In Meleski v. Estate of Hotlen (No. C080023, filed 11/29/18), a California appeals court held that an insurer is subject to the penalties for failure to accept a statutory offer to compromise under Code of Civil Procedure 998, even though the estate of its deceased insured is the named defendant in an action that the insurer defends under Probate Code sections 550, et seq.
In Meleski, the insured was at fault in an accident, but died before suit was filed. The complaint named his estate, although he did not leave one. Probate Code sections 550 through 555 allow an action to establish a decedent’s liability for which the decedent was covered by insurance to be continued against the estate without the need to join the decedent’s personal representative or successor in interest. (Prob. Code, §§ 550, et seq.)
Under the statutory scheme, the estate must be named as the defendant, but service is on the insurance company. (Prob. Code, § 552(a).) Any judgment does not adjudicate rights by or against the estate, unless the personal representative of the estate is joined as a party. (Prob. Code, § 553.) Also, unless the personal representative is joined as a party, no damages may be recovered outside the policy limit; a judgment in favor of the plaintiff in the action is enforceable only from the insurance coverage and not against the estate. (Prob. Code, § 554(a).)
Allstate was not named as a defendant in the Meleski action, but defended the action in the name of the deceased insured. In the process, Allstate failed to accept a statutory offer to compromise under Code of Civil Procedure section 998, and the plaintiff recovered a more favorable judgment in excess of the policy limit. Allstate moved to strike or tax the plaintiff’s cost bill, which included significant expert witness fees and costs pursuant to Code of Civil Procedure section 998. Allstate argued that it could not be forced by section 998 to pay costs because it was not a party to the action, and that in any event, Probate Code sections 550 through 555 limit the amount a plaintiff can recover to the coverage limits of the decedent’s policy.
The appeals court disagreed. The court noted that Code of Civil Procedure section 998 expressly applies to “parties” and that Probate Code section 550 provides that “an action to establish the decedent’s liability for which the decedent was protected by insurance may be commenced or continued against the decedent’s estate without the need to join as a party the decedent’s personal representative or successor in interest.” Further, without joinder of a personal representative, a judgment does not adjudicate any rights against the estate and recovery in excess of the policy limits is waived. (Prob. Code, § 554.) Thus, Code of Civil Procedure section 998 only applies to parties and the insurer is not a party in the Probate Code section 550 action; nonetheless, the court held that Allstate was subject to section 998 penalties.
The appeals court resolved the apparent conflict stating that:
“We consider Allstate a party for purposes of section 998 because, ‘[a] person who is not a party to an action but who controls or substantially participates in the control of the presentation on behalf of a party is bound by the determination of issues decided as though he were a party.’ (Rest.2d Judgments, § 39.) Not only did Allstate have complete control of the litigation of this matter, it also was the only entity opposing Meleski that risked losing money in the litigation. The named party, the estate, was not at risk for payment of damages, which were limited to the Allstate policy. . . . In actuality, Allstate is the party litigating the case, inasmuch as it alone is at risk of loss and it alone controls the litigation.”
The court said that to hold otherwise would permit Allstate to force the matter to trial without penalty, and frustrate the purpose of Code of Civil Procedure section 998, which is to promote settlements and judicial economy. Plus, the court noted that Allstate’s position could lead to absurd results, because Allstate had served its own section 998 offer, and could have enforced the code section’s penalties without question, since the plaintiff was obviously a party to her own action.
In addition to finding that Allstate was a de facto party for purposes of section 998, the Meleski court also rejected an argument that Allstate’s total liability was limited to its policy limit regardless. The court noted that Probate Code section 554 provides that: “[E]ither the damages sought in an action under this chapter shall be within the limits and coverage of the insurance, or recovery of damages outside the limits or coverage of the insurance shall be waived.” However, the Meleski court pointed out that “costs are not damages.” Consequently, Allstate was liable for the cost award in addition to damages up to the policy limits, which added another $66,000 on top of the $100,000 policy limit.
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