UKULELE SEUMALO, Plaintiff
AMERICAN INTERNATIONAL UNDERWRITERS, Defendant
High Court of American Samoa
CA No. 038-85
July 23, 1985
The implied covenant of good faith and fair dealing contained in every insurance contract includes a duty to effect reasonable settlement of a claim against the insured within its policy limits when there is a substantial likelihood of recovery in excess of those limits.
An insured has a right of action against his insurer for damages proximately caused by the insurer's breach of his duty of good faith and fair dealing.
Before GARDNER, Chief Justice.
Counsel: For the Plaintiff, William Reardon
For the Defendant, Roy J.D. Hall, Jr.
On June 1, 1983 Plaintiff had a public liability insurance policy with Defendant. This policy had a $10,000 limitation. On that date Plaintiff had an accident with Nicholas Leoso in which Leoso suffered substantial bodily injuries.
Plaintiff contends he reported the matter to Defendant immediately. However, this. testimony is suspect since his written accident report to Defendant was dated September 12, 1983 which was shortly after Defendant had been alerted to this claim by a letter from Leoso's attorney dated September 8, 1983 we find that Plaintiff did not report this matter promptly. His hands aren't entirely clean.
On September 12, 1983 Defendant responded to the Leoso letter with a request for police and medical reports. Counsel responded promptly, Samoan time, (six months later) with a police report, medical consent and an offer to negotiate.
Then, on March 27, 1984 Leoso's counsel offered to settle for the policy limits--$10,000--the offer to be good for 30 days. On March 28, 1985 Defendant acknowledged the demand and apparently forwarded the file to the head office in Sydney. By letter of April 3, 1984 (delivered April 23, 1984 ---speedy postal service, Samoan style) the claims manager gave Defendant "the policy limit with which to negotiate" but in view of Defendant's "tough negotiating practices" he expected settlement [2ASR2d72]"at a substantially reduced figure." On April 19, 1984 Leoso's counsel extended the time to settle for the policy limits 21 days. There was no response. On May 23, 1984 Leoso filed suit. The trial court gave judgment for $12,000 in October 1984, the appellate court double this award. Plaintiff now owes $15,000 on the judgment.
Every insurance contract contains an implied covenant of good faith and fair dealing. Communale v. Traders and General Insurance Co., 50 Cal. 2d 654, 328 P.2d 198. This includes a duty to effect reasonable settlement of a claim against the insured within its policy limits when there is a substantial likelihood of recovery in excess of those limits. Upon breach of that duty by the insurer, the insured has a right of action against the insurer for damages proximately caused thereby. Northwestern Mut. Ins. Co. v. Farmer Ins. Co., 76 Cal. App. 3d 103. 143 Cal. Rptr. 415 (Gardner, P.J., concurring).
Here, once counsel got into the case Plaintiff was advised of his right to secure counsel and at trial (Oct. 1984.) an offer was made to settle for the full policy limit. This came a little late. Almost six months earlier the time to accept the offer had run out.
The local manager of Defendant company had evaluated the case as a policy limit case. So had the claims manager at the home office. With clear liability. and serious injuries there was a substantial likelihood of recovery in excess of the $10,000 limit. Of course Defendant wanted to bargain but it could not do so at plaintiff's expense. It knew it was on the hook for $10,000 (which eventually went for $25,000) so it lost nothing by stalling. It did and it cost Plaintiff $15,000. This, Defendant ! could have avoided by settling. They took a chance and lost.
Defendant's story that it tried unsuccessfully to contact Plaintiff falls a little flat. All they had to do was pick up the telephone. He is listed. He has been in business for several years.
Plaintiff did not receive the fair treatment his Insurance Company owed him. However, the facts of this case afford no basis for an award of damages for emotional distress nor of punitive damages.
Judgment is for $15,000 plus interest.