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Party's Insurer Cannot Be Sanctioned For Failing To Offer More At Mandatory Settlement Conference

05.21.2009

Does a liability insurer have an obligation to negotiate in “good faith” at a court ordered mandatory settlement conference? According to the California Court of Appeal in Vidrio v. Hernandez¸172 Cal.App.4th 1443 (2009), the answer is “no.” 

Vidrio was a negligence case arising out of a car accident. The defendant was defended by its auto liability insurer. A mediation did not result in settlement, and the court set a mandatory settlement conference. The attorney appointed by the insurer and the claims adjuster attended the MSC. The trial court expressed the opinion that the defense should have offered more to settle.

The trial court noted that local rules and Superior Court litigation guidelines mandated good faith representation at settlement conferences. The court opined that the case was one of damages and not liability and that the adjuster and appointed counsel were unprepared to discuss damages, defense costs or how they came to the settlement offer of only $1,000 per plaintiff. The court found bad faith conduct and issued an order to show cause against defense counsel, the adjuster and insurer. At the order to show cause hearing, defense counsel provided a detailed declaration of his representation of the insured and the insured’s belief that she was not liable. The court found that the insurer, but not defense counsel or the adjuster, failed to negotiate in good faith and ordered the insurer to pay monetary sanctions.

The Court of Appeal reversed. The Court identified statutes and local rules as grounds for potential sanctions during and after settlement conferences. However, as to the sanctions against the liability insurer, the Court concluded that “the failure to increase a settlement offer or to otherwise participate meaningfully in settlement negotiations violates no rule of court and is not a proper basis for an award of sanctions.”

While we would not recommend “thumbing your nose” at the court in settlement discussions, it appears that this Court of Appeal would not permit sanctions against an insurer for such conduct.

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