Dismissal of Bad Faith Suit Against Farmers Reversed Where Insureds Incurred Attorney Fee Expense
In the unpublished case of Kennedy v. Farmers Insurance Exchange, No. B217963 (July 27), Division Two of the Second Appellate District reversed a dismissal after demurrer of a lawsuit against Farmers arising out of alleged wrongful conduct in Farmers’ handling of a liability claim. The Court of Appeal held that the complaint pled facts sufficient to state causes of action for breach of contract and bad faith, but upheld the dismissal with respect to the fraud claim alleged. Farmers asserted that because it assigned counsel to defend appellants and ultimately paid the policy limit, plus the excess portion of the judgment, it satisfied all express and implied duties to the appellants. The Court of Appeal said that could not be established as a matter of law at this stage of the proceedings. Farmers did not assign counsel to the case when it first received a policy limits demand on the claim. Moreover, Farmers never told appellants that it had taken the position at mediation that it would never pay policy limits; nor did it tell its insureds that it in fact believed the liability could exceed policy limits.
Farmers argued that all this made no difference because plaintiffs never suffered any damages as a result of this conduct. The Court of Appeal held that it was sufficiently alleged that the insureds had retained their own counsel to make up for Farmers’ shortcomings. Farmers alleged that such counsel was retained only after Farmers ultimately agreed to tender policy limits and therefore such counsel was not counsel retained consistent with Brandt v. Superior Court (1985) 37 Cal. 3rd 813 to secure policy benefits. Farmers took the view that the attorneys fees were incurred to persuade Farmers to pay the excess judgment. The Court of Appeal found that “Farmers ignores that its failure to explore settling within the policy limit prior to trial and certainly after it knew that liability could exceed the policy limit, as well as it failure to keep appellants informed of [the] various settlement demands and offers, exposed appellants to potential liability beyond the policy limit.” This justified the appellants’ actions and made Farmers potentially liable for that expense. The Court, however, found that the facts alleged did not justify a claim for fraud because Farmers did ultimately pay the full amount of the judgment.
July 27, 2010
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