United States: Barickman v. Mercury Casualty Company

In Barickman v. Mercury Cas. Co., 2 Cal.App.5th 508 (August 15, 2016), the California Second District Court of Appeal affirmed a judgment for bad faith damages in favor of third party claimants and assignees, Laura Beth Barickman ("Barickman") and Shannon Mcinteer ("Mcinteer"), for a total of $3 million. The parties' lawsuit arose out of an underlying accident, wherein, Mercury's insured, Timory McDaniel struck and injured Barickman and Mcinteer while driving an automobile intoxicated. Barickman and Mcinteer were in a cross-walk when struck by McDaniel. Subsequently, on September 1, 2010, Mercury offered McDaniel's policy limits of $15,000 per person to Barickman and Mcinteer. On September 24, 2010, Barickman's and Mcinteer's counsel, Mark Algorri, advised that he would need a complete statement of assets to assist his clients in determining whether to accept Mercury's offer and satisfaction of all civil claims.

Subsequently, in October 2010, McDaniel was sentenced to three years in state prison and ordered to pay approximately $165,000 in restitution. In mid-December 2010, Algorri informed Mercury that Barickman and Mcinteer accepted the policy limits offer and returned signed releases on the form provided by Mercury, but added an explanatory sentence to Mercury's recitation of a $15,000 payment: "This does not include court-ordered restitution." Algorri also demanded as a condition of settlement that payment be made within five days of delivery of the executed releases.

For the next several weeks, Mercury considered whether it would agree to the additional language inserted by Algorri, requesting and receiving extensions of time to respond. As part of its review process, Mercury consulted with McDaniel's mother, Helen, as well as her criminal defense attorney, McGregor. The Mercury adjustor, Oliver Chang, also communicated with Algorri, to clarify the intent behind the additional language in the releases related to preserving Barickman's and Mcinteer's restitution rights.

On January 10, 2011, Chang advised Algorri that criminal defense attorney, McGregor, had instructed Mercury not to accept the revised releases and asked Algorri to reconsider whether the matter could be settled without the added language. In response, Algorri clarified the intent behind the added language by stating "just to make my point clear, Mercury has intentionally mischaracterized my added language. The added language simply eliminates any argument that the Court's restitution order is wiped out by the release. Your characterization that Mercury's payments would not act as a credit on what your insured owes under the restitution order is not only false, but, as you undoubtedly know, would violate California law."

Ultimately, Barickman and Mcinteer and Mercury failed to reach an agreement regarding the additional language in the releases provided in connection with Mercury's settlement offer. As such, they filed a personal injury action which was ultimately settled pursuant to a stipulated judgment in favor of Mcinteer against McDaniel for $2.2 million and in favor of Barickman against Mcinteer for $800,000. Thereafter, McDaniel assigned her rights against Mercury to Barickman and Mcinteer in exchange for their agreement not to attempt to collect the judgment against her. Thereafter, Mercury paid each claimant the $15,000 per person policy limits.

Subsequently, Barickman and Mcinteer filed a bad faith lawsuit against Mercury arguing that Mercury unreasonably delayed in settling the case based on its unreasonable position in connection with the added language in the proposed release agreements used for the purpose of settling the Barickman and Mcinteer claims.

After a bench trial by reference, the judgment was entered against Mercury in favor of Barickman and Mcinteer in the amount of $2.2 million for Mcinteer and $800,000 for Barickman, along with 10% interest from the date of the August 31, 2012 judgment and costs of suit.

In affirming the judgment, the Court of Appeal held as follows:

Mercury relies on the Graciano court's assessment that the insurer in that case had acted in good faith as a matter of law (that is, that no substantial evidence supported a conclusion it had acted in bad faith) to assert that it, too, acted in good faith as a matter of law. However, that argument ignores the fundamental principle, articulated in Graciano and other cases, that, "[w]hen a claim is based on the insurer's bad faith, . . . the ultimate test is whether the insurer's conduct was unreasonable under all of the circumstances." (Graciano, supra, 231 Cal.App.4th at p. 427; accord, Bosetti v. United States Life Ins. Co. in City of New York (2009) 175 Cal.App.4th 1208, 1237 ["f an insurer is to avoid liability for bad faith, its actions and positions with respect to the claim of an insured, and the delay or denial of policy benefits, must be 'founded on a basis that is reasonable under all the circumstances'"]; see Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 888 ["[o]rdinarily, the question whether the insurer has acted unreasonably in responding to a settlement offer is a question of fact to be determined by the jury"]; see also Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 724, fn. 7.) In Graciano there were no other circumstances that raised a question of the insurer's good faith either before or after it tendered the full policy limits. As the appellate court held, the evidence was undisputed that the insurer did "'all within its power to effect a settlement.'" (Graciano, at p. 435.)

In the case at bar, in contrast, although Mercury did initially act in good faith by offering Timory's policy limits—the minimum $15,000/$30,000 bodily injury liability coverage required by California law (Veh. Code, §§ 16050, 16056, subd. (a))—in exchange for a general release of all claims, there were disputed facts, including significant issues of credibility, as to whether Mercury did all within its power to effect a settlement once Barickman and Mcinteer accepted that offer but proposed a slightly modified version of the accompanying release. Here, as is true in many bad faith cases, the reasonableness of the insurer's claims-handling conduct was a question of fact to be resolved following a trial. . . . Mercury's contrary position, if accepted, would mean an insurer that at one point acted in good faith during settlement negotiations has fully discharged its obligations under the implied covenant and has no further responsibility to make reasonable efforts to settle a third party's lawsuit against its insured. Mercury cites no authority for that rather remarkable proposition.

A civil settlement does not eliminate a victim's right to restitution ordered by the criminal court, but the defendant is entitled to an offset for any payments to the victim by the defendant's insurance carrier for items included within the restitution order. Based on these foundational findings and Timory's certain exposure to substantial liability, the referee could properly conclude that Mercury's refusal to accept the release as amended by Algorri or, at least, to present to Barickman and Mcinteer in a timely fashion a revised release that included both Algorri's language and his explanation of its meaning (for example, by inserting after Algorri's addition, "and does not affect the insured's right to offset") was unreasonable. (See Heredia v. Farmers Ins. Exchange (1991) 228 Cal.App.3d 1345, 1360 [279 Cal. Rptr. 511] [insurer's duty of good faith requires it to explore details of a settlement offer with a view toward resolving issues that may take the offer outside policy limits]; cf. Betts v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688, 708 [insurer should seek clarification rather than simply reject settlement offer it finds ambiguous or incomplete].)

Instead of accepting the amended release or modifying it to clarify the mutual intent of the parties, Mercury purported to place the decision whether to settle in the hands of Timory's criminal defense lawyer, McGregor, without providing him with the relevant facts. The referee impliedly found that Chang had neglected to communicate to McGregor in December that Algorri sought only to preserve his client's right to seek criminal restitution rather than to disturb Timory's offset rights. (See State Bar of California v. Statile (2008) 168 Cal.App.4th 650, 673 [reviewing court presumes trial court made all factual findings that support the judgment].) This implied finding is supported by McGregor's letter dated January 14, 2011, in which he "object[ed] to any clause in the release . . . which waives [his client's] legal right to offset those payments against any criminal court ordered restitution" and argued that his client was "entitled under law to offset [those] payments." Had McGregor been aware of Algorri's stated position that he was not seeking to alter Timory's offset rights, there would have been no need for such an objection and argument. Instead, a proposed language change to clarify Algorri's intent in modifying the release would have sufficed. In view of the referee's findings that Algorri clearly conveyed the limited purpose of his proposed language, there is thus no merit to Mercury's additional argument that it had to consult with Helen, as Timory's legal representative, and Timory's criminal defense attorney because the additional language in the release potentially affected Timory's rights on a matter outside the policy.

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