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Barnett, et al.
v.
First National Insurance Company of America
(Cal. App. Ct. 2010)
In a written opinion issued May 26, 2010, the California Court of Appeal overturned prior case law by holding that a single statutory offer to compromise made to husband and wife co-plaintiffs is valid. The Court held that because a husband and wife’s claim for damages is community property (as is any recovery), it makes no difference whether or not the injuries claimed are “indivisible” or “separate.” Accordingly, there is no reason to require that a statutory settlement offer be made separately to each spouse to be valid.
Factual Background
Plaintiffs Richard and Paula Barnett (hereinafter the “Barnetts”) purchased a home in Encino, California in 1996. At all times relevant, the Barnetts had a homeowners insurance policy issued by First National Insurance Company of America (hereinafter “First National”). As a result of severe rainstorms that hit Los Angeles County in January and February of 2005, the Barnetts’ home suffered significant water and mold damage.
The Barnetts made a claim on their homeowners policy to First National for water and mold damages. First National denied the Barnetts’ claim on the grounds that the cause of loss was surface water draining towards the home (as a result of the exterior concrete around the home being higher in elevation than the interior slab). The Barnetts eventually filed a complaint with the Department of Insurance related to First National’s denial of coverage. Thereafter, the Barnetts filed a lawsuit against First National.
Prior to trial, First National served the Barnetts with a joint Code of Civil Procedure section 998 offer (hereinafter “998 offer”). The Barnetts rejected First National’s 998 offer. At trial, First National received judgment in its favor. Thereafter, First National filed a memorandum of costs, including a request for expert witness fees. The Barnetts challenged First National’s claim for expert witness fees on the grounds that the 998 offer was invalid where a single offer is made to two plaintiffs. First National objected to the Barnetts’ argument on the grounds that the 998 offer was valid where the plaintiffs, like the Barnetts, have a unity of interest. The trial court agreed with the Barnetts and denied First National’s request for its expert witness fees.
The Appellate Court’s Holding
On appeal, the Appellate Court overruled prior precedent, holding that “whether or not the injuries claimed in a lawsuit by a husband and wife are “indivisible” or “separate,” there is no reason to require a settlement offer to be made separately to each spouse to be valid under section 998.” In reaching its conclusion, the Court examined three related cases.
In Meissner v. Paulson (1989) 212 Cal.App.3d 785, defendant made a 998 offer to two plaintiffs. The 998 offer was conditioned on both plaintiffs consenting to settlement and agreeing on apportionment of the settlement offer between them. Discussing the 998 offer, the Meissner court reasoned that in such a situation, “[p]laintiffs would be required to second-guess all joint offers to determine whether a failure to reach agreement with co-plaintiffs would cause a risk of section 998 costs against them.” Reasoning that the Legislature did not intend to place this burden on offerees, the court held that “as a matter of law only an offer made to a single plaintiff, without need for allocation or acceptance by other plaintiffs, qualifies as a valid offer under section 998. (Id.)
The Court next examined Vick v. DaCorsi (2003) 110 Cal.App.4th 206. In Vick, that court distinguished its holding from Meissner, ruling that a joint offer to husband and wife co-plaintiffs was valid because the suit arose out of their purchase of community property (a home); their recovery would be community property; and neither sought recovery peculiar to one of them. The Vick court stated that under such a fact pattern, to hold otherwise would result in a situation where one spouse could accept the offer and the other could reject it, thereby benefiting both spouses if the judgment is greater than the offer and avoiding costs if it is less.
Finally, the Court examined Weinberg v. Safeco Ins. Co. of America (2004) 114 Cal.App.4th 1075. In Weinberg, husband and wife co-plaintiffs sued Safeco for bad faith arising out of the handling of husband’s uninsured motorist claim. After Safeco prevailed at trial, the trial court ruled Safeco’s pre-trial 998 offer invalid, noting that wife’s bad faith claim was separate, and not a derivative claim, even though it was based on her husband’s uninsured motorist claim. The court reasoned that both husband and wife could incur expenses unique to them and that each may suffer varying degrees of emotional distress. Thus, because the claims are not a single, indivisible injury, the joint 998 offer was invalid.
Based upon the Weinberg decision, the trial court in this matter ruled that First National’s 998 offer was invalid, as the Barnetts did not have a single, indivisible injury. Each could have suffered varying degrees of emotional distress arising from the alleged bad faith handling of their insurance claim. The Appellate Court, however, agreed with First National’s argument; that a husband and wife’s cause of action for damages is community property, as is any recovery related thereto. Thus, the Court stated that regardless of whether the claimed injuries are “indivisible” or “separate,” “there is no reason to require a settlement offer to be made separately to each spouse to be valid under section 998.”
Furthermore, because the Barnetts are spouses, with each spouse possessing management and control of community property and equal interests in all proceeds, “the apportionment problem and the potential difficulty of determining whether an individual plaintiff received a judgment more or less favorable than his or her share of the defendant’s settlement offer . . . simply does not exist.” Thus, the Court ruled that its prior decision in Weinberg was mistaken and that in the future, an offer similar to First National’s 988 offer will be valid. 1
1 Despite its finding that First National’s 998 was valid, the Appellate Court declined to overturn the trial court’s ruling in favor of the Barnetts, stating that the Barnetts, at the time they rejected First National’s 998 offer, were entitled to do so “without fear that they could thereafter be liable for expert fees and other costs under section 998.”
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