In 21st Century Ins. Co. v. Superior Court, 192 Cal.Rptr.3d 530 (2015), the Court of Appeal held that a stipulated judgment for amounts in excess of the limit of the only policy that provided coverage fails to establish the insured’s damages, where the insurer defended the insured. The Court granted the insurer’s petition and directed the trial court to enter summary judgment in the insurer’s favor.
The underlying litigation arose out of a vehicle accident. Defendant Cy Tapia, a teenager living with his aunt and grandmother, was driving a car, which crashed and inflicted severe and eventually fatal injuries on his passenger, Cory Driscoll. Before his death, Driscoll’s mother filed an action for personal injury and wrongful death against Tapia. During the course of the litigation, the parties established that Tapia had $100,000 in liability coverage under an auto policy issued by 21st Century to Tapia’s sister, which listed the car as an insured vehicle and listed Tapia as the driver of the vehicle. 21st Century defended Tapia and offered to settle the action for the $100,000 limit of the sister’s policy.
However, plaintiff believed that Tapia might also be covered under auto policies issued by 21st Century to his aunt and grandmother, each with $25,000 in limits. Plaintiff communicated an offer to settle for $150,000, the total limits of all three policies combined. There was a dispute as to whether 21st Century ever received plaintiff’s offer, and 21st Century failed to accept the offer within the time limit set by plaintiff’s counsel.
Later, 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. Then, plaintiff’s counsel served a Code of Civil Procedure § 998 offer for $3 million for Cory Driscoll and $1,150,000 for his mother, Jenny Driscoll. Before the statutory offer expired, 21st Century sent Tapia a letter advising him that it would not agree to be bound if Tapia personally elected to accept the offer. Nonetheless, Tapia, agreed to the entry of a stipulated judgment in the amounts demanded by plaintiff. 21st Century then paid to plaintiff $150,000 plus interest, the combined total of the three 21st Century policies. Tapia assigned any rights he had against 21st Century to plaintiff, and plaintiff promised not to execute on the judgment against Tapia.
Plaintiff, as the insured’s assignee, filed this bad faith lawsuit. 21st Century moved for summary judgment, asserting that plaintiff could not prove that the insured had sustained damages in the stipulated amounts. 21st Century relied on Hamilton v. Maryland Cas. Co,27 Cal.4th 718 (2002), in which the California Supreme Court held that where the insurer agreed to defend the insured, absent an actual trial on the merits and a judgment based on a verdict, an assignee of the insured could not prove the insured had suffered any damages as a result of the insurer’s conduct. In opposition, plaintiff argued that although 21st Century had agreed to provide Tapia a defense under his sister’s policy, it had denied coverage under the smaller policies issued to Tapia’s aunt and grandmother. Therefore, plaintiff contended, Tapia was free to assign his rights under his aunt and grandmother’s policies and to stipulate to a judgment based on 21st Century’s denial of a defense under those policies. The trial court agreed with plaintiff and denied 21st Century’s motion for summary judgment.
In granting 21st Century’s petition, the Court of Appeal noted that 21st Century had no duty to defend Tapia under his aunt’s and grandmother’s policies because the vehicle he was operating had been provided to him for his regular use. The aunt’s and grandmother’s policies covered unscheduled vehicles that were not afforded to a resident or relative for regular use. Tapia had admitted in deposition that the vehicle involved in the accident was provided to him for his regular use. Thus, the Court concluded that the sister’s policy was the only policy that gave rise to an obligation to defend. The Court reasoned that because Tapia was receiving a defense under that policy, the assignment of his rights under that policy to plaintiff was not effective until after an actual trial and judgment on the merits, as set forth in Hamilton. Since an actual trial and judgment did not occur, the Court held that plaintiff’s action against 21st Century failed as a matter of law.
Laura Kim is a partner with Musick, Peeler & Garrett, located in its Los Angeles office. Her full bio and contact information can be found at: http:// musickpeeler.com/professionals/bio.cfm?id=219