Hedayati v. Interinsurance Exchange of the Auto. Club
G058189
| Cal. Ct. App. | Aug 11, 2021Background:
- In Oct. 2012 Maurice Vanwyk ran a red light and catastrophically injured Maryam Hedayati; Vanwyk reported the accident to his insurer, Interinsurance Exchange of the Automobile Club (Auto Club).
- Vanwyk signed an authorization permitting disclosure of policy limits ($25,000) and told Auto Club he had no other insurance or assets; Auto Club’s policy required the insured to relinquish settlement negotiation rights to the Club.
- Hedayati’s counsel repeatedly requested policy limits, declarations, and a copy of the policy; Auto Club delayed, initially withheld the insured’s signed declarations and declined to provide a hard copy of the policy or written proof of limits.
- On Nov. 20, 2012 Hedayati’s counsel made a conditional $25,000 settlement offer requiring the insured’s declarations and a true copy of the declaration page/policy, with written acceptance by Nov. 27 via overnight delivery; Auto Club did not process the FedEx-delivered offer until after the deadline.
- Auto Club had earlier correspondence (Oct. 31) offering $25,000 but omitted documentation and release terms claimants required; internal mail/processing lapses and failure to follow Auto Club guidelines contributed to the missed deadline.
- Hedayati obtained a $26 million judgment against Vanwyk and sued Auto Club for breach of the covenant of good faith and fair dealing; the trial court granted summary judgment for Auto Club, and the Court of Appeal reversed, finding triable issues of fact.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Auto Club breach the covenant of good faith by failing to accept a reasonable settlement within policy limits? | Auto Club unreasonably delayed, withheld necessary documentation, and thus exposed insured to excess judgment. | Auto Club offered policy limits (Oct. 31) and was not required to meet plaintiff’s short, Thanksgiving-week deadline. | Reversed summary judgment; reasonableness is a jury question given disputed facts. |
| Did Auto Club fail to communicate Hedayati’s Nov. 20 offer to its insured, depriving him of ability to accept? | Auto Club did not convey the offer to Vanwyk, preventing him from supplying the one missing declaration and securing a release. | Deadline was unreasonable and Auto Club acted reasonably under the circumstances. | Triable issue: Auto Club did not address this theory in its motion and failed to meet its burden. |
| Does an earlier tender of policy limits (Oct. 31) absolve the insurer (Graciano “safe harbor”)? | Oct. 31 letter omitted essential documentation and release terms; it did not demonstrate reasonable efforts to effectuate settlement. | Oct. 31 tender predated Nov. 20 offer, so insurer satisfied duty as a matter of law. | Court rejects broad safe-harbor claim; timeliness and adequacy of documentation are factual issues. |
| Were Auto Club’s lapses mere negligence or actionable bad faith? | Pattern of delay, withholding declarations/policy copy, and misleading the insured supports bad faith. | Any failure was clerical or negligent and insufficient to establish unreasonable refusal to settle. | Whether conduct amounts to bad faith (vs. excusable error) is for the jury. |
Key Cases Cited
- Wilson v. 21st Century Ins. Co., 42 Cal.4th 713 (Cal. 2007) (sets standard that insurer must consider insured’s interests equally and that reasonableness of claims handling is key)
- Kransco v. American Empire Surplus Lines Ins. Co., 23 Cal.4th 390 (Cal. 2000) (insurer must make reasonable efforts to settle within policy limits when substantial likelihood of excess judgment exists)
- Merritt v. Reserve Ins. Co., 34 Cal.App.3d 858 (Cal. Ct. App. 1973) (explains insurer/insured conflict and duty to consider insured’s exposure to excess judgment)
- Hamilton v. Maryland Casualty Co., 27 Cal.4th 718 (Cal. 2002) (insurer must evaluate settlement offers as if it alone bore full risk)
- Graciano v. Mercury General Corp., 231 Cal.App.4th 414 (Cal. Ct. App. 2014) (addresses timeliness of tenders and when insurer’s tender satisfies duty)
- Boicourt v. Amex Assurance Co., 78 Cal.App.4th 1390 (Cal. Ct. App. 2000) (insurer’s failure to communicate with insured can expose insurer to liability for excess judgment)
- Pinto v. Farmers Ins. Exchange, 61 Cal.App.5th 676 (Cal. Ct. App. 2021) (reasonableness of insurer’s conduct must be judged on the totality of circumstances; timeliness can be dispositive)
- Saelzler v. Advanced Group 400, 25 Cal.4th 763 (Cal. 2001) (summary judgment review requires viewing evidence favorably to nonmoving party)
- Comunale v. Traders & General Ins. Co., 50 Cal.2d 654 (Cal. 1958) (insurer liable for damages caused by failure to settle within policy limits to place insured in position as if contract performed)