50 Cal. 2d 658
Mr. and Mrs. Comunale were struck in a marked pedestrian crosswalk by a truck driven by Percy Sloan.1 Mr. Comunale was seriously injured, and his wife suffered minor injuries.2 Sloan was insured by defendant Traders and General Insurance Company under a policy that contained limits of liability in the sum of $10,000 for each person injured and $20,000 for each accident.3
Sloan notified Traders of the accident and was told that the policy did not provide coverage because he was driving a truck that did not belong to him. When the Comunales filed suit against Sloan, Traders refused to defend the action, and Sloan employed competent counsel to represent him.4 On the second day of the trial Sloan informed Traders that the Comunales would compromise the case for $4,000, that he did not have enough money to effect the settlement, and that it was highly probable the jury would return a verdict in excess of the policy limits.5 Traders refused, and the trial proceeded to judgment in favor of Mr. Comunale for $25,000 and Mrs. Comunale for $1,250.6
Sloan did not pay the judgment, and the Comunales sued Traders under a provision in the policy that permitted an injured party to maintain an action after obtaining judgment against the insured.7 In that suit judgment was rendered in favor of Mr. Comunale for $10,000 and in favor of Mrs. Comunale for $1,250.8 This judgment was satisfied by Traders after it was affirmed in Comunale v. Traders & General Ins. Co., 116 Cal.App.2d 198 [253 P.2d 495].9
Comunale obtained an assignment of all of Sloan's rights against Traders and then commenced the present action to recover from Traders the portion of his judgment against Sloan which was in excess of the policy limits.10 The jury returned a verdict in Comunale's favor, but the trial court entered a judgment for Traders notwithstanding the verdict.11
Whether Sloan had a cause of action against Traders for the amount of the judgment in excess of the policy limits?12
There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.13 This principle applies to insurance policies.14 The insurer must take into account the interest of the insured and give it at least as much consideration as it does to its own interest when deciding whether to compromise a claim.15 When there is great risk of a recovery beyond the policy limits so that the most reasonable manner of disposing of the claim is a settlement within those limits, good faith requires the insurer to settle.16 An insurer who wrongfully declines to defend and refuses to accept a reasonable settlement within the policy limits in violation of its duty is liable for the entire judgment against the insured even if it exceeds the policy limits.17 Civil Code section 3300 measures damages as the amount that will compensate for all detriment proximately caused by the breach or which in the ordinary course of things would be likely to result from it.18
Yes. Traders wrongfully denied coverage and refused to defend the suit against Sloan after being notified of the accident, forcing Sloan to retain his own counsel. On the second day of trial Sloan informed Traders of the Comunales' $4,000 settlement offer, his lack of funds to pay it, and the high probability of an excess verdict, yet Traders refused the offer solely because it denied coverage. The resulting judgment awarded Mr. Comunale $25,000, well above the $10,000 per-person limit.19
Traders' refusal to weigh Sloan's interest equally with its own when a reasonable settlement within limits was available breached the implied covenant.20 That breach proximately caused the excess judgment in the ordinary course of events.21 This renders Traders liable for the full amount under Civil Code section 3300 rather than being shielded by the policy limits that restrict only performance of the contract.22
Sloan had a cause of action against Traders for the amount of the judgment in excess of the policy limits.23
Whether Sloan's cause of action against Traders was assignable?24
An action for damages in excess of the policy limits based on an insurer's wrongful failure to settle is assignable whether the action is considered as sounding in tort or in contract under Civil Code section 954.25 A policy clause providing that an assignment of an interest under the policy is binding only with the insurer's consent does not preclude transfer of a cause of action for damages arising from breach of the contract.26
Yes. After obtaining judgment against Sloan, the Comunales received an assignment of all Sloan's rights against Traders and Comunale then filed the present action to recover the excess portion of the judgment.27 The cause of action for breach of the implied covenant of good faith and fair dealing is freely assignable.28 The standard policy clause restricting assignment without consent does not bar assignment of a claim for damages based on breach, because such a claim is distinct from an assignment of rights under the policy itself.29
Sloan's cause of action against Traders was assignable.30
Whether the cause of action was barred by the statute of limitations?31
The four-year limitations period of Code of Civil Procedure section 337, subdivision 1, governs an action upon any contract, obligation or liability founded upon an instrument in writing.32 The promise that the law implies as an element of the contract is as much a part of the written instrument as if it were expressly stated.33 Therefore, an action for breach of the implied covenant of good faith and fair dealing in a written insurance policy is subject to the four-year period rather than the two-year period applicable to obligations not founded on a writing.34
No. The judgment in the underlying bodily injury action became final on August 13, 1950, and the present complaint was filed on May 28, 1954, a period of less than four years.35 Although a wrongful refusal to settle may sound in tort, the plaintiff is free to elect the contract theory where the claim relates to financial loss rather than personal injury. Because the implied obligation is treated as part of the written policy, the four-year statute applies and the action is timely.36
The cause of action was not barred by the statute of limitations.37