In this action against State Farm Mutual Automobile Insurance Company (State Farm), based upon an alleged breach of its duty of good faith and fair dealing, the trial court granted State Farm's motion for summary judgment. The insureds, Luis Corral (Luis) and his daughter, Mary Alice Corral (Mary), have appealed.
State Farm's policy of liability insurance issued to Luis contained uninsured motorist coverage and medical payments coverage. The coverage extended to Mary who, at the time of the accident in question, was driving Luis' vehicle with the permission of Luis. The driver of the other car was Wesley Warner.
Being unable to arrive at a settlement for the injuries and medical expenses incurred, Mary, pursuant to the terms of the policy, instituted an arbitration proceeding under the uninsured motorist provision of State Farm's policy. Approximately five years later the claim went to hearing before the arbitrator. Mary proved the facts of the accident and that she suffered personal injuries and incurred medical expenses. The central issue in the proceeding was whether Warner was uninsured. At the hearing Mary sought a stipulation that Warner was uninsured. State Farm refused to stipulate. At the end of the hearing the arbitrator by agreement of the parties continued the case to afford an opportunity to Mary to obtain a stipulation or produce additional evidence on the issue of whether Warner was insured. The stipulation was not forthcoming because State Farm would not agree that Warner was uninsured. Twelve days after the hearing Mary's counsel wrote to the arbitrator stating he would submit the matter for decision based on the evidence produced at the hearing. The arbitrator's decision was in favor of State Farm.
Approximately six weeks later, having procured a declaration from Warner that he was uninsured, Mary petitioned the arbitrator to reopen the hearing. The petition was denied on the ground the arbitrator did not
In the case at bench Luis and Mary allege that at all times prior to the arbitration hearing State Farm knew and represented that Warner was uninsured; that at the hearing State Farm fraudulently and falsely contended that Warner was not an uninsured motorist, as a result of which fraud the arbitrator decided the matter against Mary; that in so conducting itself State Farm breached its duty "of dealing fairly and in good faith with their policyholders[;]" and that "... said conduct on behalf of State Farm constitutes oppressive and fraudulent conduct on the part of State Farm toward plaintiffs and each of them." The complaint also alleges a bad faith failure to pay medical expenses.
Construing the declarations submitted in support and opposition to the summary judgment motion most favorably to the appellants (Stationers Corp. v. Dun & Bradstreet, Inc. (1965) 62 Cal.2d 412, 417 [42 Cal.Rptr. 449, 398 P.2d 785]), appellants show that after the accident in question their attorneys made some preliminary investigation as to the insured status of Warner. Shortly thereafter and some four years before the arbitration hearing Rusty Hargis, claims manager for State Farm, after an office conference, contacted Milton Younger, who is one of the attorneys for Mary. In an affidavit Younger described what transpired:
"On October 7, 1970 Rusty Hargis called my office and told me that Hartford had checked out Wesley Warner and found that he was not covered by any policy that they had issued. Hargis also indicated that they had conducted their own investigation and determined that Warner was not insured and that they would treat Mary Corral's claim as an uninsured motorist case.
Relying on Rios v. Allstate Ins. Co. (1977) 68 Cal.App.3d 811 [137 Cal.Rptr. 441], State Farm argued in the trial court and reiterates here its position that to permit the bad faith action would subvert the policy underlying the doctrine of finality of judgments. We believe the current suit is not barred by either the principles of res judicata or finality of judgments and to hold otherwise would constitute an unsound and unjustified extension of those doctrines.
It follows that to determine whether plaintiffs' bad faith action is barred by the doctrine of finality of judgments we must look to whether the action is precluded by the principles of res judicata. In the landmark case of Bernhard v. Bank of America, supra, 19 Cal.2d 807, 813, the
"First, in a new action on the same cause of action, a prior judgment for the defendant is a complete bar. ...
"Second, in a new action on a different cause of action, the former judgment is not a complete merger or bar, but is effective as a collateral estoppel, i.e., it is conclusive on issues actually litigated between the parties in the former action." (4 Witkin, Cal. Procedure (2d ed. 1971) Judgment, § 148, p. 3293.)
Under the first aspect of the doctrine, a final judgment in favor of a defendant would constitute a bar to any further suit by the plaintiff on the same cause of action. (Olwell v. Hopkins (1946) 28 Cal.2d 147, 152 [168 P.2d 972]; 4 Witkin, Cal. Procedure (2d ed. 1971) Judgment, § 192, p. 3332.) A cause of action is based upon the nature of a plaintiff's injury. "`... The cause of action, as it appears in the complaint when properly pleaded, will therefore always be the facts from which the plaintiff's primary right and the defendant's corresponding primary duty have arisen, together with the facts which constitute the defendant's delict or act of wrong.'" (3 Witkin, Cal. Procedure (2d ed. 1971) Pleading, § 22, p. 1707.)
Applying these principles to the facts of this case, we need not discuss the issue of privity
The arbitration proceeding was instituted to recover benefits under the uninsured motorist provision of the insurance contract. This cause of action arose from a set of facts surrounding an automobile accident. Moreover, the obligation of the insurance company to pay medical expenses is separate and apart from the uninsured motorist provision at issue in the arbitration proceeding and exists wholly independent of the issue of fault.
In contrast, the bad faith cause of action is not based upon the facts surrounding the automobile collision nor upon the policy provisions at issue in the arbitration proceeding. The bad faith action is in tort for the breach of an implied covenant of good faith and fair and honest dealing in resolving disputes with the insurance company's insureds. That covenant requires that neither party do anything which will injure the right of the other to recover the fruits of the agreement. (Richardson v. Employers Liab. Assur. Corp. (1972) 25 Cal.App.3d 232 [102 Cal.Rptr. 547] [disapproved on other grounds in Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 580-581, fn. 10 (108 Cal.Rptr. 480, 510 P.2d 1032)]; Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 460-461 [113 Cal.Rptr. 711, 521 P.2d 1103]; Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, 573.) The facts giving rise to an action for breach of this implied covenant came into being after the collision. Some of these facts did not exist until after the termination of the arbitration hearing. It is apparent that the bad faith action constitutes a different cause of action than that at issue in the administrative hearing. Therefore, the arbitrator's determination in State Farm's favor will not constitute a bar under the first aspect of the res judicata doctrine.
A mere recitation of the issues encompassed within the two proceedings makes clear that they are not the same under the test of Bernhard and that collateral estoppel will not preclude the bad faith action.
State Farm relies upon Rios v. Allstate Ins. Co., supra, 68 Cal.App.3d 811. In that case, as here, Rios' bad faith action against the insurance company was founded upon the conduct of Allstate in connection with a prior arbitration proceeding under an uninsured motorist provision. Rios
Rios appealed from a judgment of dismissal of his bad faith complaint entered upon sustaining Allstate's demurrer with leave to amend. The judgment was affirmed. The court first stated that Rios had stated a cause of action for breach of the covenant of good faith and fair dealing but that the plaintiff could not pursue the action because to permit him to do so would undermine the doctrine of finality of judgments.
The court in Rios recognized the principles we have enumerated herein.
We respectfully disagree with the Rios court's conclusion and the extension of the doctrines of finality of judgments and res judicata that it represents. First, plaintiffs' bad faith cause of action is not a collateral attack upon the arbitrator's award as it is not directed toward directly preventing the enforcement of that award or defeating rights acquired under it. (Estate of Wemyss (1975) 49 Cal.App.3d 53, 58 [122 Cal.Rptr. 134]; 5 Witkin, Cal. Procedure (2d ed. 1971) Attack on Judgment in Trial
This conclusion has special force in the instant case where the issues of fraud and failure to pay medical expenses are new issues which were not involved in the arbitration proceeding.
Because of the result we reach it is unnecessary to discuss appellants' argument that Rios is distinguishable because the fraud herein was extrinsic as distinguished from intrinsic (see Kulchar v. Kulchar (1969) 1 Cal.3d 467, 471-473 [82 Cal.Rptr. 489, 462 P.2d 17, 39 A.L.R.3d 1368]) or to discuss the other issues raised by the parties.
The judgment is reversed.
Franson, J., and Zenovich, J., concurred.
Respondent's petition for a hearing by the Supreme Court was denied July 27, 1979.
"Subject to Section 1286.4, the court shall vacate the award if the court determines that:
"(a) The award was procured by corruption, fraud or other undue means; ..."