Timely Offering Policy Limits Does Not Immunize Insurer From Bad Faith Exposure

On Behalf of | Oct 13, 2017 | Bad Faith, Insurance Law

The California Supreme Court in Barickman v. Mercury Casualty Co., 2 Cal. App. 5th 508 (2nd Dist. 2016) held that the insurance carrier was liable for bad faith failure to settle, notwithstanding the fact that the carrier offered its policy limits to the claimants in a timely manner in exchange for a full release of civil liability. The court found that the insurer’s failure to do “all within its power to effect a settlement” could constitute bad faith, notwithstanding the fact that the insurance company offered its policy limits to the injured claimants in exchange for a full release of liability. The insurance company had refused to consent to additional language in the release designed to preserve the claimant’s rights to receive criminal restitution from the insured tortfeasor.

This case arises out of a vehicle/pedestrian accident in which the insured, while intoxicated, struck two pedestrians in a crosswalk. At the time of the accident, the insured had a policy with Mercury Casualty Co. with limits of $15,000 per person. Upon receiving notification that the pedestrians were represented by counsel, Mercury offered its policy limits to each pedestrian. While the offer was pending, the insured was sentenced to prison and was ordered to pay restitution. The pedestrians accepted the settlement with the exception that the release would not include court-ordered restitution. The attorney for the pedestrians explained that the sole purpose for adding language in the release exempting court-ordered restitution was to preserve his clients’ rights to restitution, and that the reservation of those rights did not eliminate the insured’s set-off rights. The offer acceptance also contained a demand that settlement payment be made within five days after the delivery of the executed releases.

Mercury requested an extension to consult with the insured’s criminal defense attorney. The pedestrians’ attorney refused. After the time for completing the settlement had passed, but before suit was filed, the insured’s criminal defense attorney advised Mercury not to accept the revised releases. Therefore, suit was filed. The attorney defending the insured attempted, without success, to persuade the pedestrians’ attorney to modify his amendments to the release form to clarify his intent to protect his clients’ right to restitution without depriving the insured of set-off rights. The parties then entered into a stipulated judgment for $3 million. The pedestrians were assigned the rights of the insured and then sued Mercury for bad faith failure to settle.

The case was tried before a referee who concluded that, based on all of the evidence presented, Mercury’s refusal to settle without an unedited release despite the assurances of the pedestrians’ attorney that he had no intention of interfering with the insured’s set-off rights constituted bad faith on the part of Mercury. The pedestrian attorney’s modification of the release form did not constitute a rejection of the policy limits settlement offer. The California Court of Appeals for the 2nd District agreed. The question framed by the Court of Appeals was whether Mercury’s objection to the additional language preserving criminal restitutional rights after offering full policy limits in exchange for a release was a sufficient basis for the trial court’s conclusion that Mercury acted unreasonably. The court found that Mercury could not point to undisputed evidence that it did “all within its power to effect a settlement.” The court rejected Mercury’s contention that its offer of policy limits in exchange for a full release established the absence of bad faith as a matter of law.