Policy Limits Offers Do Not Preclude Later Bad Faith Claims
Often carriers will argue that evidence showing their willingness to pay their full policy limits to settle a claim insulates the carrier from subsequent bad faith claims. While this may be true in some circumstances, Missouri does not appear to have specifically addressed this situation. However, other jurisdictions have determined that a carrier indicating a willingness to pay its full limits will not necessarily preclude a bad faith claim when the carrier has failed to secure a release of its insured. Rather, these jurisdictions look to the totality of the carrier’s claims handling and whether the carrier took all reasonable steps to settle the claim against the insured.
Barickman v. Mercury Cas. Co., 206 Cal.Rpter.3d 699 (Cal. Ct. App. 2016)
The claimants in Barickman were severely injured when they were struck by a drunk driver as they were in a cross-walk. The drunk driver was insured by Mercury and was charged criminally for the accident. Eventually, the insured was sentenced to state prison and ordered to pay restitution in the criminal case of $165,000.
Following the accident, an attorney for the claimants informed Mercury that he was counsel for the claimants and sent documents detailing their injuries. Prior to receiving a demand, Mercury offered the claimants the insured’s policy limits and sent the attorney a proposed release. The attorney advised Mercury that his clients’ would be willing to accept the policy limits to settle the claim but modified the release to provide that the payment of the policy limits “does not include court ordered restitution.” Based on this language, Mercury did not complete the settlement as it appeared unsure whether or how this language would affect the insured’s right to reduce the restitution award by the amount paid by Mercury. This was in spite of California precedent finding that any amount paid by the insured’s liability carrier would offset by an equal amount any restitution award given in the criminal case.
After no settlement was concluded, the claimants filed a personal injury action against the insured. The action was ultimately settled through a stipulated judgment awarding the claimants $3,000,000 and the insured assigning any claims she might have against Mercury to the claimants in exchange for a covenant not to execute. The claimants then brought a bad faith action against Mercury.
Bad Faith Action and Appeal
The bad faith action was tried to the court and resulted in a finding that Mercury had acted in bad faith and was liable for the totality of the $3,000,000 judgment plus interest. The trial court decision was based on Mercury failing to settle the claims against the insured when it had the opportunity to do so by not accepting the changes in the release proposed by the claimants.
Mercury appealed arguing that it could not have acted in bad faith as a matter of law as it timely offered to settle the claims against its insured for the policy limits. The appellate court rejected this argument and upheld the trial court’s decision.
In so doing, the appellate court noted that in a bad faith case, the focus should be on whether the insurer’s conduct in handling a claim against the insured was unreasonable under all the circumstances. The question of the reasonableness in responding to a settlement offer is a fact question to be resolved by the trial court.
In reviewing the conduct of Mercury, the court noted that Mercury’s initial offer to pay its policy limits may have indicated good faith on its part, but this did not discharge Mercury’s obligation to continue to conduct reasonable efforts to settle the claims against its insured. The court determined that there was substantial evidence that Mercury’s failure to accept or consent to the revised release proposed by the claimants was unreasonable, and questions of fact existed as to whether Mercury did everything within its power to effect a settlement on behalf of its insured. Because these issues were resolved by the trial court against Mercury, the Court upheld the trial court’s finding that Mercury acted in bad faith.
The Barickman decision is in line with Berges v. Infinity Ins. Co., 896 So.2d 665 (Fla. 2004) which also found that a carrier indicating a willingness to pay its policy limits to settle claims against its insured did not preclude a bad faith claim. Instead the resolution of bad faith is dependent on the totality of the claims handling and whether the carrier has taken all reasonable steps to effectuate a settlement on behalf of its insured.
While not every failure by a carrier to secure a release for the insured can be characterized as bad faith, the decisions in Barickman and Berges strike the appropriate balance for determining whether a carrier can be liable for extra-contractual damages in failing to secure a release for the insured when given the opportunity to do so. When a carrier has retained control over settlement, the insured is not necessarily protected by the carrier expressing a willingness to pay its policy limits. Instead, when the carrier has the sole authority to settle claims, it must undertake all reasonable steps to secure a release for its insured. This is what the carrier has contracted to do and is the obligation it assumed by accepting premiums under the insurance policy.