Claimants’ Demand for Superfluous Wording In Release Does Not Excuse Insurer’s Failure to Accept Policy Limit Offer Within Time Specified

In Barickman v. Mercury Casualty Co. (No. B260833, filed 7/25/16, ord. pub. 8/15/16) a California appeals court affirmed a $3 million bad faith award against Mercury Casualty Co. based upon its failure to accept a policy limit demand within the time provided, finding that wording inserted by the claimants’ counsel into the release did not affect the insured’s rights such that the refusal to agree to the wording was unreasonable and in bad faith, exposing the insurer to liability for the insured’s stipulated judgment.

In Barickman, Mercury’s insured ran a red light while intoxicated and severely injured two women in a crosswalk. The women agreed to settle their claims for the insured’s limits, $15,000 each; but Mercury would not agree to additional language inserted by the claimants’ attorney in Mercury’s form release of all claims: “This does not include court-ordered restitution.” After the accident Mercury offered to settle for the $15,000 per person policy limits, and the claimants’ counsel requested a statement of assets in order to evaluate the offer. While Mercury’s adjuster exchanged correspondence with their counsel about the statement of assets, the insured was sentenced to three years in prison and ordered to pay $165,000 in restitution to the claimants. The claimants then agreed to accept the policy limits, but their counsel demanded the inclusion of the aforementioned language in the release that “This does not include court-ordered restitution.”

In trying to determine whether it would agree to the additional wording, Mercury was given several extensions and the adjuster spoke to the claimants’ counsel for clarification, as well as the insured’s mother and criminal lawyer. But Mercury ultimately would not agree, the offer lapsed and the claimants brought a lawsuit against the insured. The lawsuit was settled in a stipulated judgment for $3 million, coupled with a covenant not to execute and an assignment of rights against Mercury. Mercury then paid the $30,000 and in the ensuing breach of contract and bad faith lawsuit, claimed that it had been concerned with whether the wording was intended merely to prevent a waiver of restitution or also preclude an offset against the restitution award by the amount of the settlement.

Specifically, the adjuster professed a belief that the claimants were seeking to ensure a right to the full amount of the restitution award “on top of” the $30,000 from Mercury. Mercury acknowledged that under People v. Vasquez (2010) 190 Cal.App.4th 1126, payments received by a crime victim from the victim’s insurance company or an independent third party such as Medicare for economic losses suffered as a result of the defendant’s criminal conduct cannot reduce the amount of restitution the defendant owes, but the defendant is entitled to an offset to the extent those payments are from his or her own insurance for items of loss included in the restitution order. However, Mercury contended that the additional wording proposed by the claimants’ counsel could have been interpreted as a waiver by the insured of a right to an offset and claimed that it had an obligation to its insured not to jeopardize that right. (Citing Coe v. State Farm Mut. Auto Ins. Co. (1977) 66 Cal.App.3d 981, 994 for the proposition that “[a bad faith] refusal to accept a settlement offer cannot occur where ‘acceptance’ would itself be bad faith”].)

However, the evidence did not support Mercury. The evidence contained numerous instances where the claimants’ counsel had explained to Mercury’s adjuster orally and in writing that “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.” In fact, the claimants’ counsel had written to the adjuster that “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 under People v. Bernal (2002) 101 Cal.App.4th 155.”

Moreover, Mercury’s adjuster ignored the written demand from the insured’s mother that even though the offer had lapsed it should pay the policy limits. Instead, Mercury chose to proceed in defending the personal injury lawsuit and continued to try getting the claimants to sign releases without the restitution wording.

The bad faith case was tried to a retired judge sitting by reference, who found in a bench trial that Mercury had acted unreasonably and in bad faith. In his statement of decision, the referee explained that:

“[B]ased upon the totality of the evidence, the language did not constitute a nonacceptance of the policy limits and was essentially superfluous: ‘It was unnecessary for [the claimants’ counsel] to put it in the release, because the law was clear that a release in a civil case would not release a defendant in a criminal case from a restitution order made by a criminal court. The language added was not vague or ambiguous. It only dealt with the Plaintiffs’ legal right to receive restitution. It did not refer to the insured’s right to offset the money paid by the insurer against the restitution ordered by the criminal court. Mercury’s contention that the language added to the release ‘did not protect the insured against a waiver of her right to restitution offset’ has no merit.”

Further, the referee rejected Mercury’s attempt to deflect responsibility by pointing to objections from the insured, her mother and criminal defense counsel to the wording, saying that “[T]he law is clear that an insured does not have a right to object to a settlement within the policy limits of an automobile liability policy.”

The referee awarded the claimants damages in the amount of the judgment in the underlying case ($3 million) plus 10 percent interest from the date of the judgment and costs of suit. The superior court entered judgment based on the statement of decision, which was affirmed by the appeals court.

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August 16, 2016