The Ninth Circuit Court of Appeals recently held that Allstate Corporation, the nation’s second-largest personal lines insurance company, acted in bad faith under California law by refusing to settle a motorcycle collision case. As a result of engaging in these unlawful tactics, the appellate court upheld an award of $14 million in damages to the plaintiff.
Insurance companies in California are required to engage with policyholders under an “implied covenant of good faith and fair dealing.” With this in mind in the case at hand, the court believed that the plaintiff presented Allstate a reasonable opportunity to settle the collision case and Allstate’s rejection was not appropriate because there was no factor outside of Allstate’s control that compelled rejection.
In the underlying case, the plaintiff, a motorcyclist, was hit by a driver insured by Allstate. The driver’s wife was also in the car. The accident left the plaintiff a paraplegic, and although the plaintiff tried to settle with Allstate, Allstate refused. After Allstate rejected the settlement demand, the plaintiff sued and won a damage verdict of $10 million, with a finding that the driver was 100 percent at fault. The driver then “assigned” or gave their rights against Allstate to the plaintiff in exchange for the plaintiff not enforcing the judgment against the driver. The driver sued Allstate for bad faith and a jury heard evidence from both sides.
The jury awarded $14 million in damages to the plaintiff. The appellate court affirmed this award. The appellate court found that the evidence did not show Allstate was unable to respond to the plaintiff’s demand to settle. Furthermore, the plaintiff’s settlement demand was appropriately worded and would release the driver and his wife, who was also in the car, from liability for the plaintiff’s claims.
Finally, the appellate court found that at the time Allstate rejected the demand, it acted unreasonably. The appellate court noted that Allstate knew of a witness who would say the driver it insured was at fault. Allstate had medical bills showing claims in excess of the policy limit. Allstate told the driver and his wife about the exposure that was over the policy limit, and Allstate failed to discuss problems with the settlement demand. Therefore, the jury had a basis to determine Allstate breached the covenant of good faith and fair dealing when it rejected the plaintiff’s settlement demand.
If you believe you are involved in a situation where your insurance provider is acting in bad faith, contact attorney Drew E. Pomerance today.