Pinto v. Farmers Ins. Exchange ( 2021 )

Filed 3/8/21
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
ALEXANDER PINTO, B295742
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC631341)
v.
FARMERS INSURANCE
EXCHANGE,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los
Angeles County, Samantha P. Jessner, Judge. Reversed and
remanded.
Horvitz & Levy, Mitchell C. Tilner, Karen M. Bray; Haight
Brown & Bonesteel, Richard E. Morton, Valerie A. Moore, and
Christopher Kendrick for Defendant and Appellant.
Sheppard, Mullin, Richter & Hampton, Peter Klee, Charles
A. Danaher, John T. Brooks, and Theona Zhordania for Allstate
Insurance Company, Crusader Insurance Company, Government
Employees Insurance Company, Infinity Insurance Company,
Interinsurance Exchange of the Automobile Club, Loya Insurance
Company, Mercury Insurance, and Western General Insurance
Company as Amici Curiae on behalf of Defendant and Appellant.
Hinshaw & Culbertson, Royal F. Oaks, Michael A.S.
Newman for Pacific Association of Domestic Insurance
Companies, National Association of Mutual Insurance
Companies, and American Property Casualty Insurance
Association as Amici Curiae on behalf of Defendant and
Appellant.
Law Office of Bruce Palumbo, Bruce Palumbo; The Yarnall
Firm, Delores A. Yarnall; Dewitt Algorri & Algorri, Mark S.
Algorri and Carolyn Li-Jun Tan for Plaintiff and Respondent.
Shernoff Bidart Echeverria, Ricardo Echeverria, Steven
Schuetze, and Kristin Hobbs for Consumer Attorneys of
California as Amicus Curiae on behalf of Plaintiff and
Respondent.
___________________________________
In this case the victim of a single-car traffic accident offered
to settle his claim against the vehicle’s owner in exchange for
payment of the owner’s insurance policy limits. The insurer
failed to accept the offer, which then lapsed. After the victim
obtained a judgment against the owner far in excess of policy
limits, the owner assigned her claims against the insurer to the
victim, who then sued the insurer for bad faith. At trial,
extensive evidence was presented by both sides concerning the
reasonableness of the insurer’s conduct both in adjusting the
victim’s claim and in failing to accept his offer. The special
verdict form, however, asked nothing about the reasonableness of
the insurer’s conduct, and the jury made no finding that the
insurer acted unreasonably in any respect. The jury nevertheless
2
found for the plaintiff, and judgment was entered against the
insurer based solely on the special verdict.
We reverse. A bad faith claim requires a finding that the
insurer acted unreasonably in some respect. 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.
BACKGROUND
A. The Accident and Farmers’ Investigation
At about 6:00 p.m. on March 31, 2013, Alaxandrea Martin
was a passenger in her pickup truck with Dana Orcutt,
Alexander Pinto, and Anthony Williams on the way back from a
party at Lake Havasu, Arizona, where drugs and alcohol had
been present. The truck went off the road in Arizona and flipped,
injuring all four occupants.
The truck was covered by a policy issued by Farmers
Insurance Exchange, with bodily injury liability limits of $50,000
per person and $100,000 per occurrence. The policy covered
Martin and any permissive driver.
Martin’s insurance agent reported the accident to Farmers
on April 9, 2013, and Farmers appointed Leann Lawler to
investigate the accident and evaluate liability and coverage.
The next day, Martin’s mother, Laura Martin, reported to
Lawler that the vehicle had rolled, causing serious injuries to the
occupants. (For clarity, we will sometimes refer to the Martins
by their first names.) Alaxandrea, who suffered brain damage in
the accident and had only recently emerged from a coma, could
remember nothing after 1:00 p.m. on the day of the accident.
Laura reported that Orcutt was driving when the truck went off
3
the road, but she (Orcutt) was now denying having been the
driver. Laura reported that Pinto had been paralyzed.
Alaxandrea told Lawler that she had been drinking before
the accident and was currently under heavy medication and could
not remember who was driving.
Orcutt refused to respond to Lawler’s repeated phone calls
or messages.
On April 22, 2013, Laura Martin reiterated that Orcutt had
been the driver, and said Alaxandrea told her that she
(Alaxandrea) initially gave her keys to Pinto to drive, but he gave
them to Orcutt, who had also been drinking. Laura stated that
Alaxandrea believed Orcutt lacked insurance due to her license
having been suspended for a DUI.
On April 26, 2013, Lawler called Laura Martin again and
asked for contact information for Pinto and Williams, but Laura
had none.
Farmers then assigned adjustment of any claim to Tanya
Cannon.
On April 29, 2013, Orcutt reported to Cannon that she had
been injured in the accident and could not remember who was
driving. She admitted she had driven Martin’s truck in the past,
but could not differentiate the latest trip from the 40 to 50 other
Havasu trips she and Martin had made. However, she believed
she was not the driver in this instance because after receiving a
DUI the year before she had resolved never to drink and drive
again. Orcutt stated that she had filed an SR-22 (a post-DUI
financial responsibility statement), and might have insurance
through her mother, with whom she lived.
The next day, on April 30, 2013, Alaxandrea Martin told
Cannon that she now remembered that Orcutt had been driving,
4
but Alaxandrea still could not recall how she (Orcutt) ended up
behind the wheel. Attributing Alaxandrea’s recall difficulty to
her traumatic brain injury and to there having been “lots of drugs
and alcohol involved that day,” Cannon continued to investigate
the accident to determine liability, coverage, and applicable
insurance.
The Arizona police report stated that Martin’s truck, with
Orcutt driving while under the influence of alcohol, swiped a
guardrail, went off the road and up a hill with no braking or
evasive steering, became airborne, and landed upside down. The
report related Orcutt’s statements to police that she could not
remember the accident. She told police she believed Williams
was supposed to be driving, but said, “but everyone keeps saying
I was driving.” The report indicated that a firefighter overheard
Orcutt, Martin, and Williams say that Orcutt was driving. The
report concluded that Orcutt committed three counts of
aggravated assault while under the influence of alcohol.
One of the witnesses identified in the report told Cannon
that Orcutt was extremely intoxicated at the accident scene, and
had said, “ ‘I’m going to jail for what I did.’ ”
Cannon tendered the $100,000 bodily injury policy limits to
all injured parties except Orcutt, whom Cannon determined was
likely the at-fault driver. Cannon requested that Orcutt let
Cannon know if she had other coverage, but Orcutt never
responded.
On July 5, 2013, Laura Martin advised Cannon that Orcutt
“had been driving on a SR-22” as a result of a “prior DUI,” and
would be prosecuted for assault in Arizona.
5
B. Pinto’s Demand
On July 1, 2019, Ernest Algorri, Pinto’s attorney, sent a
letter to Cannon offering to settle Pinto’s insurance claim against
Alaxandrea Martin. (Cannon did not receive the letter until July
5, because although she had previously given Algorri her fax
number, he chose to mail the letter to Farmers’ document center
in Oklahoma.) The letter referenced a “Case Name”: Pinto v.
Orcutt and Williams, and represented that Pinto had been
rendered quadriplegic in the accident. The letter repeatedly
referred to Farmers’ “insured,” which the caption identified solely
as Alaxandrea Martin, neglecting to include Orcutt as a possible
insured under the policy’s permissive driver clause. In the letter,
Pinto offered “to accept the liability and medical payment limits
in full and complete settlement of [his] personal injury claim.”
Pinto demanded that the “insured” provide a release, a
declaration that the insured had not been acting within the
course and scope of her employment at the time of the accident,
and a copy of any applicable insurance policy. The offer stated it
would expire in 15 days, on July 16. (With the intervention of
two weekends and the July 4 holiday, plus delay caused by
Algorri mailing the letter to Oklahoma, this gave Farmers eight
workdays to accept the offer.)
C. Farmer’s Response to the Demand
Cannon assumed that Pinto’s demand was directed to both
Martin as the named insured and Orcutt as the permissive driver
and additional insured, and forwarded the offer to them the
following day, July 6.
On July 9, 2019, Algorri told Cannon that he needed to
inspect Martin’s truck to evaluate a potential claim against GM.
6
On July 11, 2019, Cannon, still not having heard back from
Orcutt, retained a private investigator to locate her and obtain
information about the accident and any other insurance she
might have. On July 13, the investigator reported that Orcutt
had been located. She told the investigator that she had no other
insurance and had not been acting within the course and scope of
any employment when the accident occurred. Orcutt never
responded on this or any other occasion to Cannon’s many
requests for a declaration to this effect.
Also on July 11, Cannon called Algorri three times and left
messages requesting an extension of time on the offer deadline.
Algorri never responded.
Cannon retained an attorney, Limor Lehavi, to help with
Pinto’s claim. On July 15, 2019, Lehavi faxed a letter to Algorri
tendering the $50,000 per person bodily injury policy limits to
resolve Pinto’s claims “against any and all insureds under the
policy.” In the letter, Lehavi asked whether Pinto’s offer
pertained to both the named insured and the permissive driver,
and informed Algorri that Farmers could not pay policy limits
without a release of all of its insureds. Lehavi noted that Algorri
had not provided a declaration form as promised, and enclosed a
proposed declaration form, asking if it was acceptable. Lehavi
asked Algorri to confirm that Farmers providing the text of the
policy satisfied Pinto’s demand for policy information, as Orcutt
had represented that she possessed no other insurance, and
asked whether Pinto intended to pursue a claim against GM,
which might expose Farmers’ insureds to a cross-complaint by
GM and therefore delay Farmers from paying out policy limits.
Lehavi asked whether Pinto had any pending medical liens,
which must be resolved as part of any settlement, and asked
7
whether Pinto was married, as any spouse would need to be
included in Pinto’s release. Lehavi stated that Farmers had
insufficient time to comply with all of the conditions of Pinto’s
demand, and requested an extension of 30 days.
Algorri responded that “The term ‘insured’ in Mr. Pinto’s
offer means all insureds, including the driver, Dana Orcutt.”
Algorri informed Lehavi that Pinto was unmarried, and advised
that Farmers had until 5:00 p.m. the next day to meet all
conditions of the offer. Algorri failed to respond to Lehavi’s other
inquiries.
Before the 5:00 p.m. deadline on July 16, Farmers hand-
delivered a letter to Algorri’s office accepting Pinto’s offer. The
letter enclosed a $50,000 check and a form releasing Martin and
Orcutt, and stated that “Farmers hereby accepts your client
Alexander Pinto’s settlement demand for a release from liability
of Alexandrea Martin and Dana Orcutt, and their heirs and
assigns, in exchange for a payment of the Farmers per person
policy limits of $50,000.”
Farmers faxed Algorri a declaration from Martin that same
day before the deadline, but was never able to obtain one from
Orcutt.
On July 17, 2019, Algorri rejected Farmers’ tender on the
ground that Farmers had failed to “unconditionally accept
[Pinto’s] generous offer to settle his case.” Algorri said, “Farmers
apparently failed to perform even the most perfunctory
investigation and consequently has been unable to provide my
client with the most basic and critical information set forth in his
offer: reasonable proof of Ms. Orcutt’s complete policy limits and
course and scope status. . . . [M]y client, with his astronomical
medical bills and devastating injuries, would be a fool to accept
8
Farmers’ $50,000.00 without knowing the exhaustive policy
limits or course and scope[] status of Ms. Orcutt. [¶] . . . . Suit
will soon be filed so that my client can discover that information
which Farmers failed to provide.” (Italics added.)
D. Litigation
On August 7, 2019, Pinto sued Orcutt and Martin for
negligence. The lawsuit settled, with an agreement that: (1)
Orcutt and Martin would assign all their rights against Farmers
to Pinto; (2) the settlement would be treated as the equivalent of
a $10 million judgment; and (3) the insurers (another insurer had
been found for Orcutt) would pay Pinto their combined policy
limits of $65,000.
Pinto then filed this action against Farmers, asserting
claims against the insurer that Martin and Orcutt had assigned
to him. Pinto alleged that Farmers acted in bad faith towards its
insureds Martin and Orcutt by failing to accept his settlement
demand.
At trial, much of the evidence concerned Farmers’ claims
adjustment prior to and after Pinto’s settlement offer. Farmers
repeatedly argued, over Pinto’s repeated objections, that to
establish bad faith Pinto had to prove Farmers acted
unreasonably in failing to accept his demand. The court declined
to so instruct the jury, and the special verdict form contained no
question relating to the reasonableness of Farmers’ conduct.
The jury made three findings as to Farmers’ conduct
toward Martin: (1) Pinto made a reasonable settlement demand;
(2) Farmers “fail[ed] to accept a reasonable settlement demand”;
and (3) a monetary judgment had been entered against Martin in
Pinto’s earlier lawsuit.
9
The jury made those same findings as to Farmers’ conduct
toward Orcutt, plus three more: (4) Orcutt failed to cooperate
with Farmers; (5) Farmers “use[d] reasonable efforts to obtain
Orcutt’s cooperation”; and (6) Orcutt’s lack of cooperation
prejudiced Farmers.
The jury made no finding that Farmers acted unreasonably
in any respect.
Following the verdicts, Farmers argued it could not have
accepted Pinto’s settlement offer on behalf of Martin alone
because Orcutt was also a potential insured. It argued that the
jury’s finding that Orcutt failed to cooperate established that
Farmers did not act unreasonably, and was thus entitled to
judgment on Pinto’s bad faith claim.
The court rejected the arguments and entered judgment for
Pinto for $9,935,000.
Farmers appeals.
After oral argument, we invited and received supplemental
briefing from the parties.
DISCUSSION
Farmers contends the judgment must be vacated because
the jury did not find, and no evidence established, that it acted
unreasonably in failing to settle Pinto’s claim against Martin.
Pinto counters that failure to accept a reasonable settlement offer
is itself unreasonable per se.
I. Whether the Verdict Supports the Judgment
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. We conclude it does not.
10
A. Legal Principles
1. Bad Faith Liability Requires a Finding that the
Insurer Acted Unreasonably
“In each policy of liability insurance, California law implies
a covenant of good faith and fair dealing. This implied covenant
obligates the insurance company, among other things, to make
reasonable efforts to settle a third party’s lawsuit against the
insured. If the insurer breaches the implied covenant by
unreasonably refusing to settle the third party suit, the insured
may sue the insurer in tort to recover damages proximately
caused by the insurer’s breach.” (PPG Industries, Inc. v.
Transamerica Ins. Co. (1999) 20 Cal.4th 310, 312.)
In evaluating whether an insurer acted in bad faith, “the
critical issue [is] the reasonableness of the insurer’s conduct
under the facts of the particular case.” (Wilson v. 21st Century
Ins. Co. (2007) 42 Cal.4th 713, 723.) To hold an insurer liable for
bad faith in failing to settle a third party claim, the evidence
must establish that the failure to settle was unreasonable.
2. An Insurer’s Failing to Accept a Reasonable
Offer is not Unreasonable Per Se
An offer to settle an insurance claim is generally
multidimensional, the most obvious component being the amount
demanded. Other components include the conditions for
acceptance and the scope of any release.
An insurer’s duty to accept a reasonable settlement offer is
not absolute. “ ‘[I]n deciding whether or not to settle a claim, the
insurer must take into account the interests of the insured, and
when there is a great risk of recovery beyond the policy limits, a
good faith consideration of the insured’s interests may require
the insurer to settle the claim within the policy limits. An
11
unreasonable refusal to settle may subject the insurer to liability
for the entire amount of the judgment rendered against the
insured, including any portion in excess of the policy limits.
(Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654,
658-661 [(Comunale)].)’ [Citation.]” (Hamilton v. Maryland
Casualty Co. (2002) 27 Cal.4th 718, 724-725, italics added.)
Therefore, failing to accept a reasonable settlement offer
does not necessarily constitute bad faith. “[T]he crucial issue
is . . . the basis for the insurer’s decision to reject an offer of
settlement.” (Walbrook Ins. Co. v. Liberty Mutual Ins. Co. (1992)
5 Cal.App.4th 1445, 1460.) “[M]ere errors by an insurer in
discharging its obligations to its insured ‘ “does not necessarily
make the insurer liable in tort for violating the covenant of good
faith and fair dealing; to be liable in tort, the insurer’s conduct
must also have been unreasonable.” ’ ” (Graciano v. Mercury
General Corp. (2014) 231 Cal.App.4th 414, 425.) “[S]o long as
insurers are not subject to a strict liability standard, there is still
room for an honest, innocent mistake.” (Walbrook, at p. 1460;
accord Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th
1269, 1280 [“erroneous denial of a claim does not alone support
tort liability; instead, tort liability requires that the insurer be
found to have withheld benefits unreasonably”].)
A claim for bad faith based on the wrongful refusal to
settle thus requires proof the insurer unreasonably failed to
accept an offer. (Critz v. Farmers Ins. Group (1964) 230
Cal.App.2d 788, 798, disapproved on other grounds in Crisci
v. Security Ins. Co. (1967) 66 Cal.2d 425, 433.)
Simply failing to settle does not meet this standard. A
facially reasonable demand might go unaccepted due to no
12
fault of the insurer, for example if some emergency prevents
transmission of the insurer’s acceptance.
3. Standards of Review
When a plaintiff’s verdict is challenged for lack of
substantial evidence, we must determine whether there is
evidence that is “ ‘ “reasonable in nature, credible, and of solid
value; [constituting] ‘substantial’ proof of the essentials which
the law requires in a particular case.” ’ ” (DiMartino v. City of
Orinda (2000) 80 Cal.App.4th 329, 336.) To do so, we first
resolve all explicit conflicts in the evidence and presume all
reasonable inferences in favor of the verdict. (Kuhn v.
Department of General Services (1994) 22 Cal.App.4th 1627,
1632.) We then determine whether evidence supporting the
verdict is substantial. “[T]his does not mean we must blindly
seize any evidence in support of the respondent in order to
affirm the judgment. The Court of Appeal ‘was not
created . . . merely to echo the determinations of the trial
court. A decision supported by a mere scintilla of evidence
need not be affirmed on review.’ [Citation.] ‘[I]f the word
“substantial” [is to mean] anything at all, it clearly implies
that such evidence must be of ponderable legal significance.
Obviously the word cannot be deemed synonymous with “any”
evidence. It must be reasonable . . . , credible, and of solid
value . . . .’ ” (Id. at p. 1633.) “The ultimate determination is
whether a reasonable trier of fact could have found for the
respondent based on the whole record. [Citation.] While
substantial evidence may consist of inferences, such
inferences must be ‘a product of logic and reason’ and ‘must
rest on the evidence’ [citation]; inferences that are the result
13
of mere speculation or conjecture cannot support a finding.”
(Ibid.)
Although “the reasonableness of an insurer’s claims-
handling conduct is ordinarily a question of fact, it becomes a
question of law where the evidence is undisputed and only
one reasonable inference can be drawn from the evidence.”
(Chateau Chamberay Homeowners Ass’n v. Associated Intern.
Ins. Co. (2001) 90 Cal.App.4th 335, 346.)
The correctness of a special verdict is analyzed as a
matter of law and is subject to de novo review. (Zagami, Inc.
v. James A. Crone, Inc. (2008) 160 Cal.App.4th 1083, 1092.)
B. The Verdict was Facially Deficient
The special verdict here was facially insufficient to
support a bad faith judgment because it included no finding
that Farmers acted unreasonably in failing to accept Pinto’s
settlement offer.
“If a fact necessary to support a cause of action is not
included in . . . a special verdict, judgment on that cause of
action cannot stand.” (Behr v. Redmond (2011) 193
Cal.App.4th 517, 531.)
As to Martin, the verdict form asked only three
questions: Whether Pinto made a reasonable offer; whether
Farmers failed to accept the offer; and whether Martin
assigned her judgment against Farmers to Pinto. These
questions were necessary, but not sufficient. The verdict form
failed to ask whether Farmers acted unreasonably in failing
to accept Pinto’s offer.
The special verdict was patterned on CACI No. 2334,
which the trial court gave as follows: “Mr. Pinto claims that
he was harmed by Farmers’ breach of the obligation of good
14
faith and fair dealing because Farmers failed to accept a
reasonable settlement demand made by Mr. Pinto. To
establish this claim, Mr. Pinto must prove all of the following:
[¶] 1. That Mr. Pinto made a reasonable settlement demand;
[¶] 2. That Farmers failed to accept a reasonable settlement
demand for an amount within policy limits; and [¶] 3. A
monetary judgment was entered in [Pinto’s underlying case
against Martin and Orcutt] for a sum greater than the policy
limits that was assigned to Mr. Pinto.
“ ‘Policy limits’ means the highest amount available
under the Farmers policy for the claim that was assigned to
Mr. Pinto. [¶] A settlement demand for an amount within
policy limits is reasonable if Farmers knew or should have
known at the time the demand was rejected that the potential
judgment was likely to exceed the amount of the demand
based on Mr. Pinto’s injuries or loss and the insured’s or
insureds’ probable liability. However, the demand may be
unreasonable for reasons other than the amount demanded.”
The enumerated elements of CACI No. 2334 present
two issues: Whether the plaintiff was harmed and whether
the insurer’s failure to settle caused the harm. No element
addresses whether the insurer’s failure to settle was
unreasonable.
CACI No. 2337, a modified version of which was
presented to the jury, lists 16 examples of potentially
unreasonable conduct, including failure for improper reasons
1
to settle a claim. But no element from this instruction was
1
CACI No. 2337 instructs, in pertinent part, the following:
15
reflected in the verdict form, and neither it nor or any other
instruction nor any authority posits that failure to accept a
reasonable settlement is unreasonable per se.
Relying on Comunale, supra, Pinto argues that the
Supreme Court held in a third-party duty to settle case that a
carrier’s failure to accept a reasonable offer to settle within
policy limits constitutes a breach of the covenant of good faith
and fair dealing as a matter of law.
This was not Comunale’s holding. There, an insurer
refused to accept a traffic accident victim’s settlement offer.
“In determining whether [defendant] acted unreasonably,
that is, without proper cause, you may consider whether the
defendant did any of [16 specified acts],” including: “[(e) Did not
attempt in good faith to reach a prompt, fair, and equitable
settlement of [plaintiff]’s claim after liability had become
reasonably clear.]”; “[(f) Required [plaintiff] to file a lawsuit to
recover amounts due under the policy by offering substantially
less than the amount that [plaintiff] ultimately recovered . . .]”;
“[(g) Attempted to settle [plaintiff]’s claim for less than the
amount to which a reasonable person would have believed
[plaintiff] was entitled . . .]”; “[(h) Attempted to settle the claim
on the basis of an application that was altered without notice to,
or knowledge or consent of, [plaintiff] . . .]”; “[(l) Failed to settle a
claim against [plaintiff] promptly once . . . liability had become
apparent . . . in order to influence settlements under other
portions of the insurance policy coverage.]”; “[(m) Failed to
promptly provide a reasonable explanation of its reasons for
denying the claim or offering a compromise settlement . . .].”
“The presence or absence of any of these factors alone is not
enough to determine whether [name of defendant]’s conduct was
or was not unreasonable, that is, without proper cause. You must
consider [name of defendant]’s conduct as a whole in making this
determination.”
16
The Court held that “the implied obligation of good faith and
fair dealing requires the insurer to settle in an appropriate
case.” (Comunale, supra, 50 Cal.2d at p. 659.) “The insurer,
in deciding whether a claim should be compromised, must
take into account the interest of the insured and give it at
least as much consideration as it does to its own interest.
[Citation.] When there is great risk of a recovery beyond the
policy limits so that the most reasonable manner of disposing
of the claim is a settlement which can be made within those
limits, a consideration in good faith of the insured’s interest
requires the insurer to settle the claim.” (Ibid.) The Court
concluded it is unreasonable for an insurer to reject a
settlement demand because of a coverage dispute.
Comunale simply held that an insurer may not put its
own interests before the insured’s when “the most reasonable
manner of disposing of the claim is a settlement.” (Comunale,
supra, 50 Cal.2d at p. 659.) The Court did not discuss
rejecting settlement for reasons outside of coverage disputes,
and did not hold that failure to settle is unreasonable
whenever the offer itself is reasonable.
Pinto relies on two further Supreme Court cases which
are to the same effect as Comunale and no more apposite:
Crisci v. Security Ins. Co., supra, 66 Cal.2d 425, and Johansen
v. California State Auto. Assn. Inter-Ins. Bureau (1975) 15
Cal.3d 9.)
We reiterate the Court’s latest statement on the matter:
“ ‘[A] good faith consideration of the insured’s interests may
require the insurer to settle the claim within the policy limits.
An unreasonable refusal to settle may subject the insurer to
liability for the entire amount of the judgment rendered
17
against the insured, including any portion in excess of the
policy limits.’ ” (Hamilton v. Maryland Casualty Co., supra,
27 Cal.4th at pp. 724-725, italics added; see also Kransco v.
American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th
390, 401 [“An insurer that breaches its implied duty of good
faith and fair dealing by unreasonably refusing to accept a
settlement offer within policy limits may be held liable for the
full amount of the judgment against the insured in excess of
its policy limits” (italics added)]; Commercial Union
Assurance Companies v. Safeway Stores, Inc. (1980) 26 Cal.3d
912, 916-917 [“an insurer may be held liable for a judgment
against the insured in excess of its policy limits where it has
breached its implied covenant of good faith and fair dealing
by unreasonably refusing to accept a settlement offer within
the policy limits” (italics added)].)
The Court has never held that failure to accept a
reasonable settlement is per se unreasonable.
Although CACI No. 2334 describes three elements
necessary for bad faith liability, it lacks a crucial element:
Bad faith. To be liable for bad faith, an insurer must not only
cause the insured’s damages, it must act or fail to act without
proper cause, for example by placing its own interests above
those of its insured.
C. The Judgment is Defective
A special verdict based solely on an insufficient jury
instruction cannot support a judgment. The jury was neither
asked to nor did find that Farmers acted unreasonably or
without proper cause in failing to accept Pinto’s settlement
offer. Because a cause of action for bad faith requires a
finding that the insurer acted unreasonably, the absence of
18
such a finding precludes judgment for the plaintiff on that
claim. (Behr v. Redmond, supra, 193 Cal.App.4th at p. 531.)
Pinto argues that Farmers deliberately sabotaged the
settlement by injecting Orcutt into it even though she denied
being a permissive driver, took no steps to seek coverage, and
in fact disqualified herself from coverage by failing to
cooperate. The point is irrelevant because the jury made no
findings on these supposed facts. In any event, the record
indicates it was Pinto who made Orcutt part of his offer by
conditioning settlement on receipt of information from “the
insured,” which he defined as including both Martin and
Orcutt. (He was obliged to do so, as she was likely an
additional insured under the policy’s permissive driver clause,
notwithstanding actions that might later have disqualified
her from coverage.) He then rejected Farmers’ tender solely
because it failed to include “reasonable proof of Ms. Orcutt’s
complete policy limits and course and scope status,” proof that
Farmers had no ability to provide.
Pinto recites a litany of other actions Farmers took that
establish it unreasonably investigated and settled Martin’s
claim, which he argues establish that Farmers put its own
interests over Martin’s. These actions too are irrelevant
because the jury made no findings on this issue.
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
19
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. (See Lehto v. Allstate Ins. Co. (1994) 31
Cal.App.4th 60, 73 [“by offering the policy limits in exchange
for a release, the insurer has done all within its power to
effect a settlement”].)
D. Remedy
The question remains what to do about the defective
judgment.
The plaintiff “bear[s] the responsibility for a special
verdict submitted to the jury on [his] own case” and must
therefore ensure that a special verdict allows the jury to
“ ‘resolve all of the ultimate facts’ ” so that “ ‘ “nothing shall
remain to the court but to draw from them conclusions of
law.” ’ ” (Myers Building Industries, Ltd. v. Interface
Technology, Inc. (1993) 13 Cal.App.4th 949, 959-960; 961-
962.) “It is incumbent upon counsel to propose a special
verdict that does not mislead a jury into bringing in an
improper special verdict.” (Id. at p. 960, fn. 8.) A plaintiff
who fails to do so “is bound by the erroneous special verdict.”
(Ibid.)
Pinto argues that Farmers successfully objected to the
very “reasonableness” special verdict question that it now
argues was required, Proposed Special Verdict Question No.
7. Under the doctrine of invited error, he argues, Farmers is
estopped from urging the defective verdict as a ground for
reversal. We disagree.
20
The “ ‘doctrine of invited error’ is an ‘application of the
estoppel principle’: ‘Where a party by his conduct induces the
commission of error, he is estopped from asserting it as a
ground for reversal’ on appeal.” (Norgart v. Upjohn Co. (1999)
21 Cal.4th 383, 403.) The purpose of the doctrine is to
“prevent[] a party from misleading the trial court and then
profiting therefrom in the appellate court.” (Ibid.)
The proposed special verdict question at issue, No. 7,
which Pinto proposed and to which Farmers objected, asked:
“Did FARMERS breach its duty of good faith and fair dealing
to [Martin] by acting unreasonably and by failing to give as
much consideration to her interests as they gave to their own
interests?”
If the jury answered “no,” it was instructed to answer
Question No. 9, which asked whether Farmers “fail[ed] to
accept a reasonable settlement demand for an amount within
[Martin’s] policy limits.” Question No. 9 eventually became
the foundation of the special verdict form.
Farmers objected to Question No. 7, and it was never
given.
Question No. 7 would not have been the correct
reasonableness question because it asked nothing about the
settlement offer, which was discussed only in Question No. 9.
Although Pinto complained at length about Farmers’ many
bad acts, in the end it cured any deficiency by tendering the
full $50,000 policy limits. Those acts therefore had nothing to
do with Pinto’s damages, which comprised solely the loss of
that $50,000.
In fact, the jury could not have both answered “yes” to
Question No. 7 and made any finding about the settlement
21
offer, because pursuant to Pinto’s protocol, Question No. 9,
the only question mentioning the settlement offer, would not
be encountered should the jury answer yes to Question No. 7.
There is therefore no way Question No. 7 could have cured
the verdict.
Pinto argues it was Farmers that insisted that the
special verdict mirror CACI No. 2334, and is therefore
responsible for the error. The record is flatly to the contrary.
Farmers proposed that a special verdict question mirroring
CACI No. 2334 be modified to ask whether Farmers’ failure to
accept Pinto’s settlement offer was “the result of
unreasonable conduct by Farmers,” which Farmers at all
times argued was essential to Pinto’s bad faith failure-to-
settle theory. This would have been the correct question, but
Pinto successfully objected to it.
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. (See
Saxena v. Goffney (2008) 159 Cal.App.4th 316, 329 [remedy
for defective verdict achieved through plaintiff’s efforts is to
order judgment notwithstanding the verdict]; see also Myers
Building Industries, Ltd. v. Interface Technology, Inc., supra,
13 Cal.App.4th at p. 960, fn. 8 [plaintiff responsible for
erroneous special verdict is bound by the error].)
22
DISPOSITION
The judgment is reversed and the matter remanded with
directions to enter a new judgment for Farmers. Farmers is to
recover its costs on appeal.
CERTIFIED FOR PUBLICATION
CHANEY, J.
We concur:
ROTHSCHILD, P. J.
BENDIX, J.
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