Graciano v. Mercury Gen. Corp. CA4/1
231 Cal. App. 4th 414
| Cal. Ct. App. | 2014Background
- Plaintiff Sonia Graciano was severely injured when struck by a car driven by Saul Ayala; Saul was insured by CAIC with $50,000 policy limits. Graciano initially (and incorrectly) identified a different insured (Jose) and an expired CAIC policy in communications with CAIC.
- CAIC received two separate reports: Saul reported the accident (assigned to the Vista unit) and Graciano’s counsel reported the claim under Jose’s (apparently canceled) policy (assigned to the Factfinder/La Mesa unit), producing temporary confusion about the proper insured and policy.
- Graciano’s counsel sent a demand letter (Nov. 5, 2007) seeking the policy limits of the identified (Jose) policy and gave a Nov. 15 deadline; CAIC investigated and advised the Factfinder unit that Jose’s policy appeared canceled.
- On Nov. 15, after completing further investigation and learning Saul was the driver and had a CAIC policy, CAIC (Vista unit) tendered Saul’s full $50,000 policy limits in writing (and attempted but was precluded from introducing evidence of oral/faxed attempts); Graciano did not accept.
- Graciano obtained a >$2 million judgment against Saul, assigned part of his rights against CAIC, and sued CAIC for bad faith failure to settle; a jury found for Graciano. The court of appeal reversed, holding no substantial evidence supported a bad-faith verdict.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CAIC unreasonably failed to settle Saul’s liability (wrongful refusal to settle) | Graciano: CAIC bungled/ delayed investigation and therefore should have sooner discovered Saul’s policy and tendered limits; the Nov.5 demand sought policy limits of CAIC’s "insureds," so covered Saul | CAIC: The demand identified Jose and his policy (expired); no demand ever clearly offered Saul’s policy limits in exchange for a release; once CAIC learned Saul’s identity it timely tendered full limits | Held: Reversed — no substantial evidence CAIC acted in bad faith; the demand did not clearly offer to release Saul, and CAIC timely tendered full policy limits once it discovered Saul’s policy |
| Whether a demand that specifies one insured/policy can be treated as a timely demand for other, unidentified insureds’ limits | Graciano: The plural term "insureds" and context meant the demand encompassed Saul too | CAIC: A demand that names a specific insured and policy cannot be read to expand to all insurer’s insureds; insurer not bound to accept such an ambiguous broadened reading | Held: Demand was for Jose’s (expired) policy; courts refuse to stretch a specific demand to cover unidentified insureds like Saul |
| Whether CAIC’s investigation failures (delay in obtaining police report, not searching for Saul earlier) constitute bad faith rather than mere negligence | Graciano: CAIC should have sooner obtained/used police face pages and searched its database for Saul; investigative errors support bad faith | CAIC: Mistakes were attributable to claimant’s misidentification and, even if there was delay, CAIC completed investigation and promptly tendered full limits; mere negligence is insufficient for tort liability | Held: The evidence showed at most negligence; claimant’s misidentification contributed to the delay, and CAIC’s eventual timely limits tender precludes bad-faith finding |
| Whether tendering policy limits with conditions or without check/declarations was insufficient to show good faith tender | Graciano: Conditions and absence of check/declaration page show the tender was not a genuine, timely settlement attempt | CAIC: Tendering full policy limits in exchange for a release is, as a matter of law, doing all within insurer’s power to effect settlement; conditions were reasonable to resolve liens and consortium claims | Held: Tender of full policy limits was timely and constituted good faith as a matter of law; conditions do not transform a full-limits tender into bad faith |
Key Cases Cited
- PPG Industries, Inc. v. Transamerica Ins. Co., 20 Cal.4th 310 (insurer’s duty to make reasonable efforts to settle third-party suits)
- Brandt v. Superior Court, 37 Cal.3d 813 (standard for insurer error vs. unreasonable conduct for bad faith)
- Merritt v. Reserve Ins. Co., 34 Cal.App.3d 858 (elements of wrongful refusal to settle and requirement of a reasonable settlement offer)
- Coe v. State Farm Mut. Auto. Ins. Co., 66 Cal.App.3d 981 (clarifies required terms of an offer that an insurer must accept)
- Strauss v. Farmers Ins. Exchange, 26 Cal.App.4th 1017 (demand must provide release of all insureds to support bad-faith claim)
- Crane (State Farm Mut. Auto. Ins. Co. v. Crane), 217 Cal.App.3d 1127 (tendering full policy limits in exchange for a release is good faith as a matter of law)
- Lehto v. Allstate Ins. Co., 31 Cal.App.4th 60 (same principle regarding full-limits tender)
- McLaughlin v. National Union Fire Ins. Co., 23 Cal.App.4th 1132 (rejects bad-faith verdict where offer did not release the insured)
- Safeco Ins. Co. of Am. v. Parks, 170 Cal.App.4th 992 (insurer’s duty to search for other policies in unusual factual contexts)
- California Shoppers, Inc. v. Royal Globe Ins. Co., 175 Cal.App.3d 1 (distinguishing negligence from bad faith; "proper cause" defense when claimant contributes to mistake)