Viewpoint: Thanksgiving Holiday Is No Excuse for Potential Insurer Bad Faith
Short-fuse, time-limited demands are structured by plaintiff’s attorneys to create the least amount of time for an insurer to respond. Often, short-fuse demands are made just before upcoming holidays with the hope that distracted insurance company adjusters are distracted and run out the clock. That is what occurred in Hedayati v. Interinsurance Exchange of the Automobile Club, 67 Cal.App. 5th 833 (4th Dis. 2021).
In Hedayati, the insured had $25,000 liability policy limits. The plaintiff obtained a $26 million judgment against the insured. The plaintiff had suffered catastrophic injuries when the insured ran a red light and struck the plaintiff in a pedestrian crosswalk. The insurance company was immediately notified of the accident by the insured driver. The insured authorized the insurance company to disclose the insured’s policy limits of $25,000. The insured also informed the insurance company that the insured had no other insurance or assets. The insured was obviously concerned about the exposure. When the insured asked the insurance company about pursuing a release from liability, the insurance company inaccurately advised the insured that the plaintiff was not willing to sign a release.
During settlement negotiations, the insurance company repeatedly refused to reply to the plaintiff’s attorney’s inquiries regarding the insured’s policy limits. The insurer finally disclosed the $25,000 limit, but did not provide proof of the limits to the plaintiff’s attorney. Also, the insurer did not provide a written declaration signed by the insured indicating that the insured had no other insurance or financial assets.
To make matters worse, the insurance company’s adjuster sent plaintiffs a “confirming” letter, indicating that a prior settlement offer had been made to the plaintiffs for policy limits. The plaintiff’s attorney denied ever having received the initial policy limits settlement offer. In the confirming letter, the adjuster invited the plaintiff’s attorney to contact the adjuster with any further questions, but was silent regarding the insured’s assets or the lack of other insurance.
The plaintiff’s attorney responded by agreeing to settle the case for the $25,000 policy limit on the condition that the insurance company furnish information regarding the lack of other insurance and personal assets. The plaintiff’s attorney demanded strict adherence to each and every term and condition of the offer to be accepted. No term could be changed in any way to achieve compliance.
The plaintiff’s attorney’s letter indicated that the offer to settle for policy limits would expire within a week. Acceptance was conditioned upon the offer being accepted by overnight UPS or Fed Ex delivery, but not by fax or courier. The demand was strategically planned so that the upcoming Thanksgiving holiday was in the middle of the one-week timeframe. (In 2012, Thanksgiving fell on Nov. 22, and the demand was going to expire on Nov. 27.) Given that timeframe, if the insurance company’s offices were closed for the holiday, the insurance company practically had only three days to accept the offer. The demand letter was not reviewed by the insurance company adjuster before the offer expired.
The trial court granted summary judgment in favor of the insurer, finding that the “confirming” letter, irrespective of whether the original demand had never been sent or not, did offer policy limits. The trial court went on to find there was no legitimate reason for the plaintiff’s attorney’s “mega-short” deadline and its conditions.
However, the California Court of Appeals reversed because the reasonableness of the insurer’s failure to communicate raised factual questions centered upon whether the insured was out of town for the Thanksgiving holiday and could not be consulted regarding the offer/demand. The court also found that the short time-limited nature of the settlement demand by plaintiff’s attorney, standing alone, did not establish that it was reasonable for the insurer to fail to communicate. Rather, a trier of fact could conclude that the insurance company’s repeated failure to provide plaintiff’s attorney with necessary information regarding settlement would have provided a good reason for plaintiff’s attorney to draw a line in the sand by issuing the short fuse demand.