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Reid v. Mercury Ins. Co.

California Court of Appeals, Second District, Eighth Division

October 7, 2013

PAUL REID, Plaintiff and Appellant,
v.
MERCURY INSURANCE COMPANY, Defendant and Respondent.

APPEAL from a judgment of the Superior Court for the County of Los Angeles No. BC 458121 Ronald M. Sohigian, Judge.

The Yarnall Firm, Delores A. Yarnall; Ammirato & Palumbo, Bruce Palumbo; Dewitt Algorri & Algorri and Mark S. Algorri for Plaintiff and Appellant.

Hager Dowling Lim & Slack, Alison M. Bernal and John V. Hager for Defendant and Respondent.

GRIMES, J.

SUMMARY

This case involves an insurer’s duty to its insured to settle a third party claim within policy limits, when liability is clear and there is a substantial likelihood of a recovery in excess of policy limits. The question is whether the insurer, in the absence of any demand or settlement offer from the third party claimant, must initiate settlement negotiations or offer its policy limits, and if so how quickly it must do so, to avoid a claim of bad faith failure to settle.

In this case, the insured’s liability was clear almost immediately after the collision. The insurer’s claims manager had decided, within a little over six weeks, that while the insurer needed medical records, the insurer must tender the policy limits to the third party claimant “as soon as we have enough [information] available to do so.” No settlement demand was made by the claimant, who filed suit against the insured three and one-half months after the collision. The medical records were not forthcoming from the claimant until seven months after the collision, and another three months passed before the insurer offered its policy limits. Under these circumstances, the trial court found the insurer not liable to its insured for bad faith failure to settle and granted the insurer’s motion for summary judgment.

We affirm. An insurer’s duty to settle is not precipitated solely by the likelihood of an excess judgment against the insured. In the absence of a settlement demand or any other manifestation the injured party is interested in settlement, when the insurer has done nothing to foreclose the possibility of settlement, we find there is no liability for bad faith failure to settle.

FACTS

1. The Chronology of Events

Defendant Mercury Insurance Company insured Zhi Yu Huang 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 multivehicle collision. The police report showed Ms. Huang failed to stop at a red light and collided with a car driven by plaintiff Shirley Reid. That collision caused plaintiff’s car to collide with a third car driven by Chinelo Ogbogu. Plaintiff sustained major injuries and could not provide police with a statement. Plaintiff’s passenger, Edith Looschen, was also injured, as were Ms. Ogbogu and her passenger, Mercy Ngoka. All four made claims to defendant for their injuries.

On July 18, 2007, defendant called plaintiff’s insurer and Ms. Ogbogu’s insurer to tell them defendant “was accepting liability and that there may be a ‘limits issue.’” The next day, defendant’s adjuster, Patricia Feng, recommended defendant accept 100 percent liability. That same day, Paul Reid, plaintiff’s son, who had authority to act for his mother, told Ms. Feng his mother was still in intensive care and asked if defendant could disclose policy limits. Defendant could not, without written permission from Ms. Huang. A few days later, Ms. Feng wrote to plaintiff saying defendant’s investigation was incomplete and “therefore we are not in a position to resolve liability or settlement of this claim, ” and to do so required a recorded interview with plaintiff and other information. Another letter from Ms. Feng asked plaintiff to complete authorizations for defendant’s review of the pertinent medical records, so that defendant could “properly verify and evaluate your injury....” Defendant sent similar letters to Ms. Looschen and to a lawyer representing Ms. Ogbogu and Ms. Ngoka.

On July 26, 2007, another adjuster for defendant, Adam Schram, told Ms. Huang the preliminary investigation indicated the claims for damages “may exceed your policy limits” and “you have the right to consult legal counsel, at your own expense, to advise you concerning your uninsured interest” but that defendant would “continue our attempts to conclude this matter within your policy limits and will keep you informed as to the status of settlement offers, demands, and negotiations.” Mr. Schram also talked to Mr. Reid that day, who told him his mother was still in intensive care. Mr. Schram told Mr. Reid he still could not disclose the policy limits.

The day after he spoke with Mr. Schram, Mr. Reid hired a lawyer, Joseph West, because he “felt [he] was being jerked around by [defendant]” because they would not disclose the policy limits and said “they couldn’t determine liability at that time, and that was a month after the accident.” He later testified he told Mr. West his mother had $250, 000 in underinsured motorist coverage. He had notified his mother’s insurer, State Farm, of the collision and was told about the underinsured motorist coverage but that plaintiff first had to resolve the claim against Ms. Huang before she could recover on her underinsured motorist coverage. Mr. Reid testified he “authorize[d] Mr. West to settle the case on behalf of [his] mother, ” he did not authorize any specific amount, and he (Mr. Reid) “wanted to settle it as quickly as possible.”

On July 28, 2007, Mr. West wrote to defendant confirming his representation of plaintiff “with respect to the devastating automobile accident... caused by your insured.” Mr. West’s letter stated plaintiff had been “horribly injured” and remained in the hospital in intensive care. Mr. West asked for disclosure of the whereabouts of Ms. Huang’s vehicle, all applicable policy limits, and whether Ms. Huang was protected by an umbrella policy. The letter stated the request was made pursuant to section 790.03, subdivision (h)(1) and (2) of the Insurance Code.[1]

On August 2, 2007, defendant’s claims manager noted the “[o]nly excess [bodily injury] exposure at this time appears to be [plaintiff]”; “[w]e will need complete medical records/billings for all [claimants]”; and “[w]e will need to tender [policy limits] to [plaintiff] as soon as we have enough [information] available to do so.” The claims manager recommended bodily injury reserves be set at $100, 000 for plaintiff, $50, 000 for Ms. Looschen, $12, 000 for Ms. Ogbogu, and $7, 500 for Ms. Ngoka.[2]

On August 15, 2007, Mr. Schram responded to Mr. West’s letter, stating first, “[i]n order to complete a thorough investigation, I must obtain a detailed statement from your client and inspect the vehicle.” Mr. Schram again requested plaintiff’s signature on medical authorizations “[i]n order to properly verify and evaluate your client’s injury....” The letter disclosed the policy limits, confirmed Ms. Huang was not “in the course of employment” and carried no excess insurance coverage, and asked for proof of plaintiff’s liability insurance.

According to Mr. Reid, Mr. West told him in August 2007 the policy limits were $100, 000, and defendant was not prepared to settle or offer the policy limits. Mr. Reid testified that in August 2007, he would “definitely” have accepted the policy limits to settle his mother’s case, and by “definitely, ” he meant that “[i]n order to get to the [$250, 000] total [using State Farm’s underinsured motorist coverage], I had to get the [$100, 000] from [defendant].” (In mid-September 2007, plaintiff’s insurer advised defendant’s adjuster, Mr. Schram, about the underinsured motorist coverage.) Mr. Reid also testified he would have accepted the policy limits in July, after he ran an asset check on Ms. Huang, as that would have permitted him to look to the underinsured motorist coverage, and also that was before he hired Mr. West and he “wouldn’t have had to give [West] a portion of it.”

When Mr. West was asked why he did not write a demand letter to defendant, Mr. West said defendant had been adjusting the case for a month and, despite knowing Ms. Huang ran the red light and plaintiff was still hospitalized, responded to his letter by requesting a statement from plaintiff and “saying that they don’t have enough information to resolve, ” which Mr. West found disheartening. So, Mr. West said, “there was no point in... this type of [demand] letter....” “Not only did they request a statement, but they’re saying that they don’t ...


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