Failure To Disclose Policy Limits Exposes Liability Carrier To An Excess Judgment, Even Without A Policy Limits Demand

Boicourt v. Amex Assurance Company, No. G021061, 00 C.D.O.S. 2051, Cal. App. Ct. 4th Dist. March 16, 2000

The California Court of Appeal recently broke new ground, allowing exposure to a judgment in excess of policy limits without any settlement demand, let alone one within policy limits. The court held that an insurer had a duty to contact the policyholder to ask permission to reveal the policyholder's policy limits to a third party in advance of the filing of any lawsuit.

The facts that produced the Boicourt decision were not particularly remarkable. In October 1990, Levi Boicourt, a passenger in his friend's car, was severely injured when the car overturned. The car was insured by Amex. Prior to filing suit, Boicourt's attorney contacted Amex and asked for information concerning the amount of the insured's applicable policy limit. Amex responded that it would not disclose the limits.

Boicourt then filed suit without making a settlement demand. Once the case was filed, Boicourt declined an offer of policy limits, and never made any settlement demand at all. At trial the insured stipulated to a judgment far in excess of the policy limits, and assigned his rights to the plaintiff in exchange for an agreement not to execute the judgment against the insured. Despite the offer of policy limits shortly after suit was filed, and the absence of any settlement demand within policy limits, the Court of Appeal reversed a finding of no bad faith as a matter of law.

In reversing the lower court's decision, the appellate court's primary concern was the "palpable conflict of interest" that it concluded exists between an insurer and its insured where there is no formal settlement demand. Because of this conflict the court reasoned that no "formal" offer to settle within policy limits was necessary to open the limits. Thus, claimant can bring a bad faith claim to collect a judgement in excess of policy limits if the insurer fails to contact the policyholder about a claimant's request for policy limits disclosure.

There are some limits, however. First, there must be a "genuine" opportunity to settle the claim within policy limits. The court also noted that its decision did not address the question of whether an insurer has a duty to be "proactive" in settlement. In addition, the court recognized that the insurer's tender of the policy limits, after the commencement of litigation, might ultimately serve as a defense to the bad faith claim, as a matter of fact.

In summary, a "policy limits demand" is no longer a clear requirement to recover a judgment in excess of policy limits. Rather, any action or inaction which a court concludes triggers a conflict of interest by arguably foreclosing a settlement within limits can expose insurers to judgments above their policy limits.

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