Non-Party Insurer Can't Be Sanctioned For Failure To Negotiate In "Good Faith" At Settlement Conference

    Almost every California jury trial is preceded by one or more "mandatory settlement conferences," usually supervised by a judge, and usually a week to a month before the trial.  Local rules generally require that the parties, insurers and others with authority to settle be present.

    The settlement skills of our judges are highly variable.  Those with high-level interpersonal and mediation skills are often pretty effective;  those who rely on the power of the gavel are less so.  It's not uncommon for "power of the gavel" judges to use sanctions, or the threat of  sanctions, as settlement leverage against corporate defendants or their insurers.

    Today's decision in Vidrio v. Hernandez (April 13, 2009) ___Cal.App.4th___ (Second Dist., B207391) puts some significant limits on this kind of sanctions threat, particularly when it comes to insurers. 

More after the jump.

    Vidrio v. Hernandez is a classic uninteresting car crash case, but it made some interesting law for defendants and their insurers in all kinds of tort cases.  The defendant and its insurer attended the mandatory settlement conference after serving Code of Civil Procedure section 998 offers of judgment to both plaintiffs in the sum of $1,000 each.  At the settlement conference, the insurer stuck to its guns, declining to move off the $1,000 per plaintiff offer. 

    The settlement conference judge held a hearing on whether the insurer and its defense counsel should not be sanctioned, and sanctioned the insurer about $1,800 for failure to negotiate in good faith.

    But the problem is, there is no statute or rule that authorizes sanctions against insurers for failing to negotiate in good faith.  California Rule of Court, Rule 13.830 requires that

Trial counsel, parties, and persons with full authority to settle the case must personally attend the conference, unless excused by the court for good cause.

    The insurer did that.  Code of Civil Procedure section 177.5 provides that a court may award sanctins of up to $1,500

. . .for any violation of a lawful court order by a person, done without good cause or substantial  justification. . .  For the purposes of this section, the term "person" includes a witness, a party, a party's attorney, or both.

 
    But of course, the insurer was not a witness, a party, or a party's attorney.  And California Rule of Court Rule 2.30(b) provides

In addition to any other sanctions permitted by law, the court may order a person, after written notice and an opportunity to be heard, to pay reasonable monetary sanctions to the court or an aggrieved person, or both, for failure without good cause to comply with the applicable rules. For the purposes of this rule, "person" means a party, a party's attorney, a witness, and an insurer or any other individual or entity whose consent is necessary for the disposition of the case.

    But there was no applicable rule requiring that the insurer offer any particular amount in settlment. 
   
    So when all was said and done, there was no basis in any statute, rule of court or local rule for contending that the insurer, once present, was required to negotiate in any particular way.  So the sanctions award was reversed.

    Now it there is probably a way that local jurisdicitons can get around this case by writing local rules that require parties and insurers to participate in the give and take of negotiation, but I question whether they should.  In the final analysis, the parties should have the right to be unreasonable and even irrational if they choose;  when they try the case, they'll find out just how unreasonable and irrational they actually were.  Or they won't. . . . .