Insurance Resolutions: Keep the Settlement Monies, Avoid the Release and Sue for Fraud
(right: '94 quake damage)
Though I've participated (as co-mediator) in the settlement of some of these Northridge Earthquake cases, I'm going to let the insurance bloggers address the wisdom of this decision -- just sent down by the California Court of Appeal in Village Northridge Homeowners Association v. State Farm Fire and Casualty Co.
As the Court itself acknowledged, under its holding,
a plaintiff could settle a disputed insurance claim, keep the money paid, and then sue for fraud (rather than on the released claim) if it was fraudulently induced to settle the claim by a misrepresentation of policy limits.
We must say we're surprised by this holding and imagine the insurance carriers are as well. The "parade of horribles" raised by State Farm, however, was dismissed as exaggerated by the appellate court, stating that the
consequences of applying this principle are not dire. Indeed, to avoid them, the insurer need only avoid misrepresenting policy limits when it settles claims. We seriously doubt insureds who settle their claims can be expected thereafter to assert groundless claims of misrepresentation of policy limits on a routine basis.
Is this a case of bad facts making bad law? Or am I missing something?
I'd love to hear from Declarations and Exclusions blogger George Wallace on this one! George?
