Gourley v. State Farm Mutual Automobile Insurance

BROUSSARD,J.

I dissent. By denying recovery of interest the majority reward the insurer for delaying payment of its just debt and refusing to accept a statutory settlement offer in an amount less than the amount owed. The majority reach this result by ignoring in their analysis of Civil Code section 3291 the related prejudgment interest code provisions, the literal meaning of the language of section 3291, and the basic policies underlying the award of prejudgment interest. 1 The justification offered for this result— this is a case arising from an invasion of property interests and not a personal injury action—far from providing a justification for the majority’s conclusion, points in the opposite direction because, as will appear, prejudgment interest is ordinarily recoverable in property cases. The majority have created a special exemption from the interest provisions applicable only to insurance companies and only to those insurers who have acted in bad faith. I see no justification for rewarding bad faith. Moreover, contrary to the clear legislative intent to encourage settlement by providing for the recovery of interest, the majority encourage insurers to delay and refuse settlement so that they may lend or invest funds and reap the profits and interest for their own purposes, when the funds should have been paid to the injured party.

“The fundamental rule of statutory construction is that the court should ascertain the intent of the Legislature so as to effectuate the purpose of the law. [Citations.] Moreover, ‘every statute should be construed with reference to the whole system of law of which it is a part so that all may be harmonized and have effect.’ [Citation.] If possible, significance should be given to every word, phrase, sentence and part of an act in pursuance of the legislative purpose. [Citation.]” (Select Base Materials v. Board of Equal. (1959) 51 Cal.2d 640, 645 [ 335 P.2d 672 ]; see Taxpayers to Limit Campaign Spending v. Fair Pol. Practices Com. (1990) 51 Cal.3d 744, 764 [ 274 *132 Cal.Rptr. 787 , 799 P.2d 1220 ]; Moyer v. Workmen's Comp. Appeals Bd. (1973) 10 Cal.3d 222, 230-232 [ 110 Cal.Rptr. 144 , 514 P.2d 1224 ].)

Accordingly, in ascertaining the legislative intent in enacting section 3291, we must consider the related provisions for prejudgment interest of sections 3287 and 3288 and Code of Civil Procedure section 998, which is specifically referred to in section 3291.

Section 3287, subdivision (a) is the basic provision governing prejudgment interest or interest as damages. It provides: “Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt . . . .”

It has long been settled that section 3287 should be broadly interpreted to provide just compensation to the injured party for loss of use of money during the prejudgment period. (Cox v. McLaughlin (1888) 76 Cal. 60, 68-69 [ 18 P. 100 ] [tracing modification of early rule from ascertainment of sum due from face of contract to reference to standards providing debtor with “proximate knowledge” of amount due]; Chesapeake Industries, Inc. v. Togova Enterprises, Inc. (1983) 149 Cal.App.3d 901, 906, 914 [ 197 Cal.Rptr. 348 ].) Thus, when value of property can be readily ascertained, prejudgment interest is allowed for its taking or destruction. (Leff v. Gunter (1983) 33 Cal.3d 508, 519-520 [ 189 Cal.Rptr. 377 , 658 P.2d 740 ]; Hamer v. Hathaway (1867) 33 Cal. 117, 119-120 ; Levy-Zentner Co. v. Southern Pac. Transportation Co. (1977) 74 Cal.App.3d 762, 797-798 [ 142 Cal.Rptr. 1 ]; 6 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 1397, p. 868.) Prejudgment interest is awarded where the value of the destroyed property is established by estimates of appraisers. (Leff v. Gunter, supra, 33 Cal.3d 508, 519-520 ; Koyer v. Detroit F. &. M. Ins. Co. (1937) 9 Cal.2d 336, 345-346 [ 70 P.2d 927 ].) Prejudgment interest must be awarded as a matter of right under section 3287, subdivision (a), in “tort actions for property damages . . . where the value of the property destroyed can be readily calculated by reference to market values or expert testimony . . . .” (Levy-Zentner Co. v. Southern Pac. Transportation Co., supra, 74 Cal.App.3d 762, 797-798 .) Prejudgment interest is also awarded on a cost-plus contract notwithstanding that some of the cost items include percentages of the plaintiff’s indirect and overhead costs. (Coleman Engineering Co. v. North American Aviation, Inc. (1966) 65 Cal.2d 396, 407-409 [ 55 Cal.Rptr. 1 , 420 P.2d 713 ].)

The fact that liability may be disputed does not preclude prejudgment interest. (Olson v. Cory (1983) 35 Cal.3d 390, 402 [ 197 Cal.Rptr. 843 , 673 *133 P.2d 720 ].) Nor is an award of prejudgment interest precluded by the facts that the defendant may have had unliquidated offsets, that the plaintiff reduced damages by mitigating measures (Coleman Engineering Co. v. North American Aviation, Inc., supra, 65 Cal.2d 396, 409 ), or that the defendant was precluded from making payment by a statute subsequently declared invalid (Olson v. Cory, supra, 35 Cal.3d at p. 402 et seq.).

While the provision for prejudgment interest in section 3287, subdivision (a) has been broadly construed to provide compensation for loss of use of property, money, or contractual performance during the prejudgment period, the Legislature has been aware that in some cases damages are not subject to calculation even under the broad construction of subdivision (a). Subdivision (b) of the section provides for interest in contract cases where damages are uncertain or not capable of being made certain. “Every person who is entitled under any judgment to receive damages based upon a cause of action in contract where the claim was unliquidated, may also recover interest thereon from a date prior to the entry of judgment as the court may, in its discretion, fix, but in no event earlier than the date the action was filed.”

The discretion conferred is limited by the purposes underlying interest awards, and, when the trial court abuses its discretion by denying interest, the matter may be remedied on appeal. (Esgro Central, Inc. v. General Ins. Co. (1971) 20 Cal.App.3d 1054, 1064-1065 [ 98 Cal.Rptr. 153 ].)

Section 3288 provides for discretionary interest in cases other than contractual cases, including tort cases. Unlike section 3287, subdivision (b), interest for the period prior to filing of the action is not precluded. The section reads: “In an action for the breach of an obligation not arising from contract, and in every case of oppression, fraud, or malice, interest may be given, in the discretion of the jury.”

To recover under section 3288, a plaintiff need not prove both a breach of a noncontractual obligation and oppression, fraud, or malice; a noncontractual obligation is sufficient. Prejudgment interest is awarded for loss of property and under this section is not limited to the date of the filing of the complaint. (Bullís v. Security Pac. Nat. Bank (1978) 21 Cal.3d 801, 814-815 [ 148 Cal.Rptr. 22 , 582 P.2d 109 , 7 A.L.R.4th 642 ]; Harsany v. Cessna Aircraft Co. (1983) 148 Cal.App.3d 1139, 1143-1444 [ 196 Cal.Rptr. 374 ].)

It is thus clear that the Legislature has broadly provided for interest as damages to compensate for the loss of use of property, funds, and contractual performance caused by the delay in payment. The provisions are in furtherance of the general provisions for contract and tort damages, the *134 “amount which will compensate the party aggrieved for all the detriment proximately caused.” (§§ 3300, 3333.) In the ordinary case a plaintiff who was paid promptly for his or her damages would be able to invest the funds or obtain interest so the loss of interest is part of the “detriment proximately caused.” “The award of such interest represents the accretion of wealth which money or particular property could have produced during a period of loss.” (Greater Westchester Homeowners Assn. v. City of Los Angeles (1979) 26 Cal.3d 86, 102-103 [ 160 Cal.Rptr. 733 , 603 P.2d 1329 ]; Harsany v. Cessna Aircraft Co., supra, 148 Cal.App.3d 1139, 1143 .)

When the debtor has delayed payment of the damages caused by his or her wrongdoing, the debtor is able to invest the money at interest, and the effect of denying recovery of prejudgment interest is to require the plaintiff to make an interest-free loan to the defendant from the time of loss until judgment. Because noninterest bearing loans are very valuable, it is in the interest of the “borrower” to prolong the loan as long as possible, and denial of interest provides a substantial incentive for defendants to prolong settlement negotiations or to refuse settlements contrary to our policy of encouraging settlements. (See Morin v. ABA Recovery Service, Inc. (1987) 195 Cal.App.3d 200, 207 [ 240 Cal.Rptr. 509 ]; Gutierrez v. State Ranch Services (1983) 150 Cal.App.3d 83, 85, fn. 4 [ 198 Cal.Rptr. 16 ].)

However, the courts have traditionally refused to apply sections 3287 and 3288 in situations where the defendant could not know the amount owed (e.g., Cox v. McLaughlin, supra, 76 Cal. 60, 67 ; Chesapeake Industries, Inc. v. Togova Enterprises, Inc., supra, 149 Cal.App.3d 901, 906-907 ), as in claims for damages for the noneconomic aspects of physical, mental and emotional injury. “They are inherently nonpecuniary, unliquidated and not readily subject to precise calculation. The amount of such damages is necessarily left to the subjective discretion of the trier of fact. Retroactive interest on such damages adds uncertain conjecture to speculation. Moreover where, as here, the injury was of a continuing nature, it is particularly difficult to determine when any particular increment of intangible loss arose . . . . [1J] [A] fact finder in assessing a claim of general damages for physical, mental and emotional suffering, possesses full authority to consider the duration of the alleged suffering. Accordingly, the disallowance of any interest on such a claim does not deprive the claimant of compensation for an element of actual damage. To the contrary, its allowance, in fact, may in a given case create a double recovery.” (Greater Westchester Homeowners Assn. v. City of Los Angeles, supra, 26 Cal.3d 86, 103 .)

On the other hand, it should be recognized that by delaying payment of damages the defendant obtains the benefit of investing the money between the time of injury and the time of judgment. While the amount of benefit *135 may be speculative and conjectural, the fact of benefit is clear. Further, although allowance of interest may in a given case result in double recovery, the denial of interest in other cases may result in the plaintiff failing to recover compensation “for all the detriment proximately caused.” (§§ 3300, 3333.) And whatever reason is offered for the denial of interest, the denial provides a disincentive for settlement.

With this background of the related prejudgment-interest code sections we may now turn to section 3291. Sections 3287 and 3288 were first enacted in 1872, and no doubt the Legislature was well aware of their provisions when it enacted section 3291 in 1982. (Stats. 1982, ch. 150, § 1, p. 493.) The latter section provides for limited prejudgment interest in cases involving personal injury where the plaintiff makes a statutory offer to settle and then recovers a judgment in excess of the offered settlement.

Section 3291 reads: “In any action brought to recover damages for personal injury sustained by any person resulting from or occasioned by the tort of any person, corporation, association, or partnership, whether by negligence or by willful intent of the other person, corporation, association, or partnership, and whether the injury was fatal or otherwise, it is lawful for the plaintiff in the complaint to claim interest on the damages alleged as provided in this section.

“If the plaintiff makes an offer pursuant to Section 998 of the Code of Civil Procedure which the defendant does not accept prior to trial or within 30 days, whichever occurs first, and the plaintiff obtains a more favorable judgment, the judgment shall bear interest at the legal rate of 10 percent per annum calculated from the date of the plaintiff’s first offer pursuant to Section 998 of the Code of Civil Procedure which is exceeded by the judgment, and interest shall accrue until satisfaction of the judgment.” (Italics added.)

Under Code of Civil Procedure section 998 the parties to the litigation may make formal offers to settle, and if the offers are refused and the judgment exceeds the plaintiff’s offer, the plaintiff may recover certain costs. Similarly, if a defendant’s offer is not accepted and the plaintiff fails to obtain a more favorable judgment, the defendant will be awarded certain costs. The provisions of Code of Civil Procedure section 998 apply to all actions and are not limited to cases involving claims for personal injury damages.

Section 3291 obviously reflects a legislative purpose to encourage settlement by providing for a potential award of prejudgment interest. The Legislature in adopting section 3291 has clearly determined two matters. The fact *136 that defendant cannot know the amount owed does not furnish a reason to deny all interest in cases where the plaintiff has made the specified offer and recovered a judgment in excess of the offer. The Legislature has determined that the amount of the plaintiff’s offer to settle furnishes a sufficient certainty that the defendant cannot claim that he or she did not know the amount owed. Secondly, the Legislature has determined that the risk of double recovery, balanced by the risk of inadequate recovery, does not warrant total denial of prejudgment interest for damages for personal injury where an offer by the plaintiff under Code of Civil Procedure section 998 has been refused and the plaintiff recovers a more favorable judgment.

In accordance with the language of section 3291 and its legislative purpose to promote settlement, we should hold that section 3291 may be applied in any case where the plaintiff seeks to recover damages for personal injury in a tort action, irrespective of the legal theory upon which he or she proceeds. The language of the section is: “In any action brought to recover damages for personal injury by any person resulting from or occasioned by the tort of any other person, . . .” (Italics added.) The code section does not say “personal injury action” but rather refers to “any” action to recover personal injury damages. The test is whether the action sounds in tort and whether personal injury damages are sought. There is thus no justification to limit the section to actions which may be characterized as personal injury actions as opposed to actions which involve personal injury damages whether they be characterized as personal injury actions, or property actions. The code section refers to “tort.” It does not purport to distinguish between tort actions based on property interest invasions and other tort actions. The requirement is only that damages for personal injury be sought. I see no reason to depart from the plain language of the section and engraft a requirement that the action seeking damages for personal injury must not only seek such damages but must also be such that the action as a whole would be characterized as a personal injury action rather than a property damage action.

The fact that only part of a plaintiff’s damages qualify for prejudgment interest, with other parts unqualified, should not preclude recovery of prejudgment interest on the portion qualified. When a case involves multiple types of damages, a plaintiff who recovers judgment should be permitted to recover prejudgment interest as to each type if warranted under the statutory provisions. For example, in the common automobile collision the plaintiff ordinarily should be permitted to recover prejudgment interest under section 3287, subdivision (a) for the damage or destruction of the automobile because the damages are capable of being made certain by calculation. The plaintiff also ought to be able to recover prejudgment interest under subdivision (a) of section 3287 for loss of earnings if the damages can be deter *137 mined by calculation or section 3288 for loss of earnings if the damages cannot be determined by calculation.

Although other damages such as pain or suffering may be uncertain or speculative precluding prejudgment interest in the absence of a statutory settlement offer, this fact should not preclude recovery of prejudgment interest as to the damages to the car or loss of earnings. There is no reasonable basis to conclude that the plaintiff’s joinder of claims warranting prejudgment interest with claims which do not permit prejudgment interest should work a forfeiture of the right to prejudgment interest on the former claims.

Similarly, the fact that the multiple injuries of a plaintiff may warrant prejudgment interest under different code sections should not require a forfeiture of any of the rights to prejudgment interest. The code sections may be easily applied to allow appropriate prejudgment interest for each class of damages.

It is well settled that an action, like that involved here, for breach of the covenant of good faith and fair dealing sounds in both contract and tort and ordinarily the plaintiff will have freedom of election between an action of tort and one of contract. (Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 432 [ 58 Cal.Rptr. 13 , 426 P.2d 173 ]; Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 663 [ 328 P.2d 198 , 68 A.L.R.2d 883 ].) In the bad faith action, the plaintiff may recover damages for economic loss and, as the majority point out, may recover damages for mental distress due to the invasion of property rights. (Maj. opn., ante, pp. 127-128; Crisci v. Security Ins. Co., supra, 66 Cal.2d 425 , 432 et seq.) In my view, when the plaintiff has made an offer to settle pursuant to Code of Civil Procedure section 998 and then recovered a judgment in a greater amount, the plaintiff should be entitled to prejudgment interest on the entire judgment, including mental distress damages, from the date of the statutory offer to settle; additional prejudgment interest from the time of filing the action to the date of settlement offer on other contract claims within the discretion of the court under section 3287, subdivision (b); discretionary prejudgment interest on other tort damages under section 3288; and prejudgment interest as a matter of right from the time of loss to the date of the settlement offer pursuant to section 3287, subdivision (a), insofar as the damages were subject to calculation. Such awards are necessary to meet the legislative goals of compensating “the party aggrieved for all the detriment proximately caused” (§§ 3300, 3333) and of furthering the policy in favor of settlement.

The majority interpret section 3291 as being limited to an “ ‘action . . . for personal injury’ ” (omission marks in maj. opn.; maj. opn., ante, pp. 126- *138 127) and conclude that a bad faith action does not come within the quoted term because it is an action for interference with a property right with mental distress damages awarded as an aggravation of the financial damages and not as a separate cause of action. (Maj. opn., ante, at pp. 129-130.) The majority have conveniently omitted the crucial part of the statute. The wording of section 3291 is “any action brought to recover damages for personal injury sustained by any person resulting from or occasioned by the tort of any other person.” (Italics added.) As pointed out above, the section should apply, in view of the use of the words “any” and “tort” to all actions where the plaintiff seeks personal injury damages due to the defendant’s tortious conduct. To limit the statute to cases where the plaintiff seeks only personal injury damages or brings a separate personal injury cause of action is improper in view of the language used, the statutory pattern attempting to permit and require prejudgment interest so that the injured party will be fully compensated by the wrongdoer, and the legislative policy to encourage settlement by taking the profit out of delay.

In the instant action, plaintiff sought “to recover damages for personal injury.” Section 3291 does not require that the action be a personal injury action, or provide that it is inapplicable to actions involving an interference with property rights. The Court of Appeal concluded that the section was applicable, and I would affirm its judgment.

Mosk, J., concurred.

Appellant’s petition for a rehearing was denied May 23, 1991, and the opinion was modified to read as printed above.

All references to statutory provisions are to the Civil Code unless otherwise noted.