Crisci v. Security Insurance Company
Despite California’s existence as a state since 1850, bad faith insurance law was still being laid down in the courts as late as the 1960s and 70s and continues to be shaped today. Let’s take a look back at one of the landmark bad faith insurance cases in the state, with a ruling by the Supreme Court of California in 1967. If you find yourself impacted today by an unreasonable delay or unfair denial of a health, life or disability insurance claim, contact Gianelli & Morris for help from a skilled and experienced California insurance law attorney with a record of success taking down insurance giants and holding them accountable for the harm caused by their bad faith insurance practices.
Insurer’s Miscalculations Land It in Court, Much to Its Dismay
The case of Crisci v. Security Insurance Company, handed down by the Supreme Court of California on April 21, 1967, concerned the issue of extra-contractual liability for an insurance company unreasonably refusing to settle a claim within policy limits. Along the way, the court further cemented the legal principle our law firm fights to uphold every day that insurance companies have a duty to act toward their policyholders in good faith.
Rosina Crisci was a 70-year-old immigrant widow who also served as the landlord in an apartment building she owned. When a staircase tread suddenly gave way, a tenant fell through the opening and found herself trapped to her waist with her feet dangling 15 feet off the ground below. During the ordeal and after, she “suffered physical injuries and developed a very severe psychosis.”
The tenant and her husband sued Ms. Crisci for $400,000 (this is in the 1960s, remember). Crisci, meanwhile, was covered by a $10,000 general liability insurance policy from Security Insurance Company that obligated Security to defend her if sued and authorized the insurer to settle any claims if it would be “expedient” to do so.
The plaintiffs eventually reduced their settlement demand to $10,000, matching the limits on Crisci’s insurance policy. Even so, the tight fists at Security were only willing to pay $3,000 for physical injuries and not one penny for the mental illness component of the claim, despite the opinion of Security’s own attorneys that a jury would likely find in favor of the plaintiffs and deliver a verdict of at least $100,000. Security also rejected a revised $9,000 settlement demand, even though Crisci herself offered to pay $2,500 toward the settlement.
The case went to trial, and lo and behold, the jury awarded $100,000 to the injured tenant and $1,000 to her spouse. Security lost on appeal and paid out the $10,000 it owed under the policy, leaving Crisci on the hook for the remaining $91,000 of the judgment.
The successful plaintiffs accepted $22,000 from Crisci and also took a 40% interest in her claim to a piece of real property she owned. The elderly widow Crisci was left indigent, forced to work as a babysitter and rely on her grandchildren to pay her rent. She suffered a decline in physical and mental health and even attempted suicide multiple times before bringing a lawsuit against Security.
Court Finds Insurer in Bad Faith
In Crisci’s lawsuit against Security Insurance Company, the trial court found in favor of Crisci and awarded her $91,000 plus interest, along with an additional $25,000 for her mental suffering. Security appealed, and the case made its way to the California Supreme Court.
The liability of an insurer in excess of the policy limits for its failure to accept a settlement offer within policy limits had earlier been considered by the state’s high court in another landmark case we have previously written about (see Comunale v. Traders & General Insurance Company, posted September 21, 2023). The court in that case reasoned that every contract, including insurance policies, includes an implied covenant of good faith and fair dealing. That covenant requires the insurer to settle in appropriate cases. More importantly, the insurer must consider the interests of the insured at least as much as it considers its own interests. Specifically, considering the insured’s interest requires the insurer to settle a claim when there is a great risk of recovery beyond the policy limits so that settling the claim within policy limits is the most reasonable manner of disposing of the claim.
Crisci built on Comunale and reinforced the legal concept of bad faith insurance in several key ways. First, the Crisci court set out a test to determine whether an insurer has considered the interests of the insured, which it stated as whether a prudent insurer without policy limits would have accepted the settlement offer. The court also explained that bad faith is the equivalent of dishonesty, fraud, and concealment. However, policyholders don’t need to produce actual evidence establishing dishonesty, fraud or concealment in order to hold an insurance company liable for bad faith practices.
In the words of the Supreme Court of California, it doesn’t matter if the extra-contractual liability is large or slight; any danger, however slight, of a judgment above policy limits goes against the interests of the insured, so any rejection to settle is obviously made by putting the interests of the insurer over those of the insured. Bottom line: an insurer should never reject a settlement within policy limits unless it is willing to absorb any judgment over the policy limits or other losses that may result from its failure to settle.
This decision results in a simple rule that paves the way for policyholders to prove an action was taken in bad faith. Plaintiffs don’t have to prove, and courts don’t have to determine, whether a settlement offer within policy limits was reasonable or not. The court’s rule simply won’t let insurers gamble with the insured’s money for its own interests.
Applying Comunale, Crisci to Bad-Faith Life and Health Insurance Claim Denials
How does this ruling translate when it comes to allegations that an insurance company’s denial of a life, health or disability claim was in bad faith? Writing for the court, Justice Rayment E. Peters, joined by Justice Stanley Mosk and four others, concluded, “Finally, and most importantly, there is more than a small amount of elementary justice in” the rule adopted by the court. The interests of the insurer and insured often conflict. If an insurer wants to “reap the benefits” of its determination not to settle, it must be ready to “suffer the detriments of its decision.” This principle of justice led the court to affirm not just the $91,000 judgment against Security but also the $25,000 mental injury claim as well. Plaintiffs should be compensated for all damage proximately caused by the wrongdoer, including mental suffering and mental distress.
These principles apply equally well to an insurer’s decision to deny a claim as an insurer’s decision not to settle. When insurance companies consider their financial interests ahead of the interests of their insureds, they are acting in bad faith and in violation of the implied covenant of good faith and fair dealing implicit in every insurance policy. Policyholders who have had their insurance claim wrongfully denied for unreasonable or improper motives are entitled to compensation not just for their direct pecuniary loss but also for mental suffering and any other legal damages that were incurred. And while not addressed by the court in Crisci, later decisions have made clear that punitive damages can be awarded as well in appropriate cases. Bad faith insurance cases are distinctively suited to a punitive damage award, which should be proportional to the size of the company and the egregious nature of their conduct and its effect on the plaintiff.
Fight Bad Faith Insurance Practices in California With Gianelli & Morris on Your Side
At Gianelli & Morris, we continue to apply the principles of good faith and fair dealing implicit in insurance contracts by holding insurance companies accountable to their policyholders for the harm caused by their bad faith actions. If you have had a health, disability or life insurance claim unreasonably delayed or denied and suffered a significant loss because of it, we want to hear from you. Call our office in Los Angeles at 213-489-1600 for a free consultation and help with any California bad faith insurance claim statewide.
