Woodland Hills personal injury attorney Barry P. Goldberg is always looking for creative ways to obtain as much as possible for his clients. It has become more common that the value of the plaintiff’s injuries easily exceed the available third party policy limits. Most capable plaintiff’s attorneys know and understand how to make a “policy limits” demand in order to potentially “open up” the policy limits so that the third party insurer may be responsible for all amounts even above the stated policy limits.
The theory being that an insurer has a duty to accept reasonable settlement offers within policy limits if there is a legitimate risk of a substantially higher judgment. (See, Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 658-661.) When the insurer refuses to accept such a reasonable settlement offer, it may become liable to its insured for the amount of any judgment in excess of policy limits. (See, Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718 (“Hamilton”). In some form or another, the “insured” then assigns his cause of action to the injured victim essentially for collection of the excess amounts.
However, the actual procedural details often are lost in the excitement of exposing a third party insurer to an excess award or judgment. Over the years, plaintiffs’ attorney have tinkered with ways to bind the third party insurer short of a full scale trial. Recently, in 21st Century Insurance Company v. Superior Court (Tapia) (4th Dist. September 10, 2015) Cal.App.4th , a creative plaintiff’s counsel attempted to shorten the process with a Code of Civil Procedure §998 Offer to Compromise. (As a frequent commentator on the 998 Offer process I applaud the “attempt” to utilize it!) However, the execution was without the insurer’s consent and therefore could not bind the insurer.
In 21st Century, the plaintiff’s attorney “sidestepped” the insurer and obtained the insured’s acceptance of the 998 Offer for $3,000,000 after 21st Century did not accept its demand to pay $150,000, the arguably available third party liability coverage. 21st Century did not sign off on the amount and the acceptance was without its consent. Later 21st Century paid the $150,000 and the insured assigned his rights to the plaintiff in return for a covenant not to execute. 21st Century moved for summary judgment on the ground that the insured’s settlement without its consent vitiated any claim in excess of policy limits. That summary judgment was affirmed on appeal.
The Court held that when the insured goes behind the insurer’s back, so to speak, and enters into a stipulated judgment, “a defending insurer cannot be bound by a settlement made without its participation and without any actual commitment on its insured’s part to pay the judgment.” (Citing Hamilton, supra, 27 Cal.4th at p. 730, emphasis added.) In such a case, even if the insurer’s refusal to settle is unreasonable, “the agreed judgment cannot fairly be attributed to the insurer’s conduct . . . .” (Id. at p. 731, emphasis added.)
Although the court provides a more in depth analysis, suffice it to say that it appears that the crucial element the Court relied upon was the lack of a judgment rendered after an adversarial trial. The potential for collusion in the circumstances involved is obvious. (See Safeco Ins. Co. v. Superior Court (1999) 71 Cal.App.4th 782, 787 (Safeco).) In this case, the C.C.P. §998 Offer to Compromise did not provide a sufficient adversarial process—-but, it was a nice try! We advise that all attempts to obtain excess amounts be accompanied by an adversarial determination of the value of the claim.