Opinion ID: 1225573
Heading Depth: 3
Heading Rank: 2

Heading: Dairyland's Arguments

Text: {16} Dairyland attempts to distinguish this case from these general principles by implying that Herman's settlement offer was neither reasonable nor in good faith. Dairyland claims that it would have violated its duty to its insured had it accepted Herman's settlement without insisting upon a release of the Health-Plus subrogation claim. Dairyland makes this claim because it contends that such a settlement would have placed Fragua, its insured, in risk of paying that subrogation claim out-of-pocket. {17} The California case, Coe v. State Farm Mutual Automobile Insurance Co., 66 Cal.App.3d 981, 136 Cal.Rptr. 331 (1977), addressed an issue similar to the one presented in this case. Dairyland describes Coe as the leading case on this issue and argues that we should follow its reasoning. In Coe, Bonnie Jean Strandberg negligently caused an automobile accident in which Richard Coe suffered severe injuries. Strandberg held an automobile policy with State Farm which insured against liability up to $25,000. At the time of the accident, Coe was driving in the course and scope of his employment, and was covered by workers' compensation insurance which was carried by the California State Compensation Insurance Fund. Id., 136 Cal. Rptr. at 332. The Fund informed State Farm that it intended to seek reimbursement of the money it had paid in compensation for Coe's injuries by asserting a lien against any recovery by Coe from State Farm. Id. at 333. This reimbursement to the Fund was required by statute under the California Labor Code. See Cal. Lab.Code § 3859 (West 1971) (as amended 1971) (right to reimbursement); Cal. Lab.Code § 3860 (West 1971) (as amended 1971) (same concept); Cal. Lab. Code § 3856(b) (West 1971) (right to a lien); Coe, 136 Cal.Rptr. at 333 n. 1. By law, when the Workers' Compensation Fund was implicated in a suit for damages, no settlement was possible without the Fund's consent. Coe, 136 Cal.Rptr. at 337. {18} Coe offered to settle with State Farm for the full policy limit of $25,000. Id. at 333. State Farm refused the offer for several reasons including the fact that there was no mention of a consent and release by the Fund. Id. at 334. Coe died, and his wife brought a wrongful death action against Strandberg which resulted in a verdict for $250,000. Id. Coe's wife then took an assignment of Strandberg's rights against State Farm for bad-faith refusal to settle. She brought the action for bad faith and won more than $300,000. Id. {19} On appeal, the California Court of Appeals rejected the bad-faith argument. The court emphasized that the fact that no settlement could be valid without the consent of the Compensation Insurance Fund was imposed by law. Id. at 337. Thus, the failure of Coe to offer or guarantee the Fund's consent and release ... meant that [no one] made an offer whose acceptance by [State Farm] would have produced a valid settlement of the claims against Mrs. Strandberg. Id. Therefore, the court held that [i]n the absence of reasonable provisions for the legal rights of the Fund, we conclude that State Farm cannot be held liable for bad-faith `rejection of a reasonable settlement offer.' Id. {20} Additionally, the Coe court concluded that acceptance of the settlement offer would have been in-and-of-itself an act of bad faith: Absent the offered and guaranteed written consent of the State Compensation Insurance Fund in [Coe's offer], acceptance by appellant of the offer would have left Mrs. Strandberg exposed to a recoupment action by the Fund. As appellant points out, this is clear as a matter of law. It was also established as a fact by the evidence in this case. Accordingly, acceptance by appellant of the offer, as made, would have amounted to an abdication of its responsibilities to its own insured. Specifically, it would have breached its implied covenant of good faith and fair dealing not to injure her rights under its policy, and its obligation to consider the interests of the assured equally with its own. Bad-faith refusal to accept a settlement offer cannot occur where acceptance would itself be bad faith. Id. (citations omitted). {21} Dairyland suggests that the unresolved claim for the statutory right of reimbursement by the Fund in Coe is analogous to the unresolved claim for the equitable right of subrogation by a private insurer in this case. In both circumstances, if the settlements were accepted, the insureds would be exposed to these unresolved claims. Dairyland argues that we should find, as did the Coe court, that the true act of bad faith lay in acceptance rather than rejection of the settlement offer. {22} We disagree. The two cases are not analogous. Coe was determined by specific California statutes that absolutely mandated the joinder of the State Compensation Insurance Fund in all settlements between employer and employee. These statutes meant that the offer made by Coe to settle the case was not legally permissible. The case before us is not comparable. The New Mexico workers' compensation laws are not implicated, nor have we been alerted to any relevant law that requires the participation of a governmental entity in a personal-liability automobile-insurance settlement. Health-Plus had no statutory right to be included in a settlement between Herman and Dairyland. Similarly, Dairyland was not required by any New Mexico law to refuse all settlement offers that failed to release the subrogation interests of Health-Plus. In Coe, the refusal to accept a settlement offer that violated state law was not an act of bad faith. In this case, where no comparable law is implicated, there is evidence that could support a finding of bad faith in Dairyland's refusal to settle.