Norcal Mutual Insurance v. Newton

1 Respondent accuses NORCAL of violating a confidentiality agreement to which the settlement of the malpractice case was subject by including details of the case in its opening brief. She does not provide any citation to the confidentiality agreement and the record does not disclose the outcome of respondent’s attorney’s application for an in camera hearing. The nature of the plaintiffs’ allegations, however, are relevant to the issues on appeal as they bear on respondent’s relationship to the insurance policy for purposes of this case.

2 Civil Code section 2860 requires insurers to provide independent counsel for the insured in certain situations of conflict of interest between the insurer and insured.

3 No reservation of rights letter from NORCAL appears in the record. Respondent takes issue with NORCAL’s citation of its counsel’s declaration filed in San Mateo County, where the petition to compel arbitration was initially filed. As NORCAL recognizes, however, the declaration filed with the October 30, 1998, petition in San Francisco, from which this appeal arises, contains the same statements. While citation to the latter document would have been preferable, we do not share respondent’s view that this matter warrants imposition of sanctions under rule 18 of the California Rules of Court. As for respondent’s complaint about NORCAL’s citation of other documents filed in San Mateo Superior Court in connection with earlier proceedings in this matter, we note that the case was transferred to San Francisco and documents filed in all stages of the case are part of its record.

4 According to the declaration of NORCAL’s counsel, Blaise S. Caret, and the allegations of the petition to compel arbitration, Murphy had previously demanded the settlement “as counsel for Dr. Newton and Mrs. Newton” on September 27, 1996. The September 27 letter, however, does not appear in the record.

5 The petition was first noticed and filed on September 15, again on October 14, and, finally, on October 30, 1998.

6 Only portions of the policy itself are part of the record on appeal, and these do not include the language of the arbitration provision. The language quoted in the text is taken from the declaration of NORCAL’s counsel, which is, of course, hearsay. NORCAL has requested that we take judicial notice of the entire insurance policy (Evid. Code, § 452, subd. (h)) or admit the policy into evidence under Code of Civil Procedure section 909. While NORCAL characterizes the policy as “not subject to dispute,” respondent points out that it is unauthenticated and that NORCAL’s only explanation for why it was not offered in the trial court is that “[i]t was not until after Respondents questioned the applicability of the arbitration agreement that the entire Policy became. relevant. NORCAL did not have a reasonable opportunity to introduce the entire Policy after Respondents contested the petition.” We deny the request for judicial notice of this document, which could have been, but was not, presented to the trial court. We note that while respondent opposed the request for judicial notice, she does not contest the wording of the policy as described in the text.

7 Code of Civil Procedure section 1295 imposes various requirements upon contracts for medical services which contain provisions for arbitration of disputes as to professional negligence of a health care provider. Among other things, such contracts must make the arbitration provision the first article of the contract and must employ the following language: “ ‘It is understood that any dispute as to medical malpractice, that is as to whether any medical services rendered under this contract were unnecessary or unauthorized or were improperly, negligently or incompetently rendered, will be determined by submission to arbitration as provided by California law, and not by a lawsuit or resort to court process except as California law provides for judicial review of arbitration proceedings. Both parties to this contract, by entering into it, are giving up their constitutional right to have any such dispute decided in a court of law before a jury, and instead are accepting the use of arbitration.’ ” (Code Civ. Proc., § 1295, subd. (a).) A contract which complies with subdivisions (a), (b), and (c) of section 1295 “is not a contract of adhesion, nor unconscionable nor otherwise improper.” (Code Civ. Proc., § 1295, subd. (e).)

8 Badie v. Bank of America (1998) 67 Cal.App.4th 779 , 789-790 [ 79 Cal.Rptr.2d 273 ], described Mormile v. Sinclair, supra, 21 Cal.App.4th 1508 , Michaelis v. Schori, supra, 20 Cal.App.4th 133 and Bolanos v. Khalatian, supra, 231 Cal.App.3d 1586 , as cases in which the arbitration agreements complied with Code of Civil Procedure section 1295 and “the conclusion that a nonsigning third party was bound by the arbitration agreement rested in part on consideration of the public policies that led to enactment of that legislation [citation], and in part on the existence of an agency or quasi-agency relationship between the patient who had signed the agreement and the nonsigning third party—in Mormile and Michaelis, the patient’s spouse, and in Bolanos, the father of the patient’s baby.” Badie itself did not involve a nonsignatory to an arbitration agreement but rather an arbitration provision unilaterally imposed by a bank upon its credit card holders. Badie discussed the nonsignatory cases in rejecting the trial court’s implicit determination that these cases had eroded the need for consent to alternative dispute resolution procedures and reiterated that California’s public policy favoring alternative dispute resolution does not come into play unless parties have entered an enforceable arbitration agreement. (Badie, supra, 67 Cal.App.4th at pp. 787-790.)

9 Two cases in this area, both from the Second District, reach a result contrary to those above. Rhodes v. California Hospital Medical Center (1978) 76 Cal.App.3d 606 [ 143 Cal.Rptr. 59 ] held a husband and son were not required to arbitrate a wrongful death action where the patient had signed an arbitration agreement and the husband had also signed such an agreement, acting as her agent. According to Rhodes, the policy in favor of arbitration as a means of dispute resolution “does not extend to those who are not parties to an arbitration agreement or who have not authorized anyone to act for them in executing such an agreement” and “the decedent’s agreement to arbitrate her possible cause of action” could not “bar the constitutional and procedural rights of the decedent’s heirs in their own, independent *75 action.” (Id. at pp. 609-610, original italics.) In Baker v. Birnbaum (1988) 202 Cal.App.3d 288 [ 248 Cal.Rptr. 336 ], the patient signed an agreement to arbitrate “ ‘any dispute as to medical malpractice . . ” which “purported to bind [the patient] and ‘anyone else who may have a right to assert a claim on [her] behalf . . .’ as well as other persons for whom she had responsibility, such as her spouse and any children.” (Id. at p. 290.) This agreement was held inapplicable to the patient’s husband’s claim for loss of consortium because the patient had “contracted for medical care solely on her own behalf, and the agreement to arbitrate related only to such services as would be provided to her under that contract.” (Id. at p. 292.) Rhodes and Baker have been described as reflecting “a minority view as to the rights of a nonsignatory to an arbitration agreement to pursue an action in the courts as distinguished from arbitration.” (Keller Construction Co. v. Kashani (1990) 220 Cal.App.3d 222 , 226, fn. 3 [ 269 Cal.Rptr. 259 ].) Gross v. Recabaren, supra, 206 Cal.App.3d at page 780, chose to follow the reasoning of Herbert v. Superior Court, supra, 169 Cal.App.3d 718 rather than that of Baker and Rhodes, and Mormile v. Sinclair, supra, 21 Cal.App.4th at page 1514, described Baker as having “generally been ignored or questioned, . . . , with its overly restrictive reading of the scope of arbitration agreements.”

10 Respondent argues that NORCAL has improperly raised for the first time on appeal the ostensible authority and ratification issues underlying its contention that respondent’s request for arbitration bound her to arbitrate. She complains that the factual predicate to these issues •—Murphy’s April 4, 1997, letter demanding arbitration—was not presented to the trial court until reply pleadings were filed two court days before the hearing and that she did not have an opportunity to respond to the ostensible authority and ratification issues. While respondent is correct that this letter was submitted to the trial court with NORCAL’s reply papers, respondent ignores the fact that both the April 4 and April 23 letters had previously been filed on October 30 as exhibits to NORCAL’s counsel’s declaration in support of the petition to compel arbitration. Respondent’s complaint that she “had no need to assert her failure to receive Mr. Murphy’s letters of April 4, 1997 and April 23, 1997, because they were not then before the court” is thus ill-founded. Moreover, the letters had previously been attached as exhibits to a declaration of NORCAL’s counsel submitted on October 9, 1998, in support of NORCAL’s reply to its first-filed petition in San Francisco, and respondent had objected to the letters as hearsay and irrelevant. Respondent did not object or otherwise refer to these letters in her opposition to the October 30 petition. Respondent’s memorandum in opposition to the first San Francisco petition, filed on October 6, 1998, stated: “NorCal claims that a letter written by Nancy Newton’s former attorney, James Murphy, to Norcal in connection with the underlying medical malpractice action (to which NorCal was not a party) somehow obligates Nancy Newton to arbitrate” and argued that an attorney has no authority to bind his or her client to arbitration. This document demonstrates that respondent was aware that the *80 issue of the attorney’s ability to bind the client to arbitration was relevant to the petition to compel arbitration. Respondent’s counsel argued at the October 28 hearing that an attorney cannot bind a client to arbitrate. Similarly, respondent’s November 30, 1998, opposition to the petition eventually heard on December 7 argued that an attorney lacks authority to bind a client to arbitration. At the December 7 hearing, the trial court initially focussed on the fact that letters from Murphy to NORCAL were signed by Murphy as “Attorney for Dr. Newton” rather than as attorney for “Dr. Newton and Mrs. Newton.” NORCAL’s counsel argued that the letters were expressly written “on behalf of Dr. and Nancy,” and stated that “the key fact then is, I think, not only was the benefit of the contract sought by Mrs. Newton, but she, herself, along with Dr. Newton, demanded arbitration. This process has already begun. They even went so far as to select their own party arbitrator.” Respondent’s counsel then told the court that NORCAL had withdrawn its argument that respondent had agreed to arbitration and conceded that a lawyer does not have the authority to bind a client to arbitration. After respondent’s attorney argued the point that a lawyer cannot bind a client to arbitration, NORCAL’s attorney stated that the issue was really respondent’s “ratification” of the insurance policy by making demands under the contract. Although NORCAL did not directly argue ostensible authority and/or ratification in the trial court, these issues obviously underlie the question of respondent’s attorney’s authority to bind her to arbitration. Both respondent and the trial court were fully aware of the overarching issue of respondent’s attorney’s authority.

11 Respondent claims that NORCAL made a binding judicial admission that she never requested arbitration. She cites NORCAL’s counsel’s statement at the October 28, 1998, hearing that “[w]e can agree to that right now; that she never asked for arbitration in the past.” This statement was made in the course of a discussion about whether NORCAL’s notice of the October 28 hearing was sufficient to apprise respondent that one of the grounds upon which NORCAL was seeking to compel arbitration was that respondent had obtained benefits under the insurance policy. The notice stated that the petition to compel arbitration was based *81 on the grounds that “a dispute exists arising out of a contract of insurance issued by NORCAL to Dr. Harvey Newton, that the insurance policy requires that such disputes be submitted to arbitration, and that Dr. Harvey Newton and Mrs. Nancy Newton, having previously agreed to arbitration and having already selected a party arbitrator now refuse to submit to arbitration and to participate in selection of a neutral arbitrator.” At the hearing, respondent’s attorney argued that the notice referred only to the issue of respondent’s prior agreement to arbitrate, not to her receipt of benefits under the policy. NORCAL’s counsel responded that it would not matter if respondent had not previously agreed to arbitration because that was not the only ground for the petition; according to NORCAL’s counsel, the phrase “the insurance policy requires that such disputes be submitted to arbitration” gave notice of the “benefits” theory. The trial court viewed the notice as suffering from a grammatical problem because of its use of dependent clauses in the sentence quoted above. When NORCAL’s attorney argued that respondent knew she received benefits under the policy and knew the grounds NORCAL was raising, the court stated that “the only thing that they oppose is on the grounds that she’s not a party to the contract, and that she did not consent. NORCAL’s counsel then stated: “And that’s fine. She doesn’t have to consent to it. We can agree to that right now; that she never asked for arbitration in the past. What we do is look at her conduct under the policy. It’s analogous to a third-party beneficiary. She’s availed herself to the benefits of the contract.” The court indicated it understood the argument but the question was whether respondent had been given notice “that was the premise of your argument.” The petition was denied without prejudice, with the expectation that NORCAL would re-notice it. Taken in the context, it is clear that NORCAL’s counsel was not admitting that respondent had never asked for arbitration in the past but rather was attempting to emphasize the independence of the two grounds for the petition under discussion, respondent’s agreement to arbitrate on the one hand and her receipt of benefits under the policy on the other. We read the statement that respondent suggests is a judicial admission as nothing more than a statement “for the sake of argument.”

12 While respondent makes much of the fact that NORCAL required only Dr. Newton’s consent to settle the malpractice case, and not respondent’s, only Dr. Newton was the named insured, whose written consent to settle was required by the policy.

13 Murphy stated in his declaration in opposition to the motion to compel arbitration that between October 14, when NORCAL agreed to defend Nancy Newton, and November 20, when the malpractice case settled, he “did not perform any legal services that were directed to the defense of Nancy Newton. From the time I participated in the defense of this action through and including its completion, there were no legal services provided by this firm that were required to be done because Nancy Newton was named as a defendant. The legal services provided in this matter were done in connection with the defense of Dr. Newton. Nancy Newton was not the subject of any discovery.” Murphy further declared that he was aware that NORCAL “apportioned the entire amount of the settlement, $1,000,000, to a payment on behalf of Harvey Newton” and that in his opinion “Nancy Newton did not derive any benefit by virtue of NorCal’s agreement to provide her with a defense,” which agreement occurred approximately 30 days before the case settled. 13

14 That Murphy performed at least some legal services on behalf of respondent is demonstrated by the inclusion in the Newtons’ mediation brief of a short section devoted to respondent’s liability (or lack thereof).