In Pinto v. Farmers Insurance Exchange, 61 Cal. App. 5th 676, 276 Cal. Rptr. 3d 13 (2d Dist. 2021), the California Court of Appeals, Second District, held that the proof required to establish insurer bad faith for failure to settle required the plaintiff to prove both a reasonable settlement demand had been made within policy limits and unreasonable conduct by the insurer in refusing to accept the settlement demand.
At the bad faith trial, the court instructed the jury based on CACI §2334 that plaintiff was required to prove (1) that the claimant made a reasonable settlement demand; (2) that the insurance company failed to accept a reasonable settlement demand for an amount within policy limits; and (3) a monetary judgment was entered in plaintiff’s underlying case against the insureds for a sum greater than the policy limits. The jury, at the conclusion of the trial, determined that the plaintiff had proved all three elements regarding the insurer’s conduct toward the insurer’s insureds. However, for one insured the jury found that that insured had failed to cooperate with the insurance company after the insurance company used reasonable efforts to obtain cooperation. The jury found that the non-cooperating insured’s conduct prejudiced the insurer. There was no finding by the jury that the insurer acted unreasonably in any respect. The verdict against the insurer was appealed.
On appeal the court reversed the verdict and remanded for the trial court to enter judgment in favor of the insurer. In doing so the court found that the existence of a reasonable policy limit settlement demand, by itself, was not sufficient to establish liability for bad faith failure to settle. In addition, the plaintiff was required to prove that the insurance company acted unreasonably in failing to accept the offer. Because there was no finding that the insurer acted unreasonably in failing to accept the settlement offer, the verdict was reversed.