SNR Denton on Reasonableness of Insurer’s Delay in Offering Policy Limits Is Question of Fact: Allstate Insurance Co. v. Herron

Ronald Kent   By Ronald D. Kent, Partner, SNR Denton

In Allstate Insurance Co. v. Herron, [1] Allstate had offered its policy limits, but not until after expiration of a time-limit demand. A jury found that Allstate had acted reasonably, and the Ninth Circuit affirmed in pertinent part. It found no abuse of discretion in entertaining Allstate's declaratory judgment action. A stipulation that Allstate could have determined the extent of its insured's liability before the demand expired did not mandate a finding of bad faith.

This commentary first describes the facts of the case:

On September 14, 2002, Charlie Herron was involved in a single-car accident, severely injuring his passenger, Angelina Trailov. Allstate insured Herron, with a limit of $100,000 for each person injured. In February, 2003, Trailov's lawyer demanded the policy limits, but set no time limit for consideration of the offer. In April, he informed Allstate that the offer would be revoked on May 16 and suit filed "unless there is some discussion regarding pre-filing resolution." On May 12, Allstate paid Trailov $25,000 for some of her medical payments. On May 16, it faxed a letter to her lawyer stating that its investigation was still incomplete but that it would respond to her offer by the end of the month. On May 30, it offered $100,000 plus $12,500 in attorneys' fees, which Trailov refused to accept.

The commentary reviews the court's reasoning in concluding that the district court acted properly in exercising jurisdiction to render a declaratory judgment.  It summarizes the key merits issue and the court's ruling:

Allstate and Herron had stipulated that Allstate could have determined, before expiration of the policy limits demand, that Herron's liability exceeded the policy limit. On this basis, Herron had moved for a directed verdict that Allstate's failure to accept the demand was bad faith. But a directed verdict would not have been appropriate, because the stipulation "did not require the jury to conclude that Allstate should have determined Herron's liability to exceed the policy limits and should have offered to settle by May 16."

The commentary reviews the standards governing the timing of an insurer's response to a demand within limits and concludes that the court reached the correct result.  It also addresses practical considerations affecting insurer responses.

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[1] Allstate Insurance Co. v. Herron, 634 F.3d 1101 (9th Cir.2011) (AK law).

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Ronald D. Kent heads the Litigation Department in SNR Denton's Los Angeles office. He is also Co-Chair of the Firm's National Insurance Litigation and Coverage Practice and is a member of the firm-wide Policy & Planning (Management) Committee. Since 2005, he has been named each year as a leading trial lawyer nationally and in California, based on peer and client evaluations, by Chambers USA: America's Leading Lawyers, the highly respected independent attorney rating organization. Mr. Kent has extensive experience representing major insurance companies on a wide variety of matters, including fraud and bad faith actions, class action and multiple plaintiff litigation, defense of toxic tort and other environmental claims, insurance coverage actions and general business disputes. Mr. Kent has tried matters in state and federal courts throughout California, and in other states, and has successfully handled in excess of 70 arbitrations to final resolution. In addition, he has briefed and argued numerous appellate matters in the California Supreme Court, nearly all California district courts of appeal and the Ninth Circuit Court of Appeals. Mr. Kent is the co-author of the second edition of New Appleman Insurance Bad Faith Litigation.

Access New Appleman Insurance Bad Faith Litigation, Second Edition on lexis.com.

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