61 Cal.App.5th 676
Cal. Ct. App.2021Background
- March 31, 2013 single-vehicle rollover in Arizona left Alexander Pinto quadriplegic; vehicle owned by Alexandrea Martin; Dana Orcutt likely the permissive driver.
- Farmers insured Martin (policy limits $50,000/$100,000) and investigated; evidence suggested Orcutt was intoxicated and likely the driver.
- On July 1, 2019 Pinto offered to settle for the per-person policy limit ($50,000) conditioned on releases and information for the “insureds” (caption only named Martin), with a 15-day expiry.
- Farmers attempted to accept before the deadline, tendering $50,000, Martin’s release/declaration, and requests for Orcutt’s declaration; Orcutt never provided a declaration. Pinto rejected the tender as incomplete.
- Pinto obtained an excess judgment (via assignment of insureds’ claims) and sued Farmers for bad faith; the jury found the demand reasonable and that Farmers failed to accept it but the special verdict did not ask whether Farmers acted unreasonably.
- Court of Appeal reversed: a bad faith failure-to-settle claim requires a finding that the insurer acted unreasonably; because the jury made no such finding, judgment for Pinto could not stand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether failing to accept a reasonable settlement demand is per se bad faith | Pinto: Rejecting a reasonable within-limits offer is itself unreasonable and establishes bad faith. | Farmers: Failure to accept is not per se unreasonable; insurer’s subjective reasons and efforts matter. | Held: Not per se; bad faith requires a finding that insurer’s rejection was unreasonable under the circumstances. |
| Whether the special verdict supported a bad faith judgment | Pinto: Verdict found the demand reasonable and Farmers failed to accept it, which is sufficient. | Farmers: Verdict omitted a required finding that Farmers acted unreasonably; absent that, judgment cannot stand. | Held: Verdict was facially deficient because it did not ask or find unreasonableness; judgment reversed. |
| Whether plaintiff is barred from attacking the defective verdict by invited error | Pinto: Farmers objected to a proposed reasonableness question and cannot now complain. | Farmers: They objected to plaintiff’s proposed question; their objections do not amount to invited error that bars appellate relief. | Held: Invited-error doctrine does not preclude Farmers’ challenge; plaintiff bears responsibility for special verdict drafting. |
Key Cases Cited
- Comunale v. Traders & General Ins. Co., 50 Cal.2d 654 (1958) (insurer must give insured’s interests at least equal weight and may be required to settle when judgment risk exceeds limits)
- PPG Industries, Inc. v. Transamerica Ins. Co., 20 Cal.4th 310 (1999) (implied covenant obligates insurer to make reasonable efforts to settle third-party suit)
- Hamilton v. Maryland Casualty Co., 27 Cal.4th 718 (2002) (an unreasonable refusal to settle within policy limits may expose insurer to liability for excess judgment)
- Kransco v. American Empire Surplus Lines Ins. Co., 23 Cal.4th 390 (2000) (reiterates insurer liability for unreasonable refusal to accept within-limits settlement)
- Walbrook Ins. Co. v. Liberty Mutual Ins. Co., 5 Cal.App.4th 1445 (1992) (the insurer’s reasons for rejecting a settlement offer are the crucial inquiry)
- Graciano v. Mercury General Corp., 231 Cal.App.4th 414 (2014) (mere errors by insurer do not establish tort liability; conduct must be unreasonable)
- Lehto v. Allstate Ins. Co., 31 Cal.App.4th 60 (1994) (tendering policy limits in exchange for a release may constitute doing all within an insurer’s power to effect settlement)