In a case that will have implications for many types of claims which are insured under a general liability insurance policy in California, the California Court of Appeal, Second District, ruled in Reid v. Mercury Insurance Company (2013) 220 Cal.App.4th 262 ("Reid") that, in the absence of a settlement demand or any other specific manifestation that the claimant is interested in settlement, there is no liability to an insurer for bad faith failure to settle when the insurer fails to offer policy limits in response to, among other things, a demand for policy limits information.
In Reid, an automobile personal injury accident case, Zhi Yu Huang was insured by Mercury Insurance Company under an automobile policy with bodily injury policy limits of $100,000 per person and $300,000 per accident. On June 24, 2007, Ms. Huang was involved in a serious multiple vehicle collision where she reportedly failed to stop at a red light and collided with a car driven by Plaintiff Shirley Reid. The collision caused Ms. Reid's car to collide with a third car and also injured a passenger in Ms. Reid's car.
Less than one month later, Mercury Insurance Company, the insurer for Ms. Huang, communicated to Ms. Reid's insurer, and the insurers for the other claimants, that the defendant was accepting liability and there may be a limits issue. Paul Reid, the Plaintiff's son, then requested Ms. Huang's insurance policy limits (and did an asset search of Ms. Huang) but Mercury Insurance Company declined to provide the policy limits information until it received permission from its insured. Mr. Reid then retained counsel in late July 2007 who then wrote Mercury Insurance Company demanding Ms. Huang's insurance policy information and other information. Mercury Insurance Company then communicated Ms. Huang's policy limit information in August 2007, although the policy limits were not offered, and requested additional information, including a detailed statement from Ms. Reid (who was seriously injured).
Suit was then filed in October 2007. Additional written communications occurred between Plaintiff's counsel and Mercury Insurance Company but the policy limits were not offered in settlement. In January 2008, the Plaintiff's attorney provided Plaintiff Reid's medical records. In May 2008, the policy limits were finally offered. The policy limits offer was then rejected. On March 11, 2009, Ms. Huang declared bankruptcy and the bankruptcy trustee later assigned to the Plaintiff any potential rights which Ms. Huang had against Mercury Insurance Company.
In 2010, the matter went through a bench trial and Defendant Huang was found liable for $5.9 million dollars. Also, shortly after judgment was entered, Ms. Reid died and her son, Paul Reid, was substituted as Plaintiff.
Plaintiff (Paul) Reid then filed suit against Mercury Insurance Company asserting bad faith failure to settle. Mercury Insurance Company moved for Summary Judgment on the basis that no demand for policy limits had occurred.
The trial court agreed with Mercury Insurance Company and granted the Motion for Summary Judgment. On Appeal, the Court of Appeal affirmed the ruling of the trial court holding that the insurer's conduct did not come within case law which permitted bad faith liability for failure to settle within policy limits. See, Johansen v. California State Automobile Association Inter-Insurance Exchange (1975) 15 Cal.3d 9. The Court of Appeal also distinguished other cases which permitted bad faith liability to attach without a formal demand for settlement within policy limits as those cases dealt with a claimant who had conveyed an interest in settlement and the insurer had rejected or ignored the opportunity to negotiate a settlement. See, Howard v. American National Fire Insurance Co. (2010) 187 Cal.App.4th 498 (case involving multiple insurers).
Reid is an important decision in that it appears to require not only a demand for insurance policy limits, but a specific manifestation of a demand to settle within limits. The holding also appears to provide some protection for an insurer which responds to a demand for policy limits information with a request for information such as a detailed statement from the claimant or medical records.
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