Judicial Council of California Issues Opinion in Maryam Hedayati Vs. Interinsurance Exchange of Automobile Club Case

SACRAMENTO, California, Aug. 12 (TNSsro) -- The Judicial Council of California issued the following opinion (No. G058189):

MARYAM HEDAYATI, Plaintiff and Appellant, v. INTERINSURANCE EXCHANGE OF THE AUTOMOBILE CLUB, Defendant and Respondent.

OPINION

Appeal from a judgment of the Superior Court of Orange County, Randall J. Sherman, Judge. Reversed.

Lari-Joni & Bassell and Torsten M. Bassell for Plaintiff and Appellant.

Sheppard, Mullin, Richter & Hampton, John T. Brooks, Karin Dougan Vogel, Thomas R. Proctor and Matthew G. Halgren for Defendant and Respondent.

* * *

Maryam Hedayati appeals from the judgment entered against her after the trial court granted summary judgment to Interinsurance Exchange of the Automobile Club (Auto Club or the Club) on Hedayati's breach of good faith and fair dealing claim. Hedayati suffered catastrophic injuries in October 2012 when Auto Club's insured ran a red light and struck her in a pedestrian crosswalk. The insured driver immediately notified Auto Club of the accident and authorized the Club to disclose his policy limits ($25,000); he also informed Auto Club he had no other insurance or assets. Auto Club's policy with its insured required him to relinquish to the Club his right to negotiate settlement of potential tort claims falling within the policy. When he inquired about a release, Auto Club inaccurately told its insured driver Hedayati was not willing to sign one.

Despite repeated requests during settlement negotiations from Hedayati's attorney, Auto Club initially declined to disclose the insured's policy limits; eventually it relented, but even then Auto Club declined to provide written proof of those limits, which the Club knew was common practice to facilitate a settlement. Auto Club then withheld from Hedayati's counsel the insured's written declaration which indicated he had no other insurance, which the Club had confirmed, and the insured's statements that he had no assets. Auto Club also, despite multiple requests from Hedayati's lawyer, failed to provide a copy of its insured's policy which Hedayati's lawyer needed to verify its terms. Hedayati's counsel had demanded a hard copy of the policy as a settlement condition. Auto Club ultimately failed to settle the matter within its $25,000 policy limits. Hedayati subsequently obtained a $26 million judgment against the insured driver, along with assignment of the insured's claim against the Club for breach of the covenant of good faith and fair dealing implicit in its policy with him.

Although it did not say so explicitly, the trial court's written summary judgment ruling indicates it concluded no reasonable trier of fact could find a breach of the covenant of good faith and fair dealing in the foregoing facts if plaintiff established them at trial. In other words, the court believed the evidence presented by Hedayati on this issue was insufficient as a matter of law. On appeal, we must view the record in the light most favorable to the party opposing summary judgment. After our de novo review, we disagree with the trial court's evaluation of the evidence. We therefore reverse its summary judgment ruling and the judgment based on that ruling.

FACTUAL AND PROCEDURAL BACKGROUND

The October 2012 accident at issue here severed one of Hedayati's legs at the scene, shattered the other, and left her in a coma with broken bones throughout her body. Forty-three years old and a recent medical school graduate at the time, Hedayati was struck while walking as she took a break from studying for her medical board examinations. The insured, 45-year-old Maurice Vanwyk, reported the incident to the Auto Club the next day, on October 2, 2012.

The Auto Club intake person who took Vanwyk's call told him a claims representative would contact him for more details by the end of the day; the representative did so within 90 minutes. Within hours of receiving Auto Club's file concerning the accident, its mobile adjustor drove to Vanwyk's home to interview him personally.

The adjustor soon reported to Auto Club that Vanwyk "makes a very poor witness for himself." During that initial interview, the insured gave his signed "permission to release policy limits" so that Auto Club "could move quickly" to settle any potential claims if they exceeded his policy limits. Vanwyk admitted at that time eyewitnesses told him he ran a red light before he struck Hedayati. The adjustor immediately recognized, and explained to Vanwyk, that liability in excess of his policy limits was likely "due to his speed and hitting a pedestrian," "even if [we] accepted [only] a percentage of responsibility."

The adjustor's interview notes reflected that Vanwyk disclosed he had "NO other insurance, no homeowners or PUP [i.e., umbrella policy]. He does not own anything, no real property. He is currently unemployed and living with his parents." Soon thereafter, and immediately upon reviewing the adjustor's report which included a newspaper account of the accident and a description of Hedayati's injuries, an Auto Club manager recorded on the company's notes: "Would appear that our $25K limit is gone."

Beginning about two weeks after the accident, while Hedayati remained unconscious and on life support, the attorney her family retained on her behalf repeatedly urged Auto Club by fax and telephone to "[s]eek your insured's authorization to disclose policy limits . . . ." Auto Club had already done so during the adjustor's initial contact with Vanwyk, but the Club refused to disclose the figure according to Hedayati's attorney.

The adjustor later provided notes suggesting he called the attorney sometime before 8:01 a.m. on the morning of October 19, 2012, to offer the policy limits "to settle Ms. Hedayati's claim." Hedayati's attorney categorically denied this. He testified he received no such call; he also denied the adjustor ever revealed the policy limits. Auto Club's records fail to confirm any October 19 settlement offer by the Club. The Club's record indicated only that by October 19, 2012, it had reassigned the claim from its mobile department, where the initial adjustor worked, to its casualty department which handled claimants who were represented by counsel.

That same day, October 19, 2012, the Club's casualty adjustor sent Hedayati's attorney a letter which included no mention of the mobile adjustor's alleged offer to settle the matter. Instead, the letter stated Auto Club would be contacting Vanwyk "to discuss his policy limit" and to "seek our insured's authorization to disclose [the] policy limit." The new adjustor also stated (1) she needed to contact the insured to "rule out any other insurance that may apply for this accident; (2) Auto Club's "liability determination is still under investigation"; and (3) that the adjustor would "contact[] you within the next 30 days to advise you of our investigation or evaluation of this claim . . . ."

The casualty adjustor located other Auto Club policies in Vanwyk's father's name but had determined by October 26, 2012, in consultation with the casualty team manager and other Auto Club personnel, those policies did not provide coverage for Vanwyk or otherwise apply to the accident.

The casualty adjustor met with Vanwyk on October 30, 2012. The adjustor prepared a declaration Vanwyk signed attesting that he was "not in the course and scope of employment at the time" of the accident. He also attested he did not have "an umbrella or excess insurance policy that would be applicable . . . ." He identified by its number his Auto Club policy. The adjustor later acknowledged she understood claimant attorneys "making a policy limit demand . . . always want to rule . . . out . . . any other insurance [

] . . . [

] before they can settle the claim." She also acknowledged that before a settlement can be reached, claimant attorneys "want a copy of the [policy] declaration page as evidence of what the insurance limits [are]."

The casualty adjustor drafted a letter to Hedayati's attorney on October 30, 2012, that included these settlement prerequisites. She had obtained that same day Vanwyk's declaration denying any other insurance and she further stated in her draft letter: "I [have] attached [a] copy of [the] declaration page of our insured's policy for your review." But she never sent that letter. Instead, on October 31, 2012 the adjustor sent Hedayati's lawyer a letter in which she purported to "confirm . . . in writing" an unidentified "previous settlement offer" made by Auto Club. The letter also stated, "Due to the nature and extent of your client's injury, Auto Club will tender our insured maximum policy limit of $25k to settle your client's injury claim," and directed Hedayati's attorney "to contact me if you have any further questions." According to Heyadati, through November 2012 Auto Club never provided the policy information he repeatedly requested, and never provided other required information, including a copy of the policy itself and reasonable release terms.

On November 12, 2012, the casualty team manager reviewed Auto Club's file concerning the claim and noted that "Cl[ai]m[an]t," i.e., Hedayati, "may be taken off life support and if so and [therefore] becomes [a] fatality[,] will need to secure dec[laration] of heirs, death cert[ificate] and release from proper heir to resolve." The manager stressed in his note on the file: "Will need to resolve liability and update Loss Details screen and follow up with clmt atty re: settlement/release." (Italics added.) Another week passed during which no release or other documents were transmitted to Hedayati's attorney.

On November 20, 2012, Hedayati's attorney sent Auto Club a letter offering to settle the matter for the insured's $25,000 policy limit. The letter specifically conditioned the offer on Auto Club furnishing the documentation that had been absent from Auto Club's October 31, 2012 letter. The conditional settlement offer required Auto Club to provide Hedayati's counsel with the insured's signed declaration confirming he was not "driving in the course and scope of his employment" at the time of the accident, and that "no other insurance coverage [is] available" to settle Hedayati's personal injury claims, other than Vanwyk's "Automobile Club policy, which only provides for $25,000.00 in per person policy limits." The offer also required that Hedayati's attorney receive a "true and correct copy of the Declaration Page and Insurance Policy for the underlying Auto Club policy that is the subject of this settlement." The offer further required the insured driver to attest that the "total amount of [his] assets and holdings is less than $200,000.00."

The November 20 settlement offer expressly stated that Auto Club could condition acceptance of the offer on the $25,000 settlement figure "being inclusive of any and all lien claims," including for Hedayati's health care and legal representation. The offer also specified that acceptance could be conditioned on court approval to verify the authority of "Claimant's guardian ad litem or conservator" to settle her claims and execute a release on her behalf. If so conditioned, Auto Club was to provide--"[w]ithin 7 days of your written acceptance" of the offer--any release "you require to be signed by the Guardian Ad Litem/Conservator." The offer specified that Hedayati was "a single, unmarried woman," thereby eliminating Vanwyk's exposure to a loss of consortium claim.

Counsel's November 20 settlement offer included this caveat: "Strict adherence to each and every term and condition of this offer is required for its acceptance. There can be no change in any of the terms and conditions of this offer." The November 20 letter also addressed Auto Club's "letter dated October 31, 2012, in which you indicate that Auto Club is offering $25,000.00 to settle . . . Hedayati's personal injury claim." "Unfortunately, we must reject the offer . . . because it fails to clearly set forth the exact terms and conditions upon which the offer was made." Hedayati's offer letter instead stated that "[i]f the maximum insurance coverage that is available to indemnify your insured(s) is $25,000.00, then Ms. Hedayati hereby offers to settle all of her claims for those policy limits on" the foregoing terms and conditions described above.

Finally, Hedayati's November 20 offer specified additional conditions, including that it had to be accepted in writing within a week: "Your written acceptance of th[is] settlement offer must be received by our office on or before Tuesday, November 27, 2012. The acceptance must be sent via UPS or Federal Express [FedEx] overnight mail with a tracking number to confirm its delivery." Hedayati's attorney sent the offer to Auto Club by a FedEx "Overnight Envelope" on November 20, 2012. The envelope was addressed to the adjustor handling the matter at Auto Club's Los Angeles office. FedEx's tracking service showed the package was delivered the next morning, on Wednesday, November 21, 2012, at 7:21 a.m. and "Signed for by: ANTHONY."

Auto Club's internal records did not reflect any action on Hedayati's settlement offer until after the offer had expired on November 27, 2012. The first entry in Auto Club's claims notes after November 21 was made by a clerical assistant at 2:49 p.m. on Wednesday, November 28, 2012: "Received file to copy--Copied file and all back to Aaron Meraz for handling."

Around 3:00 p.m. that same day, the Club's casualty adjustor called Hedayati's attorney to request, according to the attorney, "an extension of time to respond to the settlement demand." According to Hedayati's attorney, no indication was given that the Club intended to accept the offer--only that Auto Club wanted more time to formulate a response. Hedayati's attorney declined to grant the extension; instead he indicated "the settlement offer had already expired, without a response, the day before you called me . . . ." (Underlining omitted.) There was therefore no longer any offer to extend.

Among other documents Auto Club later provided Hedayati in discovery was the casualty team manager's calendar which reflected the following entry on the deadline date, Tuesday, November 27, 2012: "Leave early for DDS 1:00 p.m." The manager, Aaron Meraz, testified that if he had seen Hedayati's offer letter the morning it arrived on Wednesday, November 21, 2012, he "would have moved on it." Meraz offered no explanation for why no one at Auto Club responsible for Vanwyk's policy appeared to have seen or acted on Hedayati's offer for more than a week after it arrived.

According to Hedayati, based on internal Auto Club guidelines she obtained during discovery in this matter, Auto Club failed to comply with its own "Excess Policy Limits Handling Standards" for her claim. The guidelines stated they were "intended to address the most frequent and highest exposure situations." The standards included specific procedures for handling time-limited settlement offers. The guidelines are under seal in our record pursuant to Auto Club's request that they be treated as confidential trade secrets, which the trial court granted. We will therefore not describe them further, except to note they were part of the evidence Hedayati submitted to the trial court in her opposition to summary judgment. After reviewing the documents ourselves pursuant to our de novo review, we agree with Hedayati's contention that Auto Club failed here to follow its own guidelines related to the handling of excess policy claims.

Auto Club moved for summary judgment on Hedayati's claim for breach of the covenant of good faith and fair dealing in its policy with its insured. The trial court considered the parties' respective moving and opposition papers, and held a hearing on the motion. The court then granted the motion, finding that "[d]efendant has shown that it did not commit any acts that would constitute a breach of the covenant of good faith and fair dealing . . . ." The court held Auto Club "never rejected any of plaintiff's settlement demands." It concluded as a factual matter, "[t]o the contrary, defendant offered plaintiff its $25,000 policy limits by letter dated October 31, 2012 (Exhibit 5) before plaintiff ever made a demand."

As to Hedayati's demand, the court explained it "must be guided by how case law defines bad faith" and agreed with "the definition [of bad faith] as an unreasonable refusal to accept a settlement offer within policy limits." The court, however, reiterated its conclusion that Auto Club "never refused any of plaintiff's policy limits settlement demands." According to the court, "All plaintiff has shown is that defendant failed to respond by plaintiff's self-imposed, arbitrary deadline to a demand defendant received the day before Thanksgiving for not just $25,000, but also for a signed declaration from the insured attesting to certain facts."

In reaching its conclusion, the trial court seems to have focused more on plaintiff's conduct than that of Auto Club. The court stated, "Although plaintiff's deadline [to accept the policy limits settlement offer] was the following Tuesday after Thanksgiving, plaintiff inexplicably required the response to be sent by UPS or FedEx overnight delivery, not by fax or courier, meaning that it had to be sent the Monday after Thanksgiving." The court found "there was no real reason for the mega-short deadline" and, therefore, Auto Club's response--or lack thereof--was immaterial.

In essence, the court found that no reasonable trier of fact could conclude Auto Club's conduct in failing to meet the clear terms of Hedayati's settlement offer and secure a release constituted a breach of its duties to Vanwyk under his liability policy. In other words, as a matter of law, the trial court found Auto Club did not violate its implied promise to Vanwyk to handle policy claims with good faith and fair dealing regarding his interests. We disagree with this analysis.

* * *

View full opinion at https://www.courts.ca.gov/opinions/documents/G058189.PDF