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From $25k to $2 million

From $25k to $2 million

From $25k to $2 million
May 31
12:06 2022

INSURANCE-RELATEDCOURTCASES

Digested from case reports published online

COURT DECISIONS

From $25k to $2 million

Maryam Hedayati suffered catastrophic injuries in October 2012 when Maurice Vanwyk, who was insured by Interinsurance Exchange of the Automobile Club, ran a red light and struck her in a pedestrian crosswalk. Vanwyk immediately notified Auto Club of the accident and authorized the Club to disclose his policy limits ($25,000); he also informed Auto Club he had no other insurance or assets.

Auto Club’s policy required him to relinquish to the Club his right to negotiate settlement of potential tort claims that fell within the policy. When he inquired about a release, Auto Club inaccurately told him that Hedayati was not willing to sign one. Despite repeated requests during settlement negotiations from Hedayati’s attorney, Auto Club initially declined to disclose the insured’s policy limits; eventually it acquiesced, but Auto Club still declined to provide written proof of those limits, which the Club knew was common practice to facilitate a settlement.

Auto Club then withheld from Hedyati’s counsel the insured’s written declaration that indicated he had no other insurance, which the Club had confirmed, plus the insured’s statements that he had no assets. Auto Club also, despite multiple requests from Hedayati’s lawyer, failed to provide a copy of its insured’s policy, which Hedayati’s lawyer needed to verify its terms.

Hedayati’s counsel had demanded a hard copy of the policy as a settlement condition. Auto Club ultimately failed to settle the matter within its $25,000 policy limits. Hedayati subsequently obtained a $26 million judgment against Vanwyk, along with assignment of Vanwyk’s claim against the Club for breach of the covenant of good faith and fair dealing implicit in its policy with him. The trial court concluded that the evidence presented by Hedayati was insufficient as a matter of law. Hedayati appealed.

On appeal, Vanwyk admitted that eyewitnesses told him he ran a red light before he struck Hedayati. Auto Club’s mobile adjuster told him that liability in excess of his policy limits was likely “due to his speed and hitting a pedestrian, … even if [we] accepted [only] a percentage of responsibility.”

On November 20, 2012, Hedayati’s attorney sent Auto Club a letter offering to settle for Vanwyk’s $25,000 policy limit. The letter specifically conditioned the offer on Auto Club furnishing the documentation that had been absent from Auto Club’s October 31, 2012, letter. The conditional settlement offer required Auto Club to provide Hedayati’s lawyer the insured’s signed declaration confirming he was not “driving in the course and scope of his employment” at the time of the accident, and that “no other insurance coverage [is] available” to settle Hedayati’s personal injury claims, other than Vanwyk’s “Automobile Club policy, which only provides for $25,000 in per person policy limits.”

The offer also required that Hedayati’s attorney receive a “true and correct copy of the Declaration Page and Insurance Policy for the underlying Auto Club policy that is the subject of this settlement.” The offer further required the insured driver to attest that the “total amount of [his] assets and holdings is less than $200,000.”

The November 20 settlement offer expressly stated that Auto Club could condition acceptance of the offer on the $25,000 settlement figure “being inclusive of any and all lien claims,” including for Hedayati’s healthcare and legal representation. The offer also specified that acceptance could be conditioned on court approval to verify the authority of “Claimant’s guardian ad litem or conservator” to settle her claims and execute a release on her behalf. If so conditioned, Auto Club was to provide—“[w]ithin seven days of your written acceptance” of the offer—any release “you require to be signed by the Guardian Ad Litem/Conservator.” The offer specified that Hedayati was “a single, unmarried woman,” thereby eliminating Vanwyk’s exposure to a loss of consortium claim.

The November 20 settlement offer included this caveat: “Strict adherence to each and every term and condition of this offer is required for its acceptance. There can be no change in any of the terms and conditions of this offer.”

The letter also addressed Auto Club’s “letter dated October 31, 2012, in which you indicate that Auto Club is offering $25,000 to settle … Hedayati’s personal injury claim. … Unfortunately, we must reject the offer … because it fails to clearly set forth the exact terms and conditions upon which the offer was made.” Hedayati’s offer letter instead stated that “[i]f the maximum insurance coverage that is available to indemnify your insured(s) is $25,000, then Ms. Hedayati hereby offers to settle all of her claims for those policy limits on” the foregoing terms and conditions described above.

Finally, Hedayati’s November 20 offer specified additional conditions, including that it had to be accepted in writing within a week: “Your written acceptance of th[is] settlement offer must be received by our office on or before Tuesday, November 27, 2012. The acceptance must be sent via UPS or Federal Express overnight mail with a tracking number to confirm its delivery.”

Hedayati’s attorney sent the offer to Auto Club by a FedEx “Overnight Envelope” on November 20, 2012. The envelope was addressed to the adjuster who was handling the matter at Auto Club’s Los Angeles office. FedEx’s tracking service showed the package was delivered the next morning, on Wednesday, November 21, 2012, at 7:21 a.m. and “signed for by: ANTHONY.”

Auto Club’s internal records did not reflect any action on Hedayati’s settlement offer until after the offer had expired on November 27, 2012. The first entry in Auto Club’s claims notes after November 21 was made by a clerical assistant at 2:49 p.m. on Wednesday, November 28, 2012: “Received file to copy—Copied file and all back to Aaron Meraz for handling.”

At about 3:00 p.m. that same day, the Club’s casualty adjuster called Hedayati’s attorney to request, according to the attorney, “an extension of time to respond to the settlement demand.” According to Hedayati’s attorney, no indication was given that the Club intended to accept the offer—only that Auto Club wanted more time to formulate a response.

Hedayati’s attorney declined to grant the extension; instead he indicated “the settlement offer had already expired, without a response, the day before you called me … .”

According to Hedayati, Auto Club failed to comply with its own “Excess Policy Limits Handling Standards” for her claim. The guidelines stated they were “intended to address the most frequent and highest exposure situations.” The standards included specific procedures for handling time-limited settlement offers. The court of appeals agreed with Hedayati.

Hedayati specifically alleged in her complaint that Auto Club breached its duty to communicate with its insured. As a result, she claimed Vanwyk “was unreasonably and unnecessarily exposed to a judgment far in excess of [his policy’s] bodily injury limits.” Hedayati alleged Auto Club failed to communicate her November 20 policy limits settlement offer to Vanwyk. As such, he had no opportunity to “appreciate the importance of duly and timely doing” anything “necessary to accept” the offer.

A liability insurer has a duty to communicate to its insured any settlement offer that could affect the insured’s interests, particularly where action is required by the insured to secure the settlement.

The court said it was undisputed that Auto Club failed to convey Hedayati’s November 20 settlement offer to Vanwyk. Auto Club nonetheless sought to support its summary judgement motion by characterizing this failure as reasonable under the circumstances.

According to the appellate court, if the defendant does not address an issue in a motion for summary judgment that has been raised in the plaintiff’s complaint, it fails to meet its initial burden to show the plaintiff’s action has no merit; the motion therefore fails to shift the burden to the plaintiff to oppose summary judgment.

The trial court found that Auto Club’s casualty adjuster offered the $25,000 policy limits in a letter to Hedayati’s attorney on October 31, 2012. The appellate court stated that it could not say as a matter of law that this fulfilled Auto Club’s good faith obligations to its insured. The insurer must make reasonable efforts to settle potential excess judgments within policy terms when possible.

The court of appeals reversed the summary judgment ruling and remanded the case for further proceedings.

Hedayati v. Interinsurance Exchange of the Automobile Club—California Courts of Appeal, Fourth Appellate District, Third Division—August 11, 2021—No. G058189.

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Jim Brooks

Jim Brooks

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