Pinto v. Farmers Ins. Exch., ___ Cal. App. 5th ___ (2021)
Over the past several years, the insurance industry in
Earlier this week, in Pinto v.
Pinto's attorney sent Farmers a demand to settle Pinto's injury claims for the
Because Farmers was unsure of which of its two insureds (Orcutt or Martin) was driving the vehicle, it endeavored to obtain declarations from each of them. However, despite diligent efforts, it was unable to obtain a declaration from Orcutt. Farmers, therefore, made several attempts to obtain an extension of the demand's deadline, but its efforts were ignored by Pinto's attorney. Before the deadline expired, Farmers hand-delivered an acceptance letter and a
At the conclusion of the bad faith trial, 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. 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. Farmers argued that, regardless of the reasonableness of the settlement demand, because the jury made no findings that Farmers acted unreasonably in any respect, it was entitled to have judgment entered in its favor. The trial judge rejected Farmers' argument and entered judgment for Pinto for
The Court of Appeal reversed and ordered that judgment be entered in favor of Farmers. The court held that even if Pinto's policy limit demand was reasonable, Farmers could not be held liable for rejecting it unless its decision to reject was itself unreasonable: "A claim for bad faith based on a refusal to settle [] requires proof the insurer unreasonably failed to accept an offer. [cites] Simply failing to settle does not meet that standard. A facially reasonable demand might go unaccepted due to no fault of the insurer." Because the jury did not find that Farmers acted unreasonably, the court reasoned, Farmers was entitled to a judgment in its favor.
In so ruling, the court specifically addressed CACI 2334, which it found to be deficient because the instruction does not include the "crucial element" of bad faith liability - unreasonable conduct by the insurer: "Although CACI No. 2334 describes three elements necessary for bad faith liability, it lacks the crucial element: Bad faith."
The court also made clear that honest mistakes or mere errors do not constitute unreasonable conduct. Instead, the court stated that "[t]o 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."
It is unclear whether the
Pinto will likely appeal this decision to the
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