I respectfully dissent, and amplify somewhat on the factual recitation of the majority. On July 13, 1970, William Neal, while driving the family automobile in which his wife Frances was riding, made a left turn at an intersection in front of an oncoming car driven by an 934 uninsured motorist which then struck the Neal car. Mrs. Neal sustained serious personal injuries.
At the time of the accident Neal was insured by defendant Farmers Insurance Exchange (Farmers) under a policy which contained a medical payment provision with limits of $5,000, and uninsured motorist coverage of $15,000 (the UM coverage). The policy provided in part: “Coverage C ... (1) determination as to whether the insured ... is legally entitled to recover such damages, and (if so entitled) the amount thereof, shall be made by agreement between the insured or such representative and the Company or, in the event of disagreement by arbitration: . . .” The policy also contained what is described as “a standard offset” provision which stated: “Limits of Liability Under Part II: ... (C) Any loss payable to any person under the terms of this Part II [uninsured motorist provision] shall be reduced by . . . (2) the amounts paid or due to be paid under any valid and collectible automobile medical expense insurance available to the insured.” A similar statutory offset provision was contained in the following language of Insurance Code section 11580.2, subdivision (h) then in effect: “Any loss payable under the terms of the uninsured motorist endorsement on coverage to or for any person may be reduced: ... (2) by the amounts paid or due to be paid under any valid and collectible automobile medical payment insurance available to the insured. This paragraph shall remain in effect until December 31, 1970, and shall have no force after that date.” The UM coverage was mandatory.
It was undisputed that the injuries to Mrs. Neal were so severe that if she was entitled to receive any uninsured motorist benefits under the terms of the policy she would be entitled to the maximum $15,000 coverage, subject to the offset provisions above described. The record before us does reflect, however, a serious question as to whether there was any negligence on the part of the uninsured motorist. A police investigation initiated immediately after the accident, which included police interviews with eyewitnesses, resulted in the issuance of a traffic citation to Mr. Neal for making an illegal left turn into the path of an oncoming vehicle. No citation was issued to the uninsured motorist. It is fundamental, of course, that if there was no negligence on the part of the uninsured motorist, Mrs. Neal would not be entitled to payment under the general UM coverage no matter how severe her injuries.
Any dispute as to defendant’s liability on the uninsured motorist claim did not, of course, affect its obligation for medical payments and in 935 October 1970, shortly after Mrs. Neal’s attorney, Mr. Gergen, filed the requisite proof of claim forms, Farmers paid Mrs. Neal the full amount of the $5,000 medical payment exposure under the policy.
The matter of the uninsured motorist payment, however, remained unresolved. Farmers, believing that under both statutory and policy terms it might have defenses on liability as well as on the offset, sought the advice of legal counsel. A substantial delay ensued. On April 11, 1971, its counsel advised defendant that in the event of arbitration or trial there was a substantial likelihood that the uninsured motorist would not be found negligent, and characterized the case as “50-50.” Examining the offset problem counsel also concluded that while the point was not clear because of a recent change in law, which had not been clarified by any appellate opinion, defendant should be entitled to an offset. The defense attorney advised Farmers to arbitrate its liability and to litigate through a declaratory relief action the offset issue.
Immediately following the receipt of this opinion defendant, because it believed its maximum uninsured motorist exposure was $10,000 (the $15,000 UM coverage less the $5,000 medical payment offset) and its chances of successfully defending the suit “50-50,” offered $5,000 additional payment in full settlement of the claim. This was rejected and Farmers, in turn, declined a counteroffer from plaintiff’s counsel that it pay $10,000 immediately and that the matter of the offset become the subject of a declaratory relief action. Subsequently, on May 11, 1971, plaintiff’s counsel revoked his previous offer and demanded $15,000 within 10 days, failing which he advised Farmers that the Neals would seek “realistic damages in the sum of $500,000.” Defendant did not respond. In the subsequent arbitration Mrs. Neal was awarded the full $15,000 after the arbitrator concluded that defendant was not entitled to any offset. Farmers promptly paid Mrs. Neal the $15,000 as ordered.
Thereafter, Mrs. Neal filed the present action contending that defendant was guilty of bad faith in offering only a 50 percent settlement and in failing to pay her the full uninsured motorist benefits before arbitration occurred. The jury concluded that there was bad faith by defendant in refusing to pay Mrs. Neal the full policy limit on the disputed claim. The majority concedes that the evidence in support of this conclusion was very thin but insists that it was sufficient measured by the applicable appellate standards. (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881 [92 Cal.Rptr. 162, 479 P.2d 362].) In my opinion the question of bad faith is very close. There was no showing that defendant’s employees 936 or representatives subjected the Neals to unethical treatment or that the tragic crisis that engulfed the Neal family (the subsequent deaths from cancer of both Mrs. Neal and her adult son) was even a subject of consideration in any regard. The majority stress an excerpt from the company manual which encourages employees “to be sensitive to individual situations” that might influence settlement prospects. Even, however, if the manual is interpreted as encouraging high-pressure tactics, the record discloses no connection whatever between the contents of the manual and the conduct of the defendant’s representative who negotiated with the Neals and their attorney. The jury may well have regarded with complete distaste the excerpts from the manual which reflected defendant’s hopes that its employees would be attuned to individual circumstances that might influence settlement prospects. Nonetheless, the jury was furnished no evidence of any improper implementation of any procedure which the manual may have suggested. At all relevant times the Neal family was represented by its own independent counsel.
Deciding that the evidence is sufficient to uphold the jury’s finding of bad faith, the majority states that it cannot conclude as a matter of law that the punitive damage award was unsupported by the evidence and should be overturned. I must respectfully disagree.
The trial court made an express finding that the jury’s verdict of $1,548,211.35 resulted from passion and prejudice, and reduced the judgment to $749,011.48.
Because the trial court’s reasoning in ruling on defendant’s motion for new trial is significant, I incorporate pertinent portions thereof: “The motion for a new trial is granted as to the issue of damages only on the ground that the damages are excessive, . . . The Court is convinced from the entire record and from weighing the evidence that the jury should have reached a different verdict. The Courts [jz'c] reasons for conditionally granting the motion on the ground stated are the following: [If] I. The amount of the verdict appears to be the result of passion on the part of the jury. [If] 2. Counsel for plaintiff stoked such passion by repeated reference to ‘Mrs. Neal lying paralyzed in her bed,’ by stating in argument ‘Frances is looking down on us’ ... . [If] 3. The special damages recoverable on the issue before the jury . . . were less than $10,000.00. [Tf] 4. The fact that there were two deaths in the Neal family from cancer within a short period of time would tend to arouse sympathy in the minds of the jurors. [1f] 5. The amount of the verdict exceeds the 937 amount necessary to act as a deterrent to the defendant and others. [If] 6. The amount of the verdict exceeds the amount necessary to punish in a manner consistent with the offense.” I entirely agree with this analysis of the trial court.
Although there is no fixed ratio by which to determine the propriety of a punitive damage award, there is law to the effect that punitive damages should bear a reasonable relationship to the compensatory damages award. (Forte v. Nolfi (1972) 25 Cal.App.3d 656, 689 [102 Cal.Rptr. 455]; Wilkinson v. Singh (1928) 93 Cal.App. 337, 344-345 [269 P. 705].) At the least the amount of the compensatory damages, by way of general and special damages, is surely one element to be considered in measuring the reasonableness of the damages assessed by way of punishment. According to the evidence the compensatory damages could not have exceeded $10,000. The ultimate punitive award was almost three-quarters of a million dollars. I am convinced that a punitive damage award of that size is not justified by any conduct of defendant that is disclosed in this record.
We have said that “ ‘In considering whether the [award was] excessive, we realize the very familiar rule that to the jury, to a very large extent, is committed the responsibility of awarding compensation for an injury sustained. When the award as a matter of law appears excessive, or where the recovery is so grossly disproportionate as to raise a presumption that it is the result of passion or prejudice, the duty is then imposed upon the reviewing court to act.’ ” (Cunningham v. Simpson (1969) 1 Cal.3d 301, 308-309 [81 Cal.Rptr. 855, 461 P.2d 39], citing Rosenberg v. J. C. Penney Co. (1939) 30 Cal.App.2d 609, 628 [86 P.2d 696].)
The evidence of “bad faith,” in my opinion, was marginal. What then led the jury to return an award of such magnitude? I have concluded that the verdict was the result of several extraneous and irrelevant factors in combination: (1) the passion and prejudice of the jury as found by the trial court, (2) the improper suggestions to the jury that defendant’s conduct should be measured not by its maximum contractual liability of $20,000 but, rather, by the possible “$500,000 and up true value” of plaintiff’s tort claim against a third party, and (3) the jury’s natural sympathy generated by Mrs. Neal’s injuries, and her subsequent death and that of her son from cancer. These causes resulted in an award which, in terms of both compensation for breach of the uninsured motorist provision and punitive damages, was grossly excessive.
938 Mrs. Neal’s injuries were relevant to any issues of the case only insofar as they established that the value of her claim equalled or exceeded the $15,000 limit of the uninsured motorist coverage of her policy. As previously noted, defendant never contested this, but conceded that if Mrs. Neal was entitled to recover she would recover the full amount of the policy. Nonetheless, despite the total lack of any relevancy, plaintiff’s counsel repeatedly described to the jury Mrs. Neal’s injuries sustained in the accident. This was error, and it was serious.
The degree of this intrusion into the trial of this irrelevant and improper factor is manifest from the record. For example,. on one occasion during argument when ruling on a defense objection by defense counsel, the court stated; “And that would be number 14, if we’re counting the times the condition of that lady was paraded before the jury. Maybe not number 14, maybe only ten. But it seems to me as though we have now come to a point where the Court ought to exercise its discretion under 352 [Evidence Code section] and say, you have recited it enough, and that you cannot justify a further recitation of the conditions of this unfortunate lady from this witness as reasons for his opinion. A second reason I see is because there is no dispute by the defense that the valuation of the claim far exceeded the coverage of the insurance policy.” Despite this clear and proper expression of the court’s concern, however, it permitted the argument to be made still another time.
In conjunction with his successful attempt to evoke the sympathies of the jury by reference to Mrs. Neal’s condition and the additional tragedy of the Neals’ son’s cancer and death, matters wholly unrelated to any issue properly before the jury, plaintiff’s counsel introduced and pursued an erroneous legal theory which was premised on the mistaken notion that defendant was somehow liable for plaintiff’s full “$500,000” claim for her personal injuries.
The “$500,000” figure and the erroneous legal theory which produced it appeared early in the negotiations between the Neals’ then counsel, Gergen, and defendant. When Gergen on May 11, 1971, demanded payment of $15,000 within 10 days he threatened, if payment was not forthcoming, to go to arbitration and put in a claim for “realistic damages in the sum of $500,000.” So far as the record discloses, it was a figure snatched wholly from thin air. In plaintiff’s first amended complaint she repeated the claim, seeking “. . . c. The full damages that Frances Neal would have been ‘legally entitled to recover’ without reference to said 939 policy limit of $15,000.00, for the injury said Frances Neal sustained in the sum of $500,000 . . . .”
The erroneous argument measuring the extent of defendant’s uninsured motorist exposure by the nature of the injury rather than with reference to the policy, as augmented by a punitive damage claim, pervaded the trial itself. Plaintiff’s new counsel introduced the figure of $500,000 in his opening statement wherein he quoted third persons as stating that “cases of this type had a reasonable value of $500,000” and “it’s obvious that here is a case, that cases of this kind are half a million dollar-million dollar evaluation,” and he then characterized to the jury the condition of Mrs. Neal as “an injury in the five hundred thousand or above range.”
During trial plaintiff’s counsel produced two witnesses who testified as experts (including Mr. Gergen, plaintiff’s original attorney) that Mrs. Neal’s claim against the uninsured motorist was worth $500,000. Counsel continually stressed to the jury through these witnesses that defendant’s conduct should be judged not on the basis of its maximum exposure under the policy, $20,000, but rather on the basis of the $500,000 value of Mrs. Neal’s claim against the third party uninsured motorist.
The defendant’s $10,000 settlement offer was repeatedly characterized as a “token” offer which should in some manner be measured against the “$500,000” figure conceived by plaintiff. This basis for measuring defendant’s conduct, as reasonable or unreasonable, or in “good faith” or “bad faith,” was presented to the jury throughout the trial, over defendant’s objections in some instances.
In his summation to the jury, plaintiff’s counsel argued: “Are they living up to the duty, fiduciary duty that they owe to their insured when they use the leverage of legal processes to force them and then the alternative to that is, however, if you will drop everything, you know, then he will pay $5,000. Five thousand dollars, a claim worth $500,000 and up, 1 percent—1 percent of the value, that’s what we will offer you . . . .” Plaintiff’s counsel shortly thereafter argued “In a case where the parties agree that the evaluation is in the neighborhood of $500,000 and up, and certainly there are verdicts involving that kind of injury well above that, a measure of malice, a measure of wrongful conduct, a way of looking at how wrongful their conduct was ... to look at what was the value of the claim and how did they treat it.”
940 The attempt by plaintiff’s counsel to arouse and play upon the jury’s natural feelings of sympathy and compassion was expressed in his final words to the jury: “And somehow I have the feeling that Frances Neal is smiling down on us because she left this unfinished business. I hope we can finish it for her.”
Plaintiff’s counsel attempted to incorporate his erroneous theory in a jury instruction, and to a degree was successful. He requested the following instruction: “In determining whether the insurer acted in good faith in refusing to settle Frances Neal’s claim for bodily injury, you may take into consideration the reasonable value of her personal injury claim which is to be determined without regard to the policy limits.” This instruction as written was quite properly rejected but it was read to the jury with the following questionable modifications: “In determining whether the insurer acted in good faith in refusing to settle Frances Neal’s uninsured motorist claim, you may take into consideration the reasonable value of her personal injury claim.” There can be little doubt that the instruction left the jury with the impression that it could properly consider the “$500,000” value which her counsel placed on her personal injuiy claim against the third party uninsured motorist. This figure had been repeatedly urged upon the jury and there is little doubt that it did in fact consider this figure regardless of any instruction that it was specifically not to award damages for the bodily injuries themselves.
This modified instruction was legally correct only in a very limited sense. As I have suggested, the value, if any, of the claim against the third party uninsured motorist was significant only in determining whether that value was equal to or exceeded the policy limit for uninsured motorist coverage. To the extent that the jury was informed that the reasonableness or unreasonableness of defendant’s conduct should be determined by reference to a “$500,000” value of plaintiff’s claim against the uninsured motorist, this instruction and the argument of counsel, made repeatedly, were clearly erroneous.
Plaintiff’s counsel undoubtedly derived his theory from “third party” cases in which an insurance carrier has unreasonably refused to settle a within-policy-limits claim of a third person against the insured. In such cases the carrier is held liable for the full amount of any judgment rendered against the insured, because the damage to the insured is the full amount of the insured’s exposure to the third party’s judgment. 941 (Johansen v. California State Auto. Assn. Inter-Ins. Bureau (1975) 15 Cal.3d 9, 15 [123 Cal.Rptr. 288, 538 P.2d 744]; Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 660 [328 P.2d 198, 68 A.L.R.2d 883].) The carrier’s breach of its implied covenant to the insured of good faith and fair dealing has exposed the insured to the full amount of this judgment. The insured’s loss is directly measurable by, and flows directly from, the carrier’s breach.
This is not the case, however, in which a carrier declines to pay an insured’s claim against a third party motorist. In this case, the insured’s claim against the carrier is not measured in any way by the insured’s claim against the uninsured motorist. Rather, we have said that the insured’s recoverable damages for breaches of covenants of good faith and fair dealing generally include the economic loss, emotional distress and any other consequential damage caused to the insured by the unreasonable “bad faith” refusal to settle. (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 579-580 [108 Cal.Rptr. 480, 510 P.2d 1032].) If this were not the test, insurance carriers would find themselves between the Scylla of making immediate payment on a claim about which they had reasonably founded questions as to liability or the Charybdis of suffering punitive damages for failure to make quick payment, damages that, as in the instant case, far exceed any policy limits. This would not be a just rule, as quite properly noted by Justice Kaufman, speaking for a unanimous Court of Appeal herein. If the uninsured motorist carrier has acted unreasonably, damages, including punitive awards, are entirely proper but they are not measured, in logic or in fairness, by the value of the insured’s claim against the uninsured motorist.
For all of the foregoing reasons, I conclude that the award of $749,011.48 should not stand. Furthermore, the fundamental nature of the errors involved here, the improper legal theory advanced, the doubtful instruction given to the jury, the repeated improper references to the figure of “$500,000,” combined with the extreme and repeated appeals to the sympathies of the jury, lead me inexorably to the conclusion that had not the errors occurred and permeated the trial at so many levels not only would there not have been an award of punitive damages of the great magnitude here involved, but there exists a reasonable probability that there may have been no finding of bad faith whatever. It is on these grounds that I would reverse. (Henderson v. Harnischfeger Corp. (1974) 12 Cal.3d 663 , 670 [117 Cal.Rptr. 1, 527 P.2d 353]; People v. Watson (1956) 46 Cal.2d 818, 836 [299 P.2d 243].)
