Unpublished Disposition, 876 F.2d 896 (9th Cir. 1986)

MEMORANDUM^** 

OVERVIEW

David and Christina Fortner appeal from the district court's order granting summary judgment to their deceased parents' insurance carrier, Royal Globe Insurance Company. The Fortners sued Royal Globe for bad faith insurance practices arising from a claim made against the policy after the Fortners' mother was killed while riding as a passenger in an automobile driven by their father. The district court determined that the mother's death was excluded from coverage under the terms of the policy. We have jurisdiction pursuant to 28 U.S.C.A. Sec. 1291 and we affirm.

FACTUAL BACKGROUND

On October 1, 1984, Royal Globe issued a three-year, multi-peril insurance policy to HLS Enterprises, a Nevada corporation owned and operated by Ronald and Virginia Fortner. Ronald and Virginia were also named insureds on the policy. The policy included automobile insurance. The liability coverage under the automobile portion of the policy was set at $500,000. The automobile policy also included uninsured motorist coverage of $30,000 per accident.

On June 13, 1986, Virginia and Ronald Fortner were killed in a single-car accident while traveling in California on a business trip for HLS Enterprises. At the time of the accident, Ronald was driving his son David's car.

David and Christina Fortner, sole heirs to Virginia's estate, made a claim with Royal Globe seeking $500,000 under the liability insurance provision of the automobile policy. Royal Globe refused to pay the claim, stating that Virginia's death was not covered under Ronald's liability insurance because of a provision which excluded injuries to fellow employees, and because of a provision which excluded coverage of automobiles that belonged to the insureds' family members.

After Royal Globe refused to pay the claim, the Fortners filed suit in California state court, alleging bad faith insurance practices in violation of California Insurance Code Sec. 790.03. The Fortners sought $500,000 under the liability coverage, medical damages for infliction of emotional distress, and punitive damages in the amount of $5,000,000. Royal Globe removed the case to federal court on the basis of diversity of citizenship. Royal Globe then moved for summary judgment, claiming that Virginia's death was excluded from coverage by the terms of the policy. The district court granted the summary judgment, finding that Virginia's death was excluded from coverage.

The Fortners filed a timely appeal. On appeal, the Fortners alleged, for the first time, that Royal Globe had a duty to pay not only under the liability insurance provisions, but under the uninsured motorists' insurance provisions as well.

STANDARD OF REVIEW

California's substantive insurance law governs in this diversity case. James B. Lansing Sound Inc. v. National Union Fire Ins. Co., 801 F.2d 1560, 1561 (9th Cir. 1986). This court reviews a grant of summary judgment de novo. Bonner v. Lewis, 857 F.2d 559, 561 (9th Cir. 1988).

DISCUSSION

I. The Fortners' claim against Ronald Fortner's liability coverage

The Fortners have no cause of action under California Insurance Code Sec. 790.03 for Royal Globe's refusal to pay their claim against Ronald's liability coverage. To state a cause of action under Sec. 790.03, the claimant must show that there has been a judicial determination of the insured's liability. Moradi-Shalal v. Fireman's Fund Ins., 250 Cal. Rptr. 116, 133 (Cal.1988).

In Moradi-Shalal, the California Supreme Court held that insurance claimants no longer have a private cause of action for damages under Cal. Insurance Code Sec. 790.03. The Court determined that this holding should be applied prospectively, and that suits which were already pending would still be viable. For those cases that were still pending, the Court clarified their decision in Royal Globe v. Superior Court, 23 Cal. 3d 880 (1979), the case which established a private cause of action under Sec. 790.03. In Royal Globe, the Court held that the plaintiff in a Sec. 790.03 action must show that the action between the claimant and insured has been "concluded." In Moradi-Shalal, the Court interpreted this requirement to mean that there must be a judicial determination of the insured's liability before a claimant could bring a Sec. 790.03 action against the insurer.

The Fortners never filed suit against Ronald's estate to establish Ronald's liability for this accident. Therefore, there has been no determination of his liability upon which to base their Sec. 790.03 claim against Royal Globe as required by California law.

A. Waiver of the requirement that a claimant must prove the insured's liability

The Fortners argue that since the accident involved only one vehicle, Ronald's liability was clear and the requirement of a judicial determination of liability should be waived. They also contend that because Royal Globe had told them that if the policy covered Virginia's death, Royal Globe would pay the claim, Royal Globe should be estopped from arguing that the Fortners needed to establish Ronald's liability.

These arguments are meritless. Under Moradi-Shalal, the mere fact that the insured's liability is clear does not abrogate the requirement that the insured's liability be judicially determined before a cause of action against the insurer arises under Sec. 790.03. Id. at 129. The California Supreme Court stated that although the insurance company's duty to try to settle arises when liability becomes "reasonably clear," a claimant may not sue to remedy a breach of this duty without a final judicial determination of the insured's liability. Id.

In Moradi-Shalal, the Court expressly rejected the line of appellate cases which had held that a settlement was a sufficient "final determination" of the insured's liability that the claimant could bring a Sec. 790.03 action. Id. at 131. Since a settlement would be insufficient to waive the requirement that there be a judicial determination of the insured's liability, a fortiori, the insurance company's failure to specifically deny liability during settlement talks would not be sufficient to waive the requirement. Thus, the Fortners' claim that they did not need to prove Ronald's liability before suing Royal Globe because liability was clear is without merit.

B. The fact that the injured claimant was also a named insured under the policy

The Fortners claim that because Virginia was a named insured under the same policy as Ronald, this case does not fall within Moradi-Shalal because Moradi-Shalal only affects third party claims, not claims by insureds. While the impact of Moradi-Shalal upon claims by insureds is uncertain, we need not address this point. For the purpose of reaching Ronald's liability coverage, the Fortners were third party claimants, not representatives of an insured. The Fortners were not making a claim against Virginia's own insurance,¹  they were making a claim against Ronald's liability coverage. If Virginia were alive and making this claim against Ronald's liability coverage, she would not be suing in her capacity as an insured party, but as a claimant. The mere fact that she also had liability coverage under the same policy would be irrelevant if she were attempting to recover from Ronald's liability coverage. She would be required to prove Ronald was liable for her injuries before she could sue Royal Globe for failure to pay her claim. Her heirs are in no different position than Virginia would be.

Since they have failed to establish Ronald's liability for Virginia's death, the Fortners have failed to make out a claim against Royal Globe under California Insurance Code Sec. 790.03. Therefore, it is unnecessary for us to reach the issue of whether Virginia's death would be covered under Ronald's liability coverage or would be excluded by the terms of the policy.

II. The claim against Virginia's uninsured motorist insurance

On appeal, the Fortners claim that even if Ronald's liability coverage did not cover Virginia, they are entitled to recover $30,000 because Virginia's uninsured motorist insurance covered this accident. We need not determine whether the uninsured motorist provisions of the policy would apply to this accident. The Fortners did not sue to determine their rights under the policy. They sued Royal Globe for a bad faith refusal to settle their claim. There is no evidence that the Fortners ever made a demand that Royal Globe pay benefits under Virginia's uninsured motorist coverage which Royal Globe refused. Indeed, the Fortners never suggested at any time until they wrote their appellate brief that Virginia's uninsured motorists' coverage might cover this accident. The insurance company cannot be liable for a bad faith refusal to settle a claim that the claimants never requested it to consider.

CONCLUSION

The Fortners have not met a necessary prerequisite to maintaining a suit for bad faith insurance practices under California law; they have not judicially established the insured's liability for the accident. Therefore, Royal Globe is entitled to judgment as a matter of law.

AFFIRMED.