Insurer that Refused to Return Calls Held to § 998 Offer Above Policy Limits

Aguilar v. Gostischef, No. B238853 (D2d8 Oct. 11, 2013)

The court of appeal holds that a Code of Civil Procedure § 998 offer to an insurer for more than policy limits is not in bad faith when there is a reasonable basis to believe that an insurer’s prior failures to communicate regarding a within-limits settlement could provide a basis for liability against the insurer exceeding its policy limits.

Plaintiff lost his leg in an auto accident and incurred more than half a million dollars in medical expenses. His attorney repeatedly tried to contact the other driver’s insurance carrier to inquire about its policy limits so she could make a within-limits settlement offer. The carrier never responded. Once the litigation ensued—litigation in which the carrier intervened as a defendant—plaintiff tendered the defendant with an offer of judgment under Code of Civil Procedure § 998 for $700,000. The carrier responded with an offer to settle the case for its policy limit of $100,000. Plaintiff eventually won a verdict of more than $2.3 million. Then the carrier won a motion for JNOV, but that was overturned in a prior appeal. On remand from the first appeal, plaintiff sought $1.6 million in costs, which the defendant (but not the carrier) moved to tax on the grounds that the § 998 offer was in bad faith because the defendant was having financial problems and the policy limits were only $100,000. The trial court disagreed, taxed only $5,000 in other costs, and the carrier (but not the defendant) appealed.

Before reaching the § 998 question, the court of appeal addressed two threshold issues. First, the carrier had put the wrong case number on its notice of appeal, and plaintiff sought dismissal on that grounds. But relying on prior authority, the court held that a clerical mistake like that did not affect the court’s jurisdiction, since the notice was otherwise timely filed. Second, the court pointed out that the carrier arguably waived a challenge to the offer, since only the defendant had moved to tax costs in the trial court. But the court decided to assume for the sake of the appeal that the defendant’s objection was sufficient to preserve the issue for the carrier.

Moving on to the merits, the court explained that the relevant question was whether, based on information available to the defendant at the time of the offer, the offered amount represented a reasonable prediction of the amount of money the defendant might have to pay following a trial. As the carrier recognized in its own brief, an insurer can be on the hook for a judgment exceeding policy limits if it refused to settle the case within limits. But the carrier argued that it had never actually rejected an in-limits offer. 

The plaintiff’s attorney, however, had repeatedly tried to make a pre-suit offer within policy limits but was stymied by the carrier’s refusal to return her communications. Although the ultimate merits of that issue remained to be determined, the record and the law provided a reasonable basis for the plaintiff to believe that the carrier would eventually be liable for the whole judgment, even though it had never formally rejected an in-limits offer. Thus, the trial court did not abuse its discretion in deciding that the offer was within the realm of reason and thus not in bad faith.

Affirmed.