Filed 10/17/14 Graciano v. Mercury Gen. Corp. CA4/1
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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                    COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                  DIVISION ONE

                                           STATE OF CALIFORNIA



SONIA GRACIANO,                                                     D061956

         Plaintiff and Respondent,

         v.                                                         (Super. Ct. No.
                                                                     37-2010-00055207-CU-IC-NC)
MERCURY GENERAL CORPORATION et
al.,

         Defendants and Appellants.


         APPEAL from a judgment of the Superior Court of San Diego County, Timothy

M. Casserly, Judge. Reversed.

         Hager Dowling Lim & Slack, John V. Hager and Alison M. Bernal for Defendants

and Appellants.

         Dabney Finch and Carla DeDominicis for Plaintiff and Respondent.

         Plaintiff Sonia Graciano suffered severe injuries when she was struck by a car

driven by Saul Ayala (Saul). Saul was insured by a policy issued by defendant California

Automobile Insurance Company (CAIC), which had policy limits of $50,000. Less than

three weeks after Graciano's attorney first contacted CAIC alleging Graciano was injured
by one of CAIC's insureds, during which time Graciano misidentified both the name of

the driver and the applicable insurance policy, CAIC completed its investigation of the

accident, identified the correct insurance policy and driver, and tried to settle Graciano's

claim against Saul by delivering to Graciano's attorney a "full policy limits offer."

       Graciano did not accept CAIC's full policy limits offer and, in the present action,

asserts CAIC and its parent and affiliated companies (together Defendants) acted in bad

faith, based on an alleged "wrongful failure to settle." Graciano argues CAIC could have

and should have earlier discovered the facts, and should have made the full policy limits

offer more quickly. The jury found in favor of Graciano and this appeal followed.

       CAIC asserts that, as a matter of law, there was no evidence to support the verdict

that CAIC acted in bad faith by unreasonably failing to settle Graciano's claim against

Saul. We agree, and reverse the judgment.1

                                              I

                               FACTUAL BACKGROUND

       A. The Accident

       In the early morning hours of October 20, 2007, Graciano was severely injured

when she was struck by a 2004 Cadillac driven by Saul, who had been drinking before

the accident.

1       CAIC alternatively asserts on appeal that, even assuming the evidence could have
supported the verdict, the trial court prejudicially erred by excluding evidence elaborating
on CAIC's attempt to convey its offer to settle Graciano's claim against Saul. CAIC also
argues the court erred by summarily adjudicating that entities other than CAIC were
jointly and severally liable for the judgment under alter ego principles. Because of our
conclusion that no substantial evidence supports the finding CAIC wrongfully did not
settle Graciano's claim against Saul, we do not address CAIC's alternative claims.
                                               2
       B. The Two CAIC Policies

       Saul was a named insured on CAIC policy No. 040115180005897, in effect on the

date of the accident (Saul's policy) with a policy limit of $50,000. The Cadillac was a

listed vehicle on Saul's policy.

       CAIC had also insured Jose Saul Ayala (Jose) under a separate policy (policy

No. AP00401514, Jose's policy), and the Cadillac was also a listed vehicle on Jose's

policy. Jose's policy, which had policy limits of $15,000, had been canceled

approximately six months before the accident.

       C. The Two Reports of the Accident

       Saul's Report (CAIC Claim No. 20070032006723-81)

       Late on the afternoon of October 23, 2007, CAIC first learned of the accident

when Saul contacted an adjuster working for CAIC to report he had been in an accident

in the early morning hours of October 21, 2007. Saul reported he fell asleep while

driving and had struck a woman and injured her. Saul's claim was handled by the

adjusters of the Vista claims unit, and CAIC immediately began investigating this claim.

CAIC contacted the California Highway Patrol (CHP) that same day to order a copy of

the police report and, at that time, learned the actual date of the accident was October 20,

2007. CAIC also contacted the tow yard the following day and learned the CHP had an

"evidence hold" on the Cadillac, which would require permission from the CHP to allow

CAIC to inspect it.

       Based on the preliminary information, CAIC believed the driver was 100 percent

at fault. By October 30, 2007, CAIC's adjuster believed it would likely be an "excess

                                             3
bodily injury claim," meaning the amount for which Saul was liable would exceed the

amount of coverage provided by CAIC's policy. However, CAIC apparently did not

know at that point the identity of the person injured by Saul.

       Graciano's Report (CAIC Claim No. 20070065006697-01)

       Three days after Saul's report, Ms. DeDominicis contacted a CAIC call center in

Texas to report her client (Graciano) had been injured by a driver insured by CAIC.

DeDominicis reported Graciano was injured on October 21, 2007, gave the call center

"AP00297623" as the driver's policy number with CAIC, and told CAIC the driver's

name was "Saulay Ala."2

       CAIC assigned this report to a different claim identification number (claim

No. 20070065006697-01), which identified Jose as the insured and identified his last

effective policy number as AP00401514.3 Graciano's claim was assigned to the La Mesa

claims unit. The La Mesa claims unit transferred Graciano's claim to the Factfinder unit

in Sacramento, which did coverage investigations, because the listed policy (policy

No. AP00401514) appeared to have been canceled before the date of the accident and the

Factfinder unit needed to determine whether policy No. AP00401514 had validly been



2      Graciano's sister-in-law provided the name "Saulay Ala, Jr.," along with
"AP00297623" as the driver's policy number, to DeDominicis when she began acting as
Graciano's attorney. Graciano's sister apparently obtained that name and policy number
from the CHP.

3      Jose had previously been insured under the policy identified by DeDominicis (i.e.,
policy No. AP00297623) but, in March 2007, that policy had been canceled and a new
policy immediately replaced it that insured Jose and bore the new policy number of
AP00401514.
                                             4
canceled. Ms. Talley of the Factfinder unit attempted to contact Jose without success,

requested the underwriting file, and also confirmed it appeared Jose's policy had been

canceled in April 2007. Talley also corresponded with DeDominicis on November 1,

2007, to inform DeDominicis it was investigating a "coverage problem" for Jose under

policy No. AP00401514 and had been unable to confirm coverage. Talley also spoke

with DeDominicis on November 6, 2007, confirming the coverage investigation was still

ongoing but had not been completed.

      D. Graciano's Demand Letter

      On November 5, 2007, DeDominicis mailed a demand letter to Talley. The letter

identified Jose as the "named insured," the policy as "Policy # AP00401514," the "Date

of Loss [as] October 21, 2007," and described Graciano's extensive injuries.

DeDominicis stated she had been retained to pursue Graciano's remedies "arising out of

an event in which your above-referenced insured and/or their vehicle struck [Graciano]."

(Italics added.) DeDominicis stated that, considering Graciano's extensive injuries:

          "demand is made that Mercury immediately provide a copy of the
          declaration page and payment of the maximum bodily injury policy
          limits to Mrs. Graciano. [¶] The offer to settle for verified policy
          limits shall expire within ten days of today's date, and shall not
          be renewed. [¶] Thereafter, Mrs. Graciano shall take the position
          that Mercury is responsible for any extra-policy judgment that is
          certain to be rendered . . . . [¶] If there is anything else you need to
          consider and respond in a timely fashion to this policy limit demand,
          please do not hesitate to call immediately. . . ."

That letter was not received by Talley until November 8.




                                             5
       The previous day, Talley first received the police report of the incident. The

police report correctly reflected Saul was the driver but still listed Jose's old policy (i.e.,

policy No. AP00297623) as the applicable insurance policy.4

       E. CAIC's Response to the Demand for Jose's Policy Limits

       In the late afternoon of Thursday, November 8, 2007, although its initial

investigation indicated Jose's policy had been canceled for underwriting reasons, CAIC

nevertheless requested DeDominicis grant an extension on Graciano's demand for a

policy limits settlement to give it time to complete its coverage investigation before

responding to her demand. DeDominicis refused CAIC's request.

       By Monday, November 12, CAIC's investigation of Graciano's report and claim

had determined Saul, whom the newly obtained police report listed as the driver who

struck Graciano, was a "non-listed driver" on Jose's policy and, according to the police

report, did not reside at Jose's address. However, CAIC was still concerned Saul could

have been the son of the named insured, even though Saul's address did not match that of

Jose. That day, CAIC again tried, without success, to speak with DeDominicis about

Graciano's claim.

       On November 14, 2007, CAIC responded to DeDominicis's "policy limit demand"

on Jose's policy and informed her that its preliminary investigation over the preceding

seven days, although not yet complete, made it appear that Jose's policy was not in force


4       Although Graciano's brief on appeal states the police report received by CAIC
listed "Saul Ayala as the driver . . . with his [CAIC] policy number" (italics added), the
police report contains no reference to Saul's policy No. 040115180005897 and instead
listed only Jose's old policy number as the applicable insurance policy.
                                                 6
at the time of the accident, and therefore CAIC could not accept DeDominicis's policy

limit demand before the November 15, 2007, deadline. CAIC cautioned that its

determination was not final, but did advise Graciano to pursue her Uninsured Motorist

coverage with her own insurer.

      F. CAIC Connects Saul's Report With Graciano's Report and Offers Policy Limits

      On the late afternoon of November 14, Talley of the Factfinder unit again called

Jose to inform him the claimant was seriously injured and might pursue Jose. Talley also

left messages with the driver named in the police report, Saul, to ask whether Saul had

any insurance. However, Talley did not at that time know whether Saul had any

insurance, much less that he had insurance with CAIC.

      Shortly after noon the following day, Talley spoke on the phone with Saul, who

told Talley he did have insurance and that his insurance was with CAIC. This was the

first time Talley discovered a claim under Saul's name and policy had already been

opened in the Vista claims unit. Talley immediately gave Graciano's claim and demands

to the persons in the Vista claims unit handling Saul's claim. Around 1:45 p.m., an

adjuster in the Vista claims unit contacted DeDominicis to explain they were the unit

handling Saul's claim and had just found out that Graciano was the person whom Saul

had reported he had injured, and asked DeDominicis for a 24-hour extension to respond

to her settlement demand. DeDominicis refused and stated that if CAIC could not "get its

act together on what policy handles what, it's not her problem." The adjuster

immediately forwarded his recommendation to the Vista claims supervisor, who



                                            7
recommended CAIC make a full policy limits offer on Saul's policy to settle Graciano's

claims against him, and the supervisor immediately approved this offer.

       CAIC immediately prepared a letter offering $50,000, which it identified as the

full policy limits on Saul's policy, in full and final settlement of Graciano's injury claim.

The letter specified the settlement would include any lien claims (noting the hospital at

which Graciano was treated would have a statutory lien) and any loss of consortium

claims, and asked DeDominicis to advise whether Graciano was married. Graciano

stipulated DeDominicis received CAIC's settlement offer letter before the deadline of her

demand on Jose's policy expired.5

       Graciano did not accept CAIC's offer to settle her claims against Saul. Instead,

she pursued her action against Saul.6 Graciano obtained a judgment against Saul for over

$2 million and obtained an alleged assignment of Saul's rights against CAIC.



5       However, CAIC was also prepared to prove that CAIC tried twice to reach
DeDominicis by phone before the deadline expired to orally convey the offer, but she did
not answer. Before preparing and sending the letter offer, CAIC's adjuster apparently
called DeDominicis to convey the offer, but was only able to reach her voicemail. She
left a message conveying CAIC's policy limits offer and asked that DeDominicis return
her call. She also tried to reach DeDominicis by phone around 4:30 and again was
unsuccessful. CAIC also sought to show it tried to fax the letter to DeDominicis at 3:21
p.m., at 3:28 p.m., and again at 4:08 p.m., but the fax failed on each occasion because
DeDominicis had turned off her fax machine. Because Graciano stipulated DeDominicis
timely received the letter, the court excluded this evidence pursuant to Graciano's motion
in limine.

6      DeDominicis had filed an action, naming Saul, Saul's wife, and Saul's corporation,
approximately one week before the expiration date set forth in Graciano's demand letter
on Jose's policy. However, because of the court's in limine rulings, that evidence was
excluded from the jury's consideration.

                                              8
       G. The Other Admitted and Excluded Evidence

       Graciano introduced evidence that CAIC could have more promptly obtained the

police report, or at a minimum could have more promptly obtained the "face pages" from

the police report of the accident, but negligently did not do so. Had CAIC earlier

obtained these pages, it would have earlier learned the driver's identity. Once the driver's

identity was known, CAIC could have searched its computers to determine whether

CAIC insured the driver.

       Although the Factfinder unit did receive the police report on November 7, and

therefore knew Saul was the driver, no one in the Factfinder unit searched its

computerized database under "Saul Ayala" to determine if he was insured by CAIC. Had

anyone conducted that search, they could have earlier learned he was insured by CAIC,

and this could have led the Factfinder unit to learn of the claim Saul had opened two

weeks earlier being processed by the Vista claims unit.7 Additionally, the Factfinder unit

had (by November 12) made a preliminary determination that Jose's policy had expired

and therefore there was no coverage, and at that time the supervisor noted (among other

tasks to be performed) someone should contact Jose to determine if he had any "excess"

coverage that might be applicable, and also "verify if [Saul] has his own insurance."




7      The Vista claims unit supervisor apparently received an "ISO ClaimSearch
Automatic Update" on November 14 that indicated there were at least two claims arising
out the accident. The claim number assigned to Graciano's claim on Jose's policy did
appear in that update, but the "claimant" was listed as Saul and Graciano's name did not
appear on this ISO ClaimSearch Automatic Update. By the following day, this confusion
was resolved and the two claims had been consolidated by CAIC.

                                             9
These calls to Jose and Saul were made two days later, and when Saul returned this call

the next day, Talley first learned of his insurance with CAIC.

       When CAIC tendered their policy limits on November 15, it was unaccompanied

by either a check or by the declarations page for Saul's policy. This offer was also

subject to the conditions that the policy limits offer of settlement would include (1) any

loss of consortium claim and (2) all lien claims "known and unknown."8

       The court excluded evidence proffered by the defense to support its argument that

DeDominicis's offer to settle for the policy limits was not a genuine offer and that, once

CAIC informed her that it appeared there was no coverage under Jose's policy, its

8       CAIC's offer observed that "Palomar Medical Center [the hospital at which
Graciano was treated] will have a statutory lien." Although Graciano's evidence showed
CAIC had not yet placed a "lien stamp" on either of the claim files indicating a notice of
the statutory hospital lien had been received, CAIC could not have at that time known
whether the statutory lien nevertheless had become effective, because a lien apparently
would have been effective (and Saul would have potential liability to Palomar Hospital
under Civ. Code, § 3043.4) had the lien notice been "mailed by registered mail . . . prior
to the payment of any moneys to the injured person" by Saul or his insurer. (Civ. Code,
§ 3045.3, italics added.) Thus, at the time of the offer, CAIC could not "rule out the
potential of a hospital lien from Palomar hospital." Also, considering the compressed
time frame, in which the only contact between the Vista claims unit and DeDominicis
was a short phone conversation in which DeDominicis declined CAIC's request for an
extension, the Vista claims unit could not have excluded potential loss of consortium
claims against its insured because DeDominicis's letters described her client as Mrs.
Graciano. Regardless, Graciano cites no law suggesting an insurer can be held liable for
bad faith failure to settle if it makes a "full policy limits" offer and conditions the offer on
a full resolution of all potential claims against its insured, and the law appears to be to the
contrary. (Cf. Merritt v. Reserve Ins. Co. (1973) 34 Cal.App.3d 858, 871 (Merritt)
["Patently, the carrier cannot settle its share of the assured's liability and turn the assured
adrift, exposed to a suit for excess liability financed by the carrier's settlement."]; accord,
State Farm Mut. Auto. Ins. Co. v. Crane (1990) 217 Cal.App.3d 1127, 1136 (Crane)
["[T]he insurer is authorized to settle lawsuits, not to pay unilaterally the policy limits to
a plaintiff. Moreover, it is generally recognized that such an unconditional payment,
which has the effect of bankrolling a plaintiff's case against the insured, is not made in
good faith."].)
                                                 10
subsequent efforts to settle on behalf of Saul were hampered by DeDominicis's

machinations. For example, although DeDominicis knew (not later than November 7,

2007) that the driver's name was Saul Ayala, Jr., her November 5 demand letter, as well

as her November 7 letter enclosing Graciano's medical bills and her November 8 letter

reiterating the November 15 deadline for CAIC to respond, continued to refer solely to

Jose and Jose's policy number without any mention of Saul. Additionally, the court

excluded evidence that CAIC tried to reach DeDominicis telephonically on the afternoon

of November 15 to convey the offer to settle, but those calls went unanswered, and

excluded evidence that CAIC's efforts to fax the offer of policy limits during this same

time frame were prevented because DeDominicis had (in a departure from ordinary

procedures) turned her fax off. (See fn. 5, ante.)

                                             II

                               PROCEDURAL HISTORY

       Graciano disregarded CAIC's full policy limits offer and instead pursued her

previously filed action against Saul. She obtained a judgment of over $2 million and

obtained a partial assignment of Saul's rights against CAIC to pursue the present action.

       The present action alleged a claim for insurance bad faith based on CAIC's alleged

unreasonable refusal to settle Graciano's claim against Saul. The jury returned a verdict

in Graciano's favor, and CAIC timely appealed.




                                             11
                                              III

                          APPLICABLE LEGAL STANDARDS

       A. Substantive Standards

       Because this action was limited to a claim that CAIC breached its duties to Saul by

not taking reasonable steps to settle Graciano's claim against him, we outline the

principles applicable to the claim.

       "In each policy of liability insurance, California law implies a covenant of good

faith and fair dealing. This implied covenant obligates the insurance company, among

other things, to make reasonable efforts to settle a third party's lawsuit against the

insured. If the insurer breaches the implied covenant by unreasonably refusing to settle

the third party suit, the insured may sue the insurer in tort to recover damages

proximately caused by the insurer's breach." (PPG Industries, Inc. v. Transamerica Ins.

Co. (1999) 20 Cal.4th 310, 312.) The standard of good faith and fairness examines the

reasonableness of the insurer's conduct, and mere errors by an insurer in discharging its

obligations to its insured " 'does not necessarily make the insurer liable in tort for

violating the covenant of good faith and fair dealing; to be liable in tort, the insurer's

conduct must also have been unreasonable. [Citations.]' " (Brandt v. Superior Court

(1985) 37 Cal.3d 813, 819; accord, Walbrook Ins. Co. v. Liberty Mutual Ins. Co. (1992) 5

Cal.App.4th 1445, 1460 ["so long as insurers are not subject to a strict liability standard,

there is still room for an honest, innocent mistake"]; Tomaselli v. Transamerica Ins. Co.

(1994) 25 Cal.App.4th 1269, 1280-1281 ["The law clearly states that erroneous denial of



                                              12
a claim does not alone support tort liability; instead, tort liability requires that the insurer

be found to have withheld benefits unreasonably."].)9

       An insured's claim for bad faith based on an alleged wrongful refusal to settle first

requires proof the third party made a reasonable offer to settle the claims against the

insured for an amount within the policy limits. (Merritt, supra, 34 Cal.App.3d at p. 877.)

The offer satisfies this first element if (1) its terms are clear enough to have created an

enforceable contract resolving all claims had it been accepted by the insurer (Coe v. State

Farm Mut. Auto. Ins. Co. (1977) 66 Cal.App.3d 981, 992-993 (Coe)), (2) all of the third

party claimants have joined in the demand (ibid.), (3) it provides for a complete release of

all insureds (Strauss v. Farmers Ins. Exchange (1994) 26 Cal.App.4th 1017, 1021), and

(4) the time provided for acceptance did not deprive the insurer of an adequate

opportunity to investigate and evaluate its insured's exposure. (Critz v. Farmers Ins.

Group (1964) 230 Cal.App.2d 788, 798 (Critz) [One-week limitation attached to

settlement offer does not preclude a finding of bad faith rejection where insurer's

investigation and evaluation of claim had been completed; claimant "had a right to attach

a time limit to her offer, but the insurer was not bound by it. [Citation.] Had the

9       We recognize that Brandt and Tomaselli, as well as many other cases on which we
rely, involved insurers who allegedly breached the implied covenant of good faith and
fair dealing in the context of "first party" coverage claims, whereas the present case
involves an alleged breach the implied covenant of good faith and fair dealing in the
context of "third party" coverage. However, the controlling principles have equal
applicability in both contexts. (See, e.g., Brehm v. 21st Century Ins. Co. (2008) 166
Cal.App.4th 1225, 1241, fn. 8 ["Although the question whether an insurer failed to accept
a reasonable settlement offer within policy limits of a third party claim against its insured
is analytically distinct from the question whether an insurer unreasonably withheld
benefits due under the policy in a first party coverage context [citation], both turn on the
reasonableness of the insurer's position . . . ."].)
                                               13
company needed more time for investigation, for a good faith assessment of the claim's

value or for consultation with its policyholder, it might have chosen neither to accept nor

reject her offer, but rather to suggest additional time."], disapproved on other grounds in

Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 433.)

       A claim for bad faith based on an alleged wrongful refusal to settle also requires

proof the insurer unreasonably failed to accept an otherwise reasonable offer within the

time specified by the third party for acceptance. (Critz, supra, 230 Cal.App.2d at p. 798.)

However, when a liability insurer timely tenders its "full policy limits" in an attempt to

effectuate a reasonable settlement of its insured's liability, the insurer has acted in good

faith as a matter of law (Crane, supra, 217 Cal.App.3d at p. 1136; accord, Boicourt v.

Amex Assurance Co. (2000) 78 Cal.App.4th 1390, 1400) because "by offering the policy

limits in exchange for a release, the insurer has done all within its power to effect a

settlement." (Lehto v. Allstate Ins. Co. (1994) 31 Cal.App.4th 60, 73.)

       B. Standard of Review

       When a verdict is challenged for lack of substantial evidence, we must determine

whether there is evidence that is " ' "reasonable in nature, credible, and of solid value;

[constituting] 'substantial' proof of the essentials which the law requires in a particular

case." [Citations.]' " (DiMartino v. City of Orinda (2000) 80 Cal.App.4th 329, 336.) "In

evaluating the legal sufficiency of the evidence, the following basic approach is required:

'First, one must resolve all explicit conflicts in the evidence in favor of the respondent

and presume in favor of the judgment all reasonable inferences. [Citation.] Second, one

must determine whether the evidence thus marshaled is substantial. While it is

                                              14
commonly stated that our "power" begins and ends with a determination that there is

substantial evidence [citation], this does not mean we must blindly seize any evidence in

support of the respondent in order to affirm the judgment. The Court of Appeal "was not

created . . . merely to echo the determinations of the trial court. A decision supported by

a mere scintilla of evidence need not be affirmed on review." [Citation.] "[I]f the word

'substantial' [is to mean] anything at all, it clearly implies that such evidence must be of

ponderable legal significance. Obviously the word cannot be deemed synonymous with

'any' evidence. It must be reasonable . . . , credible, and of solid value . . . ." [Citation.]' "

(Valenzuela v. State Personnel Bd. (2007) 153 Cal.App.4th 1179, 1184-1185, quoting

Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1632-1633.) "The

ultimate determination is whether a reasonable trier of fact could have found for the

respondent based on the whole record. [Citation.] While substantial evidence may

consist of inferences, such inferences must be 'a product of logic and reason' and 'must

rest on the evidence' [citation]; inferences that are the result of mere speculation or

conjecture cannot support a finding [citations]." (Kuhn, at p. 1633.)

       When a claim is based on the insurer's bad faith, alleging either the insurer

unreasonably refused to pay policy benefits or did not conduct an adequate investigation,

the ultimate test is whether the insurer's conduct was unreasonable under all of the

circumstances. (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co.

(2001) 90 Cal.App.4th 335, 346.) Although "the reasonableness of an insurer's claims-

handling conduct is ordinarily a question of fact, it becomes a question of law where the



                                               15
evidence is undisputed and only one reasonable inference can be drawn from the

evidence." (Ibid.)

                                               IV

                                          ANALYSIS

       A. There Is No Substantial Evidence CAIC Unreasonably Rejected an Offer to

Settle Saul's Liability

       An insured's claim for "wrongful refusal to settle" cannot be based on his or her

insurer's failure to initiate settlement overtures with the injured third party (Reid v.

Mercury Ins. Co. (2013) 220 Cal.App.4th 262, 277 ["nothing in California law supports

the proposition that bad faith liability for failure to settle may attach if an insurer fails to

initiate settlement discussions, or offer its policy limits, as soon as an insured's liability in

excess of policy limits has become clear"]), but instead requires proof the third party

made a reasonable offer to settle the claims against the insured for an amount within the

policy limits. (Merritt, supra, 34 Cal.App.3d at p. 877.) We conclude there is no

substantial evidence Graciano ever offered to settle her claims against Saul for an amount

within Saul's policy limits.

       The only settlement "offer" CAIC could have accepted was DeDominicis's

November 5, 2007, letter. It identified Jose as the named insured, the relevant policy as

Jose's policy (e.g. "Policy # AP00401514"), and (after describing Graciano's extensive

injuries) stated DeDominicis had been retained to pursue Graciano's remedies "arising out

of an event in which your above-referenced insured and/or their vehicle struck

[Graciano]" (italics added), and demanded that CAIC "immediately provide a copy of the

                                               16
declaration page and payment of the maximum bodily injury policy limits . . . ." (Italics

added.) Even assuming (as Graciano contends on appeal) the letter implicitly contained

an agreement to release "the above referenced insured" in exchange for the "policy

limits" of the referenced policy, the plain import of this letter is that Graciano offered

only to settle her claims against Jose.10 Because Graciano never demanded payment of

Saul's policy limits in exchange for a release of Saul's liability, Saul would not have been

protected even had CAIC accepted the terms of Graciano's demand.

       Graciano cites no authority that an offer to release one potentially liable party

(here, Jose) in exchange for that party's policy limits, if rejected by the insurer, can serve

as the basis for a "wrongful refusal to settle" claim by a different potentially liable party

(here, Saul), and analogous authorities suggest a contrary rule. In McLaughlin v.

National Union Fire Ins. Co. (1994) 23 Cal.App.4th 1132, the injured party made a

settlement demand that was apparently within policy limits, but the offer contained no

10     Graciano appears to argue the November 7 letter did demand Saul's policy limits
because it "demand[ed] the policy limits of Mercury's 'insureds' [and] nowhere refers to
the policy limits of Jose" and therefore was "obviously referring to Saul." We reject
Graciano's argument to the extent it suggests that a third party claimant, after specifically
identifying a named insured and his or her policy number, may demand the policy limits
of a company's "insureds" and by such plural reference thereby widen the net to make a
demand encompass the universe of unidentified persons and entities who have coverage
with the insurer and who may have potential liability for the accident. For example, had
Saul been under 21 years of age and been furnished alcohol by a social host (against
whom Graciano apparently would have a claim) (Civ. Code, § 1714, subd. (d)) and the
host happened to be insured by CAIC, Graciano's theory would expose CAIC to a
wrongful refusal to settle claim by that social host for failing to discover the policy and
proffer to the social host's policy limits in response to Graciano's demand on Jose's
policy. We decline to adopt a rule that a settlement demand seeking the policy limits of a
specifically identified insured may, simply by employing the plural term "insureds,"
constitute a demand seeking the policy limits of the universe of persons and entities with
whom an insurer may have issued policies.
                                                17
suggestion the injured party would release the insured, and the McLaughlin court rejected

the argument that such offer could support the verdict against the insurer for wrongful

refusal to settle. (Id. at p. 1145, fn. 5.) Similarly, in Strauss v. Farmers Ins. Exchange,

supra, 26 Cal.App.4th 1017, the plaintiff's demand for policy limits did not include an

offer to release all of the insureds, and the court concluded rejection of such an offer

could not support an action for wrongful refusal to settle. (Id. at pp. 1020-1022.) Finally,

in Coe, supra, 66 Cal.App.3d 981, the court concluded the insurer's failure to accept the

plaintiff's settlement demand could not provide a basis for a wrongful refusal to settle the

claim because it would not have released the insured from all potential claims. (Id. at

pp. 992-993.)

       Graciano argues these cases do not support reversal because claimants are not

required "to begin settlement overtures with letter-perfect offers to which insurers need

only respond 'Yes' or 'No.' An insurer's duty of good faith would be trifling if it did not

require an insurer to explore the details of a settlement offer that could prove extremely

beneficial to its insured." (Allen v. Allstate Ins. Co. (9th Cir. 1981) 656 F.2d 487, 490, fn.

omitted; see Betts v. Allstate Ins. Co. (1984) 154 Cal.App.3d 688, 708, fn. 7 [noting in

dicta that where insurer deems settlement offers ambiguous or incomplete it should

attempt to seek clarification rather than rejecting offer].) Indeed, Graciano's argument on

appeal is that McLaughlin and Strauss are distinguishable because her November 7 letter

never refused to release Saul; by the same token, however, neither did her November 7

letter ever offer to release Saul in exchange for Saul's policy limits. Graciano also

suggests that, even if there was some ambiguity as to whether Saul would have been

                                             18
encompassed in her settlement demand, "if [CAIC] had contacted Ms. DeDominicis

before the settlement expiration date to verify her client would sign releases, as did the

insurer in Coe, that issue could have been resolved." This argument, however, ignores

the undisputed evidence CAIC did contact Ms. DeDominicis before the settlement

expiration date to inquire whether her client would agree to release Saul in exchange for

his policy limits, and those inquiries were rebuffed.

       Graciano alternatively argues that, even assuming the November 7 demand letter

incorrectly identified the insured and the applicable policy number, those defects were

attributable to CAIC because it was CAIC that, in response to Graciano's report of the

injury, changed the driver's name from "Saulay Ala" (as reported by DeDominicis) to

Jose. Graciano argues it is CAIC―not a third party―who is obligated to investigate

claims against its insured, and therefore any defect in her demand letter must be

attributed to CAIC's default of their obligations. However, the undisputed evidence is

that CAIC did comply with its obligations to investigate potential coverage on this

reported claim, because once CAIC received this report from Graciano (which tied her

claim to an apparently canceled policy) it tried to contact Jose, immediately began

investigating whether the policy had been validly canceled, and kept Graciano apprised

of its progress. The defect in her demand letter thus had its genesis in the defect in

DeDominicis' first report of Graciano's claim, and was not impacted by the investigation

undertaken by the Factfinder unit in response to her initial claim.

       Graciano attempts to bring the circumstances of this case under the aegis of Safeco

Ins. Co. of America v. Parks (2009) 170 Cal.App.4th 992 (Safeco), arguing that an insurer

                                             19
is charged with constructive knowledge of its own insuring agreements and, if it fails to

search for, discover and disclose potential coverage under a policy other than the one

under which the claim is made, it can be held liable for wrongful failure to defend and to

settle. However, even under the analysis of the Safeco court,11 we are unpersuaded that

case supports the judgment here.

       Our reason for rejecting Graciano's reliance on Safeco requires a nuanced

understanding of the facts presented to, and the resulting analysis by, the Safeco court.

There, the victim (Parks) sued three tortfeasors, including Miller, for injuries he sustained

in 1999 when he was struck by a third person after Miller and the others left Parks at the

side of a road. (Safeco, supra, 170 Cal.App.4th at p. 998.) Miller, a minor, lived with

her father and grandmother in a condominium rented by the grandmother. Miller's

mother was living with Mr. Barnette, who had a homeowner's insurance policy issued by

Safeco, and Miller occasionally stayed with her mother at Barnette's house. (Ibid.)

Miller tendered her defense to Safeco under the homeowner's policy issued to Barnette

(the Barnette policy), but Safeco declined the defense (ibid.), apparently contending an

automobile exclusion precluded coverage for this accident. (Id. at p. 1004.) In a

subsequent action, Parks recovered a judgment against Miller, who settled with Parks by

11      The Safeco court itself cautioned that, "[i]n this unusual context, we conclude
[insurer's] failure to conduct a reasonable search for other Safeco policies breached duties
arising under the [other] policy to reasonably investigate and settle [the claim]" and
concluded the insurer could not breach its duty to conduct a reasonable investigation and
then use the resulting ignorance "to shield itself from liability for breach of the related
duty to accept a reasonable settlement demand." (Id. at p. 1009, italics added.) Even
assuming we were to agree with all aspects of the analysis of the Safeco court, we would
limit that case to the peculiar facts and the self-described "unusual context" presented in
Safeco.
                                               20
assigning to him any claims she might have against Safeco and, in 2002, Parks sued

Safeco to recover the judgment he obtained against Miller (the bad faith action). He

alleged that Safeco breached the Barnette policy by refusing, in bad faith, to defend

Miller under the Barnette policy and to settle within the limits of that policy. (Id. at

p. 998.) Sometime later, apparently in 2003 and well after Parks's bad faith action was

filed, Miller's father asked her grandmother (Evelyn) whether she had any insurance on

her condominium and discovered Safeco insured Evelyn under a renter's insurance policy

(the Evelyn policy). Miller's father then gave the Evelyn policy to Miller or to her

lawyer. (Id. at p. 999.)

       In a bifurcated proceeding in the original bad faith action, the trial court entered a

declaratory judgment in favor of Parks, finding Safeco had a duty to defend and to

indemnify Miller because she was an insured under the Barnette policy. However,

Safeco appealed and, in 2004, the appellate court reversed and held Safeco had no duty to

defend Miller under the Barnette policy because she was not an insured under that policy.

(Safeco, supra, 170 Cal.App.4th at p. 999.) Thereafter, Parks's counsel demanded Safeco

pay the policy limits under the Evelyn policy, and the adjuster for Safeco (within a week

of receiving the demand letter) concluded Miller was an insured under the Evelyn policy

and that its automobile exclusion did not preclude coverage. Parks then amended his bad

faith action to allege for the first time that Safeco had a duty under the Evelyn policy to

pay the judgment and that it breached the implied covenant of good faith by refusing to

defend or indemnify Miller under that policy. (Id. at pp. 999-1000.) The trial court

ultimately concluded Safeco had breached the implied covenant of good faith by refusing

                                             21
to defend or indemnify Miller based on a policy (the Evelyn policy) under which Miller

had never sought a defense. (Id. at p. 1000.)

       The lynchpin of the Safeco court's analysis, upon which the balance of its

remaining holdings depended, was its discussion of the insurer's claim that its duty of

good faith and fair dealing under the Evelyn policy "never arose because . . . Miller

tendered her defense only under the Barnette policy and there was no evidence Safeco

had actual knowledge of the [Evelyn] policy when it declined the defense." (Safeco,

supra, 170 Cal.App.4th at p. 1003, fn. omitted.) The Safeco court, after noting the duty

of good faith and fair dealing includes a duty on the part of the insurer to investigate

claims submitted by its insured, specifically noted that the "duties, however, arise after

the insured complies with the claims procedure described in the insurance policy.

[Citations.] '[W]ithout actual presentation of a claim by the insured in compliance with

claims procedures contained in the policy, there is no duty imposed on the insurer to

investigate the claim.' [Quoting California Shoppers, Inc. v. Royal Globe Ins. Co. (1985)

175 Cal.App.3d 1, 57 (California Shoppers).]" (Safeco, at p. 1003.) However, the

Safeco court noted the insured's failure to comply with the notice or claims provisions

will not excuse the insurer's obligations under the policy

          "unless the insurer proves it was substantially prejudiced by the late
          notice. [Citations.] 'Prejudice is not presumed from delayed notice
          alone. [Citations.] The insurer must show actual prejudice, not the
          mere possibility of prejudice.' [Quoting Shell Oil Co. v. Winterthur
          Swiss Ins. Co. (1993) 12 Cal.App.4th 715, 761.] Where, as here, the
          insurer denies coverage, it may establish substantial prejudice only
          by demonstrating that, 'in the event that a timely tender of the
          defense [in the underlying action] had been made, it would have
          undertaken the defense.' [Quoting Clemmer v. Hartford Insurance

                                             22
          Co. (1978) 22 Cal.3d 865, 883.] 'If the insurer asserts that the
          underlying claim is not a covered occurrence or is excluded from
          basic coverage, then earlier notice would only result in earlier denial
          of coverage. To establish actual prejudice, the insurer must show a
          substantial likelihood that, with timely notice, and notwithstanding a
          denial of coverage or reservation of rights, it would have settled the
          claim . . . .' [Quoting Shell Oil Co. v. Winterthur Swiss Ins. Co.,
          supra, 12 Cal.App.4th at p. 763.]" (Safeco, supra, 170 Cal.App.4th
          at p. 1004, italics added.)

       The Safeco court then concluded the "notice defense" was correctly rejected by the

trial court (on a motion for summary adjudication) and later by the jury because the

insurer did not establish it had been prejudiced by the delayed notice, reasoning Safeco

had attempted to justify its rejection of coverage under the Barnette policy by asserting its

automobile exclusion precluded coverage for this accident, and "Safeco now relies on the

same automobile exclusion to contend there was no potential for coverage under the

substantially identical [Evelyn] policy. As a result, both the trial court and the jury could

reasonably infer that Safeco was not prejudiced by the late notice because it would have

relied on the automobile exclusion to decline the defense under the [Evelyn] policy."

(Safeco, supra, 170 Cal.App.4th at p. 1004.)

       Here, in contrast, there is no evidence Graciano's misidentification of the

applicable policy in her settlement demand did not cause prejudice to CAIC, because

there is no evidence CAIC would have relied on the same basis for declining to pay the

policy limits on Saul's policy (had Graciano correctly submitted her claim under Saul's

policy) as it cited when it declined her request for the policy limits under Jose's policy.

To the contrary, the only evidence in the record is that Graciano's misidentification of the

applicable policy did cause " 'actual prejudice [because] the insurer . . . show[ed] a

                                             23
substantial likelihood that, with timely notice, . . . it would have [attempted to] settle[] the

claim . . . .' " (Safeco, supra, 170 Cal.App.4th at p. 1004.) The undisputed evidence

showed CAIC rejected Graciano's request for the policy limits under the misidentified

policy because it had expired but, once it learned of the applicable policy, it did not

decline coverage for the same reason (or for any reason) but instead proffered the full

policy limits in an attempt to protect its insured. We are convinced Safeco does not

support the verdict here.

       Moreover, Safeco provides no support for Graciano's argument for a second

reason: the same conduct the Safeco court opined should have been undertaken by the

insurer (and whose absence supported the wrongful failure to settle verdict there) was

undertaken by CAIC here. Once the Safeco court concluded Miller's misidentification of

the applicable policy caused no prejudice to the insurer, and hence the insurer's duty to

investigate was not excused, it concluded Safeco was obligated to investigate whether

any other policy potentially covered her liability to the claimant, and its failure to

investigate and discover the Evelyn policy led to the insurer's rejection of the policy limit

demand. (Safeco, supra, 170 Cal.App.4th at p. 1005.) The Safeco court specifically

noted the insurer determined Miller did not reside with her mother and therefore was not

an insured under the Barnette policy, and declined coverage, and thereafter there was "no

evidence [the insurer] ever searched its own files for potentially applicable Safeco

policies issued to the adults with whom Miller resided[;] . . . [n]or did Safeco interview

Miller's father or grandmother to determine whether they had Safeco policies that might

cover her claim." (Id. at p. 1008.) Because this search or interview would have produced

                                              24
the applicable Evelyn policy, the Safeco court concluded the absence of this search

breached the insurer's duty to investigate and to attempt to settle Miller's liability. (Id. at

p. 1009.) Here, in contrast, after CAIC determined the identified Jose policy did not

cover Graciano's claim, it did not stop there: it did try to interview Jose and Saul to

determine whether they had policies that might cover Graciano's claim, this search did

discover another applicable policy, and CAIC did attempt to settle Saul's liability.

       Because the undisputed evidence shows CAIC was actually prejudiced by the

misidentification of the applicable policy, and also shows (notwithstanding the

misidentification) CAIC undertook the type of continued investigation the Safeco court

concluded was required, we reject Graciano's argument that there was substantial

evidence under Safeco to support the verdict.

       Graciano's argument under Safeco is not, at bottom, that CAIC did not conduct

any effort to locate and provide coverage for Saul, but is instead an argument that there

was substantial evidence CAIC "bungled its investigation" and, but for its errors, could

have sooner discovered there was a policy providing coverage for her claim. Although

this claim is true, it is also irrelevant. A bad faith claim requires "something beyond

breach of the contractual duty itself" (California Shoppers, supra, 175 Cal.App.3d at

p. 54), and that something more is " 'refusing, without proper cause, to compensate its

insured for a loss covered by the policy . . . .' [Citation.] Of course, the converse of

'without proper cause' is that declining to perform a contractual duty under the policy

with proper cause is not a breach of the implied covenant." (Ibid., italics supplied by

California Shoppers.) The California Shoppers court then noted that "[t]o refine further

                                              25
the nature and extent of the duty here under analysis, in terms of a particular application

of 'with proper cause,' it is our view that a mistaken withholding of policy benefits, at

least where, as here, such mistake (as to the insured's identity and not as to the matter of

coverage) has been contributed to by the very party claiming those policy benefits, is

consistent with observance of the implied covenant of good faith and fair dealing because

the mistake supplies the 'proper cause.' " (Id. at p. 55.) Applying California Shoppers

here, although there was some delay by CAIC in locating and connecting Graciano's

claim with Saul's policy, resulting in a mistaken "withholding" of policy benefits for a

24-hour period, such mistake was "contributed to by the very party claiming those policy

benefits" and "supplies the 'proper cause' " (ibid.), fatal to Graciano's bad faith claim.

       B. There Is No Substantial Evidence CAIC Unreasonably Failed to Timely Tender

Saul's Policy Limits to Attempt to Settle Saul's Liability

       A claim for "wrongful refusal to settle" requires proof the insurer unreasonably

failed to accept an otherwise reasonable offer within the time specified by the third party

for acceptance. (Critz, supra, 230 Cal.App.2d at p. 798.) The third party is entitled to set

a reasonable time limit within which the insurer must accept the settlement proposal

(Martin v. Hartford Acc. & Indem. Co. (1964) 228 Cal.App.2d 178, 185), and even a one-

week limitation attached to a settlement offer does not preclude a finding of bad faith

rejection under some circumstances. (Critz, at pp. 797-798 [insurer given one week to

respond where claimant had not yet incurred costs of a retained attorney, company's

investigation and evaluation was complete, and company never suggested it needed more

time for investigation].) Although the insurer "need not be governed by whatever time

                                              26
limit counsel for plaintiff in a personal injury action may impose" (Martin, at p. 185),

whether the insurer has satisfied its duty to seek to settle in protection of its insured "must

be measured in the light of the time limitation which plaintiff had placed on her offer."

(Ibid.) When a liability insurer does timely tender its "full policy limits" in an attempt to

effectuate a reasonable settlement of its insured's liability, the insurer has acted in good

faith as a matter of law (Crane, supra, 217 Cal.App.3d at p. 1136) because "by offering

the policy limits in exchange for a release, the insurer has done all within its power to

effect a settlement." (Lehto v. Allstate Ins. Co., supra, 31 Cal.App.4th at p. 73.)

       Here, in the three weeks after it first learned Graciano was alleging someone

insured by CAIC had injured her, CAIC was able to (1) determine that the policy

identified by Graciano (Jose's policy) could not provide a source of compensation for her,

(2) identify that a person (Saul) different from the one identified by Graciano ("Saulay

Ala") was responsible for Graciano's injuries, (3) determine Saul did have a policy

available as a source of compensation, and (4) tender CAIC's "full policy limits" in an

attempt to effectuate a settlement of Saul's liability. Although there was substantial

evidence from which a jury could have concluded CAIC was able to resolve the

confusion engendered by Graciano's misidentification of the applicable insured and

insurance policy earlier than it did, and to offer to settle earlier than it did, perfection is

not required (see, e.g., Adelman v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th

352, 369 ["to recover in tort for an insurer's mishandling of a claim, it must allege more




                                               27
than mere negligence"]), and Graciano's evidence showed, at most, that CAIC could have

resolved the confusion more promptly.12

       More importantly, the undisputed evidence showed CAIC did timely tender Saul's

full policy limits in an attempt to settle Graciano's claim, and therefore acted in good

faith as a matter of law "by offering the policy limits in exchange for a release [thereby

doing] all within its power to effect a settlement." (Lehto v. Allstate Ins. Co., supra, 31

Cal.App.4th at p. 73.) Although Graciano argues the evidence could have permitted a

trier of fact to conclude the tender of Saul's policy limits was not timely, Graciano herself

selected November 15 as the deadline for offering full policy limits in settlement.

Although an injured third party's unilateral selection of a deadline does not conclusively

govern whether a later tender of policy limits would have been untimely (Martin, supra,

228 Cal.App.2d at p. 185), we conclude at a minimum that the insurer has satisfied its

12     Graciano asserts the evidence showed CAIC was negligent and cites Notrica v.
State Comp. Ins. Fund (1999) 70 Cal.App.4th 911 for the proposition that such evidence
can be circumstantial evidence of bad faith. However, Notrica recognized that mere
negligence does not constitute bad faith and instead held that evidence of negligent
mishandling of claims such as those of the plaintiff, " 'if shown as a pattern, clearly
would be strong circumstantial evidence that SCIF indeed engaged in the complained of
conduct.' " (Id. at p. 931, italics added.) On appeal, Graciano cites the evidence showing
CAIC could have earlier obtained the police report showing Saul was the driver and,
when it did receive that report, could have phoned Saul earlier (but did not) or searched
its computer database to determine whether Saul was an insured. However, Graciano has
not directed this court's attention to evidence in the record demonstrating such
defalcations were part of a pattern by CAIC's claims handling department when dealing
with claims like Graciano's claim. (Cf. Estate of Allen (1971) 17 Cal.App.3d 401, 405,
fn. 2 [when respondent claims judgment is supported by substantial evidence, " 'it is the
duty of a respondent . . . to point out to the appellate court the evidence he deems
sufficient to support such judgment' "].) Instead, the evidence cited on appeal by
Graciano shows negligence in the handling of this specific claim, but that is not enough
to support a verdict for bad faith. (Adelman v. Associated Intern. Ins. Co., supra, 90
Cal.App.4th at p. 369 ["more than mere negligence" required for tort claim].)
                                               28
duty to seek to settle in protection of its insured when, "in the light of the time limitation

which plaintiff had placed on her offer" (ibid.), the insurer tenders its full policy limits

within the time limits imposed by an injured party's demand letter.

                                       DISPOSITION

       The judgment is reversed. Defendants shall recover their costs on appeal.




                                                                              McDONALD, J.

WE CONCUR:


HUFFMAN, Acting P. J.


O'ROURKE, J.




                                              29
