# Isaacson v. California Insurance Guarantee Ass'n

> California Supreme Court · March 7, 1988 · 44 Cal. 3d 775

URL: https://www.frixlaw.com/law-library/cases/9565135

## Case

- **Full name:** ALVIN S. ISAACSON Et Al., Plaintiffs and Appellants, v. CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, Defendant and Respondent
- **Court:** California Supreme Court
- **Decided:** March 7, 1988
- **Citations:** 44 Cal. 3d 775; 244 Cal. Rptr. 655; 750 P.2d 297; 1988 Cal. LEXIS 49
- **Precedential status:** Published
- **Opinion:** Dissent by Mosk
- **Judges:** Lucas, Mosk
- **Cited by:** 153 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9565135

## How later opinions describe it (automated extraction)

- holding that California's immunity provision shielded the California Guarantee Association from tort liability in relation to claims adjustment, but not "ordinary tort liability" such as auto negligence or intentional torts
- holding that if insurer violates its contractual duties by refusing to indemnify or defend insured, insured is “entitled to make a reasonable settlement of the claim in good faith”
- finding trial court was correct to reject common law bad faith claim against California Insurance Guarantee Association because of lack of contractual privity between plaintiff and CIGA

## Opinion text

MOSK, J.
I dissent.
An analysis of the record clearly reveals that the California Insurance Guarantee Association (CIGA) did not stubbornly refuse to settle this case on the basis of the facts involved, but took its unrelenting stand in order to deter future demands in future cases brought by future parties. Indeed the CIGA representative candidly communicated that attitude; “unless we stand firm right now we will be forced, on the fear of bad faith, to pay $500,000 on every malpractice claim regardless of negligence.” In my view it is the duty of a court to consider only the facts of the case before it. If we do so dispassionately here, the conclusion is inescapable that CIGA should have paid its policy limits to the seriously injured plaintiff.
The self-protective settlement negotiated by the defendant doctors, after CIGA refused to contribute more than $400,000 to satisfy plaintiff’s demands, appears to have been reasonable under the circumstances. While CIGA constantly refers to a potential maximum liability of $750,000 and only a 50-50 chance of plaintiff prevailing, it conveniently overlooks the communication from counsel for Imperial Insurance Company (Imperial) whom it also retained; “The verdict value is approximately $750,000 in the event of an adverse verdict. It could go higher and it could come in for less. Because there is a substantial risk of an adverse verdict in excess of the policy limits that you have asserted, we must recommend and request that you tender your total coverage to plaintiff to settle this action.” (Italics added.)
The foregoing objective advice from CIGA’s own counsel in this matter follows a previous communication from him: “The liability picture is *796 beginning to favor plaintiff and the damages are potentially very extensive. You should be prepared for a policy limits demand. The case has that kind of jury verdict potential.” A subsequent letter from defense counsel to CIGA referred to a physician’s report that indicated plaintiff in his present condition “is totally and permanently disabled.”
Contrary to the majority view, CIGA is in the insurance business and is bound by the rules that govern insurance companies. While it is not a direct insurer of policyholders, it is an insurer of insurance companies and hence indirectly of their policyholders. That is insurance business, pure and simple. Thus CIGA does not have the moral or legal right to gamble with the resources of its insured’s policyholders, anymore than Imperial had such right to so gamble in reliance on the “no action” clause in the small print of the policy. Yet that is precisely what CIGA maintains it could do in this case, and presumably in other cases with which it appears to be concerned.
As Chief Justice Gibson held for a unanimous court in Communale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 660-661 [ 328 P.2d 198 [ 68 A.L.R.2d 883 ], a carrier that refuses to make “an advantageous settlement when there is a great risk of liability in excess of the policy limits” is liable to its insured for all damage “even if it exceeds the policy limits.” The New York Court of Appeal put it succinctly: “the insurer’s obligation to act in good faith for the insured’s interests may be breached in other ways than by refusing or neglecting to defend a suit. It may be breached by neglect and failure to act protectively when the insured is compelled to make settlement at his peril; . . .” (Isadore Rosen & Sons, Inc. v. Security Mutual Ins. Co. (1972) 31 N.Y.2d 342 [ 339 N.Y.S.2d 97 , 291 N.E.2d 380, 382 ].)
CIGA was insistent on going to trial, contrary to the recommendation of its own counsel, in the fond hope that it might prevail. It was not acting protectively of the insured. If CIGA won, the gamble paid off. If it lost, the gamble still paid off because it was responsible for only the same $500,000 being demanded for settlement. The only losers in the latter scenario would be the insured doctors, who would have been required to pay that portion of the judgment above the $500,000—a judgment potential estimated to be $750,000, more or less, and one that could have reached the $1 million originally demanded by plaintiff as the cost of settlement with Imperial. The proposed gamble with the doctors’ resources clearly established a prima facie case of bad faith. Yet the majority inexplicably approve a nonsuit.
Despite the majority’s tortured reading of the statute creating CIGA, I cannot agree that the Legislature intended to insulate this agency from all tort liability. If a motorist employee of CIGA, in the course of his employment, were to negligently strike a pedestrian in a crosswalk, CIGA should *797 be held liable under traditional respondeat superior doctrine. And if CIGA should be held liable for a negligent act, a fortiori it should be held liable for an intentional tort. Unless the Legislature were to spell it out with particularity, I cannot believe that in this day and age it intends that any entity, even one it creates by statute, be permitted to commit intentional torts with complete immunity. The majority opinion elevates CIGA above the law that binds every other individual, corporation—and insurance company. A rare and exalted position indeed, but frightening to contemplate.
The majority dwell at length on the purported inability of CIGA to obtain the funds with which to pay a tort judgment. I am not at all certain that their apprehensions are justified. But in any event the ability of a tort defendant to satisfy a judgment is wholly irrelevant to its legal liability. Countless plaintiffs hold uncollectable judgments, but they were not denied the opportunity to have their claims adjudicated in a court of law.
In short, this case should have proceeded to trial and judgment. While it is true, as the majority observe, that a settlement is not always an admission of liability, more than a half century ago the general rule was set forth in Lamb v. Belt Casualty Co. (1935) 3 Cal.App.2d 624, 631-632 [ 40 P.2d 311 ]: “The settlement, or a judgment rendered upon a stipulation of such a settlement, becomes presumptive evidence only of the liability of the insured and the amount thereof, which presumption is subject to being overcome by proof on the part of the insurer.” (See also Ritchie v. Anchor Casualty Co. (1955) 135 Cal.App.2d 245, 250 [ 286 P.2d 1000 ].) Thus the doctors should have been allowed to introduce the settlement as presumptive evidence of liability, and any evidence in support of the reasonableness of the settlement amount; in defense CIGA could have produced any evidence it has to establish collusion or other indicia of bad faith in the fact of settlement or the amount thereof; and the trier of fact could then have determined which party is to prevail.
The desirability of this trial proceeding on the merits is underscored by the fact that the settlement judges who considered the contentions of the parties at the trial level expressed the belief that CIGA may have acted in bad faith.
With remarkable obfuscation, the majority in footnote 2 deny they are insulating CIGA from tort liability. 1 Yet they insist CIGA cannot be liable for anything other than the covered claims of the insolvent insurer, and *798 throughout their opinion they refer to CIGA’s tort immunity. Future tort victims of CIGA will have no clear picture of their legal rights.
Instead of allowing a full and fair trial, as did the Court of Appeal, the majority and the trial court decide this controversy by nonsuit. The result appears to be unjust in this case. More ominously, the opinion can be read to insulate CIGA from all intentional torts—indeed, all torts. I can only hope the Legislature promptly acts to make it clear that no agency is above the law.
Respondent’s petition for a rehearing was denied April 6, 1988, and the opinion was modified to read as printed above.
The confusion of the majority is emphasized by their reliance on section 1063.12, subdivision (b) to protest they are really not insulating CIGA from tort liability. That section refers only to individuals who may have served on the board or committees of CIGA and their potential liability. It is irrelevant to causes of action against CIGA.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9565135. Public record. Not legal advice.