How Not to Settle a Wrongful Death Claim

The California Court of Appeals, Second District, Fifth Division recently held that a pre-litigation settlement of a wrongful death claim did not afford the tortfeasor any protection from a lawsuit by other heirs of the decedent who were unknown to the tortfeasor’s liability insurer when the settlement was reached. This was the decision in the case of Moody v. Bedford, B226074, rendered on Jan. 9, 2012.

This case arose out of an auto accident in which the mother of several minor children was killed. The heir was the decedent’s adult daughter, who was the half-sister of the minor children heirs. The decedent’s adult daughter tendered a claim to the liability insurer of the auto driver who caused the accident. Due to the fact that liability was adverse to the tortfeasor driver, the auto insurer offered to settle the wrongful death claim for the policy limit of $100,000. After counsel for the decedent’s adult daughter made representations to the tortfeasor’s insurer that his client was the sole surviving heir, including a signed declaration from his client to that effect, a pre-litigation settlement was reached. The claimant signed a standard release of all claims.

Following this settlement, the minor surviving children of the decedent retained counsel and filed a wrongful death action against the tortfeasor. The defendant was successful on a motion for summary judgment that asserted the “one action rule” of Cal. Code of Civ. Procedure sec. 377.60. The plaintiffs filed an appeal, and the Court of Appeals reversed the granting of the motion on the ground that, since the insurance claim by the decedent’s adult daughter was not made in the context of an “action” commonly understood only to mean a civil lawsuit, the defendant was not entitled to the protection of CCP sec. 377.60. This left the defendant with no remaining policy limits and no defense for the wrongful death action. It also left the defendant’s insurer with no further policy limits to protect its insured and no means by which to seek indemnity from the claimant who had been paid the policy limits, other than an insurance fraud action against her under Ins. Code sec. 1871.

The Court of Appeals determined that the protection afforded to a tortfeasor under CCP sec. 377.60 did not apply to a pre-litigation insurance claim. That statute provides that only one wrongful death action can be filed by all the heirs of a decedent. The plaintiffs in such an action must represent to the court that all heirs are parties, either as plaintiffs or defendants. The defendant in such an action may not be sued by other heirs in a separate action. If that occurs, the defendant can seek indemnity from the heirs who filed the original action, and the defendant can have the other wrongful death action dismissed.

The court suggested that liability insurers should demand that wrongful death claimants file a civil lawsuit against their insureds as the response to a policy limits demand. This would have required the original claimant to join the surviving minor children of the decedent. If she had failed to do so, she would have been subject to an indemnity action by the defendant tortfeasor under the “one action rule.”

The problem with this decision is that it does not address the duties of a liability insurer toward its insured when the insurer is faced with a policy limits settlement demand with a time limit. Any response by an insurer to such a settlement demand in the context of a pre-litigation insurance claim that is anything other than an unequivocal agreement to pay the policy limits is characterized as a rejection. The rejection is used as a basis by the claimant’s counsel to thereafter refuse to accept the policy limits and to assert that the policy limits no longer apply due to the insurer’s purportedly unreasonable refusal to offer the policy limits to protect its insured. The result is a judgment in excess of the policy limits, then an assignment from the insured to the judgment creditor of his bad faith rights against the insurer.

Obviously, CCP sec. 377.60 could be amended to provide that a pre-litigation settlement affords the same protection as the settlement of a civil wrongful death action. A liability insurer faced with a pre-litigation settlement demand involving a wrongful death claim can retain the services of a genealogy expert who will provide a professional opinion as to all the surviving heirs. Such an expert is frequently retained when a decedent’s estate is being probated to ensure that all surviving heirs are accounted for in court filings. One such genealogy expert service charges $7,800 for a detailed report that includes research of all public records, court and land records, wills and estate records, census records, etc., which is digitized and presented in the form of genealogy charts and other reports.

Given the fact that the plaintiffs in Moody v. Bedford were the surviving minor children of the decedent, their existence should have been easy to ascertain through the use of a reputable genealogy expert. While an amount of $5,000 to $8,000 may not seem that much of a claim expense when the available policy limits are $100,000, if the policy limits are $15,000, such a claim expense might be less attractive to a liability insurer.

Assuming a wrongful death claimant provides at least 30 days for a liability insurer to pay its policy limits to settle a pre-litigation claim, it may be possible for the insurer to “arrange” for the claimants to file a civil lawsuit against the insured. Provided the insured gives written consent, the insured could be provided defense counsel to immediately file responsive pleadings to place the action at issue. The insurer could then conclude a settlement with the plaintiff by release and dismissal, and the insured would be afforded the protection of the “one action rule.” However, this would require the cooperation of the surviving heirs, their counsel, if they are represented, and the insured tortfeasor. Otherwise, this plan of action suggested by the court would not be possible. Obviously, if the surviving claimants are not represented by counsel, it is difficult to understand how this arrangement would be possible unless the tortfeasor’s insurer also retained counsel for them to file a civil action against its own insured.

This article does not purport to provide an absolute solution as to how best to resolve a wrongful death pre-litigation policy limits settlement demand. The most that can be offered are suggestions to possibly avoid the situation that the liability insurer fell into by trusting the representations of counsel in a pre-litigation claim. Hopefully, more awareness of the problem and discussion of the need for solutions will lead to either a statutory change or acceptance among the bar as to how best to handle these claims to protect all concerned.     

Timothy D. Lake, Esq. is a partner with Sherman Oaks, Calif.-based Tharpe & Howell, LLP. He may be reached at (818) 205-9955.