The Perils of Playing Hard Ball
The Perils of Playing Hard Ball

A recent case from California, Barickman vs. Mercury Casualty, 2 Cal.App.5th 508 (2016) illustrates the perils that may arise when an insurance company, evidently playing hardball with its insured, refuses to deviate from its “form” releases.

In Barickman, the Mercury’s insured (McDaniel) injured two individuals (Barickmand and McInteer) in a car accident in which McDaniel was found to have been intoxicated while driving his car. McDaniel was criminally prosecuted and there was the possibility that McDaniel, as part of any sentence in the criminal proceeding, might be ordered to pay restitution to the two injured parties.

Mercury insisted that Barickman and McInteer sign its “form” release. Barickman and McInteer’s counsel requested a minor modification to Mercury’s “form” release. That minor modification would have clarified that the release would not affect or prejudice Barickman’s and McInteer’s entitlement to receive any restitution that might be ordered of McDaniel. Mercury, continuing to insist that Barickman and McInteer sign Mercury’s “form” release refused to agree to this minor modification.

Because of Mercury’s intransigence in refusing to accept the injured parties’ minor amendment, there was no settlement between Barickman and McInteer on the one hand and Mercury on the other – even though Mercury had agreed in principle to pay the policy’s limits, $15,000 to each of the injured parties.

Barickman and McInteer thereupon sued McDaniels for damages arising from their personal injuries. That action was ultimately settled, with a stipulated judgment in favor of McInteer for $2.2 million and in favor of Barickman for $800,000. As part of the settlement, McDaniel assigned her rights against Mercury to Barickman and McInteer in exchange for their agreement not to attempt to collect the judgment against her. Mercury thereupon paid Barickman and McInteer the policy limits - $15,000 to each of the injured parties.

Barickman and McInteer then commenced a lawsuit against Mercury for breach of contract and bad faith. In that suit, they alleged that Mercury’s failure to make an offer without unacceptable terms and conditions, its refusal to settle the case within policy limits when it had the opportunity to do so, and its unwillingness to make efforts to reach a reasonable settlement constituted a breach of its obligation of good faith and fair dealing.

Barickman’s and McInteer’s bad faith case was tried before a referee. The referee determined that Mercury had acted unreasonably and awarded Barickman and McInteer damages of $3 million – $2.2 million to McInteer and $800,000 to Barickman. Mercury appealed.

The Court of Appeal affirmed the judgment. It affirmed the referee’s finding that Mercury unreasonably refused to accept the injured parties’ modified release. It further determined that Mercury’s eventual offering of policy limits was not sufficient to defeat the injured parties’ claim of bad faith. The Court of Appeal also affirmed the referee’s determination that Mercury’s refusal to accept the modified release, as proposed by counsel for the injured parties, or, at least, to have presented those parties in a timely fashion with a revised release that included the proposed modification was entirely unreasonable.

In-house counsel may be inclined to insist that injured parties agree to their company’s “form” release without any modifications and essentially on a take-it-or leave it basis. This conduct may generate bad faith liability, as shown in the Barickman case. As touchstone for bad faith liability is an examination of whether the insurer acted reasonably “under all the circumstances” (Shade Foods Inc. v. Innovative Products Sales & Marketing, 78 Cal. App. 4th 847, 888 (2000)), the insurer’s conduct in refusing minor modifications of its “form” release may be trigger a bad faith claim. Thus, although Mercury in Barickman did initially act in good faith by offering McDaniels’ policy limits, there were serious questions about whether Mercury did all within its power to effectuate a settlement once the injured parties accepted the offer but proposed a slightly modified version of the accompanying release.

Barickman stands as an object lesson to insurers. While institutional pressure may push insurance company in-house counsel to resist any changes to their “form” releases, Barickman suggests that by doing so – especially in the face of reasonable modifications proposed by the parties injured by the company’s insured – may create additional and potentially unforeseen liability problems.

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