Statistically, more than 95% of bodily injury claims are settled short of trial. This evidences an awareness on the part of both insurers and claimants of the advantages of settling over the risks and costs involved in going to trial.
Due to heavy court congestion and the high costs of providing court facilities to efficiently handle the resolution of civil cases, California policy strongly encourages settlements. Indeed, as will be seen, the controlling statutes are interpreted with a predominant view toward avoiding any result that might tend to discourage settlements; and sanctions may be imposed for unwarranted tactics impeding “good faith” settlement efforts. (Poster v. Southern Calif. Rapid Transit Dist. (1990) 52 Cal.3d 266, 270-272.)
Insurance company concerns
Insurance carriers are also motivated to settle personal injury claims promptly.
Defendant’s concerns (multidefendant cases)
When “concurrent” tortfeasors are sued, the various defendants risk liability exposure to plaintiff and between themselves, they are open to comparative (“equitable”) indemnity claims (American Motorcycle Ass’n v. Super.Ct. (1978) 20 Cal.3d 578.) A “good faith” settlement certification (Ca Civ Pro § 877.6), however, puts a lid on defendant’s liability; thereafter, the settling defendant is absolved of further liability both under the complaint and cross-complaints for comparative indemnity. The indemnity claim bar is a significant factor motivating defendants to reach an early settlement.
Expenses to insurance carrier
As long as a claim remains “open,” the carrier continues to incur internal handling costs (staff, overhead, etc.), plus external expenses in the form of attorney fees and court costs if suit is filed.
In some cases, the insurer’s attorney fees exposure may escalate two- fold: Under certain potential conflict of interest circumstances, the insurer may be obligated to pay for independent defense counsel to represent its insured (Ca Civil § 2860; San Diego Navy Fed. Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358.)
Reserves placed on Insurance claim
Insurance carriers are required by law to place a “reserve” (estimate of potential liability) on each claim. The reserve is usually set by a claims supervisor when the claim is made, and is reviewed periodically as the case develops.
Funds sufficient to cover these reserves must be maintained by the carrier in safe, liquid investments until the claim is resolved. These investments earn less than the carrier can earn with unrestricted funds. Hence, it is in the carrier’s financial interest to unleash its reserves by settling claims as rapidly as possible.
This assumes, of course, the particular claim can be settled within the reserve placed on it. If the demand exceeds the reserve, the carrier will not be as anxious to settle.
Factors such as the seriousness of claimant’s injuries and the liability of the insured are determinative of the “reserve.” Thus, plaintiff’s best interests are served by quickly educating the defense so that an informed “reserve” and a quick settlement can be made.
Potential administrative action
California insurance carriers are bound by the Unfair Practices Act (UPA, Ca Ins § 790 et seq.). Section 790.03(h) of the UPA proscribes 15 “unfair claims settlement practices” . . . including not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear (Ca Ins § 790.03(h) (5)).
Insurers violating any duty under the UPA are subject to administrative sanctions by the Insurance Commissioner, including “cease and desist” orders and monetary fines (up to $5,000 for each proscribed act or, if the act or practice was “willful,” up to $10,000 for each such act; and, for a violation of the Commissioner’s cease and desist order, additional penalties may be imposed –up to $5,000, or $55,000 if the violation was “willful”). (See Ca Ins §§ 790.035, 790.05-790.07)
“Bad faith” liability exposure to insured (breach of “implied covenant”):
Implicit in every insurance policy is a duty owed by the insurer to act fairly and in good faith in handling its insureds’ claims. Insurers breaching this obligation may incur liability to aggrieved insureds for any “excess verdict” (compensatory damages judgment against insured beyond policy limits) . . . plus, in appropriate cases, liability for the insured’s consequential economic losses and emotional distress (but not for any punitive damages levied against the insured. (See Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566. In Finkelstein v. 20th Century Ins. Co. (1992) 11 Cal.App.4th 926, there was no “bad faith” where insured encouraged settlement by voluntarily supplementing insurer’s offer (no resulting “excess verdict”). In Doctors’ Co. v. Super.Ct. (Valencia) (1989) 49 Cal.3d 39, the insurer’s agents and employees not subject to “bad faith” tort liability for unfair claims settlement practices because not personally bound by implied covenant obligations.
A tortious violation of the implied covenant may occur in several ways . . . including (a) failure without proper cause to compensate the insured for a loss covered by the policy, (b) failure to properly investigate the insured’s claim, and (c) failure without proper cause to accept a reasonable settlement within policy limits. (Gruenberg v. Aetna Ins. Co., supra; Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809.
If the insured is forced to go to trial and is found liable under an excess judgment, the carrier’s unreasonable (without “proper cause”) delay in negotiating a policy limits settlement on the insured’s behalf makes out a prima facie case of tort liability to the insured. And if the unreasonable delay was motivated by “malice, oppression or fraud,” the insurer’s tort liability may include punitive damages. (Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452.)
Insurer Not liable to Third Party. An insurer is not liable to third party auto accident victims on a negligent infliction of emotional distress theory for willfully delaying settlement. Such a claim is nothing more than a “thinly disguised effort” to circumvent the prohibition against third party “bad faith” claims. (Krupnick v. Hartford Acc. & Indem. Co. (1994) 28 Cal.App.4th 185, 189, 202-209.)
Filing Personal Injury Lawsuit First
Filing suit in itself rarely puts pressure on tortfeasors to settle: i.e., most routine p.i. cases (rear-ender auto accidents, relatively minor “slip and falls”) will settle whether or not a lawsuit is filed. Thus, all other things being equal, unless the statute of limitations is about to run, claimants need not initiate litigation before commencing settlement discussions; doing so may simply run up unnecessary attorney fees and costs (drafting the complaint, serving process, etc.) and court costs (filing fees).
But in some cases there may be advantages to filing an early lawsuit.
Advantages to early filing
Aside from statute of limitations concerns, these are the most significant advantages to an early filing:
Formal discovery normally is not available until a lawsuit is filed (see Ca Civ Pro § 2035 for the exception–discovery by court order to perpetuate evidence before suit filed). Thus, if information necessary to talk settlement cannot be obtained through voluntary cooperation, claimant may have no other choice than to file suit so as to be able to conduct discovery. (As a practical matter, however, it is usually the defense that has the greatest interest in commencing discovery.)
Finding out about insurance coverage
Before meaningful settlement discussions can get under way, the claim must be assigned a reasonable settlement value. For this purpose, claimant will need to know whether the tortfeasors have applicable insurance coverage and, if so, what the policy limits are, whether there are excess and/or umbrella coverages, and whether the insureds and/or carriers claim the policy does not apply. (Also important may be whether the carrier will be defending on a reservation of rights basis and, if so, whether this generates a conflict of interest problem so as to require “Cumis (independent) counsel” for the insured defendant.
Insurance Coverage information statutorily protected until lawsuit filed
Absent appropriate authorization from the insured, insurance carriers are statutorily barred from disclosing “policy limits” and other coverage information to third party claimants before a lawsuit is filed. (Ca Ins § 791.13) In Griffith v. State Farm Ins. Cos. (1991) 230 Cal.App.3d 59, a plaintiff’s right to know the defendant’s policy limits arises only when suit filed.
Thus, absent voluntary cooperation by the defendant insured, plaintiff’s only recourse to obtain pertinent coverage information will be to file suit. (Filing suit triggers a statutory right to discovery of a party’s insurance carrier, the nature and limits of coverage, and whether the carrier is disputing coverage; see Ca Civ Pro § 2017(b),
Litigation Tactic: As a general rule, do not attempt to assign a “settlement value” to your client’s claim until you have a fix on the other side’s insurance coverage! If necessary, make use of the official form interrogatories (Ca Rules of Court Rule Form Interrogatories 120); item “4.0” on the form interrogatories covers all of the pertinent insurance information plaintiff’s counsel should seek from defendant.
Establishing credibility: Some uninsured tortfeasors, doubting the legitimacy of the claim, in effect want to “call claimant’s bluff” and will not talk settlement on a mere “threat” of a lawsuit. In these cases, it may be necessary to file and serve a complaint simply to establish that the claim is “credible”–i.e., that claimant is not fabricating a right of recovery with no intent to press a cause of action. Stubborn parties may be more inclined to take the claim seriously when the reality of a lawsuit is staring them in the face!
As a practical matter, filing a lawsuit might place additional pressure on the insurer to consider settlement.)
Shifting “joinder burden” (Prop. 51 cases): In Prop. 51 cases (multi-party vehicle collisions, product liability cases, etc.), claimant will usually want to join in a lawsuit all persons and entities conceivably at fault so as to maximize the potential recovery; and, for the same reason, will want to pursue settlement with all of them. Filing suit against the more “obvious” tortfeasors may, in effect, shift the “burden” to those named defendants to join (through cross-complaints) the more peripherally liable parties (who must, under Prop. 51, share in the liability for “noneconomic damages” according to “fault”; Ca Civil § 1431.2).
Indeed, if plaintiff is unable to identify all those conceivably at fault in the “universe of actors,” filing suit may itself operate as a “discovery tool”: i.e., if the lawsuit motivates the defendants who are sued to join others, such joinder incidentally identifies to claimant additional parties with whom to talk settlement. (Of course, defendants may choose not to bring others into the lawsuit, presenting “empty chair” fault arguments instead. Therefore, contention interrogatories and other direct discovery procedures should always be used early in the lawsuit to force the named defendants to identify the nonparties whom they intend to claim were at fault.)
What are the disadvantages to early filing personal injury lawsuit?
Many personal injury attorneys express disadvantages and concerns about filing an early personal injury lawsuit are these:
Gives defendant immediate discovery rights
As soon as the lawsuit is filed and served, plaintiff becomes subject to immediate (There is a 20-day hold, after service of summons, on plaintiff noticing depositions without a court order, Ca Civ Pro § 2025(b)(2); and a 10-day hold, after service of summons, on plaintiff serving interrogatories, document demands, requests for admissions, etc., Ca Civ Pro §§ 2030(b), 2031(b), 2033(b). But there is no statutory hold as to defendants.)
The filing of a lawsuit and serving the summons and complaint on the defendant starts an expensive litigation process; this includes discovery, deposition, subpoenas medical exams. The requirement for full disclosure of all possibly relevant information, discovery may delay settlement, because the defendant want to wait for the discovery to be had – which can be very expensive.
Decreasing Plaintiff’s Net Money
Usually, the plaintiff’s attorney retainer fee agreement provides for a graduated contingency fee; for example, 35% if the case settles before a lawsuit is filed, 40% if the case settles after a lawsuit suit is filed, and 45% after the Case Management Conference. Therefore, a prelawsuit settlement is likely to maximize a plaintiff’s net recovery resulting in more money in the plaintiff’s pocket. Many personal injury lawyers attempts to settle minor injury and minor special damages without filing a lawsuit so that the client has more money in the pocket.