David M. Axelrad
Partner, Horvitz & Levy LLP
Email: daxelrad@horvitzlevy.com
UC Hastings COL; San Francisco CA
The perfecting of an appeal does not automatically stay enforcement of a money judgment in the trial court. Unless a bond or undertaking is posted (or some other agreement is reached), the prevailing party may enforce the judgment while the appeal is pending. The amount of the bond is "double the amount of the judgment" unless "given by an admitted surety insurer in which event it shall be for one and one-half times the amount of the judgment." (Code Civ. Proc., § 917.1, subd. (b).)
What happens if an insurance carrier is required to post an appeal bond as part of its contractual obligation to an insured seeking to appeal a judgment or order, but the required amount of the bond exceeds the policy limit or is otherwise more than the insurer is prepared to give? Would an insurer posting a partial bond be effective to stay a portion of a money judgment pending appeal?
On its face, the statutory scheme seems to say "no" by prescribing the amount of the bond and by enabling the respondent on appeal to object to the undertaking as insufficient in amount. (Code Civ. Proc., §§ 922, 995.920, subd. (b).) But in Merritt v. J. A. Stafford Co., 68 Cal.2d 619, 625 (1968), the California Supreme Court made an exception.
In Merritt, plaintiff recovered a personal injury judgment of over $400,000 against defendant. Defendant appealed and defendant's insurer filed an appeal bond. However, because the limit of the insurer's liability to the insured was $100,000, the bond was for just over one and one half times the $100,000 policy limit, approximately $182,000, far less than the amount required by statute to stay enforcement of a $400,000 money judgment pending appeal.
The judgment was affirmed and the plaintiff filed a motion for judgment on the appeal bond. The bond issuer, a surety insurer, argued that the bond was unenforceable, in part because the bond was for less than the amount required by statute to stay enforcement pending appeal. (Merritt, supra, 68 Cal.2d at pp. 621, 625.) The Supreme Court rejected the argument. Although the Court was aware that "Section 942 of the Code of Civil Procedure provides ... that an appeal from a money judgment does not stay execution unless an adequate undertaking is filed and that a surety bond by an authorized corporation for a stay pending appeal of a judgment directing the payment of money shall be one and one-half times the amount named in the judgment or order appealed" (id. at p. 623), the Supreme Court held that "a bond furnished by a liability insurer to stay the part of a judgment within the policy limits is effective to stay enforcement of that part of the judgment" (id. at p. 625, emphasis added).
The Court explained that "when a judgment is obtained in excess of [policy] limits, an insurer should not be faced with the alternatives of either posting a bond for the entire judgment or refusing to post a bond at all." (Merritt, supra, 68 Cal.2d at p. 626.) "Fairness to the insurer and the insured requires that the insurer be permitted to fulfill its covenant of good faith and fair dealing by filing an appeal bond in an amount sufficient to cover the part of the judgment for which it is liable and that the respondent be denied his right to seek execution with regard to such part of the judgment." (Ibid.)
Although Merritt has not been overruled by the Supreme Court, it predates both the 1968 amendments to the appeal bond statutes in the Code of Civil Procedure and the 1982 enactment of the Bond and Undertaking Law. Do any of these legislative enactments implicitly overrule Merritt? Even though there has been no caselaw on this point, the answer appears to be "no" because the current statutory scheme is essentially the same as the scheme in place at the time of the Merritt decision.
When Merritt was decided, in 1968, former Code of Civil Procedure Section 942 provided that an "appeal ... from a judgment or order directing the payment of money ... does not stay the execution of the judgment or order unless a written undertaking be executed on the part of the appellant. [¶] ... [¶] If the undertaking ... be executed ... by a corporate surety ... such undertaking shall be sufficient in amount if the surety be bound in 1 1/2 times the amount named in the judgment or order appealed from." Former Code of Civil Procedure Sections 922, 946, and 948 provided a mechanism for objecting to the sufficiency of sureties giving the bond.
The 1968 amendments "[r]evise[d] and recodifie[d] law relating to appeals in civil actions and proceedings, ... [and] relating particularly to stay of enforcement and other proceedings." (Legis. Counsel's Dig., Sen. Bill No. 442 (1968 Reg. Sess.).) But the requirements for a surety insurer's appeal bond remained the same. (Compare former Code Civ. Proc., § 942, repealed by Stats. 1968, ch. 385, § 1, p. 811 ["such undertaking shall be sufficient in amount if the surety be bound in 1 1/2 times the amount named in the judgment" (emphasis added)] with former Code Civ. Proc., § 917.1, added by Stats. 1968, ch. 385, § 2, p. 816 ["Such undertaking shall be for double the amount .. unless given by a corporate surety ... in which event it shall be for one and one-half times the amount of the judgment" (emphasis added)].) And, the procedure for objecting to a bond did not change substantially, other than by shortening the time for objection. (Compare former Code Civ. Proc., § 948, repealed by Stats. 1968, ch. 385, § 1, p. 811 with former Code Civ. Proc., § 922, added by Stats. 1968, ch. 385, § 2, p. 820.)
The 1982 Bond and Undertaking Law "consolidat[ed] ... numerous similar statutes to create one uniform statute" governing bonds and undertakings, including repealing or deleting "duplicative provisions" across multiple codes. (Recommendation Relating to Statutory Bonds and Undertakings (Nov. 1981) 16 Cal. Law Revision Com. Rep. (1981) p. 508.) Here again, the requirements for an appeal bond given by a surety insurer in Section 917.1 remained the same as the requirements in 1968 under former Section 942. (See former Code Civ. Proc., §§ 917.1 and 922, added by Stats. 1982, ch. 517, § 161, pp. 2355, 2356.)
Two provisions of the 1982 legislation that appear to have changed the law in effect in 1968 actually do not.
First, the 1982 law changed the objection procedure by providing that the beneficiary may object to a bond on the ground that the "amount of the bond is insufficient." (Code Civ. Proc., § 995.920, subd. (b).) The statutory scheme at the time of the Merritt decision allowed objections only to the sufficiency of the sureties but not to the amount of the bond itself. (Former Code Civ. Proc., §§ 946, 948.) However, under both the 1968 law in effect at the time of Merritt and current law, an appeal bond in an amount less than that required by statute is on its face insufficient to stay enforcement of a money judgment pending appeal. (Compare former Code Civ. Proc., § 942 with current § 917.1.)
Second, the 1982 law authorizes the trial court to determine that a bond is insufficient and provides that if the insufficiency is not cured within the time specified by the court, the bond becomes ineffective. (Code Civ. Proc., §§ 995.960, subds. (a), (b)(1), 996.010, subds. (a), (d).) However, these statutes do not expressly overrule Merritt's holding that a partial appeal bond posted by a surety insurer is sufficient to stay enforcement of a portion of the judgment. (Merritt, supra, 68 Cal.2d at pp. 625-626.)
Since 1968, the Legislature considered but neither materially changed the provisions governing the sufficiency of appeal bonds nor expressly overruled Merritt. Absent evidence of legislative intent that is clearly expressed or necessarily implied, it appears that the partial appeal bond holding in Merritt remains good law. (See Van Horn v. Watson, 45 Cal.4th 322, 333 (2008) [" ' "[w]e do not presume that the Legislature intends, when it enacts a statute, to overthrow long-established principles of law unless such intention is clearly expressed or necessarily implied" ' "], superseded by statute on another ground as stated in Verdugo v. Target Corp., 59 Cal.4th 312, 327 (2014); Moradi-Shalal v. Fireman's Fund Ins. Companies, 46 Cal.3d 287, 318 (1988) ["In adopting legislation, the Legislature is presumed to know of existing domestic judicial decisions and to enact and amend statutes in light of such decisions that have a direct bearing on them. [Citation.] The failure of the Legislature to change the law in a particular respect, when the general subject is before it and changes in other respects are made, is indicative of an intent to leave the law as it stands in the aspects not amended."]; People v. Superior Court of Riverside County, 81 Cal.App.5th 851, 883 (2022) [the Legislature would not abolish a well-established legal doctrine "silently, or at best obscurely"]; Dry Creek Valley Assn., Inc. v. Board of Supervisors, 67 Cal.App.3d 839, 844 (1977) ["[A statute] will be presumed not to be out of harmony with the common law principle at issue, unless it is found to expressly so provide" (emphasis omitted)]; 2B Sutherland Statutory Construction (7th ed.) § 50:5 ["Courts presume a statute is consistent with the common law"]; compare People v. King, 5 Cal.4th 59, 65-68 (1993) [Legislature "effectively" overruled prior Supreme Court decision by changing statute interpreted in prior decision to require opposite result; "the conclusion is inescapable that the Legislature intended to overrule [the prior decision]"].)
Although some recent cases have made blanket statements about the insufficiency of bonds in amounts less than that provided by statute (see, e.g., Patel v. Chavez, 85 Cal.App.5th 712, 719-720 (2022)), neither the Supreme Court nor the Legislature has seen fit to overrule Merritt, and partial bonds issued by insurers therefore continue to be effective to stay the portion of the judgment covered by the partial bond. Respondents may still "seek execution" as to the "excess part of the judgment," or "enter into an agreement to stay execution with the insured." (Merritt, supra, 68 Cal.2d at p. 626.) But "as to the part of the judgment within the policy limits [the respondent] will be protected by the [insurer's partial] bond." (Ibid.)
The author gratefully acknowledges the editorial and research assistance of Hannah Berkman, an appellate fellow with Horvitz & Levy LLP.