Second District, Division 7 Reverses Award in Published Decision.
For years, insurance carriers have raised due process concerns to their participation in mediation and mandatory settlement conferences, although more and more court rules require their participation in these processes. However, the next case illustrates that carriers are not subject to “bad faith” settlement negotiation sanctions in the absence of an explicit court rule authorizing same—which was missing in the situation before the appellate court. Also, even with such a rule, the case raises doubts that a carrier can be penalized for bad faith settlement sanctions in any event.
In Vidrio v. Hernandez, Case No. B207391 (2d Dist., Div. 7 Apr. 13, 2009) (certified for publication), the Second District, Division 7 reversed a $1,857.50 monetary sanctions imposed against an insurer because of a trial court’s belief that it had failed to negotiate in good faith at a mandatory settlement conference, despite the fact that the carrier attended the conference, met all procedural MSC requirements, but only offered a pittance of what the lower court apparently felt was fair.
Code of Civil Procedure section 177.5 provided no basis for sanctions, because (1) it only allows imposition of sanctions for violation of a lawful court order (and there was no court order); (2) it does not apply to a nonparty insurer; and (3) it only limits sanctions to a $1,500 maximum amount payable to the court, necessarily invalidating the $357.50 extra awarded to plaintiffs’ counsel by the lower court.
Other Los Angeles Local Rules did not help, because they were limited to parties, counsel, or witnesses—not nonparty insurers.
California Rules of Court, rule 2.30 was the closest authority justifying the sanctions imposed against the carrier—because it expressly did encompass “an insurer or any other individual or entity whose consent is necessary for the disposition of the case.” However, the problem with application of this rule was that insurer did not violate any court rule in failing to negotiate in good faith. This was made all the more evident by the fact that a former court rule allowing for sanctions in this situation was eliminated in 2001. “. . . neither current rule 2.30 nor any other rule of court purports to require good faith negotiation by participants in settlement conferences.” (Slip Opn., at p. 17.)
Beyond that, the appellate panel also opined that the insurer’s conduct might never be sanctionable even if codified as a court rule. “In sum, even were we to agree with the trial court’s assessment of the conduct of counsel and the adjuster, the failure to increase a settlement offer or to otherwise participate meaningfully in settlement negotiations violates no rule of court and is not a proper basis for an award of sanctions,” citing Triplett v. Farmers Ins. Exch., 24 Cal.App.4th 1415, 1424 (1994) and Sigala v. Anaheim City School Dist., 15 Cal.App.4th 661, 669 (1993).