California Shoppers, Inc. v. Royal Globe Insurance Co.

*69 RICKLES, J.

I respectfully dissent from that portion of the majority opinion which strikes the damages awarded for (1) economic loss and (2) attorney’s fees.

The majority today bids a fond farewell to traditional principles of appellate review. With mechanical regularity, the majority intones that defendant’s behavior was not unreasonable as a matter of law based on the only permissible inferences to be drawn from the direct undisputed evidence. The truth, however, is that the evidence and the reasonable inferences therefrom amply support the conclusion that defendant breached its covenant of good faith and fair dealing.

The majority compounds the problem by misconstruing the law governing an insurer’s breach of its implied covenant of good faith and fair dealing.

I am compelled therefore to set both the law and the record straight.

I

The Facts

In examining the evidence, it must be borne in mind that an appellate court considers the evidence in the light most favorable to the prevailing party, giving that party the benefit of every reasonable inference and resolving any conflicts in support of the judgment. (Tyrone v. Kelley (1973) 9 Cal.3d 1, 7 [ 106 Cal.Rptr. 671 , 507 P.2d 65 ].) The majority inverts this rule, stating the facts, resolving conflicts in the evidence, and drawing inferences therefrom all most favorably to the appellant, while ignoring many reasonable and crucial inferences favorable to the prevailing party. They have stood the substantial evidence rule on its head. What was traditionally a principle of judicial restraint and disinterested judgment, in the hands of the majority becomes a subtle weapon of appellate advocacy. What must be done is review the facts in some detail utilizing the correct standard.

Plaintiff tried this case on the theory that defendant received notice of, and breached its duty to defend, on at least two separate occasions. The first occurred in May of 1975, when plaintiff sent a copy of the Uneedus complaint to Jay & Renfro, defendant's agent. 1 Jay & Renfro had been an *70 insurance broker for defendant for some time and was the procuring broker for the insurance policies of both Adco and plaintiff. Plaintiff sent the summons and complaint to Jay & Renfro in an Adco envelope.

Adco was not a named defendant, California Shoppers was. Jay & Renfro totally ignored this fact and forwarded the summons and complaint with a standard form referencing a policy number for Adco rather than for plaintiff. 2 (Adco and California Shoppers shared several principal stockholders.) Defendant’s claims manager, Richard Scott, received the summons and complaint from Jay & Renfro. Scott claims that he checked the policy number, learned that it was issued to Adco, observed that Adco was not a named party in the complaint, and concluded that the policy did not cover the enclosed complaint. Shortly thereafter, Scott rejected the claim on the grounds that the policy provided “no coverage ... for this suit.”

Scott later claimed that he rejected the claim solely on the grounds that the policy number referenced Adco and that Adco was not named in the complaint. However, Scott had no adequate explanation as to why he informed Adco that their claim was being rejected on the grounds the policy provided “no coverage ... for this suit,” rather than accurately informing them that Adco was not named in the complaint forwarded with Adco’s policy number.

Roy Gibson, claims manager for Jay & Renfro, testified he had several conversations with Scott at this time. When Gibson was asked about conversations with Scott as to whether Royal Globe was going to accept or reject coverage, Gibson’s answer was “I don’t remember.” Later on, Gibson was again questioned about whether there was any understanding that California Shoppers was insured by Royal Globe. He answered, “It was never brought up.” The questioning persisted. Gibson was asked whether California Shoppers was an insured of Royal Globe’s in May 1975. He answered, “With us, no. I had never heard of California Shoppers.” (Adopted from the majority opinion, p. 46, ante.) Gibson did concede Scott had rejected the claim on the ground that the lawsuit was not covered under the policy.

Scott further admitted that he never investigated whether California Shoppers, or any of the individuals actually named in the complaint, was covered by Royal Globe. Nor did he check to see whether Adco’s policy contained additional insureds who might be named in the complaint. Nor did Scott inquire of Jay & Renfro, who was his company’s agent, the policy’s pro *71 curing broker and the party that had actually transmitted the complaint to Royal Globe, as to why they had sent him a complaint under a policy number referencing no party named in the complaint! Scott did not follow his own admitted routine in this case which was “to check and see if any of the individuals under the Adco policy were an additional named insured.” Defendant Royal Globe’s own expert witness, W. Mike McCray, stated that any bona fide insurance company would normally have checked to see whether any of the defendants named in the complaint were covered under a policy with the company. Scott admitted that “it probably would have struck me as very strange that the policy was sent to me as Adco Advertising and yet they were not a named defendant.” Notwithstanding this seemingly unusual occurrence, Scott stated he undertook no investigation beyond comparing the policy number with the named defendants.

Confronted with these facts, the jury in this case was asked to determine whether defendant’s refusal to defend was unreasonable and constituted a breach of its implied covenant of good faith and fair dealing. They determined that it was. 3 The evidence provides two separate and substantial grounds for their finding. First, the jury may have disbelieved Scott; they could reasonably have concluded that Scott actually knew or had reason to believe that California Shoppers was insured by defendant. Second, they could have concluded that Scott’s failure adequately to investigate the source of the claim was studied negligence and was totally unreasonable, thereby constituting a breach of its covenant of good faith and fair dealing.

As to the first of these possibilities, Gibson testified he could not remember whether Scott indicated Royal Globe was going to accept or reject coverage. California Shoppers was never mentioned and California Shoppers was not insured by Royal Globe in May 1975. 4 Scott claimed he undertook no investigation to explain the discrepancy between the names on the complaint and the name on the accompanying policy number. He claimed further the only means available of ascertaining whether an individual or business was insured with defendant was through its policy number. Lacking California Shoppers’ policy number, he could not have verified that it was insured by defendant, even if he had wanted to. This is patently untrue as *72 Scott could have easily discovered California Shoppers was covered by requesting defendant’s- agent (Jay & Renfro) to check their records. Even defendant’s own expert witness, W. Mike McCray, questioned whether a bona fide insurance company would lack alternative means of checking to see whether a particular entity was one of its insureds. Indeed, Scott’s claim he undertook no investigation (contrary to his regular routine) to identify California Shoppers was thrown into further doubt by his admission that “it would probably have struck me as very strange that the policy was sent to me as Adco Advertising and yet they were not a named defendant.”

Moreover, Scott had no adequate explanation as to why he had not truthfully and accurately informed Adco at the time that they were requesting defense of a lawsuit in which they were not a named defendant. Instead, Scott wrote them that “there would be no coverage for this suit.” What “coverage” could Scott have been referring to if the complaint was entirely unrelated to Adco?

The contradictions and inherent improbabilities in Gibson’s and Scott’s testimony, in short, could reasonably support an inference that Scott either knew or willfully neglected to confirm the fact that plaintiff had a policy with defendant. If this was the case, then defendant unquestionably breached its covenant of good faith and fair dealing with its insured.

Notwithstanding the above, the majority argues that the jury was not entitled as a matter of law to infer wrongful conduct from Scott’s “uncontradicted” protestations of innocence. This contention is palpably erroneous. The majority cites as one authority, section 3545 of the Civil Code, which states the venerable legal maxim that “[p]rivate transactions are fair and regular.” From this, in spite of its disclaimer to the contrary, the majority extrapolates the rule that bad faith cannot be inferred unless there is direct evidence upon which to base such an inference. However, Civil Code, section 3545, cited by the majority in support of this novel rule, has been thoroughly eviscerated in recent years. In fact, with the enactment in 1967 of Evidence Code section 600, subdivision (a), the “former presumption of fairness and regularity . . . has been replaced by a statutory maxim cautioning that private transactions are (usually) fair and regular.” (Lane & Pryon, Inc. v. Gibbs (1968) 266 Cal.App.2d 61, 66 [ 71 Cal.Rptr. 817 ]; italics supplied.)

There is no rule of law in California that bad faith must be established by direct evidence. The law does not mandate that a jury must accept a defendant’s claim of innocence where there is no “direct” evidence to refute it. On the contrary, it is well settled that the trier of fact “has an inherent right to disregard the testimony of any witness, or the effect of any prima *73 facie showing based thereon, when he is satisfied that the witness is not telling the truth or his testimony is inherently improbable due to its inaccuracy, due to uncertainty, lapse of time, or interest or bias of the witness. All of these things may be properly considered in determining the weight to be given the testimony of a witness although there be no adverse testimony adduced. The [trier of fact] is the arbiter of the credibility of the witnesses. A witness may be contradicted by the facts he states as completely as by direct adverse testimony, and there may be so many omissions in his account of particular transactions or of his own conduct as to discredit his whole story. His manner of testifying may give rise to doubts of his sincerity and create the impression that he is giving a wrong coloring to material facts.” (Camp v. Ortega (1962) 209 Cal.App.2d 275, 282-283 [ 25 Cal.Rptr. 873 ], quoting La Jolla Casa de Manana v. Hopkins (1950) 98 Cal.App.2d 339, 345-346 [ 219 P.2d 871 ]; italics supplied. See also Quock Ting v. United States (1891) 140 U.S. 417, 420-421 [ 35 L.Ed. 501, 502 , 11 S.Ct. 733 ]; Davis v. Judson (1910) 159 Cal. 121, 128 [ 113 P. 147 ].)

The majority alleges that I “buy into” plaintiff’s argument that Scott consciously rejected plaintiff’s claim. Nothing could be further from the truth. I view the evidence in the record and attempt to judge as dispassionately as possible what a reasonable person could infer therefrom. Indeed, unlike the majority which unabashedly characterizes Scott’s testimony as neither “evasive nor dissembling,” I am unwilling to substitute myself for the jury and attempt to evaluate the demeanor or credibility of witnesses whom I did not personally observe. I have found selective memories most difficult to evaluate.

I do buy into the theory the jury could reasonably infer from the evidence that Scott consciously rejected plaintiff’s claim. Arriving at whether such an inference can be drawn requires an appreciation of the quality of facts necessary for an inference. It is not necessary that the party show an inference in his favor is the only one that may be reasonably drawn from the evidence; he need only show that the material fact to be proved may logically and reasonably be inferred from the direct and circumstantial evidence. (See Dimond v. Caterpillar Tractor Co. (1976) 65 Cal.App.3d 173, 181-182 [ 134 Cal.Rptr. 895 ].) Bearing these principles in mind and based upon the direct and circumstantial evidence heretofore set out, the jury could reasonably infer Scott either had actual knowledge or failed to acquire actual knowledge as a result of his own conscious neglect.

There is yet a second evidentiary basis for upholding the verdict. The jury could have believed Scott’s testimony he was unaware of plaintiff’s existence, but reasonably have concluded that his ignorance was the result of “ostrich-like” negligence and nonexistent investigative procedures. As the majority observes: “[T]he facts confronting the claims manager Scott were *74 such as to put him on notice of the need to make a further inquiry. If he had made this further inquiry, he would have discovered that it was actually California Shoppers who had tendered the summons and complaint for defense, and then Royal Globe would have olfered to defend. ... In the aggregate, this represents a classic case of constructive notice which raised the contractual duty to defend. In other words, given the appropriate circumstances, the law will charge a party with notice of all those facts which he might have ascertained had he diligently pursued the requisite inquiry.”

An insurer cannot reasonably and in good faith deny benefits under its policy without thoroughly investigating the foundation for its denial. (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819 [ 169 Cal.Rptr. 691 , 620 P.2d 141 ].) This duty exists whether the subject of investigation is the validity of plaintiff’s claim as in Egan, or the existence of plaintiff’s policy, as here. It was patently obvious someone was asking Royal Globe for a defense. Based upon the evidence, I believe the jury here could reasonably have concluded that Royal Globe’s investigation of, and response to, the Uneedus claim was unreasonable and constituted a breach of its duty of good faith and fair dealing. As the cases have continually emphasized, breach of the implied covenant of good faith and fair dealing, at least with respect to compensatory, as distinct from exemplary, damages, is “not meant to connote the . . . presence of positive misconduct of a malicious or immoral nature. ...” (Neal v. Farmers Ins. Exchange (1978) 21 Cal. 3d 910, 921-922, fn. 5 [ 148 Cal.Rptr. 389 , 582 P.2d 980 ].) In order to recover in tort for bad faith, an insured “must prove only that the insurance company acted negligently, i.e., that a ‘prudent insurer’ would have paid the claim. (See Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 818 .)” (Brandt v. Superior Court (1985) 37 Cal.3d 813, 824 [ 210 Cal.Rptr. 211 , 693 P.2d 796 ] (Lucas, J., dissenting).) Defendant’s failure here to take reasonable steps to investigate plaintiff’s claim and its subsequent refusal to afford relief from the very risk insured against, amounted to a violation of its duty of good faith and fair dealing implied in every insurance policy. (Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 819 ; Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 462 [ 113 Cal.Rptr. 711 , 521 P.2d 1103 ].)

There is no logical or equitable reason, and absolutely no authority, to support the majority’s conclusion that an insurer’s duty to investigate does not commence until it receives “actual notice” of a claim by an insured. Moreover, the proposition is totally irrelevant here. Defendant in this case was presented with “actual notice” of a claim. The issue is whether the insurer had a duty to investigate into whether that claim was presented by a valid policyholder. The facts were clearly such as to impose a reasonable duty upon defendant to inquire into the source of the allegedly mysterious summons and complaint. Had defendant done so, as even the majority con *75 cedes, the mystery would have been solved. The defendant would have discovered early on that plaintiff was entitled to a defense.

The majority seeks to excuse defendant’s failure to discover its insured’s request for a defense as an honest and reasonable mistake in judgment. (See Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788, 796 [ 41 Cal.Rptr. 401 , 12 A.L.R.3d 1142 ].) The issue here, however, is whether an insurer may escape liability in tort for a mistake induced by its own unreasonable failure to investigate the source of a claim. Fairness and logic clearly dictate it cannot. The cases which impose upon the insurer a reasonable duty to investigate (see, e.g., Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809 ) clearly apply to the facts before us. Neither law, logic nor fairness impel that we excuse an insurance company for a mistaken belief engendered by poor business practices and its own negligence.

Nothing in Paulfrey v. Blue Chip Stamps (1983) 150 Cal.App.3d 187 [ 197 Cal.Rptr. 501 ], relied upon by the majority, holds otherwise. In Paulfrey , plaintiff alleged that her insurer had violated its covenant of good faith and fair dealing by mishandling and negligently failing to investigate her claim for disability and accident benefits. The trial court entered a directed verdict for plaintiff, ruling as a matter of law that defendant had negligently failed to investigate plaintiff’s claim. The Paulfrey court reversed on the grounds that triable issues of fact existed as to whether defendant had sufficient notice to trigger its duty to investigate. The court held: “[W]hether a duty arose to investigate depended on what facts the jury found to be true.” (Id., at p. 201.)

The same is true here. Both Adco and California Shoppers held policies issued by defendant’s agent. Defendant received from its agent a summons and complaint under a policy number referencing Adco. Adco was not listed among the named defendants. However, California Shoppers was a named defendant. One of the principal owners of both companies was named in the complaint. Defendant’s issuing agent was requesting coverage on behalf of one of defendant’s insureds for this lawsuit. Whether under these circumstances a duty arose to investigate further was, as Paulfrey holds, a question of fact for the jury. The jury here determined that defendant had a duty to investigate and unreasonably failed to do so. The evidence sufficiently substantiates their determination. Our duty is to affirm the judgment.

There is still a third ground for a finding defendant unreasonably refused to defend.

Plaintiff claimed that defendant received a second notice of its claim about a'year later. In July 1976, defendant admits that it received a letter from plaintiff’s attorney, containing a copy of the complaint in the instant action. *76 The letter alerted defendant that plaintiff was one of its insureds. This letter was followed by a meeting between plaintiff’s and defendant’s attorneys in August 1976. At that time, defendant’s counsel conceded plaintiff was one of its insureds, but he refused to acknowledge that the Uneedus claim was covered by the policy. Trial was set to commence in several days. In order to avoid a continuance, plaintiff’s counsel requested defendant assume the defense against Uneedus but agree to retain the attorneys which plaintiff had already hired as a result of defendant’s refusal to defend. Plaintiff also requested defendant (1) reimburse plaintiff for the attorney’s fees already incurred in the defense of the Uneedus action, (2) agree to indemnify plaintiff in the event of a loss, and (3) pay plaintiff $100,000 damages for settlement of its claim for emotional distress. Plaintiff’s attorney also requested defendant undertake the defense of California Shoppers in a separate lawsuit which had been filed against it by Adco.

Several days after the meeting, plaintiff’s counsel sent a letter to defendant’s counsel reiterating his demands. This letter in pertinent part stated as follows: “As I indicated to you at our meeting, I think that Royal Globe, in order to avoid making a bad situation worse, should definitely immediately assume the defense of California Shoppers on the lawsuit recently brought by ADCO, and also coverage. My understanding of this lawsuit is that it falls squarely within the coverages of the policy bought by California Shoppers.

“I reiterate that our demand for settlement at this time on the lawsuit brought by California Shoppers against Royal Globe Insurance Company is as follows:

“1. Pay attorneys’ fees thus far expended by California Shoppers in the full amount;

“2. Pay attorneys’ fees for the remainder of the defense of the lawsuit;

“3. Pay for any judgment returned against California Shoppers; and

“4. Offer $100,000 for settlement of the claims for emotional distress and general damages alleged in the complaint on behalf of the four or five plaintiffs against Royal Globe.

“I’m sure you realize that the above things are separable and that failure to remedy the situation is going to put Royal Globe in a situation from which it will be even more difficult to extricate itself than the one it is now in.” (Italics supplied.)

*77 The letter went on to repeat counsel’s request plaintiff be permitted to retain the law firm which it had been forced to employ for the last year in defending the Uneedus action, stating: “At this late stage, it would be difficult for other attorneys to acquire the thorough knowledge of the case that Kindel & Anderson have, and it would be equally difficult to ask the judge for a continuance on the day set for trial, since the judge would undoubtedly become upset.”

Defendant never responded to plaintiff’s letter. Defendant continued to refuse to undertake plaintiff’s defense in the Uneedus action even though by this time it was a clear and undisputed fact defendant had a duty to defend.

Thus plaintiff’s request that defendant reimburse it for attorney’s fees already expended was reasonable. So, too, was plaintiff’s request that it not be forced to substitute attorneys. Trial was set to commence within several days and a substitution of attorneys would have presented major problems. Moreover, defendant continued to deny coverage under the policy. It is settled that a “conflict arises” between insurer and insured “once the insurer takes the view a coverage issue is present.” (San Diego Navy Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358, 370 [ 208 Cal.Rptr. 494 ].) Where such a conflict exists, it is reasonable for an insurer to pay for independent counsel retained by its insured, and unreasonable for the insurer to compel the insured to surrender control of the litigation. (Id., at p. 375.)

While plaintiff’s additional requests for a $100,000 settlement of the instant action and assumption of the defense of the Adco action may or may not have been reasonable, the letter and Harding’s testimony clearly establish that these demands were “separable.” A reasonable inference therefore is that all of the requests were negotiable. The letter refers to them as an “offer.” They were not presented as a package on a take-it-or-leave-it basis, nor as an ultimatum, nor as preconditions to defendant’s assumption of the defense of the Uneedus action. Defendant was not entitled to simply break off negotiations with plaintiff and continue its “head in the sand” behavior by ignoring its clear obligation to defend. Such behavior unquestionably supports the jury’s conclusion that defendant violated its covenant of good faith and fair dealing.

Nevertheless, the majority insists the evidence conclusively establishes that defendant’s actions cannot, as a matter of law, be characterized as unreasonable. First, the majority argues plaintiff never really requested defendant “assume” defense of the Uneedus action. This contention is fatuous. As earlier explained, it would not have been reasonable or practical to substitute attorneys at the time, nor was defendant legally entitled to demand *78 that plaintiff do so. Plaintiff reasonably requested defendant assume financial responsibility for defense of the Uneedus action. Under the circumstances, this was clearly a request that defendant “take over” the litigation.

The majority also implies defendant’s refusal to defend was justified by the fact plaintiff’s tender of defense of the Uneedus action was unreasonably conditioned upon defendant acceding to its other demands. This is demonstrably false. The letter is clearly susceptible of an interpretation that all of the requests contained therein were separately negotiable. Harding, plaintiff’s counsel, testified this was plaintiff’s position at the meeting with defendant’s attorney, as well as the meaning intended in the letter. In view of this extrinsic evidence, we are not at liberty, as the majority mistakenly argues, to interpret independently the meaning of the letter. I fail to perceive the significance of the fact Harding did not author the letter. His testimony constitutes extrinsic evidence nevertheless.

In sum, the evidence adduced at trial established three separate bases for a finding that defendant unreasonably refused to defend plaintiff in the underlying action: (1) The direct and circumstantial evidence suggesting that Scott actually knew plaintiff was an insured and refused to defend in the face of its clear duty under the policy; (2) the evidence clearly demonstrating Scott’s constructive knowledge of the validity of plaintiff’s claim on the basis of defendant’s negligent failure to undertake even a rudimentary investigation of the claim; and (3) the evidence establishing defendant’s complete failure to respond to plaintiff’s request that defendant assume the financial burden of the Uneedus litigation when there was no doubt about its duty under the policy. I would conclude, as the jury did, the defendant tortiously breached its duty to provide plaintiff with a defense.

II

A. Refusal to Defend—Bad Faith

This case began as a dispute over the appropriate scope of the tort of bad faith, the majority arguing this was not an evidence case and a “mere” refusal to defend could never be tortious.

The majority now grudgingly concedes that there may exist a creature known as a bad faith refusal to defend. The majority then promptly consigns this creature to the River Styx for transportation.

I begin my analysis by noting that the majority’s Star Chamber treatment of the evidence avoids a clear-cut treatment of when, if at all, a tortious bad faith refusal to defend exists.

*79 The majority would avoid a confrontation of the real issue in this case by adding the ingredients “without proper cause,” “mere mistake,” and “actual notice.” A brief discussion of each of these barriers is necessary in order not to be derailed from our original objective.

An insurer’s failure to provide a benefit “without proper cause” requires nothing more than the insurer act unfairly toward its insured in administering the benefits bargained for under the policy.

The concept of “mistake” springs from California Shoppers’ forwarding to defendant the complaint in an Adco envelope. This conduct, according to the majority, induced defendant to mistakenly withhold benefits under the policy. California Shoppers, by breaching its part of the reciprocal duty of good faith and fair dealing, relieved Royal Globe of liability.

In support, the majority cites Commercial Union Assurance Companies v. Safeway Stores, Inc. (1980) 26 Cal.3d 912 [ 164 Cal.Rptr. 709 , 610 P.2d 1038 ]. However, Commercial is not authority for the proposition advanced. Commercial held:

“We have no quarrel with the proposition that a duty of good faith and fair dealing in an insurance policy is a two-way street, running from the insured to his insurer as well as vice versa [citations]. However, what that duty embraces is dependent upon the nature of the bargain struck between the insurer and the insured and the legitimate expectations of the parties which arise from the contract.

“The essence of the implied covenant of good faith in insurance policies is that ‘ “neither party will do anything which injures the right of the other to receive the benefits of the agreement” ’ [citations]. One of the most important benefits of a maximum limit insurance policy is the assurance that the company will provide the insured with defense and indemnification for the purpose of protecting him from liability. Accordingly, the insured has the legitimate right to expect that the method of settlement within policy limits will be employed in order to give him such protection.” (Id., at p. 918.) Under our facts, mistake is inapplicable.

I disagree with the majority’s assertion the trigger to an insurer’s duty to investigate is actual notice.

In spite of the muddied waters, I believe and intend to demonstrate, tor-tious bad faith refusal to defend existed in this case.

Before proceeding to my analysis as to why I believe a cause of action ' for bad faith refusal to defend exists, I would point out a misconception of *80 the majority as to when the duty to act in good faith arises. The implied covenant of good faith and fair dealing would impose a duty on the insured to afford a defense to its insured within the contractual boundaries of the policy. The record does not indicate plaintiff’s cause of action rested on traditional theories of tort liability. Plaintiff has consistently asserted its claim is based on a theory of a bad faith refusal to afford benefits contracted for under the policy. A breach of the insurer’s obligation to provide a defense is a duty included within the covenant of good faith and fair dealing sounding in both contract and tort.

“[T]he scope of the duty imposed upon the insurer by the covenant of good faith and fair dealing does not turn on whether we characterize its breach as contractual or tortious, since, in either case, the duty itself springs from the contractual relationship between the parties. Thus, defendant cannot avoid liability in this case by labelling plaintiff’s cause of action as a cause in tort.” (Johansen v. California State Auto. Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9, 18 [ 123 Cal.Rptr. 288 , 538 P.2d 744 ]; fn. omitted.). Thus, the majority’s assertion defendant fulfilled its tort duty to act reasonably and in good faith when it rejected plaintiff’s request for a defense based on honest doubts as to coverage displays a misconception of the decisions in this area and the facts of this case.

An analysis of the bad faith cases as they relate to the facts of this case leaves no doubt the failure to defend constitutes a breach of the covenant of good faith and fair dealing entitling plaintiff to tort damages.

I begin with Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566 [ 108 Cal.Rptr. 480 , 510 P.2d 1032 ], where the plaintiff sued its insurer in tort for unreasonably refusing to indemnify him for fire losses incurred at his place of business. Plaintiff claimed that as a direct and proximate result of defendant’s bad faith refusal to indemnify he had suffered “severe economic damage,” “severe emotional upset and distress,” “loss of earnings,” and various special damages. Plaintiff sought both compensatory and punitive damages. (Id., at p. 572.) The trial court granted defendant’s demurrer and plaintiff appealed. The California Supreme Court reversed, holding that plaintiff could sue in tort for defendant’s unreasonable refusal to indemnify.

The Gruenberg court perceived no basis for distinguishing an unreasonable refusal to settle from an unreasonable refusal to indemnify. “These are merely two different aspects of the same duty,” the court wrote. “It is the obligation, deemed to be imposed by the law, under which the insurer must act fairly and in good faith in discharging its contractual responsibilities. Where in so doing, it fails to deal fairly and in good faith with its insured by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in *81 tort for breach of an implied covenant of good faith and fair dealing.” (Id., at pp. 573-574.)

It is also worth noting that the Gruenberg court nowhere limited the nature or extent of the damages for which an insured suing in tort may recover. On the contrary, the Gruenberg court reiterated the rule that an insured suing in tort may recover, pursuant to Civil Code section 3333, “all detriment caused whether it could have been anticipated or not.” (Id., at p. 579.) In Gruenberg , where the plaintiff insured sued for failure to indemnify fire losses to his business, the “detriment” included economic damage, emotional distress and loss of earnings.

One year after Gruenberg , the California Supreme Court decided Silberg v. California Life Ins. Co., supra, 11 Cal.3d 452 . In Silberg , the plaintiff/ insured suffered injuries at his place of business. The defendant insurer refused to pay plaintiff’s medical bills and as a result plaintiff incurred heavy medical expenses, his credit rating suffered and he eventually lost his business. Plaintiff sued for bad faith and fraud and a jury awarded him $75,000 compensatory and $500,000 punitive damages. The trial court granted defendant’s motion for a new trial on the grounds of insufficient evidence to support the claim of bad faith and plaintiff appealed. The California Supreme Court reversed, holding that defendant’s unjustified refusal to pay the medical bills constituted a breach of the implied covenant of good faith and fair dealing which rendered it liable for the damages “proximately caused by its conduct.” (Id., at p. 460.) The court also affirmed that portion of the judgment reversing the exemplary damage award, holding that there was no evidence defendant was guilty of oppression, fraud or malice. (Id., at pp. 462-463.)

In Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d 809 , plaintiff sued his insurer in tort for refusing to pay disability benefits. The trial court granted a directed verdict against defendant, ruling as a matter of law that defendant’s failure to have plaintiff examined by a doctor of its choice or to consult with plaintiff’s physicians violated the covenant of good faith and fair dealing. (Id., at p. 817.) A jury awarded plaintiff $45,600 in general damages, $78,000 in emotional distress, and $5 million in punitive damages. The California Supreme Court affirmed, holding that “an insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial.” (Id., at p. 819.) While holding that the evidence supported the award of some punitive damages, the court ruled that $5 million was excessive. (Id., at pp. 822-824.)

A final decision worthy of mention is Jarchow v. Transamerica Title Ins. Co. (1975) 48 Cal.App.3d 917 [ 122 Cal.Rptr. 470 ], a perceptive decision rendered by this court nearly a decade ago. In Jarchow , plaintiffs sued their *82 title insurer in tort for failing to discharge its duty to clear title to certain property. The jury awarded plaintiffs a total of $200,000 compensatory damages. This court affirmed the judgment, indicating that the duty to clear title was no different in kind from the duty to defend or settle. All three, we observed, involve major risks against which the insured has a reasonable expectation of protection. (Id., at p. 941.) We reasoned that if the implied covenant of good faith and fair dealing did not extend to the duty to litigate, either in defense or to clear title, then “instead of having purchased insurance against the trauma and financial hardship of litigation, the insured will have found that he has purchased nothing more than a lawsuit,” (id., at pp. 942-943), and the duty to litigate will have degenerated “into nothing more than a promise to reimburse an insured for attorney’s fees incurred.” (Id., at p. 944.)

The lesson of the foregoing cases is clear. The gravamen of the tort for breach of the implied covenant of good faith and fair dealing, at least in the insurance context, lies in the special relationship which exists between insurer and insured. As stated by the court in Egan: “The insured . . . does not seek to obtain a commercial advantage by purchasing the policy—rather, he seeks protection against calamity . . . The purchase of such insurance provides peace of mind and security . . . .” (Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 819 .) As stated by this court in Jarchow : “Since a primary consideration in purchasing insurance is the peace of mind and security it will provide when the contingency insured against arises [citation], an insured may recover for any emotional distress suffered as a result of an insurer’s bad faith, as well as any other detriment proximately resulting from the breach. (Silberg v. California Life Ins. Co., 11 Cal.3d 452, 460-461 [ 113 Cal.Rptr. 711 , 521 P.2d 1103 ]; Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, 580 ; Comunale v. Traders & General Ins. Co., supra, 50 Cal.2d 654, 660 .)” (Jarchow v. Transamerica Title Ins. Co., supra, 48 Cal.App.3d at p. 940 .)

The reasoning underlying Gruenberg, Silberg, Egan, and Jarchow leaves no room for distinguishing the duty to defend from the duty to indemnify. In each case the insured has contracted for protection from calamity, for “the peace of mind and security it will provide when the contingency insured against arises . . . .” (Jarchow, supra, 48 Cal.App.3d at p. 940 .) Indeed, in many cases, as the Jarchow court perceived, the “trauma and financial hardship of litigation” might exceed that occasioned by a failure to indemnify. (Id., at p. 942.)

Where the insurance contract requires the insurer to provide a defense, the unreasonable withholding of that defense may be a breach of contract. Indeed, the majority concedes that defendant here violated its contractual duty to defend. What the majority fails to understand is that the evidence *83 here, construed in accordance with traditional standards of appellate review, amply supported the jury’s conclusion that defendant’s refusal to defend was unreasonable.

To repeat, I conclude that the reasoning which permits recovery in tort for an insurer’s unreasonable refusal to indemnify leaves no principled basis for denying the same tort recovery where an insurer unreasonably refuses to defend. That right exists independent of the insurer’s actions on the indemnity issue, for the duty to defend is much broader than, and certainly as vital to the interest of the insured, as the duty to indemnify. In Jarchow , this very court recognized that an insurer’s unreasonable refusal to litigate a claim on behalf of its insured constituted a breach of the implied covenant of good faith and fair dealing. The majority oifers no creditable basis for distinguishing Jarchow from the case at bar.

While the California authorities which I have marshalled leave no doubt in my mind as to the soundness of plaintiff’s action, two sister-state courts which have considered the same issue offer further illumination.

In Smith v. American Family Mut. Ins. Co. (N.D. 1980) 294 N.W.2d 751 [ 20 A.L.R.4th 1 ], the Supreme Court of North Dakota confronted the very issue before us. Plaintiff brought an action against his automobile liability insurer for wrongfully refusing to defend him against a lawsuit arising from an automobile collision. In his action, plaintiff alleged breach of contract, tortious breach of the implied covenant of good faith and fair dealing, fraud, and intentional infliction of emotional distress. The jury awarded plaintiff $4,000 damages for breach of contract, $3,000 for breach of the implied covenant of good faith and fair dealing, and $50,000 punitive damages. On appeal, defendant claimed that a failure to defend is a breach of contract, but does not constitute a tort on the part of the insurer. The Supreme Court rejected the defendant’s contention, holding that under the implied covenant of good faith and fair dealing an insurer may not unreasonably refuse to defend its insured against a lawsuit covered by the policy. Significantly, in reaching this conclusion the Smith court relied upon the California Supreme Court’s decision in Gruenberg . The Smith court perceived no policy or legal basis for distinguishing an unreasonable refusal to indemnify from an unreasonable refusal to defend. “We cannot differentiate between a failure to pay, as in Gruenberg , and, here, a failure to defend, if the insurer breaches its covenant to act fairly and in good faith in discharging its contractual responsibilities.” ( 294 N.W.2d at p. 758 .)

The Smith court took note of Farris v. U.S. Fidelity & Guaranty Co. (1978) 284 Ore. 453 [ 587 P.2d 1015 ]. In Farris , the Oregon Supreme Court also considered the issue of whether or not the failure of an insurer to defend the insured under a liability policy could give rise to a tort action. The *84 majority of the Oregon court concluded that the insured had only a cause of action for breach of contract. Like the court in Smith , however, the Farris court recognized that the holding in Gruenberg logically compelled a recognition of the tort claim for failure to defend. ( 587 P.2d at p. 1021 .) However, the majority of the Farris court rejected Gruenberg’s reasoning. The Farris majority distinguished a failure to settle from a failure to indemnify or defend on the ground that the former involved the insurer in a “fiduciary” relationship with the insured which imposed a duty of good faith and fair dealing, while the latter invoked no special relationship and hence involved no more than a mere breach of contract. (587 P.2d at pp. 1019-1021.)

The minority opinion in Farris , however, would have recognized plaintiff’s tort claim for failure to defend. It rejected as spurious the majority’s distinction between the duty to settle and the duty to defend. It scorned the majority’s reasoning “that a bad faith breach by the insurer after undertaking performance of the contract is somehow different from a bad faith breach in refusing to perform at all.” (Id., at p. 1027.) The “special relationship” between insurer and insured, the minority argued, arises from the insurer’s right and responsibility to assume, finance and control the litigation of claims against the insured. That special relationship does not first commence with the exercise of the right; rather it is immanent in the contract itself and grounded in the reasonable expectation of the insured of a legal defense. “In fact, the basis of liability insurance is not just the assumption of actual cost and losses that result from a lawsuit but also the assumption of the risk of being sued, of the selection of an attorney, of the responsibility and control of the litigation, and even of the risk of losing.” (Id., at p. 1028, italics supplied.)

Furthermore, by limiting plaintiff to contract damages, the minority in Farris noted the distinction advanced by the majority would actually encourage an insurer to breach its contract before undertaking a defense “rather than risk the tort liability applicable to bad faith breaches in performance.” (Id., at p. 1028, original italics.)

Still another disturbing consequence of limiting plaintiff to contract damages for breach of the duty to defend is the inequitable treatment such a rule would afford the rich and poor in society. Under the majority rule, those insureds fortunate enough to absorb the heavy costs of litigation without any collateral damage may indeed be fully compensated through the award of attorney’s fees. However, those less fortunate insureds who must sacrifice in order to finance their defense would certainly not be fully compensated for their losses. Only a rule that recognizes the potentially tortious nature of a bad faith refusal to defend can assure that all insureds, rich and poor alike, will have the opportunity to recover all of their losses.

*85 To reiterate, where an insurer defeats its insured’s reasonable expectations of a legal defense in an unreasonable manner, the damages which result therefrom are not solely or even primarily those occasioned by the costs and fees of the lawsuit. The damages may be emotional distress; they may be economic losses as the result of heavy litigation expenses. The reasoning in Gruenberg clearly dictates that these damages are recoverable in tort. 5 As the minority in Farris observed, “part of the uniqueness of the relationship between the liability insurer and the insured is that the insurer accepts the risk of being sued and dealing with a lawsuit” of selecting an attorney, controlling the litigation, meeting the escalating litigation costs, and ultimately bearing the risk of losing. ( 587 P.2d at p. 1028 , italics supplied.)

Refusing to recognize plaintiff’s tort action on the ground that contract damages are adequate and there is no such creature misses the point. The insured has contracted precisely to avoid the substantial economic and emotional burden of assuming and controlling the litigation at the outset. It ignores the fact that the economic costs of defending a lawsuit could throw a business operating on a narrow profit margin into bankruptcy. It ignores the internal dissension and causal finger-pointing such litigation caused a small business. It ignores the fears of financial drain generated by the mere prospect of extended litigation. It ignores the substantial emotional distress occasioned by the personal responsibility for providing one’s own legal defense. It ignores those less fortunate insureds who may not be able to afford their own attorney over the course of an extended lawsuit. Finally and most importantly, it ignores the insurer’s obligation to live up to the implied covenant of good faith and fair dealing with its insured.

In sum, I believe that California law, logic, and fundamental fairness all militate in favor of a recognition of the tort of bad faith refusal to defend.

*86 Applying the foregoing rule of law to the facts as previously set forth, it requires little effort to demonstrate that substantial evidence supported the jury’s verdict. If the jury believed that defendant received actual notice in May 1975, yet flatly refused to defend despite its clear duty under its policy, and still later pretended to have never received notice, then certainly the jury was entitled to conclude that defendant’s behavior toward its insured violated its covenant of good faith and fair dealing. Alternatively, defendant’s failure to take any reasonable steps to investigate the circumstances of plaintiff’s claim in 1975 clearly justifies a conclusion that its behavior was negligent (if not reckless) and unreasonable. Still, a third opportunity to find defendant in violation of its covenant of good faith and fair dealing presents itself in the events occurring in the fall of 1976. Defendant was then aware of plaintiff’s claim, yet it refused to consider plaintiff’s reasonable demands that defendant (1) compensate plaintiff for attorney’s fees expended, (2) permit plaintiff to retain the counsel it had employed for over a year, and (3) compensate plaintiff for future legal expenses. Plaintiff’s two additional requests, for coverage of the Uneedus claim and compensation for emotional distress, were clearly “separable.” At minimum, response from defendant was required. Hence the evidence amply supports a finding that defendant’s refusal to respond to plaintiff’s offer and continued refusal to defend constituted a breach of its implied covenant of good faith and fair dealing.

The standard measure of tort damages in California “is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.” (Civ. Code, § 3333; Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, at p. 433 [ 58 Cal.Rptr. 13 , 426 P.2d 173 ].) The insurer’s breach of the duty of good faith and fair dealing “constitutes a tortious interference with a property interest of its insured for which damages may be recovered to compensate for all detriment proximately resulting therefrom, including economic loss as well as emotional distress . . . and, in a proper case, punitive damages.” (Fletcher v. Western National Life Ins. Co. (1970) 10 Cal.App.3d 376, at pp. 401-402 [ 89 Cal.Rptr. 78 , 47 A.L.R.3d 286 ].)

Plaintiff herein adduced evidence that the internal dissension and pressure caused by having to manage the lawsuit coupled with the strain on operating capital and the cost of undertaking its own defense necessitated a premature sale of the business for $1.5 million. Plaintiff also offered expert testimony that the market value of a mature business would have been $10 million. Hence the evidence substantially supports the jury’s award of $3 million damages for economic loss. Therefore, I would affirm this portion of the judgment.

*87 B. The $59,000 Award of Attorney’s Fees to Procure Policy Benefits

As the majority correctly observes, the split of authority in California as to whether attorney’s fees to obtain policy benefits are recoverable as lost damages was recently resolved by the Supreme Court in favor of recovery. (Brandt v. Superior Court, supra, 37 Cal.3d 813 .) Having determined that plaintiff herein was entitled to recover in tort for breach of the covenant of good faith and fair dealing, an appropriate element of the damages would include attorney’s fees for the maintenance of the instant action as it relates to the procurement of benefits due under the policy. Therefore, the jury’s award of attorney’s fees for this purpose should be affirmed.

C. The Alleged Instructional Errors

The majority asserts that an erroneous charge to the jury contained in plaintiff’s instruction No. 9 permitted the jury to “award damages without differentiating between contract and tort damages. ...”

The most appalling aspect of the majority’s argument, other than its lack of merit, is the suggestion that defendant herein has raised this issue on appeal. The farthest appellant goes in this regard is the general statement, devoid of theory or argument, that the damages for prospective economic loss “are not recoverable as a matter of law.” In fact, on appeal defendant has challenged instruction No. 9 on a ground having nothing whatsoever to do with the issue raised by the majority. The majority has graciously formulated a new and different theory on appeal from that argued by appellant itself.

Thus it is apparent that here, again, the majority has abandoned its judicial role and assumed that of appellant’s advocate. The majority makes arguments for appellant Royal Globe which Royal Globe has not itself made! Moreover, it is apparent on close examination that Royal Globe is actually precluded from raising them.

The gist of the majority’s argument is that although instructed on plaintiff’s theories of recovery in contract and tort, and on the damages which it could recover in the event of a breach, they were not properly instructed on the distinction between the measure of damages for breach of contract (of the duty to defend) and for tort. The majority does not challenge the accuracy of the instruction in question, but argues that it was incomplete and hence prejudicial because they omitted this allegedly crucial distinction.

It is clear that if defendant were raising this contention this court would refuse to consider it. Defendant failed to request the additional instruction *88 alleged by the majority to have been erroneously omitted. As this court, per Justice Kaufman, stated in a similar case where the insurer was complaining about the set of bad faith instructions given: “If [insurer] was not satisfied with the instruction on this point, it was incumbent upon it to request more complete, appropriate instructions of its own. [Citations.] ‘In a civil case, each of the parties must prepare complete and comprehensive instructions in accordance with his theory of the litigation; if the parties do not do so, the court has no duty to instruct on its own motion.’ [Citation.]” (Merlo v. Standard Life & Acc. Ins. Co. (1976) 59 Cal.App.3d 5, 13 [ 130 Cal.Rptr. 416 ]; see also Bertero v. National General Corp. (1974) 13 Cal.3d 43, 59 [ 118 Cal.Rptr. 184 , 529 P.2d 608 , 65 A.L.R.3d 878 ] [“[I]t remains the duty of a party to propose complete and comprehensive instructions in accordance with his theory of the litigation”]; Agarwal v. Johnson (1979) 25 Cal.3d 932, 948 [ 160 Cal.Rptr. 141 , 603 P.2d 58 ] [“It is settled that a party may not complain on appeal that an instruction correct in law is too general or incomplete unless he had requested an additional or qualifying instruction.”].)

Furthermore, there is no likelihood that the jury was misled in the manner suggested by the majority. The majority assert that the jury may have felt “compelled” to award all foreseeable damages, including economic losses, even if all they found was a breach of contract. On the contrary, it is simply impossible not to infer that the jury concluded defendant had breached its covenant of good faith and fair dealing. There are two reasons for this. First, the jury in this case was instructed they may impose punitive damages if they determined that defendant was guilty of oppression, fraud or malice, i.e., if defendant acted with the intent to vex, injure or annoy or with a conscious disregard of plaintiff’s rights. The jury awarded $2 million in punitive damages. It is therefore crystal clear that the jury determined defendant had intentionally and in conscious disregard of plaintiff’s rights refused to defend plaintiff in the Uneedus action. A fortiori, the jury must have determined that defendant’s behavior was “unreasonable,” which obviously is a lesser standard of culpability than “intentional.” The trial court’s ruling the evidence did not support a finding of malice in no way alters the logical implications of the jury’s verdict. There is no mistaking the mind of this jury; their verdict reveals that they concluded defendant had acted intentionally and in conscious disregard of plaintiff’s rights, which necessarily implies that they found defendant’s actions to be unreasonable.

There is a second reason for concluding with absolute certainty that the jury found a breach of the implied covenant of good faith and fair dealing. After being instructed that they could award damages for (1) the Uneedus *89 judgment, (2) the attorney’s fees incurred by plaintiff in defending the Unee-dus action, and (3) all other economic and business losses, the court further charged: “If you find liability against defendant Royal Globe on the theory of breach of implied covenant of good faith and fair dealing in addition to the above damages you must award it attorney’s fees necessarily incurred by plaintiff California Shoppers and reasonably required to secure any benefits owing under the insurance policy.”

Thus,, the court made clear an award of damages for attorney’s fees would be permissible only if the jury found a breach of the implied covenant of good faith and fair dealing. The jury did award $59,000 for attorney’s fees incurred in securing benefits owing under the insurance policy. Therefore, I can conclusively infer the jury found defendant had breached its implied covenant of good faith and fair dealing.

“Whether a jury has been misled by an erroneous instruction or by the overall charge must be determined by an examination of all the circumstances of the case including a review of all of the evidence as well as the instructions as a whole. [Citations.]” (Bertero v. National General Corp., supra, 13 Cal.3d at p. 59 .) In view of the instruction on punitive damages in connection with defendant’s state of mind, and the instruction on attorney’s fees in connection with breach of the implied covenant of good faith and fair dealing, it is clear the failure to instruct on contract damages was harmless.

Nothing in the case cited by the majority suggests otherwise. In Quigley v. Pet, Inc. (1984) 162 Cal.App.3d 877 [ 208 Cal.Rptr. 394 ], the court held it was error to give the standard tort instruction relating to an insurance company’s duty of good faith and fair dealing with its insureds, where there was no “special relationship” between the two commercial parties which would justify permitting plaintiff to sue for more than contract damages. (Id., at pp. 887-893.) Obviously, plaintiff and defendant here did enjoy the “special relationship” of insurer and insured. In sum, there is absolutely no likelihood that the failure to instruct on contract damages misled the jury or resulted in prejudice to defendant. (Henderson v. Harnischfeger Corp. (1974) 12 Cal.3d 663, 670 [ 117 Cal.Rptr. 1 , 527 P.2d 353 ].)

D. Prejudicial Errors at the Trial

I disagree with the majority’s characterization the innocent, unsophisticated, defenseless insurance company was devoured by the scheming plaintiff’s attorney.

*90 The majority cites two instances of alleged prejudicial misconduct: (1) the court’s allowing attorney Wylie Aitkin to testify as an expert as to insurance company practices and (2) Mr. Hafif’s (plaintiff’s attorney) argument that compensatory damages had to be high enough to justify a substantial punitive damage award.

A review of Mr. Aitkin’s testimony shows its admission, even if erroneous, does not require a reversal. Common sense indicates the insurance company practices followed in this instance were reminiscent of a group of eight-year-olds playing business. In any event, the jury was properly instructed as to the evaluation of expert testimony and I am confident they followed the law. I perceive no reversible error here.

The contention Aitkin’s testimony concerning principles of law was “overwhelmingly prejudicial” is absurd and unsupported by the record. Moreover, the majority in its zeal does not even note the mitigating fact that defendant offered the expert testimony of a prominent defense attorney, W. Mike McCray, as to principles of law, as well.

As to Mr. Hafif’s remarks to the jury, the record fails to show any objection by defendant to these allegedly inflammatory and prejudicial statements. In these circumstances, the law is clear that a “claim of misconduct is entitled to no consideration on appeal unless the record shows a timely and proper objection and a request that the jury be admonished. ... ‘It is only in extreme cases that the court, when acting promptly and speaking clearly and directly on the subject, cannot, by instructing the jury to disregard such matters, correct the impropriety of the act of counsel and remove any effect his conduct or remarks would otherwise have.’ [Citation.] ...” (Horn v. Atchison T & S. F. Ry. Co. (1964) 61 Cal.2d 602, 610 [ 39 Cal.Rptr. 721 , 394 P.2d 561 ].) Here, defendant neither objected to nor asked that the jury be admonished to disregard, the allegedly improper remarks. “The fact that [defendant] neither asked that the jury be admonished nor demanded a mistrial should be taken to indicate that counsel did not at the time regard the argument as prejudicial.” (Hansen v. Warco Steel Corp. (1965) 237 Cal.App.2d 870, 878-879 [ 47 Cal.Rptr. 428 ].) There is no doubt any harm could have been cured by defendants’ prompt objection and an admonition by the court. Because defendant elected not to demand remedial action before the case went to the jury, it would be unfair to hear a complaint after receiving the unsatisfactory verdict.

In ignoring this fundamental principle of appellate review, the majority once again demonstrate their willingness to bend the rules of appellate review in order to reach a result favorable to appellant.

*91 The jury was properly instructed as to compensatory damages and my faith is unshaken that it followed these instructions properly. Any prejudice in allowing evidence as to the punitive damages was cured by the striking of those damages. The verdict with respect to the $3 million compensatory damages for economic losses remains untainted, and was amply supported by the evidence.

In sum, I would reverse the trial court’s determination the plaintiff was entitled to past inflation loss and affirm the judgment in all other respects.

Conclusion

The evidence in the record fully supports the jury verdict; it does not support the mischievous new principle of law suggested by the majority.

The California Supreme Court has not yet ruled on the question whether an insured may recover in tort for any detriment directly and proximately resulting from the insurer’s breach of its duty to defend. However, the opportunity will surely present itself, and when it does cases such as Gruen-berg, Silberg, Egan and Jarchow leave little doubt that the court will recognize the essential logic and fundamental fairness of permitting such recovery. Hence I suspect the life of the decision announced by the majority today will prove to be, as Thomas Hobbes put it, “solitary, poore, nasty, brutish and short.” (Hobbes’s Leviathan (reprint 1651 ed., Clarendon Press 1929) p. 97.)

A petition for a rehearing was denied December 26, 1985.

Rickies, J., was of the opinion that the petition should be granted.

There is no evidence to suggest plaintiff supplied Adco’s policy number to defendant.

The majority implies, because of certain alleged instructional errors, that I may not plausibly infer from the verdict that the jury determined defendant’s behavior to be tortious. On the contrary, as I shall demonstrate in Section II C, infra, the verdict permits no other conclusion. The instructional errors alleged by the majority (not by defendant) are entirely irrelevant to the question.

The evidence shows California Shoppers was insured by Royal Globe in May 1975. The policy was issued by defendant’s agent Jay & Renfro to California Shoppers, the employer of Gibson.

The commentators have generally recognized that jurisdictions which permit first-party bad faith actions must, by analogy, sanction tort recovery for bad faith refusals to defend. For example, in Shernoff, Gage and Levene, Insurance Bad Faith Litigation, section 3.25[1], the authors write: “[A] growing number of jurisdictions hold that an insurer that withholds benefits due under a policy in bad faith may be subject to tort liability. By analogy to these cases, there appears to be no valid reason why a liability insurer that refuses in bad faith to defend its insured against a third-party action should not also be subject to tort liability for breach of the implied covenant of good faith and fair dealing.”

“[A]t least one court [Smith v. American Family Mut. Ins. Co., supra] has expressly held that an insurer’s unjustified refusal to defend may lead to tort liability for breach of the duty of good faith and fair dealing, and it seems likely that those jurisdictions that have imposed tort liability for unreasonable refusal to pay claims would reach a similar result.” (Id., at section 3.26[2].)

Ashley, Bad Faith Actions (1984) section 4.09, reaches the same conclusion: “[0]ne should not be surprised to find a jurisdiction that has recognized the first-party cause of action [for bad faith refusal to indemnify] . . . treat a breach of the promise to defend as a form of bad faith.”