Coe v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 09 February 1977
• Citation: 136 Cal.Rptr. 331,66 Cal.App.3d 981
• Court: California Court of Appeals Court of Appeals
• Parties: Sharon COE et al., Plaintiffs and Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Appellant. Civ. 37977.

Page 331

136 Cal.Rptr. 331

66 Cal.App.3d 981

Sharon COE et al., Plaintiffs and Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant and Appellant.

Civ. 37977.

Court of Appeal, First District, Division 4, California.

Feb. 9, 1977.

Rehearing Denied Feb. 28, 1977.

Hearing Denied April 28, 1977.

Spridgen, Barrett, Achor, Luckhardt, Anderson & James, Law Offices of Edward L. Lascher, Edward L. Lascher, Wendy Cole Wilner, Ventura, for defendant and appellant.

Francis B. Mathews, Mathews, Traverse & McKittrick, Eureka, for plaintiffs and respondents.

CHRISTIAN, Associate Justice.

State Farm Mutual Automobile Insurance Company appeals from a judgment, entered upon a jury verdict, holding it liable to its insured's assignee for bad-faith refusal to settle the assignee's wrongful death claim against the insured.

Appellant had insured Sten S. Strandberg and Bonnie Jean Strandberg against liability up to $25,000 arising from the use of a described automobile. While Mrs. Strandberg was driving the insured automobile on a highway in Humboldt County, it collided with a truck driven by Richard Coe. The circumstances of the collision were such as to indicate that Mrs. Strandberg was negligently responsible for it. Richard Coe received severe injuries.

Coe had been driving in the course and scope of his employment by McLaughlin Plumbing & Heating Company, whose workers' compensation insurance was carried by the State Compensation Insurance Fund. The employer immediately reported the accident to the Fund, at its Eureka office. The information reported included the facts of appellant's liability coverage on the Strandberg vehicle and that the matter was being handled by Percy Moore, appellant's 'field claims adjuster' in Eureka. On the same day, the Fund informed Moore, by telephone, that it intended to assert against any recovery a lien for monies paid out on account of Coe's injuries.

Moore immediately reported the accident to appellant's office at Santa Rosa, advising that Coe had been seriously injured and that the workers' compensation carrier would have a 'sizeable lien.' ¹ Appellant immediately established a $25,000 'reserve' for claims anticipated from the accident.

Francis B. Mathews, an attorney, communicated to appellant at its office in Eureka a settlement offer in behalf of Coe and members of Coe's family. The offer was written and hand-delivered in Eureka on April 4, 1968, and reached appellant's Santa Rosa office, by transmitted from Percy Moore, on April 8. It is reproduced in full as follows:

'State Farm Insurance Co.

922 E Street

Eureka, California

Attention: Percy Moore

'Re: Coe vs Standberg

Gentlemen:

'You have represented to us that the policy limits of the State Farm Insurance Co. public liability policy applicable to Mrs. Bonnie Jean Standberg on March 23, 1968, was $25,000.00.

'Our office is representing Mr. Richard Coe (and Mrs. Coe and the children if Mr. Coe should unfortunately die as the result of his extreme injuries) at the present time solely for the purpose of presenting the offer of settlement herein made.

'This is a clear case of liability arising from Mrs. Standberg pulling out onto highway 101 from a stop sign when Mr. Coe's vehicle was directly on top of the intersection.

'The injuries to Mr. Coe are extremely severe. He will lose the sight of one eye and will have one leg amputated. His burns are as severe as they can get and they cover almost all of his entire body. It is a miracle that he is still alive. His medical expenses (if he survives) will unquestionably exceed $20,000.00. If he should unfortunately die as the result of these extreme injuries, the wrongful death claim of his wife and children will far exceed $25,000.00.

'You have had an adequate period of time within which to investigate the accident and arrive at reasonable certainty as to both liabilities and damages as noted above.

'SETTLEMENT OFFER: On behalf of Richard Coe or Mrs. Coe and the children (as the case may be) and predicated upon the $25,000.00 policy limits represented to us, we hereby offer to accept the sum of $25,000.00 as a full and complete settlement of the personal injury and/or death claim of Mr. Coe and/or his wife and children arising out of the accident of March 23, 1968.

'TERM OF OFFER: This offer will remain open until 5:00 P.M. Monday, April 15, 1968. If acceptance of this offer has not been received at our office by 5:00 P.M., April 15, 1968, the offer will be withdrawn and the Coes will commit themselves to the uncertainties of litigation.

'Very truly yours,

'MATHEWS, TRAVERSE & McKITTRICK

'Francis B. Mathews'

Appellant responded to Mathews on April 9, 1968, as follows:

'MATHEWS, TRAVERSE & McKITTRICK

732 Fifth Street

Eureka, California 95501

Attention: Francis B. Mathews

Gentlemen:

Claim No: 05--4052--638

Insured: STRANDBERG, Sten S.

Your letter to Percy Moore dated April 4, 1968, has been received in this office. The terms of your offer to settle the above case for $25,000.00 remains open until 5:00 P.M. Monday, April 15, 1968.

Your settlement demand within the brief time limit specified is premature for the following reasons:

1. The obligation we have to our insured is to verify by reasonable documentary evidence the nature and extent of your client's injuries and damages;

2. You have not indicated that a release will be executed by the Workmen's Compensation carrier involved;

3. We are not certain as to who we should deal with until your client's condition and outcome has been determined. Are we to deal with your client alone, his heirs at law, or a guardian?

4. We require verification in the event of your client's demise, prior to settlement, as to the identity of all heirs at law.

5. I believe you will agree that we are entitled to a reasonable time in which to determine the question of liability. You imply that since your client was on an arterial highway he had an absolute right-of-way.

For your information we are proceeding with all due dispatch, with the investigation and shall appreciate your providing us with medical information, special damages incurred and anticipated, and the other matters outlined above.

You may rest assured that upon receipt of the very basic information requested, we shall promptly advise you of our position regarding settlement.

Very truly yours,

(s/) Robert C. Clausen

ROBERT C. CLAUSEN, Superintendent

Northern California Claims D24U26'

Attorney Mathews did not reply.

Richard Coe died, whereupon Sharon Coe brought a wrongful death action against Mrs. Standberg for herself and her children as the decedent's heirs; ² a verdict in the amount of $250,000 resulted.

Respondent Sharon Coe then gave Mrs. Strandberg a covenant not to execute upon the wrongful death judgment, took an assignment of Mrs. Strandberg's rights against appellant for bad-faith refusal to settle, and commenced the present action. A jury returned a verdict in respondent's favor, which resulted in a judgment against appellant in an amount in excess of $300,000.

Appellant contends that as a matter of law respondent's letter of April 4, 1968, was not a 'reasonable offer of settlement' for the rejection of which appellant could be held liable.

Here it will be pertinent to review the controlling case law. The Supreme Court considered the liability of an insurer for failure to accept a settlement offer within policy limits in Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 328 P.2d 198. The court stated that '(i)t is generally held that since the insurer has reserved control over the litigation and settlement it is liable for the entire amount of a judgment against the insured, including any portion in excess of the policy limits, if in the exercise of such control it is guilty of bad faith in refusing a settlement. (Citations.)' (Id., at p. 660, 328 P.2d at p. 201.) The Comunale court concluded that '. . . an insurer, . . . who refuses to accept a reasonable settlement within the policy limits in violation of its duty to consider in good faith the interest of the insured in the settlement, is liable for the entire judgment against the insured even if it exceeds the policy limits.' (Comunale v. Traders & General Ins. Co., supra, 50 Cal.2d 654 at p. 661, 328 P.2d 198 at p. 202.)

The test for 'determining whether an insurer has given consideration to the interests of the insured . . . is whether a prudent insurer without policy limits would have accepted the settlement offer. (Citations.') (Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 429, 58 Cal.Rptr. 13, 16, 426 P.2d 173, 176.) Liability based on bad faith does not require a showing of dishonesty, fraud or concealment. (Id., at p. 430, 58 Cal.Rptr. 13, 426 P.2d 173.) Rather, the Comunale decision 'makes it clear that liability based on an implied covenant exists whenever the insurer refuses to settle in an appropriate case and that liability may exist when the insurer unwarrantedly refuses an offered settlement where the most reasonable manner of disposing of the claim is by accepting the settlement. Liability is imposed not for a bad faith breach of the contract but for failure to meet the duty to accept reasonable settlements, a duty included within the implied covenant of good faith and fair dealing. . . . (R)ecovery may be based on unwarranted rejection of a reasonable settlement offer . . ..' (Crisci v. Security Ins. Co., supra, at p. 430, 58 Cal.Rptr. at p. 16, 426 P.2d at p. 176.)

The Supreme Court more recently addressed the issue of the Reasonableness of a settlement offer in Johansen v. California State Auto. Ass'n Inter-Ins. Bureau (1975) 15 Cal.3d 9, 123 Cal.Rptr. 288, 538 P.2d 744. Citing both Comunale and Crisci with approval, the court stated as follows (15 Cal.3d at p. 16, 123 Cal.Rptr. at p. 292, 538 P.2d at p. 748):

'Moreover, in deciding whether or not to compromise the claim, the insurer must conduct itself as though it alone were liable for the entire...