Understanding the Duties and Limits of Plaintiff Lawyers in Insurance Cases
Delve into the crucial responsibilities of plaintiff lawyers in insurance matters, including the duties to defend, indemnify, and settle claims. Explore the significance of understanding insurance policies, coverage limits, and umbrella/excess coverage issues. Discover key legal cases and regulations that highlight the importance of acting in good faith and fair dealing in insurance settlements.
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Why Should It Matter to Why Should It Matter to All Plaintiff Lawyers? All Plaintiff Lawyers?
The Three Duties The Three Duties
1.) The Duty To Defend 1.) The Duty To Defend Potential For Coverage Potential For Coverage Gray v. Zurich Gray v. Zurich (1966) 65 Cal.2d. 263 (1966) 65 Cal.2d. 263 Montrose v. S.C. Montrose v. S.C. (1993) 6 Cal.4 (1993) 6 Cal.4th th287 287 2.) The Duty to Indemnify 2.) The Duty to Indemnify 3.) The Duty to Settle 3.) The Duty to Settle
Understanding The Policy Understanding The Policy
What are the limits? What are the limits?
Umbrella/Excess Coverage Umbrella/Excess Coverage Course and Scope Issues Course and Scope Issues Self Self- -Depleting Policy? Depleting Policy?
Ins. Code Sec. 791.13 Ins. Code Sec. 791.13 Failure to Disclose Limits Failure to Disclose Limits Could Be Deemed Bad Could Be Deemed Bad Faith Faith
Boicourt Boicourt v. Amex Assurance v. Amex Assurance (2000) 78 Cal.App.4 (2000) 78 Cal.App.4th th1390 1390
Triggering The Triggering The Duty To Settle Duty To Settle
The implied covenant of The implied covenant of good faith and fair dealing good faith and fair dealing requires the insured to requires the insured to settle settle in an appropriate case in an appropriate case although the express terms although the express terms of the policy do not impose of the policy do not impose such a duty ID. At 659 such a duty ID. At 659 (Emphasis added). (Emphasis added).
1.) Clear & unequivocal 1.) Clear & unequivocal opportunity to settle within opportunity to settle within policy limits policy limits 2.) Liability is reasonably clear 2.) Liability is reasonably clear 3.) Judgment is likely to exceed 3.) Judgment is likely to exceed the amount of the demand the amount of the demand
The Failure to Settle The Failure to Settle v. v. The Failure to Defend The Failure to Defend
The decisive factor fixing The decisive factor fixing the extent of [the the extent of [the insurer s liability is insurer s liability is not the refusal to defend; it the refusal to defend; it is the refusal to accept is the refusal to accept an offer to settle an offer to settle within the policy limits. Id. At 17 the policy limits. Id. At 17 not within
A.) Coverage Dispute A.) Coverage Dispute B.) Valuation Dispute B.) Valuation Dispute
Accordingly, contrary to the Accordingly, contrary to the defendant s suggestion, an defendant s suggestion, an insurer s good faith, though insurer s good faith, though erroneous belief in erroneous belief in noncoverage noncoverage affords affords no defense defense to liability to liability flowing from the insurer s refusal to from the insurer s refusal to accept a reasonable settlement accept a reasonable settlement offer. Id at 16. (Emphasis offer. Id at 16. (Emphasis added). added). no flowing
A settlement demand is A settlement demand is reasonable if insurance company reasonable if insurance company knew or should have known at the knew or should have known at the time the settlement demand was time the settlement demand was rejected rejected that the potential that the potential judgment was judgment was likely to exceed the likely to exceed the amount of the settlement demand amount of the settlement demand based on plaintiff s injuries or based on plaintiff s injuries or loss and insured s probable loss and insured s probable liability liability. (Emphasis added). . (Emphasis added).
Liability is imposed not for a Liability is imposed not for a bad faith breach of the bad faith breach of the contract but for contract but for failure to meet the duty to accept meet the duty to accept reasonable settlements reasonable settlements, a duty included within the implied included within the implied covenant of good faith and fair covenant of good faith and fair dealing. dealing. Crisci Crisci v. Security Ins. (1967) 66 Cal.2d 425, 430 (1967) 66 Cal.2d 425, 430 (Emphasis added). (Emphasis added). failure to , a duty v. Security Ins.
In determining whether an In determining whether an insurer has given insurer has given consideration to the consideration to the interests of the insured, interests of the insured, the test is whether a the test is whether a prudent insurer without prudent insurer without policy limits would have policy limits would have accepted the settlement accepted the settlement offer. offer. Crisci Crisci, at 429 , at 429
[I]n deciding whether or not to [I]n deciding whether or not to compromise the claim, the insurer must compromise the claim, the insurer must conduct itself as though it alone were conduct itself as though it alone were liable for the entire amount of the liable for the entire amount of the judgment [ judgment [T]he only permissible T]he only permissible consideration consideration in evaluating the in evaluating the reasonableness of the settlement reasonableness of the settlement offer becomes whether, offer becomes whether, in light of the victim s injuries and the probable victim s injuries and the probable liability of the insured, the ultimate liability of the insured, the ultimate judgment is likely to exceed the judgment is likely to exceed the amount of the settlement offer amount of the settlement offer. Johansen Johansen, at 16 (Emphasis added). , at 16 (Emphasis added). in light of the .
An insurer that fails to accept a An insurer that fails to accept a reasonable settlement offer within policy reasonable settlement offer within policy limits will be held limits will be held liable in tort for the liable in tort for the entire judgment against the insured, even if entire judgment against the insured, even if that amount exceeds the policy limits that amount exceeds the policy limits. An insurer s duty to accept a reasonable insurer s duty to accept a reasonable settlement offer in these circumstances is settlement offer in these circumstances is implied in law to protect the insured from implied in law to protect the insured from exposure to liability in excess of coverage exposure to liability in excess of coverage as a result of the insurer s gamble as a result of the insurer s gamble on which only the insured might lose. which only the insured might lose. Rappaport Rappaport- -Scott v. Scott v. InterInsurance InterInsurance Exch. (2007) 146 Cal.App.4 (2007) 146 Cal.App.4th added) added) . An on Exch. th831, 836. (Emphasis 831, 836. (Emphasis
Timing of Timing of Policy Limit Demands Policy Limit Demands
Determination of the Determination of the reasonableness of a settlement reasonableness of a settlement offer for purposes of a offer for purposes of a reimbursement action is reimbursement action is based on the information available to on the information available to [the insurer] at the time of the [the insurer] at the time of the proposed settlement proposed settlement. Isaacson v. Cal. Ins. Guarantee Assn. v. Cal. Ins. Guarantee Assn. (1988) 44 Cal.3d 775, 793 (1988) 44 Cal.3d 775, 793 (Emphasis added). (Emphasis added). based . Isaacson
[Insurer] acted unreasonably [Insurer] acted unreasonably and without proper cause if it and without proper cause if it failed to conduct a failed to conduct a full, fair and thorough investigation and thorough investigation of all of the bases of the claim. all of the bases of the claim. When investigating plaintiff s When investigating plaintiff s claim, [Insurer] had a claim, [Insurer] had a duty to diligently search for and diligently search for and consider evidence that consider evidence that supported coverage supported coverage of the claimed loss. claimed loss. full, fair of duty to of the
Now, How Do you Collect? Now, How Do you Collect?
Is The Carrier Defending? Is The Carrier Defending?
1.) 1.) Assignment of Rights Assignment of Rights with with Covenant Not to Covenant Not to Execute Execute 2.) 2.) Anytime Anytime after expiration after expiration of time to accept offer of time to accept offer within policy limits and even within policy limits and even before before judgment judgment
Critz Critz v. Farmers Ins v. Farmers Ins. . (1964) 230 Cal.App.2d 788 (1964) 230 Cal.App.2d 788
When the insurer breaches its When the insurer breaches its obligation of good faith settlement, it obligation of good faith settlement, it exposes its policyholder to the sharp exposes its policyholder to the sharp thrust of personal liability. At that thrust of personal liability. At that point, there is point, there is an acute change in the an acute change in the relationship relationship between policyholder and between policyholder and insurer. The change does not or should insurer. The change does not or should not affect the policyholder s not affect the policyholder s obligation to appear as defendant and obligation to appear as defendant and to testify to the truth. to testify to the truth. Critz (Emphasis added). (Emphasis added). Critz, at 801 , at 801
He need not indulge in financial He need not indulge in financial masochism, however masochism, however. Whatever may be his obligation to the may be his obligation to the carrier, it does not demand that he carrier, it does not demand that he bare his breast to the continued bare his breast to the continued danger of personal liability danger of personal liability The insurer s breach so narrows the insurer s breach so narrows the policyholder s duty of policyholder s duty of cooperation that the self cooperation that the self- - protective assignment does not protective assignment does not violate it violate it. . Critz Critz, at 801 , at 801- -802 (Emphasis Added). (Emphasis Added). . Whatever The 802
an insured an insured breaches no duty to the insurance duty to the insurance company when he assigns his company when he assigns his rights rights against the company against the company to the injured plaintiff for a to the injured plaintiff for a covenant not to execute. covenant not to execute. Samson v. Transamerica Samson v. Transamerica (1981) 30 Cal.2d 220, at 241 (1981) 30 Cal.2d 220, at 241 breaches no
When an insurer exposes When an insurer exposes its policy holder to the its policy holder to the sharp thrust of personal sharp thrust of personal liability by breaching its liability by breaching its obligations, the insured obligations, the insured need not indulge in need not indulge in financial masochism financial masochism. Samson Samson, at 241 , at 241 .
Get the Excess Verdict! Get the Excess Verdict!
What should you do? What should you do?
1.) 1.) Uncontested Trial (Binding) Uncontested Trial (Binding) Samson Samson (1981) 30 Cal.3d 220 (1981) 30 Cal.3d 220 Lynette C. Lynette C. (1994) 27 Cal.App.4 (1994) 27 Cal.App.4th th1434 1434 2.) 2.) Default Judgment (Binding) Default Judgment (Binding) Amato Amato (1997) 53 Cal.App.4 (1997) 53 Cal.App.4th th825 825 3.) 3.) Stipulated Judgment (Subject Stipulated Judgment (Subject to Attack) to Attack) Pruyn Pruyn (1995) 36 Cal.App.4 (1995) 36 Cal.App.4th Xebec Xebec (1993) 12 Cal.App.4 (1993) 12 Cal.App.4th th500 500 th501 501
Uncontested Trial Uncontested Trial
Wrongful death action against insured Wrongful death action against insured Insured covered under two policies Insured covered under two policies State Farm ($100,000) State Farm ($100,000) Transamerica ($300,000) Transamerica ($300,000) State Farm agreed to defend State Farm agreed to defend Transamerica denied a defense Transamerica denied a defense Settlement Agreement: Settlement Agreement: State Farm pays its $100,000 policy limit State Farm pays its $100,000 policy limit Samson agrees to a covenant not to execute Samson agrees to a covenant not to execute Insured assigns rights against Insured assigns rights against Transmerica Samson Samson Case proceeds to uncontested trial Case proceeds to uncontested trial Bench Verdict $725,000 Bench Verdict $725,000 After verdict Samson demands $300,000 policy limit After verdict Samson demands $300,000 policy limit Transamerica does not respond to demand Transamerica does not respond to demand Samson sues Transamerica as an assignee Samson sues Transamerica as an assignee Transmerica to to
the Court must decide the Court must decide whether this insurance company whether this insurance company is bound to pay the is bound to pay the entire judgment judgment entered against its entered against its insured in an action to which it insured in an action to which it was not a party, because it was not a party, because it refused to defend its insured refused to defend its insured and and rejected a settlement rejected a settlement offer offer. . Samson, Samson, at 224 entire at 224
The company argues that even The company argues that even if coverage is found if coverage is found Transamerica should have an Transamerica should have an opportunity to litigate the opportunity to litigate the amount of damages amount of damages. . Transamerica also contends it Transamerica also contends it should be should be liable only up to its liable only up to its policy limits of $300,000 policy limits of $300,000. Samson, Samson, at 236 at 236 .
an insurer who fails to accept an insurer who fails to accept a reasonable settlement offer a reasonable settlement offer within policy limits within policy limits because it believes the policy does not believes the policy does not provide coverage provide coverage assumes the risk that it will be held liable for all that it will be held liable for all damages resulting from such damages resulting from such refusal, refusal, including damages in including damages in excess of applicable policy excess of applicable policy limits limits. . Samson, Samson, at 237, citing at 237, citing Johansen, (1975)15 Cal.3d 9, 12 Johansen, (1975)15 Cal.3d 9, 12 because it assumes the risk
Default Judgment Default Judgment
Plaintiff sues insured (Amato) Plaintiff sues insured (Amato) Amato tenders to Mercury Amato tenders to Mercury Mercury refuses to defend Mercury refuses to defend Plaintiff offers to settle for $15,000 Plaintiff offers to settle for $15,000 policy limit policy limit Mercury rejects policy limit demand Mercury rejects policy limit demand Insured (Amato) cannot afford to Insured (Amato) cannot afford to defend himself defend himself Plaintiff obtains default judgment Plaintiff obtains default judgment against Amato for $165,750 against Amato for $165,750 Court later finds there Court later finds there was a duty to defend defend, but , but no coverage for indemnity no coverage for indemnity was a duty to
We hold that where an insurer We hold that where an insurer tortiously tortiously breaches the duty to breaches the duty to defend defend and the insured suffers a and the insured suffers a default judgment because the default judgment because the insured is unable to defend insured is unable to defend, the insurer is insurer is liable for the default liable for the default judgment judgment, which is a proximate result , which is a proximate result of its wrongful refusal to defend. of its wrongful refusal to defend. Id at 829 Id at 829 , the
We also conclude the We also conclude the insured is not required, required, in these circumstances, in these circumstances, to conduct a trial [of the underlying conduct a trial [of the underlying case] within a trial case] within a trial in order to recover the amount of recover the amount of the default judgment judgment from the insurer who from the insurer who wrongfully refused to defend. Id at wrongfully refused to defend. Id at 829 829 insured is not to in order to the default
Stipulated Judgment Stipulated Judgment
Plaintiff sued Insured Plaintiff sued Insured Insured tendered to Carrier Insured tendered to Carrier Carrier denied a defense Carrier denied a defense Plaintiff and Insured Settled Plaintiff and Insured Settled Stipulated to a $650,000 judgment Stipulated to a $650,000 judgment Covenant not to execute Covenant not to execute Assignment of rights Assignment of rights Court granted motion for good faith Court granted motion for good faith settlement under Section 877.6 settlement under Section 877.6 Plaintiff sues Carrier as Assignee Plaintiff sues Carrier as Assignee
When a liability insurer When a liability insurer wrongfully denies coverage or wrongfully denies coverage or refuses to provide a defense refuses to provide a defense, , then the insured is free to then the insured is free to negotiate the best possible negotiate the best possible settlement consistent with his settlement consistent with his or her interests, including a or her interests, including a stipulated judgment stipulated judgment accompanied by a covenant not accompanied by a covenant not to execute. to execute. Pruyn Pruyn, at 509 , at 509
