(Bad Faith Verdict Reversed as Plaintiff Failed to Include Instruction Requiring That Insurer Acted Unreasonably in Refusing to Accept Reasonable Settlement Demand)
(
The parties' dispute arose out of an automobile accident on
Subsequently, Cannon sent the demand to Martin and Orcutt on
Pinto's counsel responded by confirming that the demand applied to Orcutt and Martin. Further, Pinto was unmarried. Lastly, the demand was extended 24 hours to
Thereafter, Pinto filed suit against Martin and Orcutt. Subsequently, Pinto settled his lawsuit in exchange for an assignment of rights against Farmers and the understanding that the settlement would be treated as a judgment of
In the bad faith lawsuit, the jury made three findings:
-
Pinto made a reasonable settlement demand;
- Farmers failed to accept a reasonable settlement demand; and
- A monetary judgment had been entered against Martin in Pinto's earlier lawsuit.
The jury also made the same findings against Orcutt, but also found that Orcutt had failed to cooperate with Farmers and that such failure had prejudiced Farmers. The jury made no finding that Farmers had acted unreasonably by failing to accept Pinto's reasonable settlement offer. A judgment was entered against Farmers for
In reversing the judgment, the
Farmers contends the judgment must be vacated because the jury did not find, and no evidence established, that it acted unreasonably in failing to settle Pinto's claim against Martin. Pinto counters that failure to accept a reasonable settlement offer is itself unreasonable per se.
I. Whether the Verdict Supports the Judgment
The issue is whether, in the context of a third party insurance claim, failing to accept a reasonable settlement offer constitutes bad faith per se. We conclude it does not.
A. Legal Principles
1. Bad Faith Liability Requires a Finding That the Insurer Acted Unreasonably
"In each policy of liability insurance,
In evaluating whether an insurer acted in bad faith, "the critical issue [is] the reasonableness of the insurer's conduct under the facts of the particular case." (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713 723 {68 Cal. Rptr. 3d 746, 171 P.3d 10821.) To hold an insurer liable for bad faith in failing to settle a third party claim, the evidence must establish that the failure to settle was unreasonable.
2. An Insurer's Failing To Accept a Reasonable Offer Is Not Unreasonable Per Se
An offer to settle an insurance claim is generally multidimensional, the most obvious component being the amount demanded. Other components include the conditions for acceptance and the scope of any release.
An insurer's duty to accept a reasonable settlement offer is not absolute. '"[i]n deciding whether or not to settle a claim, the insurer must take into account the interests of the insured, and when there is a great risk of recovery beyond the policy limits, a good faith consideration of the insured's interests may require the insurer to settle the claim within the policy limits. An unreasonable refusal to settle may subject the insurer to liability for the entire amount of the judgment rendered against the insured, including any portion in excess of the policy limits. (Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658-661 [328 P.2d 198].)' [Citation.]" (Hamilton v.
Therefore, failing to accept a reasonable settlement offer does not necessarily constitute bad faith. "[T]he crucial issue is ... the basis for the insurer's decision to reject an offer of settlement." (Walbrook Ins. Co. v. Liberty Mutual Ins. Co. (1992) 5 Cal.App.4th 1445, 1460 [7 Cal. Rptr. 2d 513].) "[M]ere errors by an insurer in discharging its obligations to its insured "'does not necessarily make the insurer liable in tort for violating the covenant of good faith and fair dealing; to be liable in tort, the insurer's conduct must also have been unreasonable."'" (Graciano v.
A claim for bad faith based on the wrongful refusal to settle thus requires proof the insurer unreasonably failed to accept an offer. ( Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788, 798 [41 Cal. Rptr. 401], disapproved on other grounds in Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 433 [58 Cal. Rptr. 13, 426 P.2d 173].)
Simply failing to settle does not meet this standard. A facially reasonable demand might go unaccepted due to no fault of the insurer, for example if some emergency prevents transmission of the insurer's acceptance.
The Court of Appeal also rejected Pinto's argument that the failure to accept a reasonable settlement offer is per se unreasonable. The Court of Appeal reasoned as follows:
Pinto relies on two further
We reiterate the court's latest statement on the matter: '"[A] good faith consideration of the insured's interests may require the insurer to settle the claim within the policy limits. An unreasonable refusal to settle may subject the insurer to liability for the entire amount of the judgment rendered against the insured, including any portion in excess of the policy limits."' (Hamilton v.
The court has never held that failure to accept a reasonable settlement is per se unreasonable.
As result, because the verdict form did not include a finding relative to whether Farmers acted unreasonably by failing to accept a reasonable settlement offer, the
The question remains: what to do about the defective judgment.
The plaintiff "bear[s] the responsibility for a special verdict submitted to the jury on [his] own case" and must therefore ensure that a special verdict allows the jury to "'resolve all of the ultimate facts"' so that ""'nothing shall remain to the court but to draw from them conclusions of law."'" (
Pinto argues that Farmers successfully objected to the very "reasonableness" special verdict question that it now argues was required, proposed special verdict question No. 7. Under the doctrine of invited error, he argues, Farmers is estopped from urging the defective verdict as a ground for reversal. We disagree.
The '"doctrine of invited error' is an 'application of the estoppel principle:' 'Where a party by his conduct induces the commission of error, he is estopped from asserting it as a ground for reversal' on appeal." (Norgart v.
The proposed special verdict question at issue, No. 7, which Pinto proposed and to which Farmers objected, asked: "Did Farmers breach its duty of good faith and fair dealing to [Martin] by acting unreasonably and by failing to give as much consideration to her interests as they gave to their own interests?"
If the jury answered "no," it was instructed to answer question No. 9, which asked whether Farmers "fail[ed] to accept a reasonable settlement demand for an amount within [Martin's] policy limits." Question No. 9 eventually became the foundation of the special verdict form.
Farmers objected to question No. 7, and it was never given.
Question No. 7 would not have been the correct reasonableness question because it asked nothing about the settlement offer, which was discussed only in question No. 9. Although Pinto complained at length about Farmers's many bad acts, in the end it cured any deficiency by tendering the full
In fact, the jury could not have both answered "yes" to question No. 7 and made any finding about the settlement offer, because pursuant to Pinto's protocol, question No. 9, the only question mentioning the settlement offer, would not be encountered should the jury answer yes to question No. 7. There is therefore no way question No. 7 could have cured the verdict.
Pinto argues it was Farmers that insisted that the special verdict mirror CACI No. 2334, and is therefore responsible for the error. The record is flatly to the contrary. Farmers proposed that a special verdict question mirroring CACI No. 2334 be modified to ask whether Farmers's failure to accept Pinto's settlement offer was "the result of unreasonable conduct by Farmers," which Farmers at all times argued was essential to Pinto's bad faith failure-to-settle theory.
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