California insurance law is far more generous than ours in Maryland
I’m glad to say that our firm has had several verdicts in recent years that exceeded the insurance policy of the at-fault driver. In almost all these cases – there is one exception – we made a demand for the insurance policy limits. Why? Because we knew they would not pay the policy limits, and we were trying to set up our bad faith case after an excess verdict.
Insurance companies have a duty to their insured to try and settle a case within policy limits if it is reasonable to do so. In every Maryland case, we have had, the “reasonable to do so” never gets flushed out because the insurance company does the right thing and pays the policy.
New California Case
Last month in Reid v. Mercury Insurance, a California appeal court looked at a very different question: does the insurer have an obligation to push for settlement in the absence of a demand from plaintiffs’ counsel or make an offer in a timely fashion?
The facts in Reid were not uncommon. Liability was clear. The Mercury insured defendant blew a red light. Bad injuries. 100/300 policy. Insurance company wanted medical records for obvious reasons. Mercury even gave the plaintiff a heads up that it could be a policy limits case, warning both the Plaintiff and the Defendant. Mercury refused to reveal what those limits are (which is
no longer a problem in Maryland).
Plaintiff got mad and hired a lawyer. Mercury gets all the records and tenders the policy. Plaintiff’s counsel refuses. He gets a verdict in a bench trial of, believe it or not, $5.9 million.
Of course, the Plaintiff and Defendant – who faces bankruptcy – hold hands and try to get the full verdict from Mercury.
Plaintiff had one big argument that he hoped was worth $5.8 million: Mercury violated the California Insurance Code Section 790.03(h)(5) that makes it an “unfair and deceptive act” to not take at least a shot at settling “promptly”” a claim in which fault was clear.
Good hustle, Plaintiff’s counsel. But no can do. The trial court disagreed and so did the California Court of Appeal. The appellate court reasoned that an insurance carrier’s duty to settle is not precipitated by how likely an excess verdict will be. The delay was with reason: Mercury did not have the medical bills and records. Given the absence of demand and the insurance company’s clear effort to keep the path to settlement open, it is not bad faith.
Maryland Law
Maryland law does not have statutory language that keeps insurance companies on a leash like pro-consumer California does. It is a tribute to that law that this case was even filed in the first place because no one in Maryland would probably even try. I also think Maryland would agree that Plaintiff needs to demand the policy to open the door to a verdict in excess of the policy limits that the insured might be obligated to pay.
I still think there is an open issue in Maryland whether an insurance company gets off the hook automatically in a bad faith case by tendering the limits just before trial. Federal court interpreting Maryland law seems to
go the other way, but I still think a cogent argument can be made that you have to make the offer before plaintiffs’ lawyer puts so much money into the case that it makes a policy limits offer that was once acceptable now unacceptable.
