Opinion ID: 2632007
Heading Depth: 2
Heading Rank: 5

Heading: The Law Favoring Settlement.

Text: (11) `[T]he law favors settlements.' ( Bush v. Superior Court (1992) 10 Cal.App.4th 1374, 1382 [13 Cal.Rptr.2d 382].) State Farm contends that if an insured can settle a disputed claim, keep the money paid, and then sue anyway without complying with our rescission statutes, no insurer would ever settle a disputed claim. Village Northridge asserts that a decision against it would hinder settlement, because the courts would be tolerating misrepresentation of policy limits by precluding any remedy for the crime in instances where a release is involved. Village Northridge asks, How is the policy favoring settlement furthered by refusing a remedy at law to victims of fraud in connection with a fraudulently induced settlement? The answer is simple. The court is not refusing a legal remedy to victims of fraud, because they still have the option of rescinding the contract and then suing for damages. Village Northridge further contends that if the settlement process is to be viable, insureds must have a legal remedy for misrepresentation of policy limits. Rescission under sections 1688 to 1693 is such a remedy. In addition, the Court of Appeal stated that [t]he consequences of applying this principle [of allowing plaintiff to settle, keep the money paid, and then sue for fraud] are not dire, and so they will not deter settlement. In essence, the court reasons that the insurer needs only to avoid misrepresenting policy limits. The Court of Appeal seriously doubt[s] insureds who settle their claims can be expected thereafter to assert groundless claims of misrepresentation of policy limits on a routine basis. Although we agree the consequences may not be dire, especially if the holding is specifically limited to allowing a suit for fraudulent inducement by misrepresenting policy limits rather than applying to fraudulent inducement in general, this contention is beside the point. Such a claim, by itself, cannot justify the break from settled law that the Court of Appeal's holding would represent. The fact that the consequences may not be dire does not mean they will be desirable. A settlement agreement is considered presumptively valid, and plaintiffs are bound by an agreement until they actually rescind it. We cannot ignore the equities of contract law simply because the Court of Appeal deems its holding to be a narrow one that applies only to those few cases where a plaintiff alleges that its insurer misrepresented policy limits when settling a claim. We find that the established rule is more likely to favor settlements, particularly when the parties have the equitable safeguards available to them under section 1693 discussed above.