The Ninth Circuit found that the insurer's negligent failure to respond to a settlement offer did not constitute bad faith. McDaniel v. Gov't Employees Ins. Co., 2017 U.S. App. LEXIS 4029 (9th Cir. March 7, 2017).
McDaniel was the assignee of claims against GEICO assigned by the insured after settling a wrongful death suit. McDaniel alleged that GEICO unreasonably refused to accept a $100,000 policy limits offer. The case went to trial and a jury awarded McDaniel over $3 million against the insured.
On August 7, 2009, McDaniel's attorney Steven Nichols extended a $100,000 policy limits settlement offer with a fifteen day acceptance deadline to GEICO's attorney Michael Griott. The parties subsequently agreed to extend the acceptance deadline to ten days following MacDaniel's service of responses to outstanding interrogatories, which Nichols hand-delivered to Griott on August 27, 2009. On September 1, 2009, Griott emailed GEICO claims adjuster Aldin Buenaventura with a letter attachment indicating that Nichols had submitted the requested interrogatories and, in bold and underlined text, that "[o]ur response to Plaintiff's policy limits demand is due on or before September 11, 2009."
Buenaventura, however, did not read Griott's September 1, 2009 email or the attached letter. Buenaventura was therefore unaware that the interrogatory answers had been received and the deadline to accept the $100,000 settlement had begun to run. When Buenaventura attempted to accept the settlement offer on October 1, 2009, after receiving authorization from the GEICO home office that same day, he was unaware that the deadline for acceptance had already passed.
After securing the $3 million dollar judgment and assignment from the insured, McDaniel sued GEICO for bad faith. The district court granted McDaniel's motion for summary judgment.
The Ninth Circuit reversed. To establish a breach of the implied duty to settle, two elements had to be met. First, the third party must have made a reasonable offer to settle the claims against the insured for an amount within the policy limits. Second, the insurer must have unreasonably failed to accept an otherwise reasonable offer within the time specified by the third party for acceptance. No reasonable jury could conclude that GEICO's failure to accept the settlement offer on or before the September 6, 2009 deadline was unreasonable. Instead, the facts conclusively established that GEICO both wanted and attempted to accept McDaniel's settlement offer, but failed to discover the September 6, 2009 deadline because of Buenaventura's negligence.
Consequently, the judgment was vacated and the district court was directed to enter judgment in favor of GEICO.