• Insurer's Failure to Meaningfully Negotiate in Mandatory Settlement Conference Is Not Basis for Sanctions
  • September 2, 2009
  • Law Firm: McCormick, Barstow, Sheppard, Wayte & Carruth LLP - Fresno Office
  • Vidrio v. Hernandez, 172 Cal.App.4th 1443 (2009)

    BACKGROUND FACTS
    Vidrio and Salinas filed a lawsuit alleging injuries suffered in an automobile accident as a result of the negligence of Hernandez. Mercury defended Hernandez in the lawsuit. At a mandatory settlement conference, the plaintiffs made settlement demands of $15,000 each. However, Mercury offered only $1,000 per plaintiff and the case did not settle. Following the settlement conference, the court held a proceeding where it indicated that the Local Rules and the litigation guidelines of the Los Angeles County Bar Association mandate good faith representation by counsel as well as good faith by the authorized representative of the insurance carrier. The court found that counsel and the adjuster had come to court unprepared to discuss damages, costs of defense or how they derived a total value of $2,000 for the case at hand. The court indicated an intention to award monetary sanctions and issued an order to show cause. At the hearing on the order to show cause, the court found that the insurer had failed to negotiate and awarded sanctions. Mercury appealed.

    THE COURT’S RULING
    The Court of Appeal held that no statute or rule of court authorizes the imposition of sanctions on a nonparty insurer for its purported failure to participate in good faith in a mandatory settlement conference.

    a. The Settlement Conference Procedure

    In reaching its decision, the Court noted that California Rules of Court, Rule 3.1380 (former Rule 222) governs mandatory settlement conferences. Rule 3.1380(b) requires the personal attendance of "[t]rial counsel, parties, and persons with full authority to settle the case" at such conferences unless excused by the court for good cause. Rule 3.1380(c) requires each party to submit to the court a mandatory settlement conference statement; the plaintiff’s statement must include a good faith settlement demand (Rule 3.1380(c)(1)); and the defendant’s statement must include a good faith offer of settlement (Rule 3.1380(c)(3)). The rule also requires the parties’ settlement conference statement to comply with any additional requirement imposed by local rule.

    Local Rule 7.9(d), like Rule 3.1380, authorizes the trial court to set a settlement conference on its own motion or at the request of any party. Local Rule 7.9(d)(1) also provides that, unless expressly excused for good cause by the judge, "all persons whose consent is required to effect a binding settlement shall be personally present at a scheduled settlement conference. Included among such persons are: the litigants (unless consent of the particular litigant is not required for the settlement); an authorized representative of any insurance company which has coverage involved in the case; and an authorized representative of a corporation or other business or government entity which is a litigant." Local Rule 7.9(d)(3) further specifies, "[a]ttorneys for all parties appearing in the action shall attend the conference and be intimately familiar with the pertinent available evidence involving both liability and damages. Such attorney shall be prepared to discuss the case in depth and, except for good cause shown, shall be the attorney who will try the case."

    Local Rule 7.9(e) requires the parties to submit a written settlement conference statement containing "a concise statement of the material facts of the case and the factual and legal contentions in dispute." Unlike Rule 3.1380, however, the Local Rule does not expressly require a settlement demand or offer.

    b. The Authority To Impose Sanctions

    California Code of Civil Procedure section 177.5 authorizes a judicial officer to impose reasonable monetary sanctions, not to exceed $1,500, payable to the court, "for any violation of a lawful court order by a person, done without good cause or substantial justification." The section defines "person" to include "a witness, a party, a party’s attorney, or both." Section 575.2 provides that a court’s local rules may authorize sanctions against "any counsel, a party represented by counsel, or a party if in pro se," for the failure to comply with any of the requirements of local rules properly promulgated pursuant to section 575.1.

    Rule 2.30(b) (former Rule 227(b)) authorizes, "in addition to any other sanctions permitted by law," imposition of reasonable monetary sanctions, payable to the court or an aggrieved person or both, for the failure without good cause to comply with any rule of court relating to general civil cases . . . ." Local Rule 7.13, one of a series of rules adopted as part of the Los Angeles Superior Court’s delay reduction program, provides that the court may impose appropriate sanctions "for the failure or refusal (1) to comply with the Rules, (2) to comply with any order made hereunder or (3) to meet the time standards and/or deadlines established herein." After directing counsel to various sanctions statutes in the Code of Civil Procedure and Government Code, as well as to Rule 2.30, Local Rule 7.13 provides, "[s]uch sanctions may be imposed on a party and/or, if appropriate, on counsel for such party."

    Like Local Rule 7.13, Local Rule 8.0 authorizes sanctions, including monetary sanctions, for the failure or refusal to comply with the court’s Local Rules. Monetary sanctions "may be imposed for such violation against any party, party’s attorney or witness payable to the County of Los Angeles."

    The Court found that section 177.5 was inapplicable because, even if the insurer had directed its adjuster and the counsel it retained for its policyholder not to negotiate in good faith, that conduct did not violate any court order. It also found that the sanctions award was not properly based on Rule 2.30 or the Local Rules because neither requires good faith negotiation by participants in settlement conferences -- the reason the trial court gave for imposing sanctions in the case. The court concluded that the failure to increase a settlement offer or to otherwise participate meaningfully in settlement negotiations violates no Rule of Court and is not a proper basis for an award of sanctions. As such, the order awarding sanctions was reversed.

    THE EFFECT OF THE COURT’S RULING
    Although an insurer may be required to attend mandatory settlement conferences, there is currently no statute or Rule of Court that authorizes an award of sanctions where the insurer fails to negotiate in good faith.