912 F2d 470 State Farm Fire and Casualty Company v. Roney

912 F.2d 470

Unpublished Disposition

STATE FARM FIRE AND CASUALTY COMPANY, Plaintiff-Appellee,
v.
Dawn RONEY, individually and as representative for Donald
Roney, deceased, Defendant-Appellant.

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

1

No. 89-15740.

2

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 18, 1990.
Decided Aug. 27, 1990.

3

Before ALARCON and POOLE, Circuit Judges, and DAVIES*

4

MEMORANDUM**

5

Dawn Roney, individually and on behalf of her deceased husband, Don Roney (the Insureds), appeals from the district court's grant of summary judgment in favor of State Farm Fire & Casualty Company (State Farm) in State Farm's declaratory relief action in which it requested a determination that it had no duty to indemnify or defend Don Roney in a tort action brought against him in state court for alleged sexual molestation. The district court also granted summary judgment against the Insureds on their counterclaims that alleged that State Farm had breached the implied covenant of good faith and fair dealing by unreasonably failing to settle the sexual molestation case and by delaying the defense of that action. We affirm.

I.

BACKGROUND

6

This case arises out of a dispute between the Insureds and State Farm concerning the coverage afforded under a homeowner's policy issued in November of 1983. Christine Perlmutter sued Don Roney in state court on November 25, 1985, alleging that he had sexually molested her during the period from 1961 to 1966. Don Roney tendered the defense of that case to State Farm, with whom the Insureds had an insurance policy covering bodily injury. State Farm undertook the defense of the tort action. State Farm informed the Insureds that they were entitled to hire an attorney pursuant to San Diego Navy Fed. Credit Union v. Cumis Ins. Soc'y, Ins., 162 Cal.App.3d 358 (1984), who would be paid for by State Farm to represent their interests in the litigation and to direct the defense of the sexual molestation case. Subsequently, the Insureds hired Gerald Welch to represent their interests in the state action.

7

On July 24, 1986, while the state tort action was still pending, State Farm filed this action seeking a declaration that it had no duty to indemnify or defend Don Roney. Two days after he received service of process in the declaratory judgment suit, Don Roney died. Dawn Roney was then substituted as his representative, and was also named as a party in her individual capacity in response to her request.

8

On September 3, 1987, the state trial court denied State Farm's first motion to dismiss Perlmutter's sexual molestation action. State Farm filed a second summary judgment motion on July 12, 1988 after a change in California case law relating to the statute of limitations. Perlmutter did not oppose this motion. On July 21, 1988, the state court dismissed the sexual molestation action.

9

During the course of the state action, State Farm declined to consider Perlmutter's offers to settle the case for $35,000 and, later, after Roney's first motion for summary judgment failed, for $60,000. Perlmutter made the settlement offers to Kincaid, Gianunzio, Caudle, and Hubert, the law firm hired by State Farm to defend Don Roney. Kincaid forwarded the offers to State Farm and Gerald Welch, the Insureds' Cumis counsel.

10

On September 4, 1987, Dawn Roney filed counterclaims in this declaratory relief action in which she alleged that State Farm breached the implied covenant of good faith and fair dealing by failing to enter into settlement negotiations and intentionally delaying the defense of the sexual molestation case in order to obtain a favorable declaratory judgment in this matter. She also requested compensation for emotional distress, punitive damages, and attorneys' fees.

11

The district court issued a series of tentative rulings, followed by an order granting State Farm's motion for summary judgment on all claims. The district court concluded that State Farm had no duty to defend or indemnify Don Roney. The district court also determined that State Farm breached its implied duty of good faith and fair dealing by failing to consider Perlmutter's settlement offers. The district court ruled, however, that the Insureds suffered no injury as a result of State Farm's breach because the sexual molestation case was dismissed and the Insureds incurred no liability. The district court further held that Dawn Roney had not provided any evidentiary support, in response to State Farms' motion for summary judgment, for her claim that it had delayed the sexual molestation case or that she suffered any injury as a result. Finally, the district court held that State Farm owed no duty to Dawn Roney under the "innocent insured" theory.

II.

DISCUSSION

12

Dawn Roney contends that the district court erred in granting summary judgment to State Farm. She argues that as a result of State Farm's breach of the implied covenant of good faith and fair dealing, as found by the district court, she is entitled to compensation for emotional distress, punitive damages, and attorneys' fees. State Farm asserts that it did not breach the implied covenant of good faith and fair dealing in failing to consider or evaluate settlement offers and that there is no factual support for the Insureds' argument regarding delay of the state court proceedings or any resulting injury.

13

We review the district court's grant of summary judgment and interpretations of state law de novo. Morton v. Safeco Ins. Co., No. 89-1519, slip op. at 5893 (9th Cir. June 7, 1990). California substantive law controls this diversity insurance case. Id.

14

We need not address the question whether State Farm had a duty to defend and indemnify the Insureds, or whether Dawn Roney was an "innocent insured," because State Farm provided counsel who successfully defended the sexual molestation charges. Thus, the Insureds incurred no personal liability.

15

Upon our de novo review of the record, we have concluded that State Farm's refusal to consider or evaluate settlement offers did not breach the implied covenant of good faith and fair dealing. Therefore, we need not determine whether State Farm's refusal to consider settlement injured Dawn Roney.

16

Under California law, "liability based on an implied covenant exists whenever the insurer refuses to settle in an appropriate case." Crisci v. Security Ins. Co., 66 Cal.2d 425, 426 P.2d 173, 176, 58 Cal.Rptr. 13 (1967). An insurer has a duty to settle when "the most reasonable manner of disposing of the claim is a settlement which can be made" within policy limits. Id. The test for reasonableness is "whether, in light of the victim's injuries and the probable liability of the insured, the ultimate judgment is likely to exceed" the settlement offer. Johansen v. California State Inter-Ins. Bureau, 15 Cal.3d 9, 538 P.2d 744, 748, 123 Cal.Rptr. 288 (1975). The Insureds have not demonstrated that a reasonable settlement offer was rejected or that settlement was appropriate considering the available defenses to Perlmutter's sexual molestation claim.

17

Perlmutter's claim was filed 19 years after the alleged molestation occurred. First, Perlmutter would have had a formidable task in persuading a jury that she was molested almost two decades ago. Indeed, Perlmutter's own deposition reveals that time has eroded any precise recollection of past events. Second, Don Roney vehemently denied any acts of sexual molestation. State Farm was entitled to consider his denial that any sexual molestation occurred in evaluating whether to settle. Third, State Farm's most compelling justification for refusing to consider settlement was that it was firmly confident that there was a statute of limitations defense to Perlmutter's sexual molestation action. As noted above, Perlmutter's attorney failed to oppose State Farm's summary judgment motion based on the statute of limitations. The Insureds offered no evidence showing that it would have been reasonable for State Farm to settle this matter. Accordingly, we are persuaded that State Farm did not breach the implied covenant of good faith and fair dealing in refusing to consider or accept Perlmutter's settlement offers.

18

The Insureds' contention that they were injured because State Farm improperly delayed the defense of the sexual molestation suit is not supported by any evidence in this record. An insurer is liable for emotional distress and punitive damages for a tortious breach of the implied covenant of good faith and fair dealing. Larraburu Bros., Inc. v. Royal Indemnity Co., 604 F.2d 1208, 1213 (9th Cir.1979) (interpreting California law).

19

The Insureds completely failed to make any showing beyond the bare allegations in their counterclaim that they were injured by the alleged delay in terminating Perlmutter's sexual molestation action. Federal Rule of Civil Procedure 56(e) provides that reliance on the pleadings cannot avoid summary judgment. Rule 56(e) states:

20

When a motion for summary judgment is made and supported as provided by this rule, an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial.

21

F.R.C.P. 56(e). "[T]he plain language of Rule 56(c) mandates the entry of summary judgment, ... against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). To demonstrate that a genuine issue exists there must be "sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (citations omitted).

22

Dawn Roney did not offer any evidence in response to State Farm's motion for a summary judgment. Thus, she failed to demonstrate that she suffered any emotional distress or that she was entitled to punitive damages. At oral argument, Dawn Roney's counsel stated that he could not "pinpoint" anything in the record to demonstrate that Dawn Roney suffered from emotional distress. Given that an insured may only recover for emotional distress that is "substantial and enduring," Johnson v. Mutual Benefit Life Ins. Co., 847 F.2d 600, 603 (9th Cir.1988), she has not made an adequate showing of such injury to avoid summary judgment. Similarly, the Insureds offered no evidence to demonstrate that State Farm was "guilty of oppression, fraud or malice" that would support an award of punitive damages. Neal v. Farmers Ins. Exchange, 21 Cal.3d 910, 582 P.2d 980, 988, 148 Cal.Rptr. 389 (1978).

23

The Insureds also seek attorneys' fees as an element of damages incurred by State Farms' alleged breach of the implied covenant of good faith and fair dealing. The California Supreme Court has held that attorneys' fees constitute a proper element of damages recoverable for an insurer's breach of the implied covenant of good faith and fair dealing. Brandt v. Superior Court, 37 Cal.3d 813, 693 P.2d 796, 798, 210 Cal.Rptr. 211 (1985). The fees recoverable as damages in such cases, however, are limited to those incurred in efforts to obtain benefits that are due under the insurance policy. Id. State Farm paid the fees of the attorney who defended Don Roney in the action filed by Perlmutter. Accordingly, the Insureds are not entitled to an award of attorneys' fees.

CONCLUSION

24

Based on our independent review of the record, we conclude that State Farm did not breach the implied covenant of good faith and fair dealing in refusing to consider or accept Perlmutter's settlement offers. Because no evidence of injury resulting from delay was presented in response to the motion for summary judgment, the record does not support a judgment for emotional distress. The absence of any evidence of oppression, fraud, or malice precludes recovery of punitive damages. Attorneys' fees were properly denied by the district court.

25

The Judgment is AFFIRMED.

*

Honorable John G. Davies, United States District Judge for the Central District of California, sitting by designation

**

This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3