California Service Station & Automobile Repair Ass'n v. American Home Assurance Co.

elements of section 669 are met .... If those elements are established there is a presumption of negligence that, if unrebutted, gives rise to liability for negligence per se. That is the beginning and end of the analysis.” Respondent contends section 669 merely shifts the burden of proof on a single element of a common law negligence action, i.e., the failure to exercise due care.

Before analyzing and resolving these contentions, we believe it helpful to point out potential theories of recovery appellants did not advance at trial and do not pursue on appeal. Appellants did not proceed on any theory of fraud, deceit, or intentional or negligent misrepresentation. Nor do they appeal the adverse judgment on their cause of action for breach of contract.

Appellants’ theory of simple negligence is based in part on theories of recovery appellants have chosen not to pursue. For example, they argue that respondent had a duty “not to make misleading or incomplete statements,” and refer to respondent’s broken “promises,” “statements” and “repeated assurances,” in essence claiming they were deceived or misled by respondent’s failure to provide a dividend statement during contract negotiations. To the extent respondent may have broken any “promises” or violated any material “statements” or “repeated assurances,” these assertions concern causes of action for breach of contract which are not before us, or fraud, deceit or intentional or negligent misrepresentation, which were never pursued by appellants. In fact, appellants actively disavowed any fraud, deceit or misrepresentation causes of action when pressed by respondent. Of course, if they had made such claims they would have had to prove that respondent intended to induce them to market its policies by intentionally concealing dividend information, or by means of a positive misrepresentation that was either intentional or negligent. (See, e.g., Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388 , 402, 404 [ 264 Cal.Rptr. 779 ]; Wilson v. Century 21 Great Western Realty (1993) 15 Cal.App.4th 298 , 306 [ 18 Cal.Rptr.2d 779 ] (Wilson).) They would also have had to prove that they relied on the concealment or misrepresentations in agreeing to market respondent’s policies. (Continental Airlines, Inc., supra, at pp. 402, 404.) Appellants are not unsophisticated, and are represented by very able counsel, so the natural inference is that they were unable to muster such proof. This leaves appellants with the contention that an insurer has an independent duty during arm’s-length negotiations for dividend-paying insurance coverage, to disclose the factors upon which the dividends are calculated.

A.

Neither the Legislature nor the courts have created a duty of care requiring the disclosure of dividend calculation information during arm’s-length negotiations for insurance contracts. Appellants claim respondent is liable because it did not disclose past dividend calculations when it agreed to underwrite workers’ compensation policies appellants intended to market to their membership. The dividend calculations relate only to the final price of the policies, and have no bearing on the coverage provided. Therefore, appellants essentially assert that an insurer owes a duty to disclose information about premium pricing to potential policyholders, and is negligent if it fails to adequately disclose.

There is no duty of ordinary care to disclose pricing information during arm’s-length contract negotiations. If a purchaser wishes to go forward without final agreement on pricing structure, the purchaser takes the risk that the final negotiated price may be higher than expected. There is also no special duty in the relationship between an insurer and a potential insured. The relationship between an insurer and a prospective insured is not a fiduciary relationship. “[A]n insured person’s initial decision to obtain insurance and the corresponding decision of an insurer to offer coverage remain, at the inception of the contract at least, an arm’s length transaction to be governed by traditional standards of freedom to contract.” (Gibson v. Government Employees Ins. Co. (1984) 162 Cal.App.3d 441 , 448 [ 208 Cal.Rptr. 511 ].)

Appellants cite a number of cases to support a broad principle that a negligence claim may arise out of the breach of a duty to disclose. None of these cases establishes a special duty applicable to an insurer negotiating the price of an insurance contract. Cases discussing negligent misrepresentation (e.g., Randi W. v. Muroc Joint Unified School Dist. (1997) 14 Cal.4th 1066 , 1076 [ 60 Cal.Rptr.2d 263 , 929 P.2d 582 ]) and breach of fiduciary duty (Byrum v. Brand (1990) 219 Cal.App.3d 926 , 937-939 [ 268 Cal.Rptr. 609 ]) have no bearing on this negligence claim. They involve causes of action with different elements that create entirely distinguishable obligations to disclose. Duty of care is not an element of those causes of action. Cases relating to failure to warn of product defects (Carlin v. Superior Court (1996) 13 Cal.4th 1104 , 1112-1113 [ 56 Cal.Rptr.2d 162 , 920 P.2d 1347 ]; Sindell v. Abbott Laboratories (1980) 26 Cal.3d 588 , 611 [ 163 Cal.Rptr. 132 , 607 P.2d 924 , 2 A.L.R.4th 1061 ]; Tresemer v. Barke (1978) 86 Cal.App.3d 656 , 672 [ 150 Cal.Rptr. 384 , 12 A.L.R.4th 27 ]) and failure to warn of dangerousness of a client to foreseeable victims (Tarasoff v. Regents of University of

California (1976) 17 Cal.3d 425 , 433-434 [ 131 Cal.Rptr. 14 , 551 P.2d 334 , 83 A.L.R.3d 1166 ]; Hedlund v. Superior Court (1983) 34 Cal.3d 695 , 705-706 [ 194 Cal.Rptr. 805 , 669 P.2d 41 , 41 A.L.R.4th 1063 ]) require one party to warn another of a risk of physical danger. Such a risk is not present in the negotiation of an insurance contract.

The other cases cited by appellants involve special duties inherent in the sale of real property that cannot be carried over into the context of the sale of an insurance policy. In Little v. Community Bank (1991) 234 Cal.App.3d 355 [ 286 Cal.Rptr. 4 ], appellant was a judgment creditor that enforced its judgment through a forced sale of the debtor’s home. Respondent bought the house at the sheriff’s sale, only to learn later that the IRS had liens on the property that survived the execution sale. We believe that the negligence cause of action in Little was based on a duty of care created by the Legislature when it enacted Code of Civil Procedure section 704.760, subdivision (c), requiring all liens and encumbrances to be listed by the enforcing creditor. As we explain below, no statute imposed such a duty in this case. Newhall Land & Farming Co. v. Superior Court (1993) 19 Cal.App.4th 334 [ 23 Cal.Rptr.2d 377 ] involves the common law duty requiring a seller of real property to disclose to a prospective purchaser all facts materially affecting the value or desirability of the property. (Id. at p. 349.) Wilson, supra, 15 Cal.App.4th 298 , involves the corresponding duty of a real estate broker towards the prospective purchaser to inspect and disclose similar facts. These duties are not analogous to respondent’s failure to disclose an element of the price calculation in its insurance policy.

The only similar duty arising from a relationship between an insurer and its insured involves representations about the coverage created by an insurance policy, but that duty should be distinguished from a duty to disclose information about the calculation of premiums. “[A]s a general proposition, an insurance agent does not have a duty to volunteer to an insured that the latter should procure additional or different insurance coverage.....The rule changes, however, when—but only when—one of the following three things happens: (a) the agent misrepresents the nature, extent or scope of the coverage being offered or provided . . . , (b) there is a request or inquiry by the insured for a particular type or extent of coverage . . . , or (c) the agent assumes an additional duty by either express agreement or by ‘holding himself out’ as having expertise in a given field of insurance being sought by the insured . . . .” (Fitzpatrick v. Hayes (1997) 57 Cal.App.4th 916 , 927 [ 67 Cal.Rptr.2d 445 ], fn. omitted.) The concerns over insurer misrepresentations about coverage parallel the concerns raised about hidden defects in any product sold to the public. Here, however, the only failure to disclose concerned the manner of calculating the

371 , 376-377 [ 71 Cal.Rptr. 687 , 445 P.2d 303 ]; State Bd. of Education v. Honig (1993) 13 Cal.App.4th 720 , 750 [ 16 Cal.Rptr.2d 727 ].) The creation of a negligence duty of care involves fundamental policy decisions (see Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370 , 399 [ 11 Cal.Rptr.2d 51 , 834 P.2d 745 , 48 A.L.R.5th 835 ]) that cannot be delegated to an administrative body. “An administrative agency cannot by its own regulations create a remedy which the Legislature has withheld. [Citations.]” (Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379 , 1389 [ 241 Cal.Rptr. 67 , 743 P.2d 1323 ].) Therefore, in the absence of a common law duty of care, we look to the statutes authorizing an administrative regulation to determine whether a negligence duty of care has been created.

The Legislature did not create a negligence duty of care in the Insurance Code provisions authorizing regulation 2505. Those provisions prohibit misrepresentations, but do not establish a negligence duty of care.

Regulation 2505’s mandate that workers’ compensation insurers use “Policyholder Dividend Disclosure Statements” is authorized by statutes prohibiting misrepresentations of policies, found at Insurance Code section 780, and the Unfair Practices Act found at Insurance Code sections 790 through 790.10. Regulation 2505 directly relies on the authority of Insurance Code section 790.10, which gives the California Insurance Commissioner the power to promulgate regulations as necessary to implement the Unfair Practices Act. (Barclay’s Cal. Code Regs. (1977) note foil. reg. 2505, p. 626.) The Unfair Practices Act prohibits “making any false or misleading statement as to the dividends or share of surplus previously paid on similar policies.” (Ins. Code, § 790.03, subd. (a).) Regulation 2505 also references Insurance Code section 780 (Barclay’s Cal. Code Regs., supra, note foil. reg. 2505, p. 626), which prohibits misrepresentations about terms of a policy (Ins. Code, § 780, subd. (a)) and future dividends (Ins. Code, § 780, subd. (c)).

These statutes do not create a negligence duty of care. They prohibit misrepresentations, and are thus analogous to the torts of fraud and deceit, not the tort of negligence. The failure to create a negligence duty of care is illuminated by a comparison of these statutes with the statutes that created a duty of care in Nowlon v. Koram Ins. Center, Inc. (1991) 1 Cal.App.4th 1437 [ 2 Cal.Rptr.2d 683 ] (Nowlon). In Nowlon, a presumption of negligence was based on a violation of “Inshrance Code sections 703, 1761 and 1776, and Penal Code section 439 [which] prohibit the sale of insurance for an insurance company which is not admitted to transact business in California, unless the sale is made through a surplus line broker.” (Nowlon at p. 1441.) Violation of those statutes would not be a misrepresentation. Instead, the violation would be a failure to meet the professional standards required of a

tort, in this case the failure to exercise the care of a reasonable man at a boulevard stop. The significance of the statute in a civil suit for negligence lies in its formulation of a standard of conduct that the court adopts in the determination of such liability. [Citations.]” (Clinkscales v. Carver (1943) 22 Cal.2d 72 , 75 [ 136 P.2d 777 ].) Clinkscales went on to explain that “When the court accepts the standard it rules in effect that defendant’s conduct falls below that of a reasonable man as the court conceives it.” (Id. at p. 76.)

Cases decided after Evidence Code section 669 was enacted maintain the analytical distinction between separation of the creation of a duty of care and the creation of a standard of care. The first Supreme Court case to interpret section 669 continued this distinction. Vesely, supra, 5 Cal.3d 153 explained that “A duty of care, and the attendant standard of conduct required of a reasonable man, may of course be found in a legislative enactment which does not provide for civil liability. [Citations.]” (Id. at p. 164.) This distinction was observed in Kindt v. Kauffman (1976) 57 Cal.App.3d 845 [ 129 Cal.Rptr. 603 ] (disapproved on other grounds in Ewing v. Cloverleaf Bowl (1978) 20 Cal.3d 389 , 401, fn. 8 [ 143 Cal.Rptr. 13 , 572 P.2d 1155 ]). “A criminal prohibition becomes a rule of civil liability only because the courts under common law principles accept it as a controlling standard. [Citations.] As in Vesely, the prime question is still whether the defendant owes a duty of care to the injured person, and the existence of a criminal statute punishing the defendant’s conduct is but one element in the perception of duty.” (Kindt, supra, at p. 854.)

Sierra-Bay Fed. Land Bank Assn. v. Superior Court (1991) 227 Cal.App.3d 318 [ 277 Cal.Rptr. 753 ] and Crusader Ins. Co. v. Scottsdale Ins. Co. (1997) 54 Cal.App.4th 121 [ 62 Cal.Rptr.2d 620 ] held that an underlying claim of ordinary negligence must be viable before the presumption of negligence of Evidence Code section 669 can be employed. Sierra-Bay explains that “. . . it is the tort of negligence, and not the violation of the statute itself, which entitles a plaintiff to recover civil damages. In such circumstances the plaintiff is not attempting to pursue a private cause of action for violation of the statute; rather, he is pursuing a negligence action and is relying upon the violation of a statute, ordinance, or regulation to establish part of that cause of action. Nearly all the cases in which the presumption of negligence under Evidence Code section 669 has been applied involve what may be termed ‘safety’ statutes, ordinances or regulations, that is, govemmentally designed standards of care intended to protect a particular class of persons from the risk of particular accidental injuries. [Citations.]” (Sierra-Bay, supra, at pp. 333-334, fns. omitted.) Sierra-Bay involved allegations related to plaintiff’s default on loans secured by deeds of trust on real property, which the Court

of Appeal remarked “do not even hint at a viable cause of action for negligence under the law of this state.” (Id. at p. 334.) Crusader elaborates on the limitation of the role of the presumption of negligence in supporting a negligence cause of action. “This . . . concept involves the use of statutes to establish the elements of common law causes of action. The use of statutes as evidence of the standard of care in a negligence action is a common example. In such a case, the statute does not create a new private right to sue. The statute instead serves the subsidiary function of providing evidence of an element of a preexisting common law cause of action.” (Crusader, supra, at p. 125.)

Academic commentators also support the limitation of the presumption to negligence actions, and oppose its extension to civil wrongs not based upon negligence. Prosser concluded that “the violation of a statute is not always to be classified as negligence. It may be treated as trespass, conversion, fraud, nuisance, libel or slander, malicious prosecution or perhaps any other tort. All of the rules, qualifications, limitations, exceptions and other variations applied to that particular tort in ordinary cases are picked up and incorporated, and are applied to the action to the extent that they are consistent with the language of the statute and its apparent purpose.” (Prosser, Contributory Negligence as Defense to Violation of Statute (1948) 32 Minn. L.Rev. 105 , 109-110; see Dart v. Pure Oil Co. (1947) 223 Minn. 526 , 532 [ 27 N.W.2d 555 , 558, 171 A.L.R. 885 ].) A more recent comprehensive analysis of Evidence Code section 669 agreed. “Since the presumption arises to determine the existence of negligence, it should not apply to statutes adopted to protect people against certain types of harm where the analogous tort is not that of negligence. The analogous tort may be battery, fraud, trespass, intentional infliction of emotional distress or some other tort. [Citation.] A court may, of course, allow a tort action on behalf of a person injured as a result of a violation of such a statute, Restatement (Second) of Torts § 874A (1979), but Evidence Code section 669 should not apply since the violation does not involve the tort of negligence.” (Holdych, The Presumption of Negligence Rule in California: The Common Law and Evidence Code Section 669, supra, 11 Pacific LJ. at p. 924, fn. 99.)

The cases cited by appellants in their argument that Evidence Code section 669 may create negligence liability where it otherwise may not have existed are either inapposite or actually support the requirement of an underlying negligence cause of action. Transamerica Title Ins. Co. v. Green (1970) 11 Cal.App.3d 693 [ 89 Cal.Rptr. 915 , 44 A.L.R.3d 543 ] is inapposite. In that case, the court did not apply the presumption of negligence, because it held that the case was governed by a statutory private right of action

created by Government Code section 8214 against notaries failing to meet proper requirements for establishing identification. (Transamerica Title, supra, at p. 703.) Nowlon supports the requirement of an underlying negligence claim. Nowlon acknowledges that “Evidence Code section 669 applies to negligence in business transactions resulting in injury to economic interests as well as to personal injury actions. [Citations.]” (Nowlon, supra, 1 Cal.App.4th at p. 1442, fn. 4, italics added.) In recognizing that plaintiff had a potential negligence claim, Nowlon found that the defendant broker owed a duty of care to the injured plaintiff. (Id. at p. 1447.) In Huang v. Garner (1984) 157 Cal.App.3d 404 [ 203 Cal.Rptr. 800 ], the court held that the presumption of negligence may be applied in a cause of action for professional negligence. (Id. at pp. 414-416.) That holding is consistent with our conclusion that a defendant must possess an underlying negligence action before section 669 may be applied.

By a dubious process of head-counting, both parties cite the recent decision of our Supreme Court in Cheong v. Antablin (1997) 16 Cal.4th 1063 [ 68 Cal.Rptr.2d 859 , 946 P.2d 817 ] as support for their divergent positions on the application of Evidence Code section 669. The primary issue in Cheong was whether a local ordinance created a duty of care and supplanted the assumption of risk doctrine in an action by an injured skier against his skiing companion. Cheong resulted in five separate opinions: (1) a majority opinion by Justice Chin, with Chief Justice George and Justices Baxter, Werdegar and Brown concurring; (2) a concurring opinion by Justice Mosk; (3) a concurring opinion by Justice Kennard; (4) a concurring opinion by Justice Werdegar, joined by the Chief Justice; and (5) a separate concurrence with his own majority opinion by Justice Chin, joined by Justices Baxter and Brown. We are not as adept as the parties at head-counting, and the fact that both parties advance the same case to support opposite views, serves to reinforce our belief that Cheong provides no clear guidance on the issue here. The majority opinion in Cheong clearly states that the court concluded it “need not resolve the point [concerning section 669],” since it also concluded that the elements of section 669, subdivision (a) had not been met in that case. (Cheong, supra, at p. 1071.)

Therefore, we conclude the Evidence Code section 669 presumption of negligence applies only after determining that the defendant owes the plaintiff an independent duty of care, which has not been demonstrated here.

In conclusion, we emphasize again that appellants are not claiming fraud, deceit or misrepresentation by respondent. Appellants were not forced into this agreement. They were free at all times prior to entering into the

agreement to request specific information concerning the calculation of dividends. If the response was unsatisfactory, they were free to look elsewhere for insurance.

Disposition

The judgment is affirmed.

Peterson, P. J., and Jones, J., concurred.

Appellants’ petition for review by the Supreme Court was denied July 15, 1998. Mosk, J., and Kennard, J., were of the opinion that the petition should be granted.