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Does the failure to accept a settlement offer mean an insurer acted in bad faith?

On Behalf of | Jul 18, 2022 | Insurance Recovery |

In 2021, a California appellate court held that an insurer’s duty to settle was subject to a reasonableness standard. In other words, when an insurer refuses to accept a settlement demand, that decision will constitute a breach of its duty to settle if it was an unreasonable one.

In this case, Pinto v. Farmers Exchange, four people were traveling home after a party near Lake Havasu. All four were riding in a truck, which was owned by one of the occupants. The owner of the truck was not driving, as she did not believe she was sober enough. There was a serious accident and several of the occupants of the truck suffered extensive injuries. The vehicle’s owner was temporarily in a coma and one of the other passengers ended up paralyzed.

Initially, there was uncertainty over who was driving the vehicle, but it appears that the driver was someone who may not have had a valid license at the time of the crash due to a previous DUI. While this individual said she was not driving, the evidence gathered at the scene by responding emergency personnel showed otherwise.

An Offer to Settle

The occupant who was paralyzed offered to settle the claim he had against the vehicle’s owner. When the deadline to do so had passed, the injured occupant proceeded with their suit against the vehicle owner, and ultimately obtained a large judgment. To escape liability on the judgment, the owner assigned their bad faith claim against the carrier and bad faith litigation resulted. The injured party took their assigned bad faith claim to trial and ultimately obtained a significant verdict against the insurance company.

The insurance company contended that to find that it acted in bad faith, the jury must decide that its actions were unreasonable. In the instructions to the jury, the court adopted the standard CACI form, which did not include any language regarding the reasonableness of the insurer’s action.

The Defective Judgement

In the appeal, the court determined that the CACI form was defective, because it did not include any reference to the reasonableness of the insurer’s decision to not accept the settlement offer.  More to the point, the court found that an insurer’s refusal to accept a settlement offer does not automatically rise to the level of an unreasonable action or bad faith. Because the trial court used the CACI form and because that form did not ask the jury to determine the reasonableness of the insurer’s decision to not accept the settlement offer, no such finding was ever made.

This in turn made the judgment itself defective, causing the court to overturn it.  Not only was the verdict against the insurer overturned, but the appellate court directed the trial court to enter judgment in favor of the insurer, since the jury never found that the insurer’s conduct was unreasonable.

In bad faith cases, the reasons for the decisions that an insurance company makes become particularly important in the ultimate success or failure of such a claim. These can be extremely complicated cases, and difficult to win without being thoroughly prepared.

If you feel your insurance company is acting in bad faith or if you simply need an experienced legal team to support you through your matter, do not hesitate to reach out to our team.