The Ninth Circuit affirmed the jury’s award of $14 million in damages after finding Allstate was in bad faith in refusing to settle the matter. Madrigal v. Allstate Indem Co., 2017 U.S. App. LEXIS 10643 (9th Cir. June 15, 2017).
Madrigal was injured in an auto accident with Tang, Allstate’s Insured. Allstate refused Madrigal’s settlement offer although it was within policy limits. Madrigal and Tang eventually sued Allstate for bad faith. The jury determined Allstate had refused to settle in bad faith. Allstate moved for judgment as a matter of law (JMOL) and a new trial. Both motions were denied by the district court and Allstate appealed.
Allstate also argued it was entitled to JMOL on the bad faith claim because it tendered the $100,000 policy limits twice to settle Madrigal’s demand in a timely fashion. Whether an insurer acted unreasonably and thus in a bad faith, in rejecting a settlement demand, however, was a question of fact for the jury. Here, the jury had substantial evidence from which it could reasonably find that Allstate’s initial response, a rejection and a counter-offer, was unreasonable because, by that date, Allstate’s claims adjuster had: (1) found a previously-unidentified witness who contradicted Mr. Tang’s version of events and placed responsibility for the accident on Mr. Tang; (2) received medical bills and information about Madrigal’s uninsured status that led the adjuster to believe Tang’s exposure could be well above the policy limits; and (3) declined to discuss or clarify potential compliance issues, even in writing as the demand letter allowed, with Madrigal’s attorney.
Therefore, it was reasonable for the jury to conclude that when Allstate responded to Madrigal’s offer with a rejection and counter-offer, Allstate breached the implied covenant of good faith and fair dealing by refusing an offered settlement where the most reasonable manner of disposing of the claim was by accepting the settlement.
Lastly, Allstate challenged the special verdict form which asked whether: (1) Madrigal made a reasonable settlement demand for an amount within policy limits; and (2) Allstate’s failure to accept Madrigal’s settlement demand was unreasonable. These were the elements of bad faith refusal to settle liability under California law. Therefore, the special verdict form, coupled with the jury instructions, fully and fairly presented to the jury the issues it was called upon to decide regarding Allstate’s bad faith liability.
