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$10 Million Verdict Voided in Bad-Faith Insurance Action
Court of Appeal Says Verdict Form Was Defective Because It Did Not Ask if Insurer Acted ‘Unreasonably’
By a MetNews Staff Writer
The Court of Appeal for this district yesterday reversed a judgment for nearly $10 million in favor of a man who was rendered a quadriplegic in a traffic accident because the jury did not find that the defendant’s insurer, in an action for a bad-faith refusal to settle, had acted “unreasonably”—and couldn’t have made such a finding because the special verdict form did not include a question relating to that element.
“A bad faith claim requires a finding that the insurer acted unreasonably in some respect,” Justice Victoria Chaney of Div. One wrote. “Because the jury made no such finding (not having been asked for one), the judgment must be vacated and a contrary judgment entered for the insurer.”
The insurer is Farmers Insurance Exchange. Its insured, Alaxandrea Martin, on March 31, 2013, was a passenger in her pickup truck which went off the road and flipped over.
She and three others were heading back from a party at which drugs and alcohol were consumed. The driver was apparently Dana Orcutt, although she denied it.
The policy limits were $100,000 per occurrence, and $50,000 per person for bodily injuries. It provided coverage to Martin and to any permissive driver.
Pinto’s Conditions
One of the passengers was Alexander Pinto. He made a demand on Farmers for $50,000, conditioning his acceptance of that amount on receiving a declaration from the “insured”—which he defined as including Martin and Orcutt—that she was not acting in the course and scope of employment and providing a copy of her policy.
Orcutt did not make herself available to Farmers.
Farmers tendered a check in the amount of $50,000, along with general releases as to Martin and Orcutt. However, Pinto’s attorney, Ernest P. Algorri, a senior partner in the Pasadena firm of DeWitt Algorri & Algorri, rejected the payment, declaring that his client “would be a fool” to accept it without knowing what other coverage Orcutt had and whether her employer might be liable.
Pinto brought suit on Aug. 7, 2019, against Martin and Orcutt for negligence. A $10 million settlement was reached under which the defendants assigned to Pinto their rights against Farmers.
Pinto then sued Farmers under the rule that where an insurer fails to accept a reasonable settlement offer from a third party who is harmed by the insured’s negligence, it can be held liable beyond policy limits, extending to the full amount of the settlement by or judgment against the insured.
Trial took place in the courtroom of Los Angeles Superior Court Judge Samantha P. Jessner (now the court’s assistant presiding judge).
Questions Submitted
The special verdict form, as it related to the claim against Martin, asked:
“1. Did Pinto make a reasonable settlement demand?”
“2. Did Farmers fail to accept a reasonable settlement demand for an amount that was within policy limits?”
“3. Was a monetary judgment entered…in case no. RlC1309053 for a sum greater than the policy limits that was assigned to Pinto?”
The jury answered “yes” to each of those questions.
The form relating to Orcutt asked those same questions, to which the jury gave the same answer. It also asked:
“4. Did Dana Orcutt fail to cooperate concerning a claim?”
“5. Did Farmers use reasonable efforts to obtain Orcutt’s cooperation?”
“6. Was Farmers prejudiced by Orcutt’s failure to cooperate concerning a claim?”
To those queries, the jury answered “yes.”
Farmers Contention
Farmers argued that it could not have settled the claim against Martin, alone, because Orcutt was also an insured, and the finding that Orcutt had not cooperated, defeated Pinto’s claim of “bad faith” on its part, requiring entry of judgment in its favor. Jessner rejected the contention, and judgment was entered on Dec. 14, 2018, for $9,935,000 in Pinto’s favor (with $65,000 deducted from the $10 million settlement based on a $65,000 payment from Orcutt’s insurer).
On appeal, the major issue that loomed was whether the verdict form was fatally defective.
“The issue is whether, in the context of a third party insurance claim, failing to accept a reasonable settlement offer constitutes bad faith per se,” Chaney said in yesterday’s opinion. “We conclude it does not.”
She explained:
“Simply failing to settle does not meet this standard. A facially reasonable demand might go unaccepted due to no fault of the insurer, for example if some emergency prevents transmission of the insurer’s acceptance.”
Chaney went on to say:
“In any event, no evidence suggested Farmers’ conduct caused the settlement to fail. Farmers attempted to accept Pinto’s settlement offer, and timely tendered both the policy limits and Martin’s declaration. Settlement failed only because Pinto rejected the tender on the ground that it failed to include Orcutt’s declaration. But no evidence established, and the jury did not find, that Farmers should have done more to obtain that declaration. On the contrary, the jury expressly found that Farmers ‘use[d] reasonable efforts to obtain Orcutt’s cooperation,’ and her lack of cooperation prejudiced the insurer. Farmers therefore did all it could to achieve a settlement.”
Pinto recounted that he proposed a question relating to reasonableness of Farmers’s conduct and Farmers opposed it, arguing that it should not now be heard to complain of the lack of such an inquiry. Chaney rejected the accuracy of Pinto’s recitation, pointing out that the question he proposed did not specifically relate to the matter of the settlement offer, and that Farmers proposed a question that was to the point as to whether the non-acceptance (by not providing Orcutt’s declaration) was “the result of unreasonable conduct by Farmers.”
To that question, Pinto successfully objected.
Chaney wrote:
“We conclude the defective verdict was accomplished at Pinto’s behest. Not only did he fail to propose an appropriate verdict, he also vigorously opposed Farmers’ attempts to clarify the erroneous verdict. The proper remedy is to vacate the judgment and enter a new judgment for Farmers.”
The case is Pinto v. Farmers Insurance Exchange, 2021 S.O.S. 981.
Farmers was represented by Mitchell C. Tilner and Karen M. Bray of Horvitz & Levy and by Richard E. Morton, Valerie A. Moore, and Christopher Kendrick of Haight Brown & Bonesteel. Attorneys for Pinto were Bruce Palumbo and Delores A. Yarnall, along with Mark S. Algorri and Carolyn Li-Jun Tan of Dewitt Algorri & Algorri.
Copyright 2021, Metropolitan News Company