United States: 21st Century Insurance Company v. Superior Court

(Assignment of Rights Under Automobile Policies Based on a Stipulated Judgment Fails Due to Inability to Prove Damages As a Result of Election to Settle Without An Actual Trial and Judgment After Verdict)

In 21st Century Ins. Co. v. Superior Court, ____ Cal.App.4th ____ (September 10, 2015) the California Fourth District Court of Appeal granted 21st Century Insurance Company’s (“21st Century”) petition for an order requiring the trial court to enter summary judgment in its favor in connection with an underlying lawsuit brought by assignee of the insured after the insured stipulated to a judgment with a covenant not to execute in the amounts of $3 million and $1,150,000. Thereafter, the plaintiff assignee filed an action against 21st Century for bad faith based on its failure to accept a purported policy limits demand of $150,000 made in connection with 3 different policies issued by 21st Century.

The parties’ dispute arose out of the underlying lawsuit filed against defendant Cy Tapia, after a vehicle he was operating crashed and inflicted severe and eventually fatal injuries on his passenger, Cory Driscoll. Before his death, Driscoll’s mother filed an action for damages on March 6, 2007. The parties established that the vehicle driven by Tapia was owned by his grandfather and that Tapia was entitled to $100,000 in liability coverage under an auto policy issued to Melissa McGuire (Tapia’s sister), which listed the vehicle as an insured vehicle and listed Tapia as the driver of the vehicle. This policy was issued by 21st Century. In October 2007, 21st Century offered to settle the action for the policy limits of the McGuire policy in the amount of $100,000.

However, plaintiff also believed that Tapia might be covered under policies issued to his aunt and grandmother, each offering $25,000 in coverage and also issued by 21st Century. Accordingly, plaintiff communicated an offer to settle for $150,000, (i.e., the total policy limits of all three policies combined) in July of 2008. 21st Century contended that it never received this offer, and was not accepted within the time limit communicated by plaintiff’s counsel. Nonetheless, in September 2008, 21st Century offered the full $150,000 in limits afforded by the combined three policies to settle the case against Tapia. Plaintiff did not accept this offer. But rather, sent a statutory offer to compromise pursuant to Code of Civil Procedure section 998 in the amount of $3 million for Cory Driscoll and $1,150,000 for his mother, Jenny Driscoll. Shortly before the expiration of this offer, 21st Century sent Tapia a letter warning him that it would not agree to be bound if Tapia personally elected to accept the offer. Nonetheless, Tapia, in January of 2009, agreed to the entry of a stipulated judgment in the amounts demanded by plaintiff. Subsequently, 21st Century paid $150,000 plus interest to plaintiff, i.e., the combined total of the three 21st Century policies. Tapia then assigned any rights he had against 21st Century to plaintiff. The assignment and agreement included plaintiff’s promise not to execute on the judgment against Tapia so long as he complied with his obligations, e.g., to testify to certain facts concerning the original litigation and 21st Century’s actions.

Thereafter, plaintiff filed a bad faith lawsuit against 21st Century. In response to plaintiff’s action, 21st Century filed a motion for summary judgment arguing that plaintiff could not prove that the insured, had sustained damages in the stipulated amounts. 21st Century relied on the California Supreme Court’s holding in Hamilton v. Maryland Cas. Co. (2002) 27 Cal.4th 718, wherein, the Supreme Court held that absent an actual trial and judgment based on a verdict, plaintiff assignee could not prove the insured has suffered any damages as a result of the insurer’s conduct. In response, plaintiff argued that while 21st Century had agreed to afford Tapia a defense under his sister’s policy, it had denied coverage under the smaller policies issued to Tapia’s aunt and uncle. Hence, Tapia was free to assign his rights under those policies and to stipulate to a judgment based on 21st Century’s denial of a defense under such policies. The trial court agreed with plaintiff and denied 21st Century’s motion for summary judgment. Subsequently, 21st Century filed a petition in the Fourth District Court of Appeal seeking an order compelling the trial court to enter summary judgment in its favor.

The Court of Appeal accepted 21st Century’s petition and issued an order requiring the trial court to enter summary judgment in 21st Century’s favor. The Court of Appeal noted that potential coverage was not afforded to Tapia under his aunt’s and uncle’s policies because the vehicle he was operating had been provided to him for his regular use. Coverage was only afforded under these policies for unscheduled vehicles which were not afforded to a resident or relative for regular use. Tapia had admitted in deposition testimony that the vehicle involved in the accident was provided to him for his regular use after he had obtained his license to drive. Based on this reasoning, because Tapia was receiving a defense under the 21st Century policy affording $100,000 in limits, the assignment of his rights under this policy to plaintiff was not effective until after an actual trial and judgment on the merits. Because an actual trial and judgment did not occur, plaintiff’s action against 21st Century failed as it could not prove that Tapia had been damaged by 21st Century’s alleged bad faith conduct.

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