Filed 10/31/18 Litton v. Protective Life Insurance Co. CA3

NOT TO BE PUBLISHED

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(San Joaquin)

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This case involves rival claims to the death benefits under an insurance policy on the life of Oscar Litton. One of the claimants, Litton’s minor son, sued the insurer (through his guardian ad litem) for breach of contract, declaratory relief, reformation and breach of the covenant of good faith and fair dealing. The minor alleges the insurer acted in bad faith by failing to honor Litton’s request to change the beneficiary of his policy from his ex-wife to the minor. The insurer filed a cross-complaint in interpleader.

The trial court granted the insurer’s motion for summary judgment on the interpleader action and on the minor’s first amended complaint and denied the minor’s motion for summary adjudication on his reformation cause of action.

The minor now contends the trial court erred in granting the insurer’s motion for summary judgment. Protective Life Insurance Company (PLI) counters that the minor appeals from a nonfinal and nonappealable order.

We will dismiss the portion of the appeal relating to the judgment of interpleader because it is not a final judgment. And we will affirm the portion of the judgment regarding the minor’s causes of action in the first amended complaint for breach of contract, declaratory relief and reformation; those causes of action are not independent of the interpleader action because they are based on PLI’s alleged failure to pay the minor the death benefits. But we will reverse the portion of the judgment pertaining to the minor’s cause of action in the first amended complaint for breach of the implied covenant of good faith and fair dealing, because it asserts an independent claim against PLI.

BACKGROUND

Chase Insurance Life and Annuity Company (Chase) issued a $250,000 term life insurance policy to Litton on July 28, 2005. Litton was the only insured and owner of the policy. Litton’s then wife was the sole primary beneficiary of the policy.

PLI acquired Chase and became obligated under the policy. Litton and his wife obtained a divorce in December 2006. The stipulated judgment in their divorce action did not mention the policy.

Litton sent PLI a service request form (SRF) dated October 22, 2007, asking to change the primary beneficiary of the policy from his ex-wife to the minor. The policy provides, “Unless otherwise provided by request, you may change the beneficiary while this policy is in force. We may require you to send the policy to us. Such change is subject to any existing assignment of this policy. The change becomes effective when we record it. Once recorded, the effective date is the date the request was signed. The change is subject to any proceeds paid or other action taken by us before the change was recorded.” The policy defined “[y]ou” as the owner in the application, unless later changed as provided in the policy. It defined “[r]equest” as a “request in writing on a form acceptable to us, signed by you and received by us.”

The October 22, 2007 SRF identified Litton as the owner of the policy. The line for “Insured” on the form was left blank.

Alliance One, PLI’s third party administrator, reviewed Litton’s request. PLI required Alliance One to reject an SRF “unless it is fully completed, dated, properly signed and submitted.” Instructions typically provided to policy owners when they requested an SRF stated, “This form is not acceptable unless it is fully completed, dated, properly signed and submitted to the company within 6 months of signing the form.” Alliance One did not accept the October 22, 2007 SRF because it was not completed in full.

Alliance One mailed a letter dated October 29, 2007, informing Litton that the October 22, 2007 SRF was not accepted because the name of the insured was missing. Alliance One’s computer system automatically generated a new SRF to accompany the form letter. The computer system automatically filled in portions of the new SRF, including the name of the insured. The person who had reviewed the October 22, 2007 SRF entered a note in PLI’s file for the policy that the letter and new form were sent out. PLI admitted that it knew the name of the insured under the policy when it received Litton’s SRF, and that it took no action after receiving Litton’s SRF other than to require Litton to submit a new SRF.

PLI’s file for the policy did not contain a returned copy of the October 29, 2007 letter to Litton. If the post office had returned any mail, Alliance One would have placed a copy of the returned mail in the policy file. The file did not contain any response from Litton to the October 29, 2007 letter.

Litton died on October 2, 2012. The minor and the ex-wife submitted claims for the death benefits under the policy.

The minor, through his mother and guardian ad litem, filed a complaint for declaratory relief, breach of contract and reformation against PLI. The parties later stipulated to allow the ex-wife to be joined as a defendant in the minor’s complaint against PLI. PLI filed a cross-complaint in interpleader against the minor and the ex-wife and deposited $252,897.26 (the death benefits under the policy plus interest) with the clerk of the superior court. The minor filed a first amended complaint, adding a claim for breach of the covenant of good faith and fair dealing against PLI.

The trial court granted PLI’s motion for summary judgment on the interpleader action and on the minor’s first amended complaint, and denied the minor’s motion for summary adjudication on his reformation cause of action as moot. The trial court made the following findings: PLI had the right to interplead because there was a genuine dispute over entitlement to the death benefits, PLI was not to blame for the existence of the dispute, and PLI was a disinterested party. In particular, PLI did not act in bad faith by requiring Litton to fill out the SRF completely and the doctrine of substantial compliance did not require PLI to accept Litton’s SRF. In addition, PLI had no duty to follow up with Litton nor did such failure to act cause the controversy over the policy proceeds. The minor’s causes of action were predicated on PLI’s failure to pay the policy proceeds to the minor. As such, none of those causes of action were independent of the issue underlying the interpleader action and PLI was insulated from the minor’s causes of action.

STANDARD OF REVIEW

A defendant moving for summary judgment or summary adjudication may demonstrate that the plaintiff’s cause of action has no merit and the defendant is entitled to judgment as a matter of law by showing that the plaintiff cannot establish one or more elements of the cause of action or that there is a complete defense to the cause of action. (Code Civ. Proc., § 437c, subds. (a)(1), (f), (p)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843, 849 (Aguilar).) A cross-complainant may move for summary judgment if it is contended that there is no defense to the action. (Code Civ. Proc., § 437c, subd. (a).) A cross-complainant meets its burden of showing that there is no defense to a cause of action if it proves each element of the cause of action, entitling it to judgment on the cause of action. (Id. at subd. (p)(1).) The party moving for summary judgment or summary adjudication must present evidence, such as affidavits, declarations, admissions, interrogatory answers, depositions, and matters of which judicial notice may be taken. (Code Civ. Proc., § 437c, subd. (b)(1); Aguilar, supra, 25 Cal.4th 826.)

After the moving party meets its threshold burden, the burden shifts to the opposing party to present evidence showing that a triable issue of one or more material facts exists as to that cause of action or defense. (Code Civ. Proc., § 437c, subd. (p)(1), (2); Aguilar, supra, 25 Cal.4th at p. 850.) The opposing party may not simply rely on the allegations of his or her pleadings but, instead, must set forth the specific facts showing the existence of a triable issue of material fact as to the cause of action or a defense thereto. (Code Civ. Proc., § 437c, subd. (p)(1), (2).) A triable issue of material fact exists if, and only if, the evidence reasonably permits the trier of fact to find the contested fact in favor of the opposing party in accordance with the applicable standard of proof. (Aguilar, supra, 25 Cal.4th at p. 850.)

In ruling on the motion, the trial court views the evidence and inferences therefrom in the light most favorable to the opposing party. (Aguilar, supra, 25 Cal.4th at p. 843; Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 768 (Saelzler).) If the trial court concludes the evidence or inferences raise a triable issue of material fact, it must deny the motion. (Aguilar, supra, 25 Cal.4th at p. 843; Saelzler, supra, 25 Cal.4th at p. 768.) The trial court must grant the motion if the papers show there is no triable issue as to any material fact and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).)

We review an order granting summary judgment or adjudication de novo. (Aguilar, supra, 25 Cal.4th at p. 860.) We independently examine the record that was before the trial court to determine whether a triable issue of material fact exists, liberally construing the evidence and resolving all doubts concerning the evidence in favor of the party opposing summary judgment or adjudication. (Patterson v. Domino’s Pizza, LLC (2014) 60 Cal.4th 474, 499-500; Saelzler, supra, 25 Cal.4th at p. 768.) We consider all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained. (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 717; Gin v. Pennsylvania Life Ins. Co. (2005) 134 Cal.App.4th 939, 946.)

DISCUSSION

I

PLI contends the minor appeals from a nonfinal and nonappealable order.

In general, an appeal may be taken from a judgment. (Code Civ. Proc., § 904.1, subd. (a)(1).) A judgment is a final determination of the rights of the parties. (Griset v. Fair Political Practices Com. (2001) 25 Cal.4th 688, 697.) A decree is an appealable judgment when it disposes of all causes of action framed by the pleadings, leaving no substantive issue for future determination. (Id. at p. 700.) “ ‘[B]ut where anything further in the nature of judicial action on the part of the court is essential to a final determination of the rights of the parties, the decree is interlocutory.’ ” (Id. at p. 698.)

The minor appeals from the judgment filed on March 27, 2015, entered after the trial court granted summary judgment in favor of PLI on its cross-complaint in interpleader and summary judgment or adjudication on the minor’s first amended complaint. The judgment discharged PLI as to the interpleaded funds and required the minor and the ex-wife to litigate or settle their dispute about entitlement to the policy proceeds but made no final disposition of the interpleaded funds. Such judgment of interpleader is not appealable. (Lincoln Nat. Life Ins. Co. v. Mitchell (1974) 41 Cal.App.3d 16, 19.) That portion of the appeal must, therefore, be dismissed.

However, the judgment also finally determined the minor’s causes of action against PLI and provided that the minor shall take nothing against PLI on his first amended complaint. Such judgment is appealable. (Code Civ. Proc., §§ 437c, subd. (m), 904.1, subd. (a)(1); see Prudential Ins. Co. of America v. Hovis (3d Cir. 2009) 553 F.3d 258, 261-262 (Hovis).) The existence of an unresolved cross-complaint does not preclude review of the summary judgment on the minor’s first amended complaint. (Worth v. Asiatic Transpacific, Inc. (1979) 93 Cal.App.3d 849, 856.)

II

The trial court concluded that interpleader shielded PLI from liability to the minor on all causes of action in the first amended complaint. The minor argues the trial court erred in finding no triable issue of material fact as to his breach of contract, declaratory relief, reformation and breach of implied covenant of good faith and fair dealing causes of action. He says the interpleader did not immunize PLI from liability on those causes of action.

A life insurance company faced with more than one claim to the benefits of a policy may file an interpleader. (Code Civ. Proc., § 386, subd. (b); see, e.g., National Life & Accident Ins. Co. v. Edwards (1981) 119 Cal.App.3d 326, 329-330; Mutual Life Ins. Co. v. Henes (1935) 8 Cal.App.2d 306, 309-311.) Interpleader is an equitable proceeding available when parties may make a claim with respect to one liability and the one seeking the relief does not have any interest in the subject matter. (Hancock Oil Co. v. Hopkins (1944) 24 Cal.2d 497, 502-505, 510 (Hancock Oil); City of Morgan Hill v. Brown (1999) 71 Cal.App.4th 1114, 1123 (City of Morgan Hill).)

“In an interpleader action, the court initially determines the right of the plaintiff to interplead the funds; if that right is sustained, an interlocutory decree is entered which requires the defendants to interplead and litigate their claims to the funds. Upon an admission of liability and deposit of monies with the court, the plaintiff then may be discharged from liability and dismissed from the interpleader action. [Citations.] The effect of such an order is to preserve the fund, discharge the stakeholder from further liability, and to keep the fund in the court’s custody until the rights of the potential claimants of the monies can be adjudicated. [Citations.] Thus, the interpleader proceeding is traditionally viewed as two lawsuits in one. The first dispute is between the stakeholder and the claimants to determine the right to interplead the funds. The second dispute to be resolved is who is to receive the interpleaded funds. [Citations.]” (Dial 800 v. Fesbinder (2004) 118 Cal.App.4th 32, 42-43.)

Over seven decades ago, the California Supreme Court stated that a party seeking interpleader relief (the stakeholder) must have no independent liability to the claimants. (Hancock Oil, supra, 24 Cal.2d at pp. 502-505.) “ ‘Interpleader will not lie if the stakeholder has incurred some personal obligation to either of the claimants, independent of the title or the right to possession, because such claimant would in that event have a claim against him which could not be settled in a litigation with the other claimant.’ [Citation.]” (Id. at p. 505.) Today, however, the fact that a claimant asserts an independent claim against the stakeholder does not preclude interpleader relief; instead, the claimant may sue the stakeholder separately. (City of Morgan Hill, supra, 71 Cal.App.4th at p. 1123 [the “ ‘restriction against independent liability is construed so that it is rarely an obstacle to the [interpleader] remedy’ ”]; Pacific Loan Management Corp. v. Superior Court (1987) 196 Cal.App.3d 1485, 1489 (Pacific Loan).) The stakeholder is kept in the litigation to defend against the independent claim against it, rather than being dismissed after depositing the disputed funds with the court. (Hovis, supra, 553 F.3d at p. 264.) The modern view is consistent with Code of Civil Procedure section 386, subdivision (b), which does not state that absence of independent liability by the stakeholder is required to obtain interpleader relief. (Pacific Loan, supra, 196 Cal.App.3d at p. 1489.)

Interpleader does not shield the stakeholder from liability when the stakeholder may be independently liable to one or more claimants. (Lee v. W. Coast Life Ins. Co. (9th Cir. 2012) 688 F.3d 1004, 1011; Lehto v. Allstate Ins. Co. (1994) 31 Cal.App.4th 60, 69-70 (Lehto).) Conversely, interpleader protects the stakeholder “ ‘from being obliged to determine at his peril which claimant has the better claim’ ” when a contested issue is the claimants’ respective entitlement to the stake. (Lee, supra, 688 F.3d at pp. 1009, 1011.) The party seeking interpleader relief is not liable in tort merely because it declined to resolve competing claims and turn the property or money over to a claimant and instead avails itself of interpleader relief. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 874; Pacific Loan, supra, 196 Cal.App.3d at p. 1491.)

Accordingly, we look to the first amended complaint to determine whether the minor’s causes of action concern an obligation independent of the right to death benefits and thus are not subject to interpleader protection. (Oakland Raiders v. National Football League (2005) 131 Cal.App.4th 621, 648.)

The breach of contract cause of action alleges PLI breached the insurance contract by failing to pay the death benefits to the minor. Although the minor argues on appeal that PLI breached the insurance contract through other conduct, no other conduct is alleged in the first amended complaint. The declaratory relief cause of action alleges the minor is the proper beneficiary under the policy and is entitled to payment of the death benefits. The reformation cause of action also alleges the minor is the proper beneficiary under the policy.

As pleaded, the breach of contract, declaratory relief and reformation causes of action are not independent of the interpleader action because they are based on PLI’s alleged failure to determine that the minor is the proper beneficiary and to pay the minor the death benefits. (Hovis, supra, 553 F.3d at pp. 264-265.) Interpleader is not defeated because a claimant alleges the stakeholder has a duty to deliver the property to him or her. (Pacific Loan, supra, 196 Cal.App.3d at pp. 1489-1490; Minnesota Mut. Life Ins. Co. v. Ensley (9th Cir. 1999) 174 F.3d at p. 981 [interpreting California law]; Maddux v. Philadelphia Life Ins. Co. (S.D.Cal. 1999) 77 F.Supp.2d 1123, 1129-1130 [applying California law].) Interpleader protects PLI from further liability under those causes of action. (Hovis, supra, 553 F.3d at p. 265; Maddux, supra, 77 F.Supp.2d at p. 1133.)

In contrast, the minor’s cause of action for breach of the implied covenant of good faith and fair dealing asserts an independent claim against PLI. The law implies in every contract a covenant of good faith and fair dealing. (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818.) Such a covenant requires the contracting parties to refrain from doing anything to injure the right of the other to receive the benefits of the agreement. (Ibid.) But breach of the implied covenant of good faith and fair dealing involves something more than breach of a contractual duty or mere negligence. (Nieto v. Blue Shield of California Life & Health Ins. Co. (2010) 181 Cal.App.4th 60, 86 (Nieto).) “It is the obligation . . . under which the insurer must act fairly and in good faith in discharging its contractual responsibilities.” (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573-574 (Gruenberg).)

An insurer breaches the implied covenant of good faith and fair dealing when it withholds policy benefits unreasonably or without proper cause. (Dalrymple v. United Services Auto. Assn. (1995) 40 Cal.App.4th 497, 512 (Dalrymple); Opsal v. United Services Auto. Assn. (1991) 2 Cal.App.4th 1197, 1205; see Badie v. Bank of America (1998) 67 Cal.App.4th 779, 796 [“ ‘The essence of the good faith covenant is objectively reasonable conduct’ ”].) What is unreasonable conduct or conduct without proper cause must be determined on a case-by-case basis and will depend on the bargain struck between the parties, the purposes of the contract and the parties’ legitimate expectations which arise from the contract. (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 346 (Chateau Chamberay); Brandt v. Lockheed Missiles & Space Co. (1984) 154 Cal.App.3d 1124, 1129.) Whether the insurer breached the implied covenant of good faith and fair dealing is ordinarily a question of fact. (Nieto, supra, 181 Cal.App.4th at p. 86; Dalrymple, supra, 40 Cal.App.4th at p. 511.) It becomes a question of law when the evidence is undisputed and there are no conflicting inferences or only one reasonable inference can be drawn from the evidence. (Nieto, supra, 181 Cal.App.4th at p. 86; Dalrymple, supra, 40 Cal.App.4th at p. 511.)

The insured’s failure to comply with policy requirements does not excuse the insurer’s bad faith. (Gruenberg, supra, 9 Cal.3d at pp. 577-578.) “[T]he nonperformance by one party of its contractual duties cannot excuse a breach of the duty of good faith and fair dealing by the other party while the contract between them is in effect and not rescinded.” (Id. at p. 578.) The beneficiaries of the insured may maintain a breach of the covenant of good faith and fair dealing action against the insurer. (Bass v. John Hancock Mut. Life Ins. Co. (1974) 10 Cal.3d 792, 798, fn. 4; Harper v. Wausau Ins. Co. (1997) 56 Cal.App.4th 1079, 1086-1088; see Garratt v. Baker (1936) 5 Cal.2d 745, 748.)

In general, the method provided by the policy for a change of beneficiary must be followed. (Cook v. Cook (1941) 17 Cal.2d 639, 648.) Words used in a policy of insurance are to be interpreted according to the plain meaning which a layperson would ordinarily attach to them. (Delgado v. Heritage Life Ins. Co. (1984) 157 Cal.App.3d 262, 271.) Any ambiguity or uncertainty in an insurance policy is to be resolved against the insurer. (Ibid.)

While the filing of an interpleader action by itself does not constitute an act of bad faith (Lehto, supra, 31 Cal.App.4th at p. 69), and here the minor alleged, among other things, that PLI breached the implied covenant of good faith and fair dealing by filing an interpleader action, the minor’s cause of action for breach of the implied covenant is also based on PLI’s failure to record Litton’s change of beneficiary request. Of course, we do not decide whether the minor can succeed on his claim for breach of the implied covenant of good faith and fair dealing; such a determination must be made in further proceedings in the trial court. We merely note that on this record, we cannot say the minor could not succeed on such a cause of action. For example, the policy authorized the owner of the policy to change the beneficiary. A signed request is required to effectuate a change. The policy defines “request” as a “request in writing on a form acceptable to [the insurer], signed by [the owner of the policy] and received by [the insurer].” It is undisputed that PLI received a written request to change the beneficiary on Litton’s policy from the ex-wife to the minor. That request was on a PLI form for changing beneficiaries. While PLI now claims it could not admit or deny that Litton signed that form, PLI’s October 29, 2007 letter to Litton did not identify authenticity of the signature on the October 22, 2007 SRF as a reason for rejecting the SRF in 2007.

PLI’s October 29, 2007 letter to Litton indicated that PLI did not process the October 22, 2007 SRF because the space designated on the form for the name of the insured was blank. But the policy did not state that a beneficiary change request is effective only if the owner of the policy provided the name of the insured on the form acceptable to the insurer. PLI did not show that the insurance contract contained this additional requirement for changing a beneficiary. In particular, PLI did not show that the instructions for requests to change a beneficiary, which stated that the form must be fully completed, were part of the parties’ contract. The prepopulated new SRF generated by Alliance One included the name of the insured.

Under the circumstances, we cannot say that PLI is entitled to judgment as a matter of law on the minor’s breach of implied covenant of good faith and fair dealing cause of action. (See McCormick v. Sentinel Life Ins. Co. (1984) 153 Cal.App.3d 1030, 1046 [insurer does not “exhibit good faith in denying a claim merely because an insured failed to dot the i’s or cross the t’s on a claim form or other submission . . . . [T]he real question is whether there was enough evidence of whatever form and however acquired that it would be unreasonable for the insurance company to refuse to pay the claim”].)

PLI also moved for summary adjudication of the breach of implied covenant cause of action on grounds that the minor offered no evidence of noneconomic emotional distress damages, and offered no evidence of oppression, fraud or malice to support an award for punitive damages. The trial court did not grant summary adjudication on those grounds and PLI did not appeal from that ruling. Therefore, we need not discuss the parties’ arguments concerning emotional distress and punitive damages. In any event, with regard to emotional distress damages, summary adjudication may not be obtained with respect to only one component of compensatory damages claimed by the plaintiff when the granting of the motion will not completely dispose of a cause of action. (Code Civ. Proc., § 437c, subd. (f)(1); DeCastro West Chodorow & Burns, Inc. v. Superior Court (1996) 47 Cal.App.4th 410, 412, 422.)

DISPOSITION

The portion of the appeal relating to the judgment of interpleader is dismissed. The portion of the judgment regarding the minor’s causes of action in the first amended complaint for breach of contract, declaratory relief and reformation is affirmed. The portion of the judgment pertaining to the minor’s cause of action in the first amended complaint for breach of the implied covenant of good faith and fair dealing is reversed. The case is remanded for further proceedings consistent with this opinion. The parties are to bear their own costs on appeal. (Cal. Rules of Court, rule 8.278(a)(3).)

/S/

MAURO, J.

We concur:

/S/

HULL, Acting P. J.

/S/

MURRAY, J.