PINTO*: THE BIG, FAT INSURANCE BAD FAITH CASE THAT WASN’T
*Pinto v. Farmers Insurance Exchange (2021) 61 Cal.App.5th 676
Mark E. Hancock
It might take a lawyer who represents Clients in breach of contract/bad faith cases against insurance companies and defends them in Cumis Counsel cases to agree with Farmers that they were not guilty of bad faith in the Pinto case. Bad faith is unreasonable conduct by an insurance company; to prevail in a bad faith case, one has to show unreasonableness. It should be remembered that an insurance company’s obligations to its insureds extends beyond and encompasses more than just payment of “facially reasonable” settlement demands. The demand in Pinto left too many things hanging. Asking basic questions is not necessarily being unreasonable and may, in fact, be appropriate in trying to protect an insured.
THE FACTS BEHIND THIS EIGHT (8) YEAR (2013-2021) JOURNEY
Four young people, returning to California from a party at Lake Havasu, at which drugs were “present,” were injured in a single vehicle roll-over on March 31, 2013. Plaintiff Alexander Pinto, was paralyzed. The owner of the pick-up truck, Alaxandrea Martin, suffered brain damage. Sad enough, but there’s more.
Alaxandrea only had $50,000/$100,000 in auto liability coverage with Farmers. There was some dispute over who was driving, but there was evidence, including statements from Ms. Martin, that the driver was Dana Orcutt. Her license had been suspended for a prior DUI. A witness said Orcutt appeared extremely intoxicated and had said “I’m going to jail for what I did.” The police report stated that Orcutt, under the influence of alcohol, swiped a guardrail, went off the road and up a hill, became airborne and landed upside down.
Where would the money come from for this sad tragedy? Enter the lawyers.
In what some might view as a high-pressure gold mining effort, Pinto’s attorney wrote the Farmers adjustor on July 1, 2013, offering to accept the liability and medical payment limits “in full and complete settlement of [his] personal injury claim” and demanding that “the insured” (apparently referring to Ms. Martin) provide a release, a declaration that “the insured” had not been acting in course and scope of employment at the time and a copy of any applicable insurance policy, all in a generous fifteen days.
The adjuster relayed the offer to Ms. Martin (the named insured) and Ms. Orcutt (the permissive driver?) She had a hard time reaching Ms. Orcutt. She called Pinto’s lawyer three times seeking an extension. He never called her back.
The adjuster hired a private investigator, who located Ms. Orcutt on July 13. Ms. Orcutt told the investigator that she had no other insurance and had not been acting in course and scope of any employment, but did not respond to the adjuster’s request for a declaration to that effect.
The adjuster also hired a lawyer to help clarify and resolve the claim. That lawyer faxed Pinto’s attorney a letter on July 15, asking, among other things, for: clarification that the offer extended to both the named insured and the permissive driver, if the text of the Farmer’s policy was going to be sufficient (in light of Ms. Orcutt’s representation that there was no other insurance), if a proposed declaration form would be sufficient, whether Pinto was married, if there were any medical liens and if Pinto was going to pursue a claim against GM. (Things that an insured -or an insurance company trying to look out for its insured(s) - might reasonably want to know.) That lawyer also asked a 30 day extension.
In response, Pinto’s lawyer stated that the offer extended to all insureds, including Ms. Orcutt, and that Mr. Pinto was unmarried. He didn’t respond to the other inquiries and stated that Farmer’s had until 5:00 p.m. the next day to accept.
Before 5:00 p.m. on July 16, Famers hand-delivered a letter to Pinto’s lawyer, accepting the offer and enclosing a check for $50,000 and a release of Ms. Martin and Ms. Orcutt for signature. [The opinion also mentions that the adjuster tendered the whole $100,000 occurrence limit to all three occupants except Ms. Orcutt, though it does not say when that that tender was made. By placement in the opinion, it appears that offer may have been made before the letter from Pinto’s lawyer.]
On July 17, Pinto’s lawyer rejected the tender, claiming that Farmers “failed to perform even the most perfunctory investigation…and…to provide… reasonable proof of Ms. Orcutt’s complete policy limits and course and scope status….” No lawsuit against GM is mentioned in the opinion. Instead, Pinto sued Martin and Orcutt and settled with them on the bases that the settlement would be regarded as a 10 million dollar judgment, with the insurers paying Pinto $65,000 (another insurer covering Orcutt for minimum limits having been discovered), and with Orcutt and Martin assigning their rights against Farmers to Pinto. Pinto then sued Farmers for insurance bad faith.
At trial, Pinto was awarded $9,935,000, which was reversed, on appeal, in 2021. So why is this the big fat bad faith case that wasn’t?
I believe Pinto is a cautionary tale about forgetting basics and how the use of high-pressure tactics may backfire
It should be remembered that a basic essential of insurance bad faith is unreasonable conduct by the insurance company. Here, plaintiff was riding on the elements of CACI 2334, which has to do with failure to accept “a reasonable settlement demand for an amount within policy limits.” Pinto essentially provides that, CACI 2334 notwithstanding, simply failing to accept a “facially reasonable demand” isn’t good enough for insurance company “bad faith.” There has to be proof that the insurer unreasonably failed to “accept” it.
What was unreasonable here? Not only was Ms. Orcutt not the one who actually bought the policy from Farmers, but the jury actually found she had failed to cooperate with Farmers, despite their reasonable efforts to obtain her cooperation.
[There wasn’t a lot of express discussion about this in the appellate opinion, and we are not privy to the record on appeal, but just concentrating on CACI 2334 by itself, one may ask how is a 15 day time-limited demand “reasonable” in the context of a roll-over accident involving four occupants, where the plaintiff’s attorney gives no extensions and leaves inquiries about liens and other claims unanswered? A critic might also ask how smart settling a case for $50,000 would have been - given that other insurance was subsequently uncovered – not that the $15,000 would go very far to help a paraplegic. That was apparently not the point, however. The point appears to have been trying to make a case for bad faith and that got dunked, because there wasn’t a demonstration of the insurance company’s unreasonableness in “failing” to accept it.]
In addition to common sense, even before this decision came out, there was discussion in legal treatises about whether there are really two (and not just one) “reasonableness inquiries” in failure to settle cases. (See, for example, the extensive discussion in DiMugno and Glad, California Insurance Law Handbook (2021) §§ 11:183-11:186, pp. 405-418.) What one might know from such legal research is that, in 2003, “unreasonably failed to accept a reasonable settlement demand” was part of the original version of CACI 2334 and that, in 2006, the Civil Jury Instructions Advisory Committee, in an effort to clarify that mere negligence in failure to accept a reasonable offer is not bad faith, ironically got rid of “unreasonably,” but rejected Justice J. Walter Croskey’s proposal (as to CACI 2334) that the failure to accept the reasonable settlement offer be “without proper cause or with no reasonable basis.” Might one have seen Pinto coming?
Mark E. Hancock is an attorney in Ventura, California, who handles insurance claims and cases, including under auto, CGL, disability, homeowners, inland marine, life, long-term care, travel/trip, UM and UIM insurance policies, for insureds and who defends insureds, as CUMIS counsel, in cases where the insurance company “reserves rights.”
 The opinion in Pinto does not get into the minutiae of whether the Release has the Releasor(s) agreeing to pay for all medical liens and/or to defend, hold harmless and indemnify Releasees from any and all liens, including public hospital liens, and/or from cross-complaints from other entitles, like GM – assuming, of course, that Releasors would be capable of doing those things. Just plunking down the policy limits and running - leaving the insured(s) hanging - now that could be bad faith.