By Tracy M. Evans, Esq., Associate, Saxon Gilmore & Carraway, P.A.

In an unpublished opinion, the Ninth Circuit Court of Appeals (“Ninth Circuit”) recently affirmed a $14 million judgment against Allstate Indemnity Company (“Allstate”), finding that there was sufficient evidence to support the jury’s verdict that Allstate acted in bad faith in refusing to settle the underlying case. While this opinion is not binding on Florida courts, the result serves as a word of caution to insurers, and should be considered when determining whether the circumstances surrounding a claim require settlement. Similar to California, Florida law allows for a cause of action against an insurer for failing to promptly settle claims in certain circumstances, so this case may be considered particularly pertinent to Florida insurers.

The bad faith case arose out of a jury verdict obtained in the underlying personal injury case. Motorcyclist Carlos Madrigal (“Madrigal”) sued Richard and Anna Tang (“Mr. and Mrs. Tang”) for injuries resulting from a collision with a car driven by Mr. Tang. Madrigal initially made a settlement demand for the $100,000 policy limits, but Allstate countered the demand with an offer of $34,000, which was rejected. Sometime later, Allstate made two separate $100,000 policy limit offers, which Madrigal then rejected. The case proceeded to trial and a jury awarded Madrigal $10 million.

Madrigal obtained an assignment of the Tang’s rights against Allstate, and subsequently sued Allstate for bad faith failure to settle. Based on the evidence presented at trial, the jury returned a $14 million in favor of Madrigal, finding Allstate guilty of bad faith refusal to settle. On appeal, Allstate challenged the trial court’s denial of its motion for a new trial and judgment as a matter of law, arguing that payment of the policy limits demand was premised on a requirement that Mr. Tang disclose his assets, which he never did. Allstate argued that because this factor was outside its control, it could not be liable for bad faith. Allstate also argued that the initial settlement demand did not include an express release of Mrs. Tang from liability, and therefore, Allstate could not have reasonably met the demand without breaching its obligation to protect all of its insureds while settling claims.

The Ninth Circuit disagreed with both arguments, finding that there was substantial evidence in the record to support the jury’s finding that Mr. Tang’s asset disclosure was not out of Allstate’s control. The Ninth Circuit also found that a reasonable jury could have concluded that while the settlement offer was directed solely at Mr. Tang, it called for an “appropriate release,” which necessarily could have included Mrs. Tang.

Allstate further argued that it was entitled to judgment as a matter of law because it tendered the $100,000 policy limits twice to settle the case, which Madrigal rejected both times. However, looking at all the circumstances surrounding Allstate’s initial rejection of Madrigal’s $100,000 demand, the Ninth Circuit determined the jury had substantial evidence from which it could find the rejection unreasonable. More specifically, the evidence suggested that Allstate had knowledge at the time of the rejection of an additional witness corroborating Mr. Tang’s liability and a potential theory of liability for Mrs. Tang. Further, the adjuster had knowledge that Madrigal was uninsured and that Mr. and Mrs. Tang’s exposure was well in excess of the policy limits. Also, Allstate failed to discuss or clarify potential compliance issues in the demand with Madrigal’s counsel. Based on this evidence, it was reasonable for the jury to conclude that Allstate’s rejection of the initial settlement demand was in bad faith, and the $14 million judgment against Allstate was affirmed.

The Ninth Circuit’s full opinion can be found here.

 

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