Automobile Carrier Held not to Have Violated Its Duty to Settle Where it Offered Its Full Policy Limit in Settlement Less Than Three Weeks After Claim Was Submitted by the Attorney for the Claimant
Graciano v. Mercury General Corp., 231 Cal. App. 4th 414 (2014)
In Graciano, the California Court of Appeal reversed a jury verdict finding the insured’s automobile carrier liable for bad faith failure to settle based on uncontroverted evidence that it offered its full policy limit to settle the claim within three weeks of when the claim was submitted and only rejected a settlement demand which purported to release a party other than the insured.
Graciano arose out of an automobile accident in which a drunk driver hit and severely injured the claimant. Within a week of the accident, the claimant’s attorney contacted the drunk driver’s carrier to report the accident, but the attorney misidentified both the insured and the applicable policy in connection with that report. The attorney subsequently issued a policy limits demand based on the improper policy and which offered to release someone other than the drunk driver. The carrier rejected the demand one day prior to the stated expiration of the demand. The very next day, and still within the claimant’s original deadline to accept the policy-limits demand, the carrier determined the identity of the purported driver and the applicable policy and offered the full $50,000 policy limit in settlement. That offer was rejected, and a $2 million judgment was ultimately entered in favor of the claimant. The claimant took an assignment of the insured’s rights against the carrier and sued the carrier for bad faith failure to settle based on both the rejection of the initial settlement demand and on the carrier’s failure to offer its policy limits more promptly. The jury found in favor of the claimant, and the carrier appealed.
The Graciano court reversed. With regard to the carrier’s rejection of the claimant’s initial demand, the court found that the demand was improper because it did not offer to release the driver of the vehicle at issue but instead offered to release another individual. With regard to the claim that the carrier did not timely offer its policy limits, the court held that the carrier’s offer to settle within the time period unilaterally chosen by the claimant was a timely offer as a matter of law, despite the fact that the initial settlement demand had been rejected. While the Graciano court noted that a claim for bad faith failure to settle can only be premised on a carrier’s unreasonable failure “to accept an otherwise reasonable offer within the time period specified by the third party for acceptance,” the court did not address whether the carrier’s offer to settle was necessary to defeat the claim for bad faith failure to settle or whether that claim could have been defended based strictly on the fact that no within-limits demand had been issued offering to release the proper insured. 231 Cal. App. 4th at 426.
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