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December 18, 1980


The opinion of the court was delivered by: WEINER


This is an action by plaintiff Reliance Insurance Company (Reliance) for recovery of an insurance claim allegedly due under a re-insurance certificate issued to it by defendant General Reinsurance Corporation (General) on an excess umbrella policy. Trial was held before this court sitting without a jury. For the reasons which follow judgment will be entered in favor of the defendant.


 This case had its origin in a motor vehicle collision which occurred on November 16, 1969, between a truck insured by Reliance and a jeep driven by Robert Blackwood (Blackwood). Blackwood was seriously injured and became a paraplegic. Reliance insured the truck under an automobile liability insurance policy issued to its insured, Desert Ginning Company (Desert), for a maximum of $ 300,000.00. Blackwood brought suit in California Superior Court, County of Riverside, against Desert, which suit was defended by Reliance.

 Since Reliance did not have a local claims office, it retained General Adjustment Bureau (GAB) to investigate the accident, to employ such experts as might be necessary, including an accident reconstruction expert, and to attempt to reach a settlement with Blackwood.

 On July 24, 1970, Cady submitted his report to GAB, and advised that he had taken the left turn signal from the jeep, and requested instructions concerning storage of the parts. After Reliance's Los Angeles office received the report on July 27, 1970, that office instructed GAB's Claims Manager to return the parts. Reliance subsequently paid Cady for his services.

 On December 4, 1969, James Dwinnell, (Dwinnell) manager of GAB's office in Riverside, California, telephone Blackwood at the Loma Linda Hospital. Blackwood asked whether Dwinnell was from Allstate, Blackwood's insurer. Dwinnell answered that he was working with Allstate. Blackwood then discussed the accident with him. Afterwards, Dwinnell transcribed the statement and brought it to Blackwood for his signature. Blackwood refused to sign it, having been warned not to sign anything while he was in the hospital. Dwinnell thereupon told Blackwood that if Blackwood didn't sign it, he'd get a lawyer or judge to make Blackwood sign it. Dwinnell also threatened to terminate the disability payments Blackwood was receiving unless he signed the statement.

 On April 16, 1970, Blackwood settled his claim against Desert for $ 200,000.00. Several months later, in the summer of 1970, Blackwood learned of the removal of the jeep parts, and filed suit in California against Reliance, GAB, Cady and his employer, Stephen Blewett & Associates (Blewett), seeking compensatory damages, alleging that as a result of the defendants' conduct in removing the turn signal and securing the statement, Blackwood's injury was aggravated and his health impaired so that it became physically and emotionally impossible for him to proceed to trial, thus requiring him to settle his case at a great discount of its true value. The suit further claimed punitive damages as a result of the defendants' allegedly outrageous conduct.

 Reliance was sought to be held liable on the theory of ratification, i. e., that Reliance, as principal, ratified the actions of its agents in wrongfully taking the jeep parts and in the solicitation under false pretenses of the statement from Blackwood.

 Trial was held in the Superior Court of California, County of Riverside, in July, 1975. At the trial, Blackwood sought to prove as an element of compensatory damages that he was forced to settle his original personal injury action for less than its true value because the taking of the jeep turn signal by Cady significantly impaired his ability to prove liability. The trial court ruled that Blackwood was not entitled to recover compensatory damages because of this loss.

 The jury returned a special verdict which included the following findings:

1. GAB acted maliciously, oppressively and fraudulently toward Blackwood;
2. Cady acted oppressively toward Blackwood, but not maliciously or fraudulently;
3. Reliance ratified the acts of Cady and GAB with reference to the jeep parts incident, and ratified the acts of GAB with reference to the written statement incident.

 The jury returned a verdict of $ 50.00 compensatory damages and $ 8,000,000.00 punitive damages against Reliance, $ 50.00 compensatory damages and $ 250,000.00 punitive damages against GAB, and $ 5.93 compensatory damages and no punitive damages against Cady and Blewett. In response to the special interrogatories submitted to it by the court, the jury indicated that in the punitive damage award against Reliance, $ 1,000,000.00 was based on the jeep parts incident, and $ 1,000,000.00 was based on the written statement incident. The court reduced the punitive damage award accordingly, and entered judgment in favor of Blackwood and against Reliance in the amount of $ 2,000,000.00 punitive damages.

 Cross appeals from the trial court judgment were taken to the California Court of Appeal, Fourth District, by Blackwood and Reliance. Blackwood sought reinstatement of the $ 8,000,000.00 punitive damage verdict, and also a new trial because of the trial court's alleged error in refusing to permit him to prove a diminution in the value of his claim resulting from the alleged wrongful acts which gave rise to the suit. Reliance sought a new trial on the grounds that under California law it could not be held liable to Blackwood on a theory of ratification, and also because of various alleged trial errors.

 At the time of the occurrences referred to in the California trial, Reliance was insured as follows:

 Reliance had issued to itself a General Liability and Automobile Policy (6A 1 27 68 10) with liability limits of $ 500,000.00 for each "occurrence" and $ 500,000.00 in the aggregate for both bodily injury and property damage. The policy defined "occurrence" as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Endorsement # 25 to the policy provided that: "the insurance afforded by the policy for bodily injury and property damage applies as respects any negligent act, error, or omission which arises from the business activities of .... claim adjusters and claim representatives irrespective of whether such persons are employees of the named insured or not." "Damages" was defined under this policy as including: "damages for death and for care and loss of services resulting from bodily injury and damages for loss of use of property resulting from property damage."

 Reliance had also issued to itself an Excess Umbrella Policy (LU 1 24 51 00), which provided for payment:

"for all sums which the Insured (Reliance) shall be obligated to pay by reason of the liability
(a) imposed upon the Insured by law, or
(b) assumed under contract or agreement by the Named Insured and/or any officer, director, stockholder, partner or employee of the Named Insured, ...

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