Soto v. Royal Globe Insurance

VI above. The family as set forth in paragraph VI has been injured in the same manner as plaintiff Jesus Soto.”

Subsequent paragraphs set forth the details of plaintiff Jesus Soto’s industrial injury, the workers’ compensation benefits awarded on account of such injury and that there had been a delay in paying the benefits awarded.

Thereafter, paragraph XIII alleged, “That plaintiffs are entitled to the benefits sought herein, as acknowledged by defendant insurer’s stipulation to the request for award, and that plaintiffs have made every good faith attempt possible to recover said benefits prior to filing this cause of action, and that defendant insurer’s actions in refusing payment have been, and continue to be, oppressive, malicious and in reckless disregard for the well being of the plaintiffs herein.”

Paragraph XIV alleged, “That defendant insurer has not attempted in good faith to effectuate a prompt, fair and equitable settlement of plaintiffs’ claim in accordance with Insurance Code, Section 790.03, despite a clear obligation to do so, and that such refusal constitutes an unfair and deceptive practice in the business of insurance and undermines the effectiveness and intent of the workers’ compensation system.”

Paragraph XV alleged, “That the defendant insurer, by unreasonably and in bad faith withholding payment of plaintiffs [szc] claim, breached a duty, imposed by law, requiring it, as a fiduciary, to act fairly and in good faith in discharging its responsibilities to the plaintiffs herein.”

Paragraph XVI alleged, “That as a direct and proximate result of defendant insurer’s failure to effect a prompt, fair and equitable settlement of plaintiffs’ claim, despite a clear obligation to do so, plaintiffs have suffered severe personal injuries, all to plaintiffs’ general damage in an amount within the jurisdiction of this court.”

Finally, as part of the first count, paragraph XX alleged, “That as a direct and proximate result of defendant insurer’s acts and omissions as herein alleged, plaintiffs have suffered severe emotional and mental distress and anguish, all to their general damage in an amount within the jurisdiction of this Court.”

The second count incorporated most of the first by reference and proceeded to allege that the insurance contract between Clow Corporation and defendant had been made for the benefit of plaintiff Jesus Soto and his family.

The third count incorporated all of the first and second by reference, and proceeded to allege further, “That defendant insurer’s aforementioned egregious conduct was intentional and malicious and done for the purpose of causing plaintiffs to suffer humiliation, mental anguish, emotional and physical distress, and severe financial hardship, and plaintiffs have, and continue to, suffer such humiliation, mental anguish, emotional and physical distress and severe financial hardship.”

The fourth count incorporated all of the previous three, and proceeded to allege “That defendant insurer’s aforementioned egregious, wanton and wilful conduct is responsible for negligently causing plaintiffs to suffer humiliation, mental anguish, emotional and physical distress and severe financial hardship.”

As earlier noted, defendants’ demurrer to plaintiffs’ first amended complaint was sustained without leave to amend. This appeal followed.

Discussion

Plaintiffs have cast their assignments of error in the form of “Questions Presented.” The three questions do not accurately reflect the theories upon which their first amended complaint was framed. In our view, plaintiffs have undertaken to recover on four theories, all focusing on defendant insurer’s failure to pay timely the WCAB award to plaintiff Jesus Soto. Such theories are: (1) intentional infliction of emotional distress; (2) negligent infliction of emotional distress; (3) defendant insurer’s alleged violation of section 790.03, subdivision (h)(5), of the Insurance Code, which in pertinent part, has already been quoted in the margin; and (4) breach of the implied covenant of good faith and fair dealing.

By reason of the fact that there are multiple plaintiffs, being the employee on one hand and members of his immediate family on the other, our view of the case is that there are five separate issues presented. All of the four theories noted, as applied to plaintiff employee, involve only a single issue. As to plaintiff family members, there are four issues reflecting the four theories noted.

Turning first to an analysis of the plaintiff employee’s posture visa-vis the four theories noted, all of his assignments of error, as hereinafter explained, were properly rejected; in sum, his attempt to state a cause of action in tort on any theory is precluded by the exclusive remedy rule.

In Unruh, as explained above, the Supreme Court concluded that the conduct which it otherwise branded as outrageous could not possibly have been intended to be the subject of protection by the statutory, exclusive-remedy shield. Plaintiff employee in the case here argues that the alleged behavior of defendant insurer amounts to the same kind of outrageous conduct condemned by the Supreme Court in Unruh. We do not agree.

The result on the issue here under discussion is controlled by Cervantes v. Great American Ins. Co. (1983) 140 Cal.App.3d 763 [ 189 Cal.Rptr. 761 ]. Cervantes also involved an appeal from a judgment of dismissal after defendant insurer’s demurrer had been sustained without leave to amend. There, the allegations of the complaint disclosed substantially more egregious conduct by the insurer than here. In Cervantes, there was an initial refusal even to investigate the claim, and the payment of benefits there occurred only after an application had been filed and processed to a successful conclusion before the WCAB.

In the case here, plaintiff employee, as his central charging allegation, has accused defendant insurer of a wilful delay in payment of benefits after it stipulated to plaintiff employee’s entitlement thereto in a WCAB proceeding, and that this provides the basis for reliance on the Unruh exception. In Cervantes, exactly the same argument was advanced as is done by plaintiff employee here. In Cervantes, we rejected the argument, marshalling no less than six decisions which declined in similar circumstances to hold that the behavior of the insurer was such as to remove the workers’ compensation carrier from its proper role as such. (See Denning v. Esis Corp. (1983) 139 Cal.App.3d 946 , 948 [ 189 Cal.Rptr. 118 ]; Droz v. Pacific National Ins. Co. (1982) 138 Cal.App.3d 181 [ 188 Cal.Rptr. 10 ]; Depew v. Hartford Acc. & Indem. Co. (1982) 135 Cal.App.3d 574 [ 185 Cal.Rptr. 472 ]; Fremont Indemnity Co. v. Superior Court (1982) 133 Cal.App.3d 879 [ 184 Cal.Rptr. 184 ]; Ricard v. Pacific Indemnity Co. (1982) 132 Cal.App.3d 886 [ 183 Cal.Rptr. 502 ]; Everfield v. State Comp. Ins. Fund (1981) 115 Cal.App.3d 15 [ 171 Cal.Rptr. 164 ].)

As pointed out in Cervantes and in several of the cited cases, the Workers’ Compensation Act contains a specific penalty for unreasonable delay in payment of benefits (Lab. Code, § 5814). Thus, plaintiff employee has a

remedy under the Act for the kind of insurer behavior here alleged, and that remedy is exclusive. (Lab. Code, § 3602.)

What we have said with reference to plaintiff employee’s efforts to plead a cause of action falling within the Unruh exception to exclusive WCAB jurisdiction, in the first instance, has involved the matter of intentional infliction of emotional distress. Because plaintiff employee, for the reasons we have stated, has failed to state such a cause of action, a fortiori he has likewise failed to succeed in placing himself beyond WCAB jurisdiction on the theory of negligent infliction of emotional distress and on the theory of a grievance based on any breach of the implied covenant of good faith and fair dealing, or any supposed violation of section 790.03, subdivision (h)(5), of the Labor Code. (Unruh v. Truck Insurance Exchange, supra, 7 Cal.3d 616 , 628; see also fn. 4, supra; Cervantes v. Great American Ins. Co., supra, 140 Cal.App.3d 763 , 774.)

We now come to the grievances of the other plaintiffs, i.e., the employee’s family members.

One who is not a party to the insurance contract and the accompanying implied covenant of good faith and fair dealing may not maintain an action for breach of the covenant. (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566 , 576 [ 108 Cal.Rptr. 480 , 510 P.2d 1032 ]; Austero v. National Cas. Co. (1976) 62 Cal.App.3d 511 , 516 [ 133 Cal.Rptr. 107 ].) Insofar as the plaintiff family members seek relief as third-party beneficiaries of the workers’ compensation insurance policy, a doubtful proposition in view of the fact the employer is required by law to carry workers’ compensation insurance, the tort action of the family members likewise would be barred by the exclusive remedy statute just the same as that of the plaintiff employee. (Lab. Code, § 3602; cf. Argonaut Ins. Co. v. Superior Court (1985) 164 Cal.App.3d 320 , 324 [ 210 Cal.Rptr. 417 ].)

Turning next to the alleged intentional infliction of emotional distress on plaintiff family members, such a cause of action can be maintained only when the conduct of defendant has been so outrageous that no person in a civilized society should be required to bear it. Such a rule is of course easy to state but only can be applied with certainty in light of the holdings in decided cases which have determined that the questioned conduct before them was or was not outrageous.

In Schlauch v. Hartford Accident & Indemnity Co. (1983) 146 Cal.App.3d 926 [ 194 Cal.Rptr. 658 ], the insurer had delayed two and one-half years before tendering policy limits in an obvious-liability, third-party context. In the bad-faith litigation which followed, plaintiff’s third cause of action

alleged that the insurer had acted outrageously and with intent to inflict emotional distress in violation of its statutory duties under section 790.03 of the Insurance Code. The insurer’s demurrer to this cause of action was sustained, and on appeal, the reviewing court stated, “We finally note one additional flaw in plaintiff’s pleading. The third cause of action simply asserts that Hartford acted outrageously and with intent to inflict emotional distress. The failure to accept an offer of settlement or the violation of statutory duties under Insurance Code Section 790.03 does not in itself constitute the type of outrageous conduct which will support a cause of action for intentional infliction of emotional distress. (See Ricard v. Pacific Indemnity Co. (1982) 132 Cal.App.3d 886 , 894 [ 183 Cal.Rptr. 502 ]; Beckham v. Safeco Ins. Co. of America (9th Cir. 1982) 691 F.2d 898 , 904.) The demurrer was properly sustained on the third cause of action without regard to the remainder of our discussion. If plaintiff is to state a cause of action on amendment of the pleadings he must allege with greater specificity the acts which are ‘ “so extreme as to exceed all bounds of that usually tolerated in a civilized community”’ (Ricard v. Pacific Indemnity Co., supra, 132 Cal.App.3d at p. 894.)” (Schlauch v. Hartford Accident & Indemnity Co., supra, 146 Cal.App.3d 926 , 936.)

In Ricard, the case relied on by Schlauch, plaintiff sustained an injury to his back in the course of his employment by Pacific Indemnity Company’s insured. The plaintiff was incapacitated for several weeks following his injury, and he received medical treatment from an orthopedic surgeon who advised him that his disability was chronic, and that he would have disabling recurrences for the rest of his life. Pacific Indemnity paid for separate treatments but failed to pay for plaintiff’s fourth treatment. Mr. Ricard filed an action which alleged that the insurer’s refusal properly to investigate and process plaintiff’s claim and communicate with plaintiff concerning his claim, and its denial of same, were intentional and wilful breaches of its duty to exercise good faith, which resulted in severe emotional distress.

The trial court sustained Pacific Indemnity’s demurrer to the complaint on the ground it failed to allege facts sufficient to state a cause of action. In affirming the trial court’s ruling, the appellate court stated: “We find also no error in the trial court’s sustaining of Pacific’s demurrer to the second count, for failure to allege facts sufficient to state a cause of action for intentional infliction of emotional distress. One element of the tort is ‘outrageous conduct,’ and in order to satisfy that element a defendant’s conduct must be ‘so extreme as to exceed all bounds of that usually tolerated in a civilized community.’ (Cervantes v. J. C. Penney Co. (1979) 24 Cal.3d 579 , 593 [ 156 Cal.Rptr. 198 , 595 P.2d 975 ].) We believe the trial court was justified in concluding, as a matter of law, that defendant’s conduct,

as pleaded, could not be deemed ‘outrageous’ within that definition. . . .” (Ricard v. Pacific Indemnity Co., supra, 132 Cal.App.3d 886 , 895.)

The conduct alleged in both Schlauch and Ricard, in terms of its supposed egregious character, was far more aggravated than what was alleged here, and so, on the basis of these two decisions, we hold here, even ignoring that any legal duty of the insurer to pay was owed to the employee and his employer, and not owed to plaintiff family members, that the family members have failed to state a cause of action for intentional infliction of emotional distress.

Turning to the negligence theory relied upon by plaintiff family members, it is fair to observe, in nonimpact cases, that there are only two salients in which liability has been successfully established. One such salient is the so-called “direct victim” concept applied in Molien v. Kaiser Foundation Hospitals (1980) 27 Cal.3d 916 [ 167 Cal.Rptr. 831 , 616 P.2d 813 , 16 A.L.R.4th 518 ]; the other is the traumatized bystander scenario first recognized in Dillon v. Legg (1968) 68 Cal.2d 728 [ 69 Cal.Rptr. 72 , 441 P.2d 912 , 29 A.L.R.3d 1316 ], which overruled Amaya v. Home Ice, Fuel & Supply Co. (1963) 59 Cal.2d 295 [ 29 Cal.Rptr. 33 , 379 P.2d 513 ], on identical facts.

Without recounting the distressing facts of Molien, it is enough here to note that the theory of recovery allowed there was that defendant’s negligent conduct, in misdiagnosing the wife and directing her to inform her husband of her misdiagnosed condition, was also directed at plaintiff husband (Molien v. Kaiser Foundation Hospitals, supra, 27 Cal.3d 916 , 919), in a context in which it was highly foreseeable that his emotional distress would be immense. As stated in Molien, “We thus agree with plaintiff [husband] that the alleged tortious conduct of defendant was directed to him as well as to his wife. Because the risk of harm to him was reasonably foreseeable we hold, in negligence parlance, that under these circumstances defendants owed plaintiff [husband] a duty to exercise due care in diagnosing the physical condition of his wife.” (Molien v. Kaiser Foundation Hospitals, supra, 27 Cal.3d 916 , 923.)

On the facts alleged in the case here, it would be a massive contortion of logic to describe defendant insurer’s action in delaying payment of plaintiff employee’s WCAB award as “directed” at the plaintiff family members (cf. Ochoa v. Superior Court (1985) 39 Cal.3d 159 , 172-173 [ 216 Cal.Rptr. 661 , 703 P.2d 1 ]). Accordingly, we hold that no cause of action was alleged by these plaintiffs under the Molien theory.

Turning to the other salient, Dillon has recently been discussed at length in Ochoa v. Superior Court, supra, 39 Cal.3d 159 , where the Supreme Court undertook to comment on, if not interpret, the Dillon guidelines.

In Ochoa, the parents of a juvenile offender who had died while in the custody of Santa Clara County authorities sued the county, charging it with liability for negligent infliction of emotional distress. The grievance provoking the litigation was the parents’ shock and trauma experienced upon seeing their son’s need for medical aid ignored by his juvenile hall custodians, a neglect which finally resulted in the son’s death.

The county’s demurrer to certain of the parents’ causes of action was sustained, and the propriety of that trial court ruling was reviewed by petition for writ of mandate. After such review, the Supreme Court authorized issuance of the writ, directing the trial court to vacate the order sustaining the demurrer and to enter a new and different order overruling it. In reaching its decision, the Ochoa court appeared to rely heavily on Dillon, noting that the touchstone of its ‘ ‘ analysis in Dillon was foreseeability. ’ ’ (Id., at p. 166.) The court also went further to observe that “[o]ur review of other cases allowing a cause of action for emotional distress under Dillon leads us to the conclusion that the ‘sudden occurrence’ requirement is an unwarranted restriction on the Dillon guidelines. Such a restriction arbitrarily limits liability when there is a high degree of foreseeability of shock to the plaintiff and [when] the shock flows from an abnormal event, and, as such, unduly frustrates the goal of compensation—the very purpose which the cause of action was meant to further.” (Ochoa v. Superior Court, supra, 39 Cal.3d 159 , 168, italics added.)

Thus, Ochoa established that there are two requirements for stating a cause of action for negligent infliction of emotional distress: (1) foreseeability of emotional shock resulting from (2) an “abnormal event.” Here, even assuming the required element of foreseeability, there is no allegation of any abnormal event, merely an allegation of failure timely to pay workers’ compensation benefits.

Applying the Ochoa standard, as just recited, to the facts alleged here by the plaintiff family members, it is at once evident that the mere delay in payment of a workers’ compensation award to an employee head of the household is not even remotely similar to the kind of abnormal event which will foreseeably trigger the high degree of trauma and distress which the plaintiffs suffered in Dillon and Ochoa. Thus, plaintiff family members failed to state a cause of action for negligent infliction of emotional distress.

The only decision that might possibly support maintenance of an action for negligent infliction of emotional distress on the facts pleaded here is Jarchow v. Transamerica Title Ins. Co. (1975) 48 Cal.App.3d 917 [ 122 Cal.Rptr. 470 ], a case decided by this court about a decade ago. In that case a judgment against the insurer based upon breach of the implied cov

enant of good faith and fair dealing was readily affirmed in light of the facts and the authorities regularly relied upon in such cases, i.e., Fletcher, Gruenberg, Silberg, plus the earlier cases of Crisci and Comunale. Nevertheless, the author and his colleagues also purported to decide a separate issue not really presented by the case, namely, negligent infliction of emotional distress, more particularly, the propriety of a cause of action to recover emotional distress damages based purely on negligence.

Emotional distress damages, if they can be proved, are of course one kind of consequential damages potentially recoverable in an action for the tort of bad faith, a tort otherwise established in Jarchow. (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566 , 579.) Accordingly, once breach of the implied covenant of good faith and fair dealing had been established in Jarchow, it was wholly unnecessary to explore some other theory to provide a predicate for the recovery of damages for emotional distress.

This reality was recognized in Quezada v. Hart (1977) 67 Cal.App.3d 754 [ 136 Cal.Rptr. 815 ], where the court said, “To the extent that the court in Jarchow purported to . . . allow recovery for emotional suffering damages in cases involving negligence without bad faith . . ., the extension was unwarranted by California law.” (Id., at p. 762.) We agree. In the absence of the DillonlOchoa criteria, we therefore expressly overrule that portion of the Jarchow opinion which purports to recognize a cause of action for recovery of damages for emotional distress based on garden-variety negligence concepts as recited at pages 939-940 of the opinion (text opposite fn. 13).

Finally, we come to the plaintiff family members’ attempt to plead a so-called Royal-Globe type case of action against defendant insurer based upon its alleged violation of section 790.03, subdivision (h)(5), of the Insurance Code.

In Royal Globe, the Supreme Court held that an individual who is injured by the alleged negligence of an insured may sue the negligent party’s insurer for violating the provisions of subdivision (h) of section 790.03 of the Insurance Code. (Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 , 884 [ 153 Cal.Rptr. 842 , 592 P.2d 329 ].) Of course, an insured, as a party to the insurance contract can also sue his carrier for violation of any of the provisions. (See Royal Globe Ins. Co. v. Superior Court, supra, 23 Cal.3d 880 , 888.) The question here is whether persons who are neither insureds nor Royal Globe type claimants may also bring their own independent action against the insurer under Insurance Code section 790.03.

We are satisfied that only insureds and Royal Globe type claimants have any standing to assert alleged violations of these provisions of the Insurance Code. In Royal Globe itself, the petitioning insurer and its amici argued strenuously that the statute had never been intended to provide the predicate for a private civil action, but was instead designed as an enforcement tool for the Insurance Commissioner. Responding to this contention, the court stated, ‘ ‘ [b]ut an examination of the language of subdivision (h) demonstrates that it was intended to prohibit unfair settlement practices by insurers directed against both claimants and insureds.” (Royal Globe Ins. Co. v. Superior Court, supra, 23 Cal.3d 880 , 888, italics added).) The inference clearly to be drawn from this pronouncement is that the court, responding to a contention that no private litigant could pursue an action based upon an alleged statutory violation by an insurer, necessarily, in holding that such actions are possible, identified the categories of such potential suitors. In other words, the context in which the language was used indicates, otherwise, that only insureds and claimants against the insureds have standing to assert actions of this type against the carrier, for they are the only ones to whom the statutory duty runs.

This proposition was reflected in Williams v. Transport Indemnity Co. (1984) 157 Cal.App.3d 953 [ 203 Cal.Rptr. 868 ]. In Williams the widow of a decedent involved in an accident with defendant’s insured undertook to file a Royal Globe type action against defendant insurer charging violations of section 790.30, subdivision (h) of the Insurance Code. The summary judgment entered in favor of defendant was affirmed on appeal, and, with reference to this phase of plaintiff’s effort, the court said, “plaintiff must be deemed an intermeddler without standing to recover for an insurer’s violation of the statute.” (Id., at p. 964.)

Plaintiff family members nevertheless insist that Delos v. Farmers Insurance Group (1979) 93 Cal.App.3d 642 [ 155 Cal.Rptr. 843 ], resolves the “standing” obstacle in their favor, i.e., they contend that so-called nonclaimants may maintain an action to recover for their emotional distress, because the consequences of the bad faith conduct (emotional distress) toward the insured family members is clearly foreseeable. Delos is not authority for such contention. Again Williams is in point. “Delos does say that, but the court predicated its holding on the fact that the nonclaimant spouse . . . also was a named insured to whom the insurer owed a duty. Delos does not stand for the proposition that an independent duty is owed to a noninsured, nonclaimant spouse.” (Williams v. Transport Indemnity Co., supra, 157 Cal.App.3d 953 , 963-964, italics on “not” in original; other italics added.)

Based upon the foregoing analysis, we hold that plaintiff family members have failed to allege facts sufficient to state a cause of action based upon