Allstate loses bid to overturn $14M insurance bad faith verdict

The circuit court noted that whether an insurer had acted unreasonably, and thus in bad faith, in rejecting a settlement demand was “a question of fact for the jury.” (Photo: Shutterstock) This story is reprinted with permission from FC&&S Legal, the industry’s only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe. The U.S. Court of Appeals for the Ninth Circuit has affirmed a decision by the U.S. District Court for the Central District of California denying Allstate Indemnity Company’s motion for judgment as a matter of law (JMOL) and motion for new trial after a jury found Allstate guilty of bad faith refusal to settle under California law and awarded Carlos Madrigal, Richard Tang, and Anna Tang approximately $14 million in damages — plus interest. Allstate had a “reasonable opportunity” to settle The circuit court rejected Allstate’s contention that it was entitled to JMOL on the bad faith claim notwithstanding its rejection of Madrigal’s policy limits demand. The circuit court found that there was substantial evidence in the record from which a reasonable jury could have concluded that Madrigal’s demand presented Allstate with a reasonable opportunity to settle and that its rejection of the demand had not been compelled by a factor out of Allstate’s control, as the insurer had contended. Next, the Eleventh Circuit rejected Allstate’s argument that it was entitled to JMOL because it could not have accepted Madrigal’s demand given that it had not expressly released Ms. Tang because of its obligation under California law to protect all of its insureds when settling claims. Demand was reasonable The circuit court reasoned that a reasonable jury could have concluded that Madrigal’s demand was reasonable, triggering Allstate’s good faith duty to accept it, because the evidence did not permit “only one” reasonable conclusion that the phrase “appropriate release” in his demand impermissibly offered to only and exclusively release Mr. Tang. In the circuit court’s opinion, a reasonable jury could have concluded that Madrigal’s demand (1) was directed to Mr. Tang (the known insured), but (2) incorporated a condition that Allstate provide an “appropriate release” that included other insureds (whether disclosed or not) whom Allstate may have deemed necessary for the resolution of the claim. The circuit court decided that the district court’s decision had to be affirmed because it was “not ‘quite clear that the jury [ ] reached a seriously erroneous result’” regarding the meaning of “appropriate release” to find that Madrigal’s demand had been reasonable. Jury had “substantial evidence” In addition, the Eleventh Circuit was not persuaded by Allstate’s argument that it was entitled to JMOL on the bad faith claim because it had tendered the $100,000 policy limits twice to settle Madrigal’s demand in a reasonably timely fashion. The circuit court noted that whether an insurer had acted unreasonably, and thus in bad faith, in rejecting a settlement demand was “a question of fact for the jury.” Related: 5 trust builders for smarter insurance claim settlements The court then added that the jury had substantial evidence from which it could reasonably have found that Allstate’s initial response — a rejection and counter-offer — had been unreasonable because, by that date, the most reasonable manner of disposing of the claim was by accepting the proposed settlement, given that Allstate’s claims adjuster had: (1) Found a previously-unidentified witness who had contradicted Mr. Tang’s version of events and who had placed responsibility for the accident on Mr. Tang; (2) Determined that Ms. Tang also could be liable under employer-employee liability; (3) Received medical bills and information about Madrigal’s uninsured status that led the adjuster and her colleagues to believe the Tangs’ exposure could be well above the policy limits and had advised the Tangs of the same; and (4) Declined to discuss or clarify potential compliance issues — even in writing as the demand letter allowed — with Madrigal’s attorney. The case is Madrigal v. Allstate Indemnity Co., Nos. 16-55839, 16-55863 (9th Cir. June 15, 2017). Related: Adjuster ethics require accurate information Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at smeyerowitz@meyerowitzcommunications.com.


About John Fagan

John is a Jacksonville native who grew up on the First Coast. He graduated from Bishop Kenny High School in 1975 and went to college at Florida State University where he completed a 4-year program in 3 years. John graduated from the Florida State University College of Business in 1978 and went straight into Florida State University College of Law. While in law school, John earned a position on the prestigious Law Review Board serving as its Business Editor. As a law student, John studied in the Oxford program. He also interned with the Florida Legislature working in the Florida House of Representatives Criminal Justice Committee. John was admitted to the Florida Bar in 1981. John began his legal career as a law school intern in the State Attorney's Office in Jacksonville in 1981. After his internship, legendary State Attorney Ed Austin hired John as a full-time Assistant State Attorney for the Fourth Judicial Circuit (Clay, Duval, and Nassau Counties). As a prosecutor, John tried jury and non-jury trial on charges ranging from DUI to Murder. In 1983, John moved from the State Attorney's Office to begin his career in private practice. He has practiced law for 30 years on the First Coast. For the last 20 years, John and his family have made Clay County their home. John limits his practice to personal injury and disability cases. While there are many fine attorneys in Clay County, John is one of only a few Clay County attorneys who limit their practice to personal injury and disability cases. John takes pride in helping clients resolve injury claims in ways that avoid the stress, uncertainty, and the expense of unnecessary litigation. Professional Activities John is the past President of the Clay County Bar Association and has served on the Board of the Clay County Bar Association from 2009-2013. He is an active member of the Florida Bar, and the Federal Bar of the Middle and Southern Districts of Florida. He is also a member of the American Association of Justice, the Florida Association of Justice, the National Organization of Social Security Claimants' Representatives, and the National Organization of Veterans' Advocates. Service to the Community John is involved in the Clay County Community serving as a member and Director of the Rotary Club of Orange Park, of the Clay County Bar Association, and the Putnam County Bar Association.
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