Joanne Beckham v. Safeco Insurance Company of America, a Corporation

Citations: 691 F.2d 898; 35 Fed. R. Serv. 2d 606; 1982 U.S. App. LEXIS 24350Docket: 81-5169

Court: Court of Appeals for the Ninth Circuit; November 3, 1982; Federal Appellate Court

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Joanne Beckham appealed the summary judgment granted to Safeco Insurance Company by the district court concerning her claims of unfair insurance practices under California law. Beckham was injured in a 1976 car accident and initially sued the other driver, Nellie Mankin, with Safeco acting as the excess insurer after the primary insurer's liability limit was reached. Safeco offered a settlement of $225,000 plus an annuity, which Beckham rejected, seeking the full $1,000,000 policy limit instead. The case went to trial in 1979, resulting in a $1,500,000 jury verdict for Beckham, which Safeco paid.

In December 1979, Beckham filed a state court action alleging unfair settlement practices under California Insurance Code § 790.03 and claims for emotional distress. Safeco removed the case to federal court based on diversity jurisdiction. Beckham's request for a jury trial was denied as untimely, and the district court subsequently granted summary judgment for Safeco on all counts. Beckham later sought to remand the case back to state court, claiming a lack of diversity, but this motion was denied.

On appeal, Beckham contended that the district court lacked subject matter jurisdiction, erred in granting summary judgment, and abused its discretion by denying her jury trial request. The appellate court affirmed the district court's decisions except for the summary judgment on Beckham's claim under § 790.03(h)(5).

Diversity jurisdiction is established in a case involving Safeco, a Washington corporation, and Beckham, a California citizen. Beckham argues that her lawsuit against Safeco is a "direct action" under 28 U.S.C. § 1332(c) because Mankin, Safeco's insured, is not a defendant, which would classify Safeco as a citizen of California, thus defeating diversity. However, § 1332(c) defines a "direct action" as a case where the injured party can sue the liability insurer without joining the insured, aiming to prevent local residents from evading diversity jurisdiction. Numerous cases have interpreted "direct action" to mean that the insurer's liability must stem directly from the insured's behavior. 

In this instance, Beckham's claim is not a direct action because she seeks to hold Safeco liable for its own alleged bad faith in refusing to settle her claim against Mankin, rather than for Mankin's negligence. Consequently, Mankin cannot be joined as a defendant, and the court correctly concluded that diversity jurisdiction exists.

Regarding summary judgment, it can be granted only if there are no genuine disputes of material fact and the moving party is entitled to judgment as a matter of law. Evidence must be viewed in the light most favorable to the opposing party.

Under § 790.03(h)(5), insurers are required to act in good faith to promptly settle claims when liability is "reasonably clear." Safeco sought summary judgment on Beckham's claim, arguing that Mankin's liability was not reasonably clear. The district court agreed, finding a significant dispute regarding liability, based on Safeco's attorney's assessment that the evidence was evenly split between Beckham and Mankin. Mankin contended she had the green light, while a witness stated Beckham had entered with a green light, complicating liability determination, especially since Beckham suffered amnesia and could not recall the accident.

Safeco provided affidavits from Mankin's defense attorney and a claims adjuster, both asserting that the conflicting witness accounts indicated uncertainty in liability. The attorney believed Mankin had a strong chance of winning due to Beckham's burden of proof. In opposition, Beckham presented evidence suggesting Safeco was aware that Mankin likely entered the intersection against a red light, including insights from two accident reconstruction experts supporting this conclusion. Beckham cited a letter from Mankin's attorney, revealing a strategic position taken at a settlement conference that acknowledged the liability question and described a potential advantage for the plaintiff should the case go to trial. Additionally, Beckham highlighted Safeco's internal reports that noted evidence indicating Mankin had run a red light, as well as a memorandum from Mankin's subsequent trial attorney indicating that liability appeared to rest with Mankin, which had not changed since trial.

Beckham's evidence was deemed sufficient to create a genuine dispute regarding Mankin's liability for the accident, particularly considering Mankin's claim of having a green light. The determination of liability hinges on whether a reasonable person in Safeco's position would have concluded that Mankin ran the red light, suggesting a factual issue for resolution.

In contrast, Beckham's claims under subsections (h)(2), (3), and (13) of Section 790.03 were found to lack triable issues. Subsection (h)(2) prohibits insurers from failing to acknowledge and act promptly on claims communications; however, Beckham did not demonstrate that her communications were unacknowledged or delayed by Safeco. The mere refusal to accept her $1,000,000 settlement demand did not constitute a violation, as promptness does not require a favorable action.

Subsection (h)(3) mandates insurers to adopt standards for prompt claims investigation. Beckham admitted that Safeco promptly initiated an investigation upon learning of the accident, and evidence indicated a thorough investigation was conducted. 

Subsection (h)(13) requires insurers to provide prompt explanations for claim denials or compromise settlements. It was established that Safeco did not deny liability based on its policy with Mankin, but rather disputed Mankin's responsibility for the accident.

Regarding claims of intentional and negligent infliction of emotional distress, while the district court did not specify the grounds for summary judgment, it can be affirmed on existing record grounds. For intentional infliction of emotional distress, the conduct alleged must be outrageous. Beckham's claim centered on Safeco's refusal to settle, but even if this refusal was made in bad faith, it did not constitute the required outrageous conduct. The focus is on the nature of the defendant’s actions rather than their intent, thus dismissing Beckham's claims.

Safeco's refusal to settle Beckham's claim does not constitute a cause of action for negligent infliction of emotional distress, as there is no general duty for insurers to exercise due care in settlement negotiations with third-party claimants beyond the statutory obligation outlined in § 790.03(h)(5). Breaching this duty results in a statutory violation rather than negligence, allowing third-party claimants to sue for damages, including potential emotional distress, though that issue is not currently before the court. Beckham's request for a jury trial was deemed untimely under Fed. R. Civ. P. 38(b), and the district court denied her motion to exercise discretion under Fed. R. Civ. P. 39(b) to allow the jury trial. The denial of this motion will be upheld unless there is evidence of an abuse of discretion, which is generally not found in cases of attorney neglect or inadvertence. Beckham's reasons for the delay, including her attorney's lack of federal certification and misunderstandings about procedural requirements, were considered insufficient. Consequently, the district court's decisions to deny the jury trial and to refuse remand to state court are affirmed. Summary judgment on Beckham's claims related to violations of California Insurance Code § 790.03(h)(2), (3), and (13), as well as for intentional and negligent infliction of emotional distress, is also affirmed. However, the grant of summary judgment on her claim for violation of § 790.03(h)(5) is reversed, and that claim is remanded for further proceedings.