Insurance – Settlement – Extent of Insurer’s Liability for Wrongful Refusal to Settle When Subsequent Judgment Exceeds Policy Limits

The insured, while driving a borrowed truck, injured plaintiff and his wife. Defendant, insurer on a policy which contained liability limits of $10,000 per person and $20,000 per accident, was notified of the accident but refused to defend the subsequent suit against the insured on the ground that plaintiff’s claim was not covered by the policy. Defendant refused an offer to settle the claim for $4,000 solely on the basis of its belief as to coverage, though it was aware that the insured was financially unable to effect his own settlement. A judgment of $25,000 for a plaintiff and $1,250 for his wife was rendered against the insured. After plaintiff recovered $10,000 in a suit against the defendant,1 the insured assigned all his rights against the defendant to plaintiff who brought this suit to recover that portion of the initial judgment in excess of the policy limits. Judgment was entered for the insurer, notwithstanding a jury verdict for the plaintiff. On appeal, held, reversed. An insurer who wrongfully, though perhaps with foundation, denies coverage and refuses to accept a reasonable offer of settlement subjects itself to liability for the full judgment against the insured. Comunale v. Traders & General Ins. Co., (Cal. 1958) 328 P. (2d) 198.