Is an insurance company required to disclose and tender policy limits in California personal injury cases?

Factual and procedural background

Maryam Hedayati was a 43-year-old woman who had recently graduated from medical school. While taking a break from studying for her medical board exam on Oct. 1, 2012, she took a walk. As she crossed the street in a crosswalk, 45-year-old Maurice Vanwyk struck her with his vehicle. The collision severed one of Hedayati’s legs, shattered the other, and left her in a coma and on life support.

The company, Interinsurance Exchange of the Automobile Club, was notified about the accident by Vanywk on Oct. 2, 2012. An adjuster drove to his home to interview him within hours of when he reported the accident. During the interview, Vanwyk signed permission to release his policy limits and to settle any claim that might exceed the policy limits. His insurance policy had a limit of $25,000 per accident victim. Vanwyk told the adjuster that eyewitnesses saw him run a red light, and the adjuster told him that there would likely be a claim in excess of his policy limits. During the interview, Vanwyk also said that he didn’t have any other insurance, was not working at the time of the accident, was unemployed, and was living with his parents. After the adjuster reported his findings to Interinsurance Exchange, a manager wrote that the policy limit of $25,000 was gone.

Hedayati’s family retained a lawyer to represent her, and the lawyer repeatedly asked Interinsurance Exchange to get Vanwyk to authorize the company to disclose his policy limits. Even though Vanwyk had already signed an authorization to disclose his policy limits, the insurance company refused to do so. The adjuster provided notes claiming to have called Hedayati’s attorney before 8:01 am on Oct. 19, 2012, to offer the policy limits. However, the attorney denied this call ever took place and that the adjuster had never disclosed the policy limits to him. The only notes within the Interinsurance Exchange indicated that the claim was transferred from the mobile division to the casualty division on Oct. 19, 2012.

The adjuster for the casualty department sent a letter to Hedayati’s attorney on Oct. 19, 2012. In the letter, she did not disclose the policy limits or make any offer to settle the claim. The adjuster stated that the company still needed to investigate liability and to look for other insurance policies that might apply. The company found a couple of other insurance policies from the Interinsurance Exchange in the name of Vanwyk’s father, but it determined on Oct. 26, 2012, that none of those policies would apply.

The casualty adjuster met with Vanwyk on Oct. 30, 2012. She had him sign an attestation that he did not have any umbrella coverage or other insurance policies and that he also was not working at the time of the accident. She drafted a letter to Hedayati’s attorney on Oct. 31, 2012, stating that the Interinsurance Exchange would offer the maximum policy limit of $25,000, but she did not send a copy of the policy as the attorney had demanded so that he could verify the coverage.

Hedayati’s attorney made repeated demands for a copy of the policy during Nov. 2012, but the insurance company never provided it to him. It also did not provide release terms. On Nov. 12, 2012, a claims manager reviewed Hedayati’s file and noted that she might be taken off life support, turning the claim into one involving a fatality. The note stated that in that event, the company would need to get a declaration of her heirs, a copy of her death certificate, and a release from the proper heir before it could resolve Hedayati’s claim. However, the company still did not send a copy of the policy or release terms to Hedayati’s attorney.

On Nov. 20, 2012, Hedayati’s attorney sent a conditional release offer in a letter to Interinsurance Exchange for the $25,000 policy limit conditioned on the company providing the documentation he had demanded and respond no later than Nov. 27. He sent it by FedEx overnight mail, and delivery was signed for by an employee on Nov. 21. However, the company did not respond by the deadline. On Nov. 28, 2012, the claims adjuster called Hedayati’s attorney around 3 pm and asked for an extension to respond to the settlement demand. The company did not make an offer at that time. Hedayati’s attorney told them that the conditional offer had already expired on Nov. 27, 2012.

Hedayati’s case went to a jury trial, and the jury returned a verdict of $26 million in her favor along with the right to assign Vanwyk’s claim against Interinsurance Exchange for breaching its covenant of good faith and fair dealing with Vanwyk.

Hedayati filed a bad faith insurance claim against Interinsurance Exchange, arguing that it had acted in bad faith by failing to communicate with him about the settlement offer and that the company had failed to follow its own guidelines when handling claims that could exceed its insured’s policy limits.

Interinsurance Exchange filed a motion for summary judgment. After a hearing, the trial court judge granted the motion for summary judgment, finding that no reasonable trier of fact would be able to find that the insurance company breached the covenant of good faith and fair dealing. Hedayati filed an appeal.

Issue: Whether the trial court erred by granting the motion for summary judgment after finding as a matter of law that Hedayati could not prevail?

On appeal, Hedayati argued that the court erred when it found as a matter of law that Interinsurance Exchange had not breached the covenant of good faith and fair dealing. She argued that each insurance contract contains an implied promise that both parties will not do anything to injure the other party’s rights to receive benefits under the agreement. She argued that Interinsurance Exchange breached the covenant by failing to communicate her offer to Vanwyk or to disclose a copy of the insurance policy for her attorney to review. Interinsurance Exchange argued that Hedayati had failed to present evidence that it had acted in bad faith and said that it had never refused a settlement offer during the negotiations with Hedayati’s attorney.

Rule: An insurance company’s bad faith can be determined by looking at the totality of the circumstances and does not require that the insurance company has acted dishonestly.

Interinsurance Exchange argued that it did not refuse to settle Hedayati’s claim and so did not breach the covenant of good faith and fair dealing with Vanwyk. Hedayati argued that its actions and inactions throughout the negotiation period were evidence of bad faith under the totality of the circumstances. She also argued that the company’s failure to communicate her Nov. 20 offer with Vanwyk was also further evidence from which a jury could find that the company had acted in bad faith.

Analysis

The Court of Appeal began its analysis with the covenant of good faith and fair dealing. It stated that normally, whether an insurance company has acted in good faith is a question for the trier of fact unless the evidence is clear that a reasonable trier of fact could not find that the insurance company had acted in bad faith.[2]

The main issue with determining good or bad faith is whether the insurance company acted reasonably to try to settle a claim on behalf of its insured. The court also noted that insurers must accept a settlement demand within its policy limits when the claimant is likely to recover a judgment far exceeding the policy limits.[3] The company’s duty to settle exists because of the different risks faced by the insurance company versus those of the insured. If a case goes to trial, the insurance company will normally only be responsible for paying the policy limits. By contrast, an insured will be responsible for everything beyond the policy limits.

When an insurance company unreasonably fails to accept a settlement demand within its policy limits, the court stated that it has acted in bad faith. Hedayati had also argued that the company’s failure to communicate the Nov. 20 settlement demand to Vanwyk also violated its duty. The court noted that it was undisputed that Interinsurance Exchange did not communicate the Nov. 20 settlement demand to Vanwyk. The company argued that its failure was reasonable since the time to respond included the Thanksgiving holiday. It also noted that the insurance company did not address its failure to communicate with Vanwyk in its response.

The court noted that when the letter was finally opened, the company did not immediately try to settle the case and instead told Hedayati’s attorney it needed more time to respond to the demand. It also found that the Oct. 31 letter could reasonably be considered to be an invitation for further negotiations rather than an effort to settle the case within the policy limits since it did not include the necessary documents requested by the attorney, including reasonable terms of a release and a copy of the insurance policy.

Conclusion

The court reversed the trial court’s decision to grant the motion for summary judgment and returned the case to the lower court for further proceedings. It also awarded Hedayati her costs on appeal.

Talk to an experienced personal injury lawyer

If you have sustained serious injuries in an accident and are having trouble with the at-fault party’s insurance company, you should schedule a consultation with an experienced personal injury attorney. Call the Steven M. Sweat Injury Lawyers today at 866.966.5240.

Sources

[1] https://law.justia.com/cases/california/court-of-appeal/2021/g058189.html?utm_source=summary-newsletters&utm_medium=email&utm_campaign=2021-08-13-personal-injury-1a62de2565&utm_content=text-case-title-5

[2] https://www.victimslawyer.com/california-auto-insurance-claims-basics.html”>insurance company

[3] https://www.victimslawyer.com/blog/is-it-possible-to-get-more-than-the-limits-of-insurance-on-a-personal-injury-case/