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Crisci v. Security Insurance Co.

Citation. 426 P.2d 173 (Cal. 1967)
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Brief Fact Summary.

One of the plaintiff’s tenants was injured due to her negligence, but her insurance company refused to settle. The tenant won in court and was awarded a much higher damage amount than the settlement had proposed. This caused the plaintiff’s financial situation to drastically change, leading to a decline in her health.

Synopsis of Rule of Law.

Insurers are liable for the consequences of refusing to settle if they knew there was considerable risk of substantial recovery beyond the policy limits and they failed to consider the insured’s interests equal to their own.


June DiMare and her husband were tenants in the plaintiff’s building. DiMare was descending the apartment building’s outside wooden staircase, when the stairs gave way. She fell through the opening to her waist, hanging 15 feet above the ground. DiMare suffered physical injuries and developed sever psychosis. No evidence was discovered indicating that DiMare had a history of mental illness, and DiMare alleged that the injuries were due to the plaintiff’s negligence. The plaintiff had $10,000 of insurance coverage under a general liability policy issued by the defendant. DiMare’s attorney proposed a $10,000 settlement, but the defendant refused to pay despite the plaintiff’s insurance policy due to the possibility that a jury rule in favor of the plaintiff on grounds of prior mental illness. A jury awarded DiMare a total of $101,000, and the defendant paid out the policy. The plaintiff then had to pay the rest and became indigent. As a 70 year old immigrant widow, the plaintiff’s change in financial situation caused a steep decline in her physical and mental health.


Is the defendant liable for the plaintiff’s injuries for refusing to pay out the settlement?


Yes. The lower court judgement is affirmed.


Insurance policies have an implied covenant of good faith and fair dealing that requires the insurer to settle in an appropriate case. This is especially applicable in cases where recovery from a court judgement could far exceed the cost of settlement. The test to determine an appropriate case is whether a prudent insurer without policy limits would have accepted the settlement offer. Dishonesty or fraud are not vital to the determination. Insurers should not have the ability to forego settlement unless they are prepared to absorb the cost of liability should the insured lose in court.

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