First District, Division 1 Applies Lehto/Strauss to 998 Offers Made to Sued Insureds Rather that Offer Made Directly to Insurer.
Both Lehto v. Allstate Ins. Co., 31 Cal.App.4th 60, 72 (1994) and Strauss v. Farmers Ins. Exch., 26 Cal.App.4th 1017, 1021-1022 (1994) held that an insurer has no “good faith” duty to agree to, or advise acceptance of, a policy term settlement offer made only to one of multiple insureds in pending litigation. Because the insurer’s duty extends to all of its insureds, the insurer acts within the boundaries of good faith by rejecting a settlement offer that doe not include a complete release of all insureds.
The issue in Kauffman v. Calif. State Auto. Assn. Interinsurance Bureau, Case No. A123494 (1st Dist., Div. 1 Nov. 24, 2009) (unpublished) presented a variation on this theme, namely, whether an insurer must either advise acceptance or provide separate counsel for the insured in a situation where a Code of Civil Procedure section 998 policy term offer is made to only one of several sued insureds.
Kauffman firmly answered the issue “no.” It found Lehto and Strauss controlling in the 998 context, rejecting the proffered distinction that a section 998 offer to compromise made to a defendant is different from a settlement offer made directly to an insured. Rather, the rationale of these cases—based on the insurer’s duty to all insureds—prevailed on the issue.