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"[T]he crucial element is the lack of a judgment rendered after an adversarial trial. The potential for collusion in the circumstances involved is obvious." 21st Century Ins. Co. v. Superior Ct., No. EO62244, 2015 WL 5285822, *3 (Cal. 4th DCA, Div. 2, September 10, 2015). That was the basis for the decision by California's Fourth District Court of Appeal in that insurance case.
21st Century defended its insured, one Tapia, in a lawsuit filed against Tapia by the heirs of a person killed in an automobile accident. 21st Century offered the $100,000.00 policy limit under the one policy which 21st Century acknowledged covered Tapia, and under which it defended Tapia in the lawsuit.
The insurance company's $100,000.00 settlement offer was rejected. The attorneys representing the underlying plaintiff insisted that Tapia also had insurance coverage under two $25,000.00 policies and so they demanded $150,000.00 to settle their clients' personal injury case against Tapia. It was known to all that 21st Century had previously denied any coverage to Tapia under the two $25,000.00 policies.
The fact was in dispute, however, whether 21st Century actually ever received the personal injury plaintiffs' demand, or counter-offer for $150,000.00. Convinced to pursue a bad faith claim against 21st Century, the underlying plaintiffs served a statutory offer in the litigation for $3,000,000.00 and when that offer was not accepted, entered into a stipulated consent judgment with Tapia by which, among other things, Tapia assigned them his bad faith rights if any against 21st Century.
21st Century was given notice of the stipulated consent judgment. We know that from the fact that 21st Century told Tapia that it would not be bound by the stipulated consent judgment before Tapia stipulated to it.
The California appellate court held that 21st Century would not be bound by the stipulated consent judgment between Tapia and the underlying plaintiffs.
A different result governs when a relative few homeowners in one place, say Florida for example, stipulate to a consent judgment in a class action and this time it is the defendants who contend that their stipulated consent judgment grasps people not in Florida and binds them to a settlement they never made.
In such cases, judges often do not even need to see a written settlement -- let alone a judgment -- before they enter orders precluding the claims of people in other cases and other places, say not in Florida for example. This is what happens: Homeowners whose homes are not in Florida and who are not themselves parties to the Florida case are held bound to the settlement by judges whose case load is not in Florida. See Dennis J. Wall, "Class Action Settlements Have Consequences: From Florida to Washington State" 28 NWLawyer 27 (April-May 2015). Download APR-MAY-2015-NWLawyer-Page27-28
Whatever the differences in the situations between 21st Century, which was not bound by a stipulated consent judgment, and homeowners, which are held bound by a stipulated settlement agreement which calls for a stipulated consent judgment, fairness arguably has nothing to do with it.
In both cases, other people agree to a stipulated settlement and attempt to bind other people to it. 21st Century and the homeowners also received notice of the settlement in both cases.
The differences too have nothing to do with fundamental fairness. To object, all that 21st Century needed to do apparently was to send a letter or make a telephone call while the homeowners in California, Oklahoma and the State of Washington apparently could make valid objections to a class action settlement in Florida only by hiring a lawyer and filing an objection within the time allotted by a judge in Florida. As between an insurance company and homeowners it would seem pretty clear that the insurance company is the one which would be likely to have the money to spend in making its objection, yet the most that the insurance company was required to spend to register its objection is 49¢ for a postage stamp.
Yet another difference which may be important to some observers is that a liability insurance company like 21st Century has a contract which ordinarily contains a provision that the insurance company will not be bound by a negotiated settlement or judgment without an actual trial in which it participated, basically. Does it take a contract to prevent someone else's stipulated agreement from restricting you? If it takes a contract, then what form would such a contract take for homeowners in California, Oklahoma, or the State of Washington not to be bound by a stipulated agreement in Florida?
It seems that in the 21st Century case, the California Fourth District panel reached a good decision because the potential for collusion was obvious to it under the circumstances. In the homeowners' cases, many judges have reached results which are seemingly to the contrary. Perhaps in the cases in which homeowners sue large banks, the potential for collusion is not obvious to those judges.
In the end, fairness does not seem to have much to do with how much a stipulated consent judgment may be allowed to grasp.
Please Read The Disclaimer. ©2015 by Dennis J. Wall, author of "Litigation and Prevention of Insurer Bad Faith" (3d Edition, Thomson Reuters West, in 2 Volumes with 2015 Supplements). Listen here to a free podcast of "Litigation and Prevention of Insurer Bad Faith" sections on Lender Force-Placed Insurance Practices. The link also provides the opportunity to obtain free print copies of the copyrighted sections and to access a YouTube video on Lender Force-Placed Insurance Practices which you can also access here.