inherent in the responsibilities of a fiduciary. . . .'" (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Ca1.3d 809, 820-821.) The duty of good faith and fair dealing on the part of the insurance company is an "absolute one" not contingent on the performance of contractual obligations of the insured. "[N]o matter how those [contractual] duties are stated, the nonperformance' by one party of its contractual duties cannot excuse a breach of the duty of good faith and fair dealing by the other party while the contract between them is in effect and not rescinded." (Gruenberg, at p. 578.)
Of course, the duty of good faith and fair dealing does not require an insurer to honor every claim presented to it. But the insurer's duty of good faith implies, in appropriate circumstances, the duty to conduct a reasonable investigation into the validity of the insured's claim. This is particularly true in the types of insurance designed to prevent financial calamity, such as disability insurance. (See Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 819 ["The purchase of such insurance provides peace of mind and security in the event the insured is unable to work. [Citation.] To protect these interests it is essential that an insurer fully inquire into possible bases that might support the insured's claim.... [A]n insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial."].) Purchasers of life insurance have the same expectations of peace of mind and security should death cut off a significant source of income for the beneficiaries.
The duty of good faith may be breached even if insurance benefits are ultimately paid, but payment has been attended by inordinate delay. In many cases a lengthy delay in resolving a claim for insurance benefits will have the identical consequence to the insured as an outright denial of benefits. (See McCormick v. Sentinel Life Ins. Co. (1984) 153 Ca1.App.3d 1030.)
The trial court in this case was correct in concluding that an insurer's breach of the duty of good faith and fair dealing does not necessarily give rise to punitive damages. "Evidence that an insurer has violated its duty of good faith and fair dealing does not thereby establish that it has acted with the requisite malice. . . to justify an award of punitive damages. [Citations.] In order to establish that an insurer's conduct has gone sufficiently beyond mere bad faith to warrant a punitive award, it must be shown by clear and convincing evidence that the insurer has acted maliciously, oppressively or fraudulently. . .." (Mock v. Michigan Millers Mutual Ins. Co., supra, 4 Ca1.App.4th at p. 328.)
1.
Applying the foregoing evidentiary standards and legal principles to our analysis, we first consider whether defendants carried their initial burden on the motion for summary adjudication, i.e., to demonstrate that there were no controverted facts as to the existence of malice or oppression. (See Addy v. Bliss & Glennon, supra, 44 Ca1.App.4th at p. 210.) We conclude they did not. "
Defendants' primary contention in the trial court was that they were not liable in tort, and so could not be liable for punitive damages. The trial court determined, however, that summary adjudication on the bad faith claim was not appropriate because there were triable issues of fact as to the reasonableness of defendants' conduct in investigating the claim. Thus, defendants' bootstrap theory fails.
Defendants also contended that their conduct was not malicious or oppressive. In their separate statement of undisputed facts, defendants did not segregate the facts and evidence, but they contend that Sawyer cannot establish malicious or oppressive conduct. Instead defendants addressed all causes of action in the complaint, and all issues on summary adjudication, in the same set of 18 purportedly undisputed facts and supporting evidence. Worthey, CNA's decision maker, did not submit an affidavit addressed to his conduct in investigating Sawyer's claim for death benefits.
In relevant part, defendants' statement of undisputed facts shows that (1) Worthey, with help from his senior underwriter and in consultation with a claims manager, conducted an investigation of Sawyer's claim and concluded that defendants had never received Liner's application and premium payment; (2) Worthey concluded that the altered premium check would have been rejected even if it had been received; and (3) Worthey concluded that the conditional premium receipt "probably" had been given to Liner and that the terms of the receipt would have foreclosed interim coverage, even if a valid application and premium check had been received (because Liner had not fulfilled the conditions precedent to interim coverage).
Defendants rely exclusively on excerpts from Worthey's deposition to support both the reasonableness (good faith) and nonmaliciousness of his conduct. The cited testimony shows that Worthey's primary objective was to ascertain if CNA had received the application and check. The denial letter Worthey sent to Sawyer also reflects that it was primarily his conclusion that CNA had never received the application that led to denial of coverage. The anomaly in defendants' position is that no one disputes that Ramirez was an authorized CNA agent, who accepted the application and check from Liner and who was certain he submitted the documents to CNA's managing general agent, FBI. Worthey was aware of this fact, at all relevant times. Worthey's letter to Sawyer denying coverage indicates that Ramirez faxed a copy of the documents to FBI and that ultimately, Worthey had a copy of the application and check in hand. Thus, Worthey's decision to deny coverage based on his conclusion that the application never arrived at headquarters suggests that CNA would ignore the known conduct of an authorized agent. This evidence does not assist an argument that Sawyer cannot show malice or oppression.
Defendants also rely on Worthey's repeated testimony that he simply assumed the conditional premium receipt had been given to Liner, which, according to defendants, would have foreclosed immediate interim coverage and nullified any remarks Ramirez made to the contrary. At various points in his deposition Worthey stated he "had to make the assumption the conditional receipt was given" to Liner, he "had to presume" Liner received it, and that "there's no reason to presume [it was not given] so there was really not a question in our minds." Worthey explained that his assumption that Liner received the conditional premium receipt was based on the “preponderance of evidence" before him. But nowhere in the few deposition pages referenced in the separate statement are we told what "evidence" led Worthey to that conclusion. Similarly, Worthey testified that he also presumed CNA would not accept the altered check based on his "own knowledge" of what is an acceptable endorsement on a check, not any past practice or policy of the company.
Finally, defendants contend that payment of the death benefits a year after denying coverage forecloses punitive damages liability. As we have noted, however, unjustified delay in paying insurance proceeds may give rise to tort damages, including punitive damages, for breach of the implied covenant of good faith and fair dealing. Although defendants may well have a convincing explanation for the delay, they have kept it from us. We only are told the benefits were eventually paid to Sawyer. This is not the "affirmative showing" of the absence of malice or oppression required of a party moving for summary adjudication of punitive damages. (See Addy v. Bliss & Glennon, supra, 44 Cal.AppAth at p. 214.)
Based on the above analysis, we find that defendants have failed to demonstrate the absence of malice and oppression sufficient to shift the burden to Sawyer to set forth a prima facie case for punitive damages. (See Hagen v. Hickenbottom, supra; 41 Cal.AppAth at pp. 186-187.) The conclusory facts and evidence set forth in defendants' separate statement will not fulfill defendants' burden on summary judgment. Defendants' evidence falls short in large part because it ignores fundamental allegations in the complaint, i.e., that defendants' failed to conduct even a cursory inquiry of Ramirez. Such an inquiry would have revealed that Ramirez accepted the application and altered check on behalf of CNA, led Liner and Sawyer to expect that interim coverage would take effect immediately upon payment of the premium, and that Ramirez was not certain he gave Liner the conditional premium receipt, facts wholly at odds with what looks--from the separate statement at least--to be a perfunctory investigation by Worthey. Defendants' statement of fact evidence show only that Worthey conducted his investigation with studied indifference to what transpired between Liner and Ramirez, precisely the conduct about which Sawyer complains. His decision to not pursue the source of Sawyer's claim simply reinforced Worthey's inclination to reject her claim.
2.
Even if we were to find that defendants had carried their burden on summary judgment and shifted the burden to Sawyer, we would conclude that Sawyer introduced evidence sufficient to raise a triable issue of fact and thereby withstand summary adjudication on the issue of punitive damages, even when viewed "through the prism" of the "clear and convincing" evidentiary burden. In particular, the adequacy of defendants' investigation of coverage is disputed. While ineptness will not by itself give rise to a finding of malice (see Patrick v. Maryland Casualty Co. (1990) 217 Ca1.App.3d 1566, 1576), here there is evidence that could lead a jury to find the investigation was not merely inept, but rose to the level of "despicable conduct" in conscious disregard of Sawyer's rights or that subjected Sawyer to "cruel and unjust hardship," pursuant to Civil Code section 3294.
The evidence supports an inference that in deciding to deny coverage, defendants nterpreted patently ambiguous circumstances in a restrictive manner (i.e., that CNA would never accept an interlineated check, that a conditional premium receipt "must" have been given to Liner, and that the absence of the application and check at defendants' headquarters or at FBI foreclosed coverage). Defendants either neglected or refused to investigate and/or acknowledge their agent's conduct and his representations to Liner that he had immediate interim coverage until after Ramirez's deposition in this litigation, despite the fact that the circumstances of the application, altered check, and missing conditional receipt, were as defendants admitted, "unusual," and Worthey knew--before he denied coverage--that Ramirez had taken an application and check from Liner. Defendants have not disputed that Ramirez's actions could bind CNA and that his statements could justifiably influence an insured's reasonable expectation of coverage.
Having denied the claim after a two-month investigation, defendants ultimately paid the death benefits a year later. But as Sawyer points out, defendants had the same facts at their disposal in February 1999 (when they denied coverage) as they did in February 2000 (when they paid the benefits), yet offered no explanation or justification for the year-long delay. Moreover, prior to denying coverage in February 1999, CNA did not contact the insured's beneficiary (Sawyer) despite her repeated inquiries of Ramirez, FBI, and CNA from December 1998 to early February 1999. Ultimately, Sawyer pleaded with FBI and CNA to inform her of the status of the claim, explaining, "I have four small 'children and am unemployed and money is of vital importance." From these inquiries, CNA had at least some actual knowledge of the financial problems Sawyer faced without coverage. Defendants do not dispute that the company is presumed to know the adverse consequences that would flow from conduct in conscious disregard of its insured's rights, and that such conduct could subject it to punitive damages. (See Notrica v. State Camp. Ins. Fund (1999) 70 Cal.AppAth 911,949; Weisman v. Blue Shield of California (1984) 163 Cal.App.3d 61, 67.)
It is reasonable to infer that after discovery had proceeded in this case, the evidence (particularly from Ramirez) tended to support Sawyer's claim of coverage. A jury could likewise conclude that the evidence favoring coverage should have been discovered during CNA's initial investigation into the claim, and would have been, but for CNA' s dogged insistence on finding the original application and check at headquarters and its rigid adherence to the "presumption" that Ramirez gave Liner a conditional premium receipt.
Although an insurer is not required to resolve all ambiguities in favor of the insured (Thompson v. Cannon (1990) 224 Cal.App.3d 1413, 1417), it is required to conduct a thorough investigation, respond to insured's inquiries, and pay claims promptly. Failure to do so may result in liability for punitive damages. (Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262,278 [failure to investigate plaintiffs claim, failure to respond to inquiries from insured, and interpreting ambiguous claim form in a restrictive manner together supported finding of insurer's willful failure to avoid adverse consequences of wrongful denial of claim sufficient to submit matter to jury].)l0
Sawyer has produced evidence that could lead a jury to reasonably conclude that defendants were motivated by a singular desire to protect their own interests at the expense of Sawyer. We do not conclude that Sawyer will be able to prove her punitive damages claim; we find only that it is open to reasonable argument whether defendants' efforts to protect their own interests at the expense of
Sawyer's rose to the level of despicable conduct. The same can be said for defendants' failure to communicate with the agent in this case, the one person who was intimately familiar with the events surrounding the application, check, and conditional premium receipt.
Based on the evidence presented on defendants' motion for summary adjudication, a jury could find, of course, that defendants were merely guilty of "inept and negligent handling of a claim," which will not support an award of punitive damages. (Patrick v. Maryland Casualty Co., supra, 217 Cal.App.3d at p. 1576.) Reasonable minds could differ, however, on the legitimate inferences that could be drawn from this evidence, and it is up to the jury to draw those inferences. (See Mock v. Michigan Millers Mutual Ins. Co., supra, 4 Cal.AppAth at p. 338.) For the foregoing reasons, we conclude that defendants were not entitled to summary adjudication on the punitive damages claim and therefore a writ of mandate must issue.
DISPOSITION
The order to show cause, having served its purpose, is discharged. A petition for writ of mandate shall issue directing respondent court to set aside its order dated August 9, 2000, granting summary adjudication to defendants on Sawyer's claim for punitive damages. A new order is to be entered denying summary adjudication on punitive damages. The temporary stay is lifted. Sawyer is to recover her costs incurred in connection with these extraordinary writ proceedings in accordance with rule 56.4 of the California Rules of Court.
NOT TO BE PUBLISHED
VOGEL (C.S.), P. J.
We concur:
EPSTEIN, J.
CURRY, J.
ENDNOTES
1 According to defendants' counsel, defendants are two of several insurance companies operating under the trademark CNA, and Valley Forge Life Insurance Company would have been the company to issue the policy to Liner.
2 There is some dispute whether Liner or Ramirez suggested altering the check. It is undisputed, however, that Ramirez agreed to submit the interlineated check to CNA.
3 The conditional premium receipt, common to CNA applications provides in part:
"IMPORTANT: This receipt does NOT automatically create interim insurance coverage. NO INSURANCE IS EVER IN FORCE under this receipt until after ALL of its conditions are met.
"NO AGENT OF THE COMPANY AND NO BROKER IS AUTHORIZED TO ALTER OR WAIVE ANY CONDITIONS OF THIS RECEIPT."
Among the "conditions required for insurance coverage to go into effect" are payment of a requisite premium amount, completion of application, medical underwriting requirements, and fulfillment of standard risk criteria according to the company's underwriting rules.
4 The parties dispute the legal significance of the conditional premium receipt. It is not necessary for us to resolve this dispute at this juncture, since at issue is whether defendants should have taken into consideration the fact that Ramirez could not recall tendering the conditional receipt to Liner. We simply note that when the terms of a conditional premium receipt are ambiguous, the question to be answered is whether, under the circumstances, the insured had a reasonable expectation of coverage. (See Thompson v. Occidental Life Ins. Co. (1973) 9 Ca1.3d 904.)
5 In written submissions subsequent to their motion for summary judgment, including the return to this petition, defendants have pointed out that Liner signed the portion of the application acknowledging that he had read and understood the conditional premium receipt and that the copy of Liner's application shows the perforated conditional premium receipt had been detached. Although these facts, if proven, might suggest Liner was given the conditional premium receipt, none of this evidence was cited in defendants' separate statement in support of their motion for summary judgment. We will not consider facts or evidence outside of the separate statements in these writ proceedings. ("'. . . This is the Golden Rule of Summary Adjudication: if it is not set forth in the separate statement, it does not exist." (North Coast Business Park v. Nielsen Construction Co. (1993) 17 Ca1.App.4th 22, 30-31.) At any rate, we could not verify the accuracy of defendants' assertions because the copy of Liner's application (accompanying Sawyer's opposition papers) is virtually illegible.
6 Decedent's name has been misspelled throughout the underlying record.
7 Neither party explains the evolution of the complaint. We do not know whether
FBI and Robin Ramirez are still parties to this lawsuit, however, they are not part of the summary judgment proceedings before us. It appears that Valley Forge Life Insurance Company was substituted as a Doe defendant subsequent to the filing of the complaint.
8 As the trial court found, Sawyer does not suggest that defendants' conduct reflects fraud.
9 "Clear and convincing" evidence requires a finding of high probability. The evidence must be "'''so clear as to leave no substantial doubt"'" and ""'sufficiently strong to command the unhesitating assent of every reasonable mind.'"'' (Mock v. Michigan Millers Mutual Ins. Co., supra, 4 Cal.AppAth at p. 332, quoting Sheehan v. Sullivan (1899) 126 Cal. 189, 193.)
10 Delgado predates the amendments to Civil Code section 3294, requiring proof of malice and oppression to be clear and convincing and the offending conduct to be "despicable." Delgado still is useful precedent, however, for the type of misconduct which (if now proved under the newer statutory requirements) reflects a willful disregard of an insured's rights.
