Pinto v. Farmers Insurance Exchange
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After judgment was entered against Farmers based solely on a special verdict, Farmers argued that the judgment must be vacated because the jury did not find, and no evidence established, that it acted unreasonably in failing to settle plaintiff’s claim against the insured.
The Court of Appeal concluded that, in the context of a third party insurance claim, failing to accept a reasonable settlement offer does not constitute bad faith per se. Rather, bad faith liability requires a finding that the insurer acted unreasonably in some respect. The court explained that, to be liable for bad faith, an insurer must not only cause the insured's damages, it must act or fail to act without proper cause, for example by placing its own interests above those of its insured. In this case, the special verdict was facially insufficient to support a bad faith judgment because it included no finding that Farmers acted unreasonably in failing to accept plaintiff's settlement offer.
The court also concluded that a special verdict based solely on an insufficient jury instruction cannot support a judgment. In this case, the jury was neither asked to nor did find that Farmers acted unreasonably or without proper cause in failing to accept plaintiff's settlement offer. Therefore, because a cause of action for bad faith requires a finding that the insurer acted unreasonably, the absence of such a finding precludes judgment for the plaintiff on that claim. Finally, the court concluded that the proper remedy is to vacate the judgment and enter a new judgment for Farmers.
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