California Court of Appeals Reverses Judgment in Case of Insurer Bad Faith Following Car Accident

In a recent case before the California Court of Appeal, the court addressed an issue of the “bad faith” pursuit of an insurance claim.  Bad faith claims refer to tort claims against an insurance company for acting illegally, performing a bad act, or failing to act in good faith.

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In this personal injury and wrongful death case, defendant Cy Tapia, a teenager, was driving a vehicle that crashed, resulting in eventual fatal injuries to his passenger, Cory Driscoll.  Before Mr. Driscoll died, he and his mother filed an action for damages against Mr. Tapia. (For reference herein, Mr. Driscoll and his mother are referred to as “plaintiff.”)

Mr. Tapia’s grandfather owned the vehicle, and Mr. Tapia’s sister had been issued an auto policy. The insurer issued the policy and had offered to settle the action for the policy limits, $100,000.00.

Plaintiff also believed that Mr. Tapia might be covered under other policies, issued to his aunt and grandmother, and communicated an offer to settle for $150,000.00 to Mr. Tapia’s counsel. The insurer stated that they did not receive this offer, and the offer was not accepted promptly.

The insurer next offered the amount of $150,000.00 to settle the case against Mr. Tapia.  Plaintiff did not accept this offer but later sought $3,000,000 for Cory Driscoll and $1,150,000 for his mother, Jenny Driscoll.  Mr. Tapia agreed to the entry of a stipulated judgment. The insurer paid $150,000 plus interest to plaintiff. Mr. Tapia assigned any rights he may have against the insurer to plaintiff. Included in this assignment and agreement was plaintiff’s promise not to execute on the judgment against Mr. Tapia, provided he complied with his obligations. A bad faith action followed.

The insurer moved for summary judgment on the ground that Mr. Tapia’s settlement without its consent vitiated any claim in excess of the policy limits, and there was no coverage beyond $100,000 and therefore no obligation to offer more in the settlement.

In its analysis, the court of appeals stated the rule that an insurer may have a duty to accept reasonable settlement offers that are within the policy limits, if there is a legitimate risk of a substantially higher judgment. But an insured cannot go behind an insurer’s back and expect the insurer to be bound by a settlement without its participation and actual commitment. Here, the court stated that the insurer never authorized acceptance of the settlement offer and communicated that it did not agree.

Here, the insured stipulated to a judgment that the claimant, plaintiff in this case, relied upon to prove their damages.  Plaintiff argued that the insurer breached its duty to defend, and Mr. Tapia could enter into any settlement he wished. Plaintiff also contended that, since the insurer did not acknowledge coverage or a duty to defend either of the $25,000 policies issued to Mr. Tapia’s aunt and grandmother, Mr. Tapia could enter into a stipulated judgment with plaintiff that would bind the insurer.

The court distinguished those cases in which the insurer defended under policies with the lowest coverage. Here, the insurer defended under the policy with the highest coverage. Even if the insurer had a duty to defend under all three policies, that breach of duty would not have affected the defense offered. Most importantly, the court stated that the insurer did not have a duty to defend Mr. Tapia under either his aunt’s or his grandmother’s policies.

Turning to the policies, the court stated that the policy issued to Mr. Tapia’s sister listed the vehicle driven by Mr. Tapia when the accident occurred as an insured vehicle. Mr. Tapia was listed as a “rated driver” of that vehicle. In comparison, neither Mr. Tapia nor the truck was listed on the other two policies.

Coverage for Mr. Tapia was excluded by the policy if the vehicle was available for his regular use. The rule is that an insurer may have a duty to defend, if there is a potential for coverage. But once it is determined that coverage does not exist, the insurer may withdraw.  Here, Mr. Tapia had regular use of the vehicle and was therefore not insured. This had been established before plaintiff offered to settle the case for $150,000. The court stated that, by defending Mr. Tapia under his sister’s policy, the insurer discharged its obligations.

Alternatively, plaintiff argued the insurer breached its obligations to Mr. Tapia by not informing him of the $150,000 offer to settle so that he could have provided the additional $50,000 on his own.  But the court rejected this argument, stating that, even if Mr. Tapia was the victim of insurer misconduct, he could assign his rights under the policy after trial and judgment. Here, Mr. Tapia and plaintiff settled without a trial and judgment after verdict. The stipulated judgment would not have been available to prove Mr. Tapia’s damages.

The court vacated the order denying the motion for summary judgment and issued a peremptory writ of mandate to enter a new order granting the motion.

Car accidents can often involve auto insurance disputes. At Sharifi Firm, we represent personal injury victims, helping them to secure compensation for their injuries. Contact us for a free consultation at 866-422-7222.

More Blog Posts:

California Court of Appeals Reverses Dismissal of Vehicle Accident Case as Forum Issue Remains Unsettled, Southern California Lawyer Blog, September 11, 2015

California Court of Appeals Holds Evidence of Pretrial Settlement Between Plaintiff and One of Two Defendants Should Have Been Admitted at Trial, Southern California Lawyer Blog, August 27, 2015

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