Stanford Law School - Robert Crown Law Library

Filed 8/5/04

IN THE SUPREME COURT OF CALIFORNIA

JONATHAN NEIL & ASSOCIATES, INC.,
Plaintiff and Appellant,
S107855
v.
FREDDIE JONES,
Ct.App. 5 F029400/F030300
Defendant, Cross-complainant and
Appellant;
Fresno County
MILDRED JONES et al.,
Super. Ct. No. 0512318-7
Cross-complainants and Appellants.
CAL-EAGLE INSURANCE COMPANY,
Cross-defendant and Appellant;
JOHNSEY INSURANCE COMPANY,
Cross-defendant and Respondent.
In this case, a trucking company participated in the California Automobile
Assigned Risk Plan (the CAARP), a statutorily created program governed by the
Insurance Commissioner designed to make automobile liability insurance
available to those unable to obtain insurance through ordinary methods. After a
premium billing dispute with its insurance company, which was hired by the
CAARP, the trucking company defended a collection action and filed a cross-
complaint against the company alleging that it had retroactively and knowingly
charged them a substantially higher premium than was actually owed, and was
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therefore liable for tortious breach of the covenant of good faith and fair dealing
and for fraud. A jury found in favor of the trucking company.
We are asked to decide two questions. The first is whether the trucking
company was required to exhaust the administrative remedies available to those
participating in the CAARP before bringing a lawsuit in which the central issue
was the determination of the proper premium to be charged, a matter governed by
the CAARP’s and the Insurance Commissioner’s internal regulations. We
conclude that exhaustion of remedies was not required but that, as the Court of
Appeal alternately held, the doctrine of primary jurisdiction required the trial court
to stay proceedings and refer the premium billing dispute to the Department of
Insurance (DOI) and the Insurance Commissioner. Its failure to do so requires
reversal of the judgment in the trucking company’s favor.
The second question concerns our understanding of when tort damages will
be available for an insurance company’s breach of the implied covenant of good
faith and fair dealing. The remedy for breach of that covenant is generally limited
to contract damages, but we have recognized an exception to this rule when the
breach occurs in the context of an insurance company’s failure to properly settle a
claim against an insured, or to resolve a claim asserted by the insured. (See Foley
v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683-684 (Foley).) The question
presented by this case is whether an insurance company’s breach of the covenant
sounds in tort when it retroactively overcharges a premium it knows is not owed.
The trial court concluded that tort remedies were available but the Court of Appeal
disagreed and reversed. We conclude, for reasons explained below, that the Court
of Appeal is correct.
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I. FACTS
The factual underpinnings of this case are lengthy and complex. For
purposes of this case the following summary, taken in part from the Court of
Appeal opinion, will suffice. Fred and Mildred Jones owned a trucking company,
known as Jones Trucking (henceforth sometimes referred to collectively as the
Joneses). In 1991, after the Joneses’s private insurance company went out of
business, they applied for and obtained, at their insurance broker’s
recommendation, an insurance policy through the CAARP. An understanding of
this program and one of the rules promulgated by the program is necessary for
comprehending the facts of this case.

A. The CAARP and Rule 23
The CAARP was established under section 11620 of the Insurance Code,
requiring the Insurance Commissioner to “approve or issue a reasonable plan” to
provide liability insurance for those “who are in good faith entitled to but are
unable to procure that insurance through ordinary methods.” In general, the plan
assigns such insureds to the various companies who write insurance in California
and regulates the premiums that can be charged to such insureds. This assigned
risk insurance is generally issued at the minimal levels required by the financial
responsibility law. (See Ins. Code, § 11622.) The program is administered
through the so-called CAARP committee, which is advisory to the Insurance
Commissioner (see id., § 11623, subd. (a)). The committee “with the approval of
the commissioner shall appoint a manager to carry out the purposes of this article,
employ sufficient personnel to provide services necessary to the operation of the
plan, and contract for the provision of statistical and actuarial services.” (Ibid.)
The CAARP committee is, by statute, composed of eight employees of insurance
companies that write assigned risk policies, four public members, two
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representatives of insurance agencies, and the Insurance Commissioner or his or
her designee. (Ibid.)
There are certain classes of vehicle users whose financial exposure (and
potential danger to the public) is much greater than is contemplated by the
ordinary assigned risk placement. Among these is the class of commercial
truckers. In order to accommodate these higher risk vehicle users, the Insurance
Commissioner in 1978 promulgated (by regulation at Cal. Code Regs., tit. 10,
§ 2432 et seq.) the Commercial Automobile Insurance Procedure (CAIP). The
assigned risk plan for truckers is also administered by the CAARP committee, of
which there is a separate CAIP subcommittee that handles policy issues arising
from truckers’ insurance.
CAARP hires two “servicing carriers” (Cal. Code Regs., tit. 10, § 2432,
subd. (e)), who provide all of the insurance policies issued under the CAIP. These
carriers have a contract with the CAARP by which they are paid a percentage of
the premium as a fee for their services. They turn all premiums over to CAARP
and charge all claims to the CAARP, which then distributes the charges among
automobile liability carriers in California. Thus, the servicing carriers are not
typical insurance companies in the sense of a company putting its own assets at
risk through its underwriting and premium practices. Instead, risk is borne by the
insurance industry at large, underwriting and premium practices are specified by
the CAARP and the DOI, and the servicing carrier is paid a commission for
implementing and administering the program, based on premiums billed. Cal-
Eagle Insurance Company (Cal-Eagle) became one of the servicing carriers in
1991.
The CAARP is run according to rules promulgated by the DOI contained in
the California Automobile Assigned Risk Plan Manual of Rules and Rates. (See
Cal. Code Regs., tit. 10, § 2498.5.) Of particular relevance is rule 23 of the
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Manual (rule 23), which governs the premiums assessed to truckers for their use of
independent truckers, or subhaulers. In general, insured truckers premiums are
determined by the number of trucks they own and operate. But the California
Public Utilities Commission (PUC), which at the time this controversy arose
regulated truckers such as the Joneses,1 required these subhaulers to have their
own PUC certificates of authority and their own liability insurance. The Joneses
made extensive use of subhaulers, paying out over half their annual gross receipts
to them.
The testimony indicated that California was somewhat unique in issuing
PUC certificates directly to subhaulers, with the attendant requirement that the
subhauler have its own insurance. In other states, according to the testimony, only
the primary trucking company had insurance and the hired carriers were covered
under that insurance. In its original form, California’s rule 23 incorporated the
generic, nationwide rule that did not take into account California’s unique
situation, but charged truckers as if they were providing primary insurance for
their subhaulers, according to certain formulae.2

1
In 1996, regulatory authority was shifted to the Department of Motor
Vehicles and the California Highway Patrol (see Veh. Code, § 34600 et seq.).
2
Specifically, paragraph C of rule 23, as it existed at the time the Joneses’
policy was issued, provided two alternative methods of calculating the premiums
of subhaulers. The first alternative was essentially to count each tractor and trailer
used by any of the insured’s subhaulers as if it were owned by the Joneses  and
to assess the full-rate premium for each truck. The second alternative rule of the
original rule 23 C was that premiums could be charged on a “cost of hire” basis.
In order to determine the premium on this basis, the servicing carrier was required
to first determine the average premium for listed tractors and trailers under the
policy, then multiply that average rate by .0033 to obtain the “cost of hire rate.”
The servicing carrier was then to determine the insured’s total cost of hiring the
subhaulers and compute the insurance premium by “multiplying each $100 of the
total amount estimated for the cost of hire . . . by the cost of hire rate.” Nowhere in

(footnote continued on next page)
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Rule 23 was rewritten by DOI after a two-year period of study and
consultation with the insurance industry. The revised rule, tailored to the
California situation, specifically applied to exposure based on a “subhauling
agreement involving the hauling of goods on behalf of an insured trucker by a
hired carrier.”
The revised rule recognized that in some circumstances the primary
trucker’s insurance would be called upon only to provide excess coverage if a
claim exceeded the limits of liability of the subhauler’s insurance, thereby
justifying substantially lower premiums. Thus, the revised rule stated, at
paragraph C.2.a(2): “The insured trucker may request and the CAIP Servicing
Carrier shall provide coverage for the hired carrier exposure on an excess basis
where an insured trucker demonstrates at the time of application or upon renewal
that all of the following criteria are satisfied and such criteria remain satisfied
throughout the policy period . . . .” The five criteria, set forth in the margin,3

(footnote continued from previous page)

the rule was the word “subhauler” used; the relevant portion of the rule referred
only to a “contract involving the hire of trucks, tractors and trailers.”
3
These criteria were: “(a) Any hired carrier with whom the insured trucker
contracts to carry or subhaul must operate under its own California PUC operating
authority.

“(b) No written lease or oral rental agreement shall exist between the
insured trucker and the hired carrier; however, a separate, written subhaul
agreement which complies with California PUC requirements shall be executed
between the insured trucker and the hired carrier. This subhaul agreement shall
make the hired carrier’s insurance primary, make the hired carrier responsible for
all claims and/or liabilities, name the insured trucker as an additional insured on
the hired carrier’s policy, provide that the hired carrier’s insurer will notify the
insured trucker if the hired carrier’s policy is canceled, and require minimum
limits of not less than the applicable California PUC-required minimum limits.

(footnote continued on next page)
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address both the form and the substance of the relationship between the trucker
and the subhauler. The premium applicable if the insured trucker is able to satisfy
all criteria is only 4 percent of the otherwise applicable premium.
The revised rule also modified the otherwise applicable premium.
Although the premium was based on the cost of hiring the subhaulers, as had been
the case under the original rule 23, the base multiplier was reduced from .0033 to
.0011. The revised rule required that “the total cost of hiring” would be calculated
on the basis that each subhauler’s vehicle was hired for a minimum of $60,000 of
work per year.
As the revised rule was implemented from September of 1992 forward,
certain problems revealed themselves. Some of the problems occurred because the
DOI required the carriers to implement the rule on a retroactive basis if requested

(footnote continued from previous page)

“(c) The insured trucker shall have on file copies of all subhaul agreements
for audit by the CAIP Servicing Carrier.

“(d) The insured trucker shall not dispatch or exert any control over the
means by which the hired carrier fulfills the obligations of the subhaul agreement;
the hired carrier shall exercise independent control over the equipment operated
and the drivers or persons operating that equipment.

“(e) The insured trucker shall maintain a separate subhaul register which
complies with California PUC requirements. This register shall be made available
for audit and/or review by the CAIP Serving Carrier, the Plan, and/or the
California Insurance Commissioner.

“(f) The CAIP Servicing Carrier, the California Insurance Commissioner,
and the Plan shall have access to the insured trucker’s books and records for a
period of three years after the date of cancellation or non-renewal of the policy to
audit and determine compliance with the requirements of this section. If upon
audit it is determined that there has not been compliance with the requirements of
this section, the premium for the hired carrier exposure will be recomputed in
accordance with the provisions of paragraph C.2.b. below.”
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by insureds. Many insureds  including the Joneses  did not have the required
detailed records readily available to establish their eligibility for the five criteria
for excess coverage. Further, smaller truckers like the Joneses did not use any
particular subhauler for anywhere near $60,000 of work per year.

B. The Joneses’ Premium Dispute
The Joneses’ insurance application under the CAARP and CAIP was
assigned to Cal-Eagle by the assigned risk program office. They purchased a
one-year commercial assigned risk liability insurance policy from Cal-Eagle in
March 1991, when the old rule 23 was still in effect. Cal-Eagle issued a policy in
a form required by the DOI. It charged the Joneses an initial estimated annual
premium of $14,088, based on the Joneses’ use of their own, specified vehicles in
the business and their estimate that they would not be hiring subhaulers. Over the
term of the policy, Cal-Eagle assessed additional premiums as the Joneses added
equipment to their fleet. The total premiums charged and paid during the policy
year was approximately $20,000.
The Cal-Eagle policy issued to the Joneses permitted it to reassess the
initial premium based on new information. As the policy stated: “The premium
for this policy is based on information we have received from you or other
sources. You agree: [¶] a. that if any of this information material to the
development of the policy premium is incorrect, incomplete or changed, we may
adjust the premium accordingly during the policy period. [¶] b. to cooperate with
us in determining if this information is correct and complete, and to advise us of
changes in this information.” The policy also provide: “The estimated premium
for this Coverage Form is based on the exposures you told us you would have
when this policy began. We will compute the final premium due when we
determine your actual exposures.”
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After the policy period expired, Cal-Eagle did an audit of the Joneses to
make sure all vehicles used in the business had been accounted for in the
calculation of premiums. Auditors discovered the Joneses’ extensive use of
subhaulers, and Cal-Eagle assessed the Joneses, under old rule 23, another
$111,523 in insurance premiums for the coverage period that had just expired.
Cal-Eagle reaudited the Joneses under new rule 23 and adjusted the premium to
$51,294.
The Joneses believed the retroactive premium charge was in error and that
the charges for subhaulers should have been on an excess basis under the new rule
23, as explained above. After the initial reaudit, but before learning of the
downward adjustment of the premium, the Joneses sought the help of the DOI.
They were eventually routed to Elizabeth Mohr, the DOI attorney principally in
charge of the CAARP. Mohr sent the Joneses a consumer complaint form, which
they filled out and returned to the DOI’s consumer services division as directed.
In response, the Rating Services Bureau of the DOI’s consumer services division
acknowledged the complaint and wrote to Cal-Eagle asking for an explanation of
the premium increase.4
Cal-Eagle replied in a letter to the Joneses, copied to the DOI, that upon
physical audit, “it was determined that there were additional vehicles to be added,”
and it had applied the primary insurance rate for these subhaulers because not all
of revised rule 23’s requirements for an excess rate were met. The reply further
advised that Cal-Eagle was “removing several vehicles” and represented that “a

4
The Joneses filed a complaint through the DOI’s generic complaint process
pursuant to Insurance Code section 12921.1. According to testimony by DOI
employees, this process was viewed as an alternative to the procedure specifically
designated for CAARP complaints (see Cal. Code Regs., tit. 10, § 2495), with
both procedures terminating in an appeal to the Insurance Commissioner.
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copy of the auditor’s report is attached.” Cal-Eagle informed the DOI of the
readjustment resulting from the reaudit. Cal-Eagle did not, however, provide the
second page of the audit report stating that its auditor had insisted that the “audit
must be done based on the records available at the time of the audit” and had
refused the Joneses’ request for “60 days to recreate their records.”
Based on Cal-Eagle’s response, the DOI wrote the Joneses advising them
that the premium had been reduced and that “unless you can meet” the guidelines
in the auditor’s report with which they “must comply” by providing Cal-Eagle
with the “correct information,” there was “nothing further the department can do
to cause your premiums to be reduced further.” The DOI’s response did not
evidence any awareness of the controversy between the Joneses and Cal-Eagle
over whether the former would be permitted time to recreate their records to
establish excess-basis coverage for subhaulers.
Although Cal-Eagle had a general policy to inform its insureds about the
administrative grievance appeals procedure available through the CAARP (see
Cal. Code Regs., tit. 10, § 2495), it did not inform the Joneses about the
availability of such an appeal when they complained to Cal-Eagle about the
additional premium. The Joneses did not file an appeal with the CAARP.
The Joneses declined to pay the additional premium. Cal-Eagle assigned its
claim to Jonathan Neil & Associates, Inc., a collection agency, which sued the
Joneses for the balance due on the premium. The Joneses responded with a cross-
complaint, initially for bad faith and subsequently amended to state a fraud cause
of action.
Cal-Eagle moved for summary judgment on two bases: that the Joneses
failed to state a tort cause of action for breach of the covenant of good faith and
fair dealing and that they had failed to exhaust their administrative remedies. The
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trial court denied the motion. Cal-Eagle petitioned the Court of Appeal for writ
relief, which the court summarily denied.
The trial was divided into three phases. Phase I was a trial to the court
without a jury on certain matters of interpretation of various DOI rules and
regulations, including the meaning of rule 23 above, as well as other legal
questions on statutes and policy language. Phase II was a trial to the jury of the
complaint and cross-complaint. The jury found the Joneses owed no additional
premiums and found Cal-Eagle liable for breach of the implied covenant of good
faith and fair dealing and for fraud. It awarded the Joneses $2,027,167 in
compensatory damages from Cal-Eagle: $409,783 for lost profits, based on the
Joneses testimony that uncertainty over the $51,294 premium bill caused them to
close their business; $275,000 each in emotional distress damages to Fred and
Mildred Jones; and $1,067,384 for attorney fees and costs pursuant to Brandt v.
Superior Court (1985) 37 Cal.3d 813. Phase III was a trial to the jury concerning
the amount of punitive damages to be awarded. The jury awarded punitive
damages against Cal-Eagle in the amount of $11,445,714.23. In posttrial
proceedings, the trial court conditioned its denial of a new trial motion on
remittitur of the punitive damages award to $4,350,887. While preserving their
right to cross-appeal, the Joneses consented to the remittitur.
Cal-Eagle and Jonathan Neil & Associates, Inc. (hereafter collectively Cal-
Eagle), filed timely notices of appeal, as did the Joneses. The Court of Appeal
reversed. It first held that as a matter of law, tort damages are not available for the
breach of an implied covenant of good faith and fair dealing in an insurance
contract when the breach involves a dispute over premiums, as opposed to matters
concerning payment or settlement of insurance claims. The Court of Appeal also
concluded that the Joneses were required to exhaust their administrative remedies
with the DOI, or alternatively that the doctrine of primary jurisdiction required an
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initial resort to such remedies before bringing a lawsuit. Because the Joneses
failed to fully avail themselves of such remedies, the court reversed the trial
court’s judgment and remanded with directions to stay proceedings until DOI
remedies had been exhausted. We granted review to consider both issues.
II. DISCUSSION
A. Exhaustion of Administrative Remedies
The first question posed by this case is whether the Joneses failed to
exhaust their administrative remedies with the DOI, or, in the alternative, whether
the doctrine of primary jurisdiction requires the DOI to initially decide the
questions of the proper premium to be charged. We conclude that the latter
doctrine is implicated here and that the judgment should be reversed on that basis.
Our discussion of the exhaustion doctrine in Rojo v. Kliger (1990) 52
Cal.3d 65 (Rojo) shows that the doctrine consists of at least three distinct strands,
justified by somewhat different rationales. First, when a statute and lawful
regulations pursuant thereto establish a quasijudicial administrative tribunal to
adjudicate statutory remedies, the aggrieved party is generally required to initially
resort to that tribunal and to exhaust its appellate procedure. “As Witkin explains:
‘The administrative tribunal is created by law to adjudicate the issue sought to be
presented to the court. The claim or “cause of action” is within the special
jurisdiction of the administrative tribunal, and the courts may act only to review
the final administrative determination. If a court allowed a suit to be maintained
prior to such final determination, it would be interfering with the subject matter
jurisdiction of another tribunal.’ ” (Id., at p. 85, quoting 3 Witkin, Cal. Procedure,
Actions (3d ed. 1985) § 234, at p. 265.)
Second, the exhaustion doctrine has been applied when a private or public
organization has provided an internal remedy. (See Westlake Community Hosp. v.
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Superior Court (1976) 17 Cal.3d 465 (Westlake).) Whereas the exhaustion
requirement in the first category is based on a discernment of legislative intent, the
second category is more a matter of judicial policy: “The reason for the
exhaustion requirement in this context is plain. . . . ‘[W]e believe as a matter of
policy that the association itself should in the first instance pass on the merits of an
individual’s application rather than shift this burden to the courts. For courts to
undertake the task “routinely in every such case constitutes both an intrusion into
the internal affairs of [private associations] and an unwise burden on judicial
administration of the courts.” [Citation.]’ ” (Rojo, supra, 52 Cal.3d at p. 86.) In
this context, the “exhaustion of administrative remedies furthers a number of
important societal and governmental interests, including: (1) bolstering
administrative autonomy; (2) permitting the agency to resolve factual issues, apply
its expertise and exercise statutorily delegated remedies; (3) mitigating damages;
and (4) promoting judicial economy.” (Ibid.)
Third, courts have required “exhaustion of ‘external’ administrative
remedies in a variety of public contexts.” (Rojo, supra, 52 Cal.3d at p. 87.) In
such cases, although the legislative intent to resort in the first instance to
administrative remedies is not entirely clear, courts have required exhaustion when
they “have expressly or implicitly determined that the administrative agency
possesses a specialized and specific body of expertise in a field that particularly
equips it to handle the subject matter of the dispute. Typical of these is Karlin v.
Zalta (1984) 154 Cal.App.3d 953, involving a physician’s class action for
equitable relief and damages arising out of defendant insurers’ alleged charging of
excessive malpractice insurance premium rates . . . . [¶] [T]he court held
plaintiffs were required to exhaust their administrative remedies under the
McBride Act (Ins. Code, §§ 1850-1860.3). Citing the ‘factual complexities’ of
medical malpractice insurance ratemaking and the McBride Act’s ‘pervasive and
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self-contained system of administrative procedure’ for monitoring rates and
relevant market conditions, the court determined the excessive-rates issue was a
matter ‘singularly within the technical competence of the Insurance Commissioner
through the enlistment of agency resources.’ (154 Cal.App.3d at p. 983.) In these
circumstances, the court held, ‘it is indispensable that the expertise of the
insurance commissioner and the agency’s staff be initially engaged to make such
review.’ ” (Rojo, supra, 52 Cal.3d at p. 87.)
In addition to the above three categories, we have recognized in some cases
that although exhaustion is not required, the doctrine of “primary jurisdiction” of
administrative agencies, long used in federal law, should be invoked to require
resort to an administrative agency to resolve issues within its particular area of
expertise. In Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377
(Farmers Ins. Exchange), we explained that exhaustion and primary jurisdiction
are “two closely related concepts [citation]. ‘Both are essentially doctrines of
comity between courts and agencies. They are two sides of the timing coin: Each
determines whether an action may be brought in a court or whether an agency
proceeding, or further agency proceeding, is necessary.’ [Citation.] [¶] . . .
‘ “Exhaustion” applies where a claim is cognizable in the first instance by an
administrative agency alone; judicial interference is withheld until the
administrative process has run its course. “Primary jurisdiction,” on the other
hand, applies where a claim is originally cognizable in the courts, and comes into
play whenever enforcement of the claim requires the resolution of issues which,
under a regulatory scheme, have been placed within the special competence of an
administrative body; in such a case the judicial process is suspended pending
referral of such issues to the administrative body for its views.’ [Citations.]”
(Farmers Ins. Exchange, supra, 2 Cal.4th at p. 390.)
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“The policy reasons behind the two doctrines are similar and overlapping.
The exhaustion doctrine is principally grounded on concerns favoring
administrative autonomy (i.e., courts should not interfere with an agency
determination until the agency has reached a final decision) and judicial efficiency
(i.e., overworked courts should decline to intervene in an administrative dispute
unless absolutely necessary). [Citations.] . . . [T]he primary jurisdiction doctrine
advances two related policies: it enhances court decisionmaking and efficiency by
allowing courts to take advantage of administrative expertise, and it helps assure
uniform application of regulatory laws. [Citations.]
“No rigid formula exists for applying the primary jurisdiction doctrine
[citation]. Instead, resolution generally hinges on a court’s determination of the
extent to which the policies noted above are implicated in a given case.
[Citations.] This discretionary approach leaves courts with considerable flexibility
to avoid application of the doctrine in appropriate situations, as required by the
interests of justice.” (Farmers Ins. Exchange, supra, 2 Cal.4th at pp. 391-392, fns.
omitted.)
In Farmers Ins. Exchange, the Attorney General brought suit against
various insurance companies, asserting that they violated Insurance Code sections
1861.02 and 1861.05 by refusing to offer good driver discounts to appropriate
applicants and sufficient discounts to those who qualified. The Attorney General
also alleged that the violation of these provisions constituted an unlawful business
practice actionable under the Unfair Practices Act, Business and Professions Code
section 17200 et seq. We concluded that the Insurance Code claims “presented a
question of exhaustion of administrative remedies; the People [cannot] litigate
Insurance Code claims over which the Insurance Commissioner has been given
exclusive jurisdiction without first invoking and completing the available
administrative process set out in the Insurance Code. [Citation.] By contrast, . . .
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[t]he Business and Professions Code claim . . . is ‘originally cognizable in the
courts,’ and thus it triggers application of the primary jurisdiction doctrine.”
(Farmers Ins. Exchange, supra, 2 Cal.4th at p. 391.)
We further concluded that the primary jurisdiction doctrine was properly
invoked: “First, . . . the Insurance Commissioner has at his disposal a ‘pervasive
and self-contained system of administrative procedure’ (Rojo, supra, [52 Cal.3d]
at p. 87) to deal with the precise questions involved herein. [¶] Second, and more
important, based on the allegations in the People’s complaint, there is good reason
to require that these administrative procedures be invoked here. . . . [W]e
conclude that considerations of judicial economy, and concerns for uniformity in
application of the complex insurance regulations here involved, strongly militate
in favor of a stay to await action by the Insurance Commissioner in the present
case.” (Farmers Ins. Exchange, supra, 2 Cal.4th at p. 396.) “It seems clear to us
that the Insurance Commissioner is best suited initially to determine whether his or
her own regulations pertaining to eligibility [for a Good Driver discount] have
been faithfully adhered to by an insurer. [¶] Similarly, the determination of
whether a given Good Driver Discount policy comports with the ‘20 percent
discount’ provision of the statute also calls for exercise of administrative expertise
preliminary to judicial review.” (Id. at p. 399.)
As discussed, the chief distinction between the two doctrines is that the
“primary jurisdiction” doctrine applies to cases “originally cognizable in the
courts” (Farmers Ins. Exchange, supra, 2 Cal.4th at p. 390), whereas exhaustion
generally applies to certain statutory claims initially cognizable by an
administrative agency (see Rojo, supra, 52 Cal.3d at p. 83 [FEHA claimants
statutorily required to exhaust administrative remedies]). Another related
distinction between the two doctrines is that in the case of exhaustion, the
administrative agency must initially decide the “entire controversy,” whereas
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under the primary jurisdiction doctrine, the court “makes its own decision” based
in part on the agency’s decision on an issue or issues within the case. (Koch,
Administrative Law and Practice (2d ed. 1997) § 13.24, p. 357.)5
We conclude that the doctrine of primary jurisdiction rather than exhaustion
of remedies should be applied here. Both Cal-Eagle’s suit for breach of contract
and the Joneses’ cross-claim for breach of the covenant of good faith and fair
dealing and fraud are originally cognizable in court. The Insurance Commissioner
has no authority to decide these common law claims, but can only make a
determination regarding some of the issues in the case. Nor can we discern in
Insurance Code section 11620 et seq. an absolute statutory bar to prosecuting such
claims absent a prior administrative determination.
That being said, the case for invoking the primary jurisdiction of the
Insurance Commissioner is compelling. The issues raised in the Joneses’ cross-
complaint directly implicate the regulatory authority and expertise of the Insurance
Commissioner. What we stated in Farmers Ins. Exchange applies with at least as
much force in this case: “the Insurance Commissioner has at his disposal a

5
The above distinctions are not entirely borne out by California case law. In
particular, cases affirming the requirement to exhaust internal remedies sometimes
involve common law claims, perhaps because the organization cannot be said to
have made a final decision on the matter affecting the common law claim until the
organization’s internal remedies are exhausted. (See, e.g., Westlake, supra, 17
Cal.3d 465 [exhaustion required in physician’s suit for damages against hospital
revoking his staff privileges]; Robinson v. Templar Lodge, I.O.O.F. (1897) 117
Cal. 370 [failure to exhaust internal remedies defeats contract claim against
fraternal lodge], disapproved on other grounds in Westlake, supra, at p. 479.) In
any event, the present case does not fit readily into this “internal remedy”
category. The administrative remedies of the CAARP, which are part of a
comprehensive regulatory framework, more closely resemble those found in
Farmers Ins. Exchange than they do the internal organizational remedies of a
hospital or other private organization found in Westlake and similar cases.
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‘pervasive and self-contained system of administrative procedure’ ” (Farmers Ins.
Exchange, supra, 2 Cal.4th at p. 396), in the form of an assigned risk program
heavily regulated and indeed ultimately governed by the Commissioner. As
discussed, the CAARP was created by the Insurance Commissioner pursuant to
Insurance Code section 11620, in order to accomplish the important public
purpose of providing automobile liability insurance to those unable to obtain such
insurance by “ordinary methods.” The CAARP committee and CAIP
subcommittee are advisory to the Insurance Commissioner, pursuant to section
11623, subdivision (a). One of the statutorily required features of the CAARP is
the establishment of an “appeal to the commissioner by persons who believe
themselves aggrieved by the operation of the plan.” (Ins. Code, § 11624, subd.
(b).) Pursuant to this statute, the Commissioner has adopted section 2495 of title
10, California Code of Regulations, which provides in pertinent part that “Any . . .
insured . . . under the plan who is affected by any act, ruling, decision or order of
an insurer, the manager or the [CAARP] committee” may complain to the
committee, with the committee’s decision eventually appealable to the Insurance
Commissioner, who will then “render a decision which shall be binding upon all
parties.”
Furthermore, as in Farmers Ins. Exchange, “concerns for uniformity in
application of the complex insurance regulations here involved, strongly militate
in favor of a stay to await action by the Insurance Commissioner in the present
case.” (Farmers Ins. Exchange, supra, 2 Cal.4th at p. 396.) Premiums under the
CAIP for truckers such as the Joneses are set according to rules promulgated by
the DOI and the CAARP. At the heart of the present controversy is a dispute
about an interpretation and application of rule 23 regarding the method of
computing insurance premiums to cover an insured trucking company’s
subhaulers under the CAIP, including the type of documentation required to
18

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qualify for a retroactive assessment of the premium on an “excess” basis in
conformity with paragraph C.2.a(2) of the rule. The DOI’s interpretation and
application of these regulations in the first instance is necessary to secure
regulatory uniformity informed by its expertise and extensive experience with this
area of regulation. Indeed, the Insurance Commissioner, as amicus curiae,
vigorously argues in favor of an exhaustion of remedies requirement as a means of
securing such regulatory uniformity.
The conduct of the trial that did occur in this case, without the benefit of the
Insurance Commissioner’s final determination of the premium issues, confirms the
need to afford the Insurance Commissioner primary jurisdiction. The record
reveals that at least six witnesses currently or formerly employed by the DOI
testified about the operation of rule 23 or the inner workings of the CAARP. The
Joneses, in their opening brief in the Court of Appeal, stated that the jury trial was
tantamount to “a two (2) month training course on Assigned Risk underwriting,
auditing, and premium calculation.” Such time and expense was in addition to the
similar “training course” the trial court had to undergo in phase I of the trial. The
reliance on DOI experts and the need to intensively “train” the judge and jury on
the fine points of an insurance regulatory scheme illustrate the folly of bypassing a
statutorily authorized grievance process within the DOI, operated by employees
who would not require such training, and who might have been able to
expeditiously resolve the matter.
We conclude for all the above reasons that the trial court abused its
discretion in not staying the proceeding and referring the premium dispute issue to
the DOI. The proper remedy is to reverse the judgment and direct such reference
occur on remand. (See General American Tank Car Corp. v. El Dorado Terminal
Co. (1940) 308 U.S. 422, 433 [appropriate to stay judicial proceedings already
initiated, even when trial has concluded, to permit administrative determination of
19

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issues pertinent to the litigation].) The fact that a lengthy trial has already been
held, which may well have been unnecessary, highlights the need for trial and
appellate courts to timely apply the primary jurisdiction doctrine when
appropriate.6
The Joneses also claim, in effect, that they have already exhausted their
administrative remedies. As discussed, the Joneses did file a complaint through
the DOI’s generic complaint process pursuant to Insurance Code section 12921.1.
The department official, after an apparently superficial investigation, concluded
that the Joneses would be required to submit more paperwork regarding their
subhaulers, as requested by Cal-Eagle. The Joneses contend that Cal-Eagle
misrepresented to the DOI the paperwork requirements imposed on the Joneses,
and also strenuously, and not unpersuasively, argue that these requirements were
intrinsically unfair and impossible to meet. But the Joneses did not attempt to
inform the DOI of Cal-Eagle’s misrepresentation, nor to press the matter with the
DOI attorney in charge of handling the complaint, much less pursue an appeal.
The Joneses also contend that Cal-Eagle did not inform them of the CAARP
appeal process. But such a process was public information and there was no
indication that the Joneses, who were represented by counsel at this point and who
were already in contact with the DOI, were affirmatively misled into believing that
such appeal was unavailable.

6
We note that our holding regarding the primary jurisdiction of the
Insurance Commissioner does not extend to all disputes between insureds and
insurers participating in the CAARP but only to those disputes within the
CAARP’s jurisdiction. (See Hightower v. Farmer’s Ins. Exchange (1995) 38
Cal.App.4th 853, 860 [CAARP committee’s regulatory authority limited to such
matters as issuance of assigned risk policies and setting rates for such policies, not
to the adjustment of claims under the policies].)
20

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Failure to exhaust administrative remedies is excused if it is clear that
exhaustion would be futile. (Sea & Sage Audubon Society, Inc. v. Planning Com.
(1983) 34 Cal.3d 412, 418.) Similarly, it is improper to invoke the primary
jurisdiction of an administrative agency if it is clear that further proceedings
within that agency would be futile. (See Farmers Ins. Exchange, supra, 2 Cal.4th
at pp. 391-392 [application of primary jurisdiction doctrine not required when the
policy interests underlying the doctrine would not be served].) The Joneses claim
such futility with respect to the DOI remedies. We disagree. The futility
exception requires that the party invoking the exception “can positively state that
the [agency] has declared what its ruling will be on a particular case.” (Sea &
Sage Audubon Society, Inc. v. Planning Com., supra, at p. 418, italics omitted.)
There is nothing in the record to indicate how the DOI would have decided the
Joneses’ case had the latter fully availed themselves of the CAARP’s complaint
and appeals processes.7

7
The Joneses contend that the CAARP grievance process failed to meet
minimal due process standards because it did not authorize the taking of testimony
under oath or the submission of legal briefs, and because appeal to the Insurance
Commissioner did not require any type of formal hearing. The Joneses also
contend that the CAARP committee was composed of a majority of members from
the insurance industry, and the insurance industry would be obligated to indemnify
Cal-Eagle in the event it was found liable, thereby rendering a majority of the
CAARP committee financially interested in the outcome of the proceeding.

“ ‘[I]f the [administrative] remedy provided does not itself square with the
requirements of due process the exhaustion doctrine has no application.’
[Citation.] Due process, though, ‘does not require any particular form of notice or
method of procedure. If the [administrative remedy] provides for reasonable
notice and a reasonable opportunity to be heard, that is all that is required.’ ”
(Bockover v. Perko (1994) 28 Cal.App.4th 479, 486.) Nothing in the present
record indicates the CAARP’s grievance and appeals process was lacking in these
minimal due process requirements, nor that committee members did in fact have a

(footnote continued on next page)
21

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The judgment must therefore be reversed and the matter stayed pending the
Insurance Commissioner’s determination of the additional premium, if any, owed
by the Joneses, and related issues. (See Reiter v. Cooper (1993) 507 U.S. 258,
268-269 [proceeding to be stayed unless in the interest of justice the trial court
dismisses without prejudice].) On remand, the Joneses, if they wish to continue
the action, must pursue the DOI’s administrative remedies to its conclusion. Like
the Court of Appeal, we conclude that at this juncture, the matter should be
referred to the CAARP committee, which has the specific expertise to address the
premium issue, rather than to the DOI’s generic complaint process, with right of
appeal to the Insurance Commissioner. (See Cal. Code Regs., tit. 10, § 2495.) If
the Insurance Commissioner decides against the Joneses in the underlying billing
dispute, then the litigation will likely come to an end. If the Commissioner
decides in the Joneses’ favor, then the Joneses may proceed with their lawsuit, but
trial will be assisted by the fact that the Commissioner has made a decision on the
billing dispute that is the predicate for the suit.8

(footnote continued from previous page)

substantial financial incentive in finding in Cal-Eagle’s favor or were otherwise
biased.
8
The Joneses contend that the jury’s verdict on the fraud issue alone is
sufficient to support the damages award, and that the fraud verdict is not to be
subject to the exhaustion of remedies requirements or the invocation of primary
jurisdiction because its resolution is beyond the jurisdiction of the DOI. But both
the fraud verdict and the verdict on the implied covenant of good faith and fair
dealing are premised on the alleged fact that the Joneses were incorrectly billed for
a retroactive premium increase. Whether that allegation is true is to be determined
in the first instance by the DOI and the Insurance Commissioner.
22

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B. Tortious Breach of the Implied Covenant of Good Faith and Fair
Dealing
Because this case may be retried, we address the other issue in this case:
whether the Joneses have an action in tort for breach of the covenant of good faith
and fair dealing.
“ ‘Every contract imposes upon each party a duty of good faith and fair
dealing in its performance and its enforcement.’ [Citation.] . . . Because the
covenant is a contract term, however, compensation for its breach has almost
always been limited to contract rather than tort remedies. As to the scope of the
covenant, ‘[t]he precise nature and extent of the duty imposed by such an implied
promise will depend on the contractual purposes.’ [Citation.] Initially, the
concept of a duty of good faith developed in contract law as ‘a kind of “safety
valve” to which judges may turn to fill gaps and qualify or limit rights and duties
otherwise arising under rules of law and specific contract language.’ [Citation.]
As a contract concept, breach of the duty led to imposition of contract damages
determined by the nature of the breach and standard contract principles.” (Foley,
supra, 47 Cal.3d at pp. 683-684.)
In the area of insurance contracts the covenant of good faith and fair
dealing has taken on a particular significance, in part because of the special
relationship between the insurer and the insured. “We [have] held that the insurer,
when determining whether to settle a claim, must give at least as much
consideration to the welfare of its insured as it gives to its own interests. The
governing standard is whether a prudent insurer would have accepted the
settlement offer if it alone were to be liable for the entire judgment. [Citations.]
The standard is premised on the insurer’s obligation to protect the insured’s
interests in defending the latter against claims by an injured third party.” (Egan v.
Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818.) A breach of this duty of
23

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reasonable settlement gives rise to tort damages. (Crisci v. Security Ins. Co.
(1967) 66 Cal.2d 425, 432-433.)
“The implied covenant imposes obligations not only as to claims by a third
party but also as to those by the insured. [Citations.] In both contexts the
obligations of the insurer ‘are merely two different aspects of the same duty.’
[Citations.] . . . For the insurer to fulfill its obligation not to impair the right of
the insured to receive the benefits of the agreement, it again must give at least as
much consideration to the latter’s interests as it does to its own.” (Egan v. Mutual
of Omaha Ins. Co., supra, 24 Cal.3d at pp. 818-819.) As in the case of failure to
properly settle third party claims, “ ‘[w]hen the insurer unreasonably and in bad
faith withholds payment of the claim of its insured, it is subject to liability in
tort.’ ” (Id. at p. 818.)
In Foley, supra, 47 Cal.3d 654, the court refused to extend the tort of bad
faith to the employment relationship, concluding that it was substantially different
from the insurance relationship. In so concluding, it focused on three areas. First,
when an insurer in bad faith fails to properly settle or pay a claim, “the insured
cannot turn to the marketplace to find another insurance company willing to pay
for the loss already incurred. The wrongfully terminated employee, on the other
hand, can (and must, in order to mitigate damages [citation]) make reasonable
efforts to seek alternative employment. [Citation.] [Second], the role of the
employer differs from that of the ‘quasi-public’ insurance company with whom
individuals contract specifically in order to obtain protection from potential
specified economic harm. The employer does not similarly ‘sell’ protection to its
employees; it is not providing a public service. . . . [¶] [Third,] . . . [i]n the
insurance relationship, the insurer’s and insured’s interest are financially at
odds. . . . [¶] . . . [But] as a general rule it is to the employer’s economic benefit
to retain good employees. The interests of employer and employee are most
24

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frequently in alignment. If there is a job to be done, the employer must still pay
someone to do it. . . . Thus the need to place disincentives on employer’s conduct
in addition to those already imposed by law simply does not rise to the same level
as that created by the conflicting interests at stake in the insurance context.” (Id.
at pp. 692-693, fn. omitted; see also Cates Construction, Inc. v. Talbot Partners
(1999) 21 Cal.4th 28, 44 [refusing to extend the remedy for tortious breach to
breaches of performance bonds for reasons similar to those in Foley].)
The question at issue is whether tort remedies should be extended to the
breach of the covenant of good faith and fair dealing when the insurer has in
bad faith retroactively billed an insured for an excessive premium. The
Joneses argue that the factors discussed immediately above apply in such cases 
the insurer is compromising the availability of a public service, and the insured
will not obtain replacement insurance for a policy year partly or wholly passed.
The Joneses also assert that the interest of insurers and insureds in billing disputes
are adverse.
In addressing this issue, we first observe that, generally speaking, the
insurer’s ability to charge excessive premiums will be disciplined by competition
among insurers. In the present case market forces, to be sure, are less significant,
both because the premium is assessed retroactively and because the insurance
program is an assigned risk plan, a public insurance program of last resort. But
although the CAARP insurer is not restrained by the marketplace from
overcharging premiums, premium-setting in the CAARP program is extensively
regulated, and an insured faced with such an overcharge may seek administrative
remedies established in place of market controls to expeditiously resolve billing
disputes, as discussed above.
Aside from this observation, there are several critical factors that counsel
against the availability of tort remedies for breach of the covenant of good faith
25

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and fair dealing in the present case. First, the billing dispute does not, by itself,
deny the insured the benefits of the insurance policy  the security against losses
and third party liability. (See Old Republic Ins. Co. v. FSR Brokerage Inc. (2002)
80 Cal.App.4th 666, 688.) Second, the dispute does not require the insured to
prosecute the insurer in order to enforce its rights, as in the case of bad faith
claims and settlement practices. (See Ibid.)
Third, traditional tort remedies may be available to the insured who is
wrongfully billed a retroactive premium. If the premium charge is wholly
unjustified, the insured may, after successfully defending the action, sue for
malicious prosecution. (See Sheldon Appel Co. v. Albert & Oliker (1989) 47
Cal.3d 863, 871-872.) If the debt is reported to third parties, to the debtor’s
detriment, a defamation action may lie. (Pulver v. Avco Code Financial Services
(1986) 182 Cal.App.3d 622, 638; Schneider v. United Airlines, Inc. (1989) 208
Cal.App.3d 71, 75.) The untruthful, bad faith creditor may also be liable for
intentional interference with prospective economic advantage. (See Walsh v.
Glendale Fed. Sav. & Loan Assn. (1969) 1 Cal.App.3d 578, 588-589, disapproved
on other grounds in Garrett v. Coast & Southern Fed. Sav. & Loan Assn. (1973) 9
Cal.3d 731, 737-738.)
The Joneses contend that the very act of billing a retroactive excess
premium created such financial uncertainty as to compel them to close their
business. Assuming someone in a similar position to the Joneses can prove that,
notwithstanding their resort to available administrative remedies, the excessive
premium charge compelled them to close their business, lost profits would be
available even when the implied covenant of good faith and fair dealing sounds
only in contract, so long as the lost profits were among “the natural and direct
consequences of the breach.” (Brandon & Tibbs v. George Kevorkian
26

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Accountancy Corp. (1990) 226 Cal.App.3d 442, 457 [breach of contract action
permitting lost profit damages].)
The Joneses cite a number of cases in the workers’ compensation insurance
context in which the bad faith overbilling of a premium was held to sound in tort.
Typical of these cases is Security Officers Service, Inc. v. State Compensation Ins.
Fund (1993) 17 Cal.App.4th 887 (Security Officers Service). The plaintiff
employer contracted for workers’ compensation insurance with the State
Compensation Insurance Fund (SCIF), a public workers’ compensation insurance
enterprise. The premiums were calculated pursuant to a rating plan approved by
the Insurance Commissioner, including an “experience rating,” based on the
number of outstanding claims at the end of the year and the amount of reserves
that the SCIF had set aside to cover the unresolved claim. (Id. at p. 891.) The
plaintiff alleged a breach of the implied covenant of good faith and fair dealing
based on the SCIF’s manipulation of the experience rating in its favor by delaying
the resolution of claims and inflating the reserves, thereby permitting it to charge
the plaintiff excess premiums and diminish plaintiff’s dividends. (Id. at pp. 891-
892.) The Court of Appeal affirmed that such alleged misconduct, if true,
established a breach of the implied covenant of good faith and fair dealing that
could give rise to tort as well as contract damages. (Id. at pp. 894, 899.)
Security Officers Service is clearly distinguishable from the present case.
There, the overcharging of premiums was inextricably linked to the deliberate
mishandling of claims  precisely the kind of bad faith behavior that goes to the
heart of the special insurance relationship and gives rise to tort remedies.9 The

9
Other cases cited by the Joneses are similarly distinguishable. (See Lance
Camper Manufacturing Corp. v. Republic Indemnity Co. (2001) 90 Cal.App.4th
1151, 1160; Notrica v. State Comp. Ins. Fund (1999) 70 Cal.App.4th 911, 918-

(footnote continued on next page)
27

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premium overbilling alleged in this case is separate from any allegations of claims
mishandling.10 Moreover, unlike the concealed mishandling of claims affecting
premiums and dividends, the retroactive overbilling of a premium does not require
the insured to prosecute the insurer in order to vindicate its contractual rights
under the insurance policy.
The Joneses also cite in support of their position Spindle v. Travelers Ins.
Companies (1977) 66 Cal.App.3d 951, 958. In that case the Court of Appeal, in
reversing the trial court’s dismissal upon demurrer, affirmed the availability of tort
damages for the cancellation of an insurance policy for an improper motive  in
order to pressure members of a doctors group to consent to a large increase in their
medical malpractice premiums. We have no occasion to decide whether Spindle
was correctly decided or whether and when the cancellation of an insurance

(footnote continued from previous page)

919; Tricor California, Inc. v. State Compensation Ins. Fund (1994) 30
Cal.App.4th 230, 239-240.) Still other cited cases do not involve tort damages.
(MacGregor Yacht Corp. v. State Comp. Ins. Fund (1998) 63 Cal.App.4th 448,
456-458 [contract damages for improper claims handling and premium
assessments]; Mission Ins. Group, Inc. v. Merco Construction Engineers, Inc.
(1983) 147 Cal.App.3d 1059, 1062 [equitable accounting ordered to determine
how insurer calculated the dividend].)
10
The proposed holding thus applies only to retroactive billing cases in which
the billing is separate and distinct from any allegations of claims mishandling.
The Joneses contend that Cal-Eagle engaged in the bad faith settlement of a third
party claim involving one of the Joneses’ employees, but do not allege that the
settlement was part of the premium billing dispute. Cal-Eagle denies any such bad
faith conduct and points to the fact that the only economic damages the jury
awarded was for lost profits attributable to the billing dispute. The Court of
Appeal declined to address the question whether the judgment could be sustained
on the bad faith handling of the claim alone because it reversed the judgment on
the exhaustion of remedies/primary jurisdiction ground. We do not address this
issue for the same reason.
28

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contract for improper motives could ever give rise to tort damages. There may be
circumstances in which cancellation of the policy denies the insured the benefits of
the policy. (See, e.g., Helfand v. National Union Fire Ins. Co. (1992) 10
Cal.App.4th 869 [tort damages for bad faith conduct upheld when an insurer
canceled a three-year policy so as to avoid payment of claims expected to come
due in the third year].) Such is not the present case.11
In sum, the Joneses were not in the same vulnerable position as those who
suffer from the insurer’s bad faith claims and settlement practices  they were not
denied the benefits of the insurance policy, were not required to prosecute the
insurer to vindicate their contractual rights, and had available various
administrative, contractual, and tort remedies. Accordingly, we conclude that tort
remedies for breach of the implied covenant of good faith and fair dealing in this
circumstance are unnecessary to protect the insured’s interests and hold that no
such damages are available for the Joneses’ bad faith claim.
III. DISPOSITION
The Court of Appeal reversed the judgment in favor of the Joneses and
directed the trial court to direct the Joneses “to pursue to finality an administrative
complaint under California Code of Regulations, title 10, section 2495.” The

11
We do not decide whether an insurer who in bad faith terminates or causes
the termination of an insured in an assigned risk program such as the CAARP,
effectively leaving the insured without the benefits of insurance, may be liable in
tort, as the Joneses appear to suggest. No such termination was alleged in this
case. The Joneses did allege that the billing of an excessive premium compelled
them to close their business and they obtained a favorable verdict on that issue,
which must be reversed on the primary jurisdiction grounds discussed above. But
the Joneses failed to fully avail themselves of administrative remedies provided by
the CAARP and DOI, as discussed in the previous part of this opinion. As such,
we cannot say that the alleged overbilling of the Joneses, even if proven true,
amounted to a constructive termination from the assigned risk program.
29

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Court of Appeal further directed the trial court to stay all proceedings “until and
unless either party petitions for dissolution of the stay based on the final
administrative outcome.” We affirm the Court of Appeal’s judgment. Further
proceedings should be conducted in accord with the views expressed in this
opinion.
MORENO, J.
WE CONCUR: GEORGE, C. J.
KENNARD,
J.
WERDEGAR,
J.
CHIN,
J.
BROWN,
J.
*DOI TODD, J.

*
Associate Justice, Court of Appeal, Second Appellate District, Division 2,
assigned by the Chief Justice pursuant to article VI, section 6 of the California
Constitution.
30

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See last page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Jonathan Neil & Associates v. Jones
__________________________________________________________________________________

Unpublished Opinion

Original Appeal
Original Proceeding
Review Granted XXX 98 Cal.App.4th 434
Rehearing Granted

__________________________________________________________________________________

Opinion No.

S107855
Date Filed: August 5, 2004
__________________________________________________________________________________

Court:

Superior
County: Fresno
Judge: Franklin P. Jones

__________________________________________________________________________________

Attorneys for Appellant:

Fried, Frank, Harris, Shriver & Jacobson, Richard A. Brown, E. Randol Schoenberg; Greines, Martin, Stein
& Richland, Irving H. Greines, Robin Meadow, Tyna Thall Orren and Peter O. Israel for Plaintiff and
Appellant and for Cross-defendant and Appellant.

Sedgwick, Detert, Moran & Arnold, Christina J. Imre and Stephanie Rae Williams for Aetna Healthcare of
California and Aetna Life Insurance Company as Amici Curiae on behalf of Plaintiff and Appellant and
Cross-defendant and Appellant.

Sonnenschein Nath & Rosenthal, Thomas E. McDonald and Sanford Kingsley for California Automobile
Assigned Risk Plan as Amicus Curiae on behalf of Plaintiff and Appellant and Cross-defendant and
Appellant.

Bill Lockyer, Attorney General, Manuel M. Medeiros, State Solicitor General, David S. Chaney, Assistant
Attorney General, and Elisa B. Wolfe-Donato, Deputy Attorney General as Amici Curiae on behalf of
Plaintiff and Appellant and Cross-defendant and Appellant.

Deborah J. La Fetra for Pacific Legal Foundation as Amicus Curiae on behalf of Plaintiff and Appellant.

Sonnenschein Nath & Rosenthal, Paul E. B. Glad, Cheryl Dyer Berg and Sean McEneaney for California
Workers’ Compensation Institute, Association of California Insurance Companies and Fireman’s Fund
Insurance Company as Amici Curiae on behalf of Plaintiff and Appellant.

Horvitz & Levy, Mithcell C. Tilner and S. Thomas Todd for State Compensation Insurance Fund
as Amicus Curiae on behalf of Cross-defendant and Appellant.

Heller Ehrman White & McAulife, Vanessa Wells, Victoria Collman Brown and Jessica Rossman for State
Farm Mutual Automobile Insurance Company as Amicus Curiae on behalf of Cross-defendant and
Appellant.

31

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Page 2 - counsel continued - S107855

Attorneys for Appellant:

McCormick, Barstow, Sheppard, Wayte & Carruth, James P. Wagoner, Wendy S. Loyd and David W.
Burnett for Defendant, Cross-complainant and Appellant and for Cross-complainants and Appellants.

Robert S. Gerstein; Gianelli & Morris, Robert S. Gianelli and Sherril Nell Babcock for Consumer
Attorneys of California as Amicus Curiae on behalf of Defendant, Cross-complainant and Appellant and
Cross-complainants and Appellants.

__________________________________________________________________________________

Attorneys for Respondent:

Emerson Corey & Barsotti and Todd B. Barsotti for Cross-defendant and Respondent.

32

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Counsel who argued in Supreme Court (not intended for publication with opinion):

Peter O. Israel
Greines, Martin, Stein & Richland
5700 Wilshire Boulevard, Suite 375
Los Angeles, CA 90036-3697
(310) 859-7811

James P. Wagoner
McCormick, Barstow, Sheppard, Wayte & Carruth
5 River Park Place East
Fresno,CA 93720
(559) 433-1300

33

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Opinion Information

Date:	Docket Number:
Thu, 08/05/2004	S107855

Disposition
Aug 5 2004	Opinion: Affirmed

Dockets
Jun 24 2002	Petition for review filed   by counsel for defendants/appellants (Fred Jones, et al.)
Jun 26 2002	Received Court of Appeal record   5 doghouses & 12 boxes
Jul 9 2002	Request for depublication (petition for review pending)   By the Law Firm Roxborough, Pomerance & Nye (NON-ARTY).
Jul 10 2002	Request for depublication filed (another request pending)   By The Counsumer Attorneys of California (NON-PARTY).
Jul 15 2002	Request for depublication filed (another request pending)   By the Law firm of Kronick, Moskovitz, Tiedemann & Girard (NON-PARTY). / 40(K).
Jul 15 2002	Request for depublication filed (another request pending)   United Policyholders [non-party]
Jul 16 2002	Request for depublication filed (another request pending)   By Arthur J. Levine. (NON-PARTY)/40 (K)
Jul 16 2002	Request for depublication filed (another request pending)   By the Law Offices of Barry L. Kramer (NON-PARTY). / 40(K).
Jul 16 2002	Request for depublication filed (another request pending)   By United Policyholders (NON-PARTY) / 40(K).
Jul 16 2002	Answer to petition for review filed   respondents Jonathan Neil & Assocs & Cal Eagle Insurance [Rule 40K]
Jul 22 2002	Opposition filed   By appellants {Jonathan Neil & Associates and Cal Eagle Insurance Company} to request for depublication filed by the firm Roxborough, Pomerance & Nye. / 40(K).
Jul 24 2002	Received:   Supplemental Proof of Service from counsel for United PolicyHolders (NON-PARTY).
Jul 25 2002	Opposition filed   to reqts for depublication>>appellants Jonathan Neil & Associates, Inc. & Cal Eagle Insurance Company
Aug 14 2002	Letter sent to:   Counsel regarding Certification of Interested Entities or Persons.
Aug 14 2002	Petition for Review Granted (civil case)   Baxter, J., was recused and did not participate. Votes: George, CJ., Kennard, Werdegar, Chin, Brown and Moreno, JJ.
Aug 29 2002	Certification of interested entities or persons filed   By counsel for appellant.
Sep 4 2002	Certification of interested entities or persons filed   By counsel for appellants {Fred Jones et al.,}.
Sep 5 2002	Request for extension of time filed   By appellants {Fred Jones et al.,} asking to November 12, 2002 to file appellants' Opening Brief on the Merits.
Sep 10 2002	Extension of time granted   To November 12, 2002 to file appellants' {Fred Jones et al.,} opening brief on the merits.
Oct 31 2002	Request for extension of time filed   By Appellants asking until November 27, 2002 to file Appellants' Opening Brief on the Merits.
Nov 4 2002	Extension of time granted   To November 27, 2002 to file Appellants {Fred Jones et al.,} Opening Brief on the Merits.
Nov 27 2002	Opening brief on the merits filed   In Fresno by counsel for Appellants {Fred Jones et al.,}.
Dec 19 2002	Request for extension of time filed   answer brief/merits to 3-12-03>>appellants Jonathan Neil & Assocs., etal
Dec 27 2002	Extension of time granted   To March 12, 2003 to file appellants' {Jonathan Neil & Associates Incorporated et al.,} Answer Brief on the Merits.
Mar 13 2003	Request for judicial notice filed (in non-AA proceeding)   appellants Jonathan Neil & Assocs, Inc. and Cal Eagle Ins. Company
Mar 13 2003	Received:   oversize answer brief/merits w/applctn [rule 40k]
Mar 19 2003	Answer brief on the merits filed   By counsel for Plaintiffs and Appellants {Jonathan Neil & Associates & Cal Eagle Ins. Co.}.
Mar 20 2003	Request for extension of time filed   By appellants {Fred Jones et al.,} asking until May 2, 2003 to file Appellants' Reply Brief on the Merits.
Mar 27 2003	Extension of time granted   To April 18, 2003 to file appellants' {Fred Jones et al.,}Reply Brief on the Merits.
Apr 7 2003	Request for extension of time filed   by Appellants {Fred Jones et al.,} asking until April 25, 2003 to file Appellants' Reply Brief on the Merits.
Apr 10 2003	Extension of time granted   On application of appellants Fred Jones, Mildred Jones and Fred Jones Trucking Inc., and good cause appearing, it is ordered that the time to serve and file appellants' reply brief on the merits is extended to and including April 25, 2003.
Apr 25 2003	Received:   Appellants' {Fred Jones et al.,} oversized Reply Brief on the Merits.
Apr 25 2003	Application to file over-length brief filed   Appellants' {Fred Jones et al.,}.
Apr 30 2003	Opposition filed   By counsel for appellant {Jonathan Neil & Associates et al.,} to application to file an oversized Reply Brief on the Merits.
May 2 2003	Order filed   The application of respondents Fred Jones, Mildred Jones and Fred Jones Trucking Inc., to file a Reply Brief on the Merits ix excess of the 4,200 word limit is denied. Respondents have until May 12, 2003 to file a Reply Brief that does not exceed 8,400 words.
May 12 2003	Reply brief filed (case fully briefed)   in San Diego by counsel for respondents Fred Jones, Mildred Jones and Fred Jones Trucking
May 27 2003	Received application to file Amicus Curiae Brief   Of Pacific Legal Foundation in support of Respondent {Jonathan Neil & Associates.
May 30 2003	Permission to file amicus curiae brief granted   Pacific Legal Foundation in support of Janathan Neil & Associates Inc..
May 30 2003	Amicus Curiae Brief filed by:   Pacific Legal Foundation in support of Jonathan Neil & Associates Inc., Answer is due within twenty days.
Jun 9 2003	Received application to file Amicus Curiae Brief   Of State Compensation Insurance Fund in support of Appellant {Cal Eagle Insurance Company}.
Jun 10 2003	Received application to file Amicus Curiae Brief   California Automobile Assigned Risk Plan in support of Jonathan Neil & Associates Inc., et al.,
Jun 11 2003	Received application to file Amicus Curiae Brief   California Insurance Commissioner [applctn w/i brief]
Jun 11 2003	Received application to file Amicus Curiae Brief   Consumer Attorneys of California [in support of appellants]
Jun 11 2003	Received application to file Amicus Curiae Brief   California Workers' Compensation Institute, Association of California Insurance Companies and Fireman's Fund Insurance Company in support of Jonathan Neil & Associates Inc..
Jun 11 2003	Received application to file Amicus Curiae Brief   and one volume of Appendix of Non - California Cases and other authorities of State Mutual Automobile Insurance Company in support of Cal Eagle Insurance Company.
Jun 12 2003	Received application to file Amicus Curiae Brief   Aetna Health of California and Aetna Life Insurance Comapny in support of Jonathan Neil & Associates Inc., and Cal Eagle Insurance Company. / 40(K).
Jun 13 2003	Permission to file amicus curiae brief granted   California Automobile Assigned Risk in support of Jonathan Neil & Associates Inc., et al.,.
Jun 13 2003	Amicus Curiae Brief filed by:   California Automobile Assigned Risk Plan in support of Jonathan Neil & Asociates Inc., et al.,. Answer is due within twenty days.
Jun 13 2003	Permission to file amicus curiae brief granted   State Compensation Insurance Fund in support of Cal Eagle Insurance Company.
Jun 13 2003	Amicus Curiae Brief filed by:   State Compensation Insurance Fund in support of Cal Eagle Insurance Company. Answer is due within twenty days.
Jun 13 2003	Permission to file amicus curiae brief granted   California Workers' Compensation Insitute, Association of California Insurance Companies and Fireman's Fund Insurance Company in support of Jonathan Neil & Associates Inc.,.
Jun 13 2003	Amicus Curiae Brief filed by:   California Workers' Compensation Institute, Association of California Insurance Companies and Fireman's Fund Insurance Company in support of Jonathan Neil & Associates Inc. Answer is due within twenty days.
Jun 13 2003	Permission to file amicus curiae brief granted   State Farm Mutual Automobile Insurance Company in support of Cal Eagle Insurance Company.
Jun 13 2003	Amicus Curiae Brief filed by:   State Farm Mutual Automobile Insurance Company in support of Cal Eagle Insurance Company. Answer is due within twenty days.
Jun 13 2003	Permission to file amicus curiae brief granted   Aetna Health of California and Aetna Life Insurance Company in support of Jonathan Neil & Associates and Cal Eagle Insurance Company.
Jun 13 2003	Amicus Curiae Brief filed by:   Aetna Health of California and Aetna Life Insurance Company in support of Jonathan Neil & Associates and Cal Eagle Insurance Company. Answer is due within twenty days.
Jun 19 2003	Response to amicus curiae brief filed   By Appellants {Freddie Jones et al.,} to AC Brief of Pacific Legal Foundation.
Jun 20 2003	Permission to file amicus curiae brief granted   California Insurance Commissioner in support of Jonathan Neil & Associates Inc., et al.,.
Jun 20 2003	Amicus Curiae Brief filed by:   California Insurance Commissioner in support of Jonathan Neil & Associates Inc., et al. Answer is due within twenty days.
Jun 20 2003	Permission to file amicus curiae brief granted   Consumer Attorneys of California in support of Freddie Jones et al.,
Jun 20 2003	Amicus Curiae Brief filed by:   Consumer Attorneys of California in support of Freddie Jones et al., Answer is due within twenty days.
Jun 26 2003	Request for extension of time filed   and request to file consolidated Response to Amicus Curiae Brief by counsel for Appellants {Fred Jones et al.,}. Asking until August 25, 2003.
Jun 30 2003	Extension of time granted   On application of appellants Fred Jones et al., and good cause appearing, it is ordered that the time to serve and file appellants' consolidated response to amicus curiae briefs is extended to and including August 25, 2003.
Jul 1 2003	Request for extension of time filed   to file responses to ac briefs to 8-25-03>>appellants Jonathan Neil & Assocs, etal
Jul 9 2003	Extension of time granted   To August 25, 2003 to file appellants' Jonathan Neil & Associates Inc., et al., to file Appellants' Responses to Amicus Curiae briefs.
Aug 21 2003	Request for extension of time filed   By Appellants {Fred Jones et al.,} asking until September 8, 2003 to file Responses to AC Briefs.
Aug 25 2003	Response to amicus curiae brief filed   to ac brief of Consumer Attys of Calif>>appellants Jonathan Neil & Assocs and Cal Eagle Insurance Company
Aug 25 2003	Response to amicus curiae brief filed   to ac brief of Calif Insurance Commr>>appellants Jonathan Neil & Assocs and Cal Eagle Insurance Company
Aug 26 2003	Extension of time granted   To September 8, 2003 to file Appellants' Fred Jones et al., Responses to amicus briefs filed by State Compensation Insurance Fund, Aetna Health of California & Aetna Health Life Insurance Company, California Worker's Compensation Institute, State Farm Mutual Automobile Insurance Company, California Automobile Assigned Risk Plan and The California Insurance Commissioner.
Sep 8 2003	Response to amicus curiae brief filed   In San Diego By Appellants {Fred Jones et al.,} to AC Briefs filed by California Automobile Assigned Risk Plan, State Farm Mutual Automobile Insurance Company, State Compensation Insurance Fund, California Workers' Compensation Institute et al., and Aetna Health of California et al.,.
Sep 8 2003	Response to amicus curiae brief filed   in San Diego By Appellants {Fred Jones et al.,} to AC Briefs filed by The California Insurance Commisioner, The California Automobile Assigned Risk Plan and State Farm Mutual Automobile insurance company.
Sep 29 2003	Received:   Appellants' {Fred Jones et al.,} application to file Supplemental Brief and Supplemental Brief in Response to Appellants {Cal-Eagle Insurance} Response to AC Brief of California Insurance. Commissioner.
Oct 1 2003	Received:   resps, Jonathan Neil & Assoc., Inc. and Cal Eagle Ins.' opposition to "The Jones Parties" application to file a supplemental response'brief, responding to "Cal Eagles" answer to an amicus brief, filed earlier.
Oct 2 2003	Order filed   The application of appellants {Fred Jones et al.,} for permission to file a supplemental brief in response to appellant's {Cal Eagle Insurance Company} response to amicus curiae brief filed by the California Insurance Commissioner is herebe DENIED.
Apr 28 2004	Case ordered on calendar   6-2-04, L. A. @ 9:00 a.m.
Jun 2 2004	Cause argued and submitted
Aug 5 2004	Opinion filed: Judgment affirmed in full   Further proceedings should be conducted in accord with the views expressed in this opinion. Opinion by Moreno, J. -- joined by George, C.J., Kennard, Werdegar, Chin, Brown, and *Doi Todd, JPT [*Kathryn Doi-Todd, Associate Justice, Court of Appeal, Second Appellate District, Division 2, assigned by the Chief Justice pursuant to article VI, section 6, of the California Constitution.]
Aug 20 2004	Rehearing petition filed   In Fresno by counsel for Defendant/Appellant {Fred Jones et al.,}.
Aug 20 2004	Rehearing petition filed   In Fresno by Cross-Defendant/Respondent {Johnsey Insurance Company}.
Aug 25 2004	Time extended to consider modification or rehearing   To November 3, 2004.
Sep 2 2004	Received:   request for modification of opinion on behalf of A/C THE INSURANCE COMMISIONER
Sep 7 2004	Received:   Request for modification of opinion from Roxborough Pomerance & Nye, LLP.
Sep 9 2004	Received:   Letter from counsel for appellants {Jonathan Neil & Associates et al.,} advising they have no-opposition to letter from The Insurance Commisioner requesting modification of opinion.
Oct 20 2004	Rehearing denied   Opinion Modified. Baxter, J., was recused and did not participate. Werdegar, J., was absent and did not participate.
Oct 20 2004	Opinion modified - change in judgment
Nov 22 2004	Remittitur issued (civil case)
Dec 2 2004	Received:   receipt for remittitur from 5 DCA.
Dec 6 2004	Note:   Remittitur corrected to read "Each party is to bear its own costs on appeal."

Briefs
Nov 27 2002	Opening brief on the merits filed
Mar 19 2003	Answer brief on the merits filed
May 12 2003	Reply brief filed (case fully briefed)
May 30 2003	Amicus Curiae Brief filed by:
Jun 13 2003	Amicus Curiae Brief filed by:
Jun 13 2003	Amicus Curiae Brief filed by:
Jun 13 2003	Amicus Curiae Brief filed by:
Jun 13 2003	Amicus Curiae Brief filed by:
Jun 13 2003	Amicus Curiae Brief filed by:
Jun 19 2003	Response to amicus curiae brief filed
Jun 20 2003	Amicus Curiae Brief filed by:
Jun 20 2003	Amicus Curiae Brief filed by:
Aug 25 2003	Response to amicus curiae brief filed
Aug 25 2003	Response to amicus curiae brief filed
Sep 8 2003	Response to amicus curiae brief filed
Sep 8 2003	Response to amicus curiae brief filed

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