Second District Finds Ambiguity in 998 Offer, Contrasting It With A More Limited Release of Claims Involved in the Operative Lawsuit.
If a litigant is going to ask for a release of claims in a 998 offer, the next case offers a lesson in specificity—avoid asking for a release of generalized “all claims” under penalty of finding your 998 offer invalidated for ambiguity.
In Chen v. Interinsurance Exchange of The Automobile Club, Case No. B194345 (2d Dist., Div. 8 June 19, 2008) (certified for publication), plaintiffs’ San Gabriel home suffered water damage from an upstairs bathroom water line break and their San Marino property suffered damage from high winds, all in May 2003. Plaintiffs filed claims with defendant insurance carrier. Plaintiffs later sued for insurance policy breach and bad faith. Unfortunately, while this suit was pending, plaintiffs’ San Gabriel home suffered new water damage in the kitchen unrelated to the earlier bathroom flooding. Plaintiffs also filed a separate claim for the kitchen incident, but it was not implicated in the lawsuit at issue.
Defendant made a 998 offer to pay plaintiffs $251,000 conditioned upon plaintiffs executing a dismissal with prejudice of the pending lawsuit “as well as a general release of all claims in lieu of an entry of judgment against defendants.” Plaintiffs rejected it.
After a trial, the jury found the carrier had paid for the wind damage and bathroom flooding, but acted unreasonably in handling plaintiffs’ claims, awarding them $8,500 in economic damages and $141,500 in non-economic damages. In the subsequent cost bill proceedings brought by defendant (which claimed to beat the $150,000 jury award with its $251,000 offer), plaintiffs opposed on the basis that the 998 offer was invalid for requiring them to release “all claims,” which could be construed to include the separate kitchen incident that was not part of the lawsuit. The trial judge disagreed, awarding $310,000 in postoffer costs to defendants and $9,800 in preoffer costs to plaintiffs—meaning a net recovery of $150,949.79 in favor of defendants after subtracting the $150,000 jury verdict.
On appeal by plaintiffs, the Second District, Division Eight reversed (in a 3-0 unanimous opinion authored by Justice Rubin).
Initially, the appellate court determined that a 998 offer cannot dispose of any claims beyond the claims at issue in the pending litigation, citing Valentino v. Elliott Sav-On Gas, Inc., 201 Cal.App.3d 692, 696-697 (1988). It then proceeded to independently review the 998 offer under the de novo standard, also noting that any ambiguity in the offer would be interpreted against defendant offeror.
That was just the prefatory set up for the Court of Appeal’s interpretation of the 998 offer. Justice Rubin agreed that the phrase “all claims” was ambiguous because of plaintiffs’ pending claim for kitchen flooding. Because it was a known claim, and Civil Code section 1542 encompasses known claims, he found that a good argument could be made that the 998 offer could be construed as covering the kitchen claim. (Slip Opn., at pp. 5-6.)
In reaching its result, Chen distinguished Goodstein v. Bank of San Pedro, 27 Cal.App.4th 899, 905, 907 (1994) because, although it did validate a general release as part of a 998 offer, the general release only related to claims in the pending lawsuit. Justice Rubin concluded by observing, “When not ignoring the word ‘all,’ respondent tries to dismiss it as inconsequential, but here that word makes all the difference insofar as creating ambiguity.” (Slip Opn., at p. 7, fn. omitted.)
Defendant’s ambiguity caused it to forfeit a substantial postoffer cost award, with the appellate court directing the lower court to recalculate plaintiffs’ cost award as the sole prevailing party and also awarding them costs on appeal.