Raymond Paul Johnson
Cory G. Lee
Insurance: Beyond policy limits Make an effective policy-limits demand — the right amount, the right time
Most consumer attorneys have been
there or will be: Client arrives at your office, injured by an insured person or business. He has incurred tens of thou- sands of dollars in medical expenses, not to mention pain and suffering and loss of earnings. You estimate total damages in the six figures. With liability either admitted or a fore-
gone conclusion, making your client whole should be a simple matter of determining his special damages and negotiating over his general damages, right? Wrong. From a practical viewpoint, the amount recover- able is often limited by the defendant’s insurance limits. What’s an attorney to do? Think: Policy-limits demand – but at the right time and in the right form. Assuming the insured has minimal or
no recoverable assets, a properly executed policy-limit demand can do two things. It can maximize your client’s recovery and, in some circumstances, make the insurance company liable for your client’s full judg- ment, whether within policy limits or not. At their root, insurance policies are
simply contracts between an insurer and its insured. As a result, unambiguous policy provisions are ordinarily strictly construed, according to the insured’s reasonable expectations. (Bank of the West v. Superior Court (Industrial Indemnity Co.) (1992) 2 Cal.4th 1254, 1264.)
LEGAL MALPRACTICE Any underlying case/transaction, fee disputes, ethics, 43 years
EXPERT WITNESS
Phillip Feldman, BS, MBA, JD, AV (PEER Rated) Bd. Cert. Legal Malpractice ABPLA & ABA Also State Bar Defense (818) 986-9890
www.LegalMalpracticeExperts.com E-mails:
legmalpexpert@aol.com StateBarDefense@aol.com
14— The Advocate Magazine JUNE 2011 Under black-letter contract law, the lia-
bility limits of the insurance policy ordinar- ily set the insurance carrier’s total exposure in a case. (Fagundes v. American International Adjustment Co. (1992) 2 Cal.App.4th 1310, 1317.) In some circumstances, however, an insurance company’s liability may go beyond policy limits.
Bad faith Most litigators are broadly familiar
with the concept of insurance bad faith, or more precisely, tortious breach of the covenant of good faith and fair dealing. Under that legal doctrine, an insurance carrier has the general obligation to deal reasonably with its insured and the insured’s claim. That is, an unreasonable refusal to settle a claim within policy limits opens the insurer to possible bad-faith liability. In the past, an insurer typically refused
to settle because it believed it had nothing to lose and everything to gain by litigating a case to conclusion when its policy limits were its maximum exposure. (See Comunale v. Traders & General Insurance Co. (1958) 50 Cal.2d 654, 658.) Today, however, an unrea- sonable refusal to settle exposes the carrier to liability beyond those policy limits. In the seminal case of Comunale v.
Traders & General Insurance Co., supra, the California Supreme Court explicitly and unambiguously opened insurers to such lia- bility for unreasonably failing to settle a claim within policy limits: The insurer, in deciding whether a
claim should be compromised, must take into account the interest of the insured and give it at least as much consideration as it does to its own interest. When there is great risk of a recovery beyond the pol- icy limits so that the most reasonable manner of disposing of the claim is a set- tlement which can be made within those limits, a consideration in good faith of the insured’s interest requires the insur- er to settle the claim. Its unwarranted refusal to do so constitutes a breach of the implied covenant of good faith and fair dealing.
(Comunale, 50 Cal.2d at p. 659 (internal citations omitted).) As such, an insurer that unreasonably
refuses to settle a case within policy limits is exposed to the entire amount of any even- tual judgment: It follows from what we have said that
an insurer, who wrongfully declines to defend and who refuses to accept a rea- sonable settlement within the policy lim- its in violation of its duty to consider in good faith the interest of the insured in the settlement, is liable for the entire judgment against the insured even if it exceeds the policy limits.
(Id., 50 Cal.2d at p. 661.) As a result, whenever a defendant’s
insurance policy may not cover all of your client’s damages, consider a policy-limits demand. This of course is impractical if your client refuses to settle for the amount of the policy limit. But if your client agrees, a policy-limits demand, when executed properly and then rejected by the insurer, creates the potential to “open the policy” and expose an insurer to liability in excess of its policy limits. In such cases, the timing and form of the demand, however, are as important as the demand itself.
Effective policy-limits demands A policy-limits demand must meet five
criteria before a court will likely hold an insurer in bad faith for rejecting the demand: • Its terms must be clear. (Coe v. State Farm Mutual Automobile Insurance Co. (1977) 66 Cal.App.3d 981, 991.) • All claimants must join in the settlement demand. (Coe, supra, 66 Cal.App.3d at 992- 93.) • All insureds must be released. (Strauss v. Farmers Insurance Exchange (1994) 26 Cal.App.4th 1017, 1021.) • The settlement amount demanded must be both within policy limits and “rea- sonable”. (Heredia v. Farmers Insurance Exchange (1991) 228 Cal.App.3d 1345, 1357. See also, Comunale, supra, 50 Cal.2d 654, 661.)
See Limits, Page 16
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