Pinto v. Farmers Insurance Exchange, B295742 (March 8, 2021)
To recover on a bad faith claim against a liability insurer, an insured must prove that the insurer unreasonably deprived the insured of benefits owed under the policy. However, a controversial standard jury instruction (CACI No. 2334) suggests that a liability insurer is strictly liable for bad faith any time it rejects or fails to accept a reasonable settlement demand and the insured thereafter suffers a judgment exceeding policy limits—regardless whether the insurer had reasonable grounds for rejection or reasonably tried to accept a demand but was thwarted for reasons beyond its control.
In Pinto, a claimant injured in an accident while riding as a passenger in the insured’s vehicle demanded that Farmers pay the limits of the insured’s auto policy. Farmers attempted to accept the demand. However, the insured’s permissive driver who was also covered by the policy refused to provide Farmers with a declaration required by the claimant attesting to the driver’s lack of other insurance. The claimant treated Farmers’ failure to deliver the declaration as a rejection of his demand, and obtained both an excess judgment against the vehicle owner and permissive driver and an assignment of their claims against Farmers for bad faith failure to settle. The claimant then sued Farmers for bad faith. The case went to the jury with a verdict form modeled upon CACI No. 2334, which omits from the elements of a bad faith claim any requirement that the jury determine whether an insurer behaved unreasonably in response to a settlement demand. Based solely upon the jury’s findings that the demand was reasonable and Farmers failed to accept it, the court entered a bad faith judgment against Farmers.
The Court of Appeal reversed, holding that a bad faith claim for failure to settle requires a finding that the insurer acted unreasonably, and the insurer’s mere failure to accept a reasonable demand is not unreasonable per se. The court noted that CACI No. 2334 erroneously omits the “crucial” element of unreasonable conduct by the insurer. Because, at the claimant’s behest, the verdict form did not require the jury to decide whether Farmers behaved unreasonably in any way, the court reversed the judgment for the claimant with directions that judgment be entered for Farmers.
