## Facts

- Percy Sloan, insured under an auto liability policy with limits of $10,000 per person and $20,000 per accident, struck Anthony and Mrs. Comunale in a crosswalk.
- The insurer, Traders & General Insurance Co., asserted there was no coverage and refused to defend Sloan in the Comunales’ personal injury suit.
- During the underlying case, Sloan notified Traders that the plaintiffs would settle for $4,000, that Sloan could not fund any settlement himself, and that a verdict exceeding policy limits was highly probable.
- Traders still refused to defend or settle; judgment was entered against Sloan for $25,000 (Mr. Comunale) and $1,250 (Mrs. Comunale).
- The Comunales later recovered $10,000 (Mr. Comunale) and $1,250 (Mrs. Comunale) from Traders under a direct-action statute, reflecting the policy limits actually paid.
- Comunale then obtained an assignment of Sloan’s rights against Traders and sued to recover the excess portion of the judgment.
- A jury found for Comunale, but the trial court granted judgment notwithstanding the verdict for Traders; Comunale appealed.

## Issues

1. Whether the insured had a cause of action against the insurer for the excess judgment based on refusal to defend and failure to accept a reasonable within-limits settlement.
2. Whether the insured’s claim against the insurer was assignable to the injured claimant.
3. Whether the assignee’s action was barred by the statute of limitations.

## Decision

- The court reversed the judgment notwithstanding the verdict and directed entry of judgment on the jury’s verdict for Comunale.
- The insured had a cause of action for the excess judgment because the insurer breached obligations arising from the policy, including the implied covenant of good faith and fair dealing in defense and settlement.
- The cause of action was assignable to Comunale.
- The action was timely because the claim was treated as contractual for limitations purposes.

## Legal Principles

- A liability insurer that controls settlement must act in good faith and give at least equal consideration to the insured’s interests when evaluating a reasonable settlement offer within policy limits.
- If a reasonable within-limits settlement offer is made when there is a substantial likelihood of a judgment exceeding limits, the insurer’s bad-faith refusal to settle can make it liable for the full resulting judgment, including the excess.
- An insurer’s wrongful refusal to defend a covered claim is a breach of contract that can support recovery of all damages proximately caused by the breach, including an excess judgment.
- Claims for economic loss arising from an insurer’s breach of policy duties in defense and settlement are assignable by the insured to the injured claimant.
- For statute-of-limitations purposes, an action based on breach of the policy’s defense and settlement obligations may be governed by contract limitations periods even if the conduct could also support tort characterization.

## Conclusion

The court held that an insurer that denies coverage and refuses to defend and accept a reasonable within-limits settlement, despite a substantial risk of an excess verdict, may be liable for the insured’s excess judgment; the insured’s claim is assignable and was not time-barred under the applicable contract limitations period.


Comunale v. Traders & Gen. Ins. Co., 50 Cal. 2d 654, 328 P.2d 198 (Cal. 1958)