426 P.2d 173, 176 (Cal.1967)
Rosina Crisci owned an apartment building in which June DiMare and her husband were tenants.1 Mrs. DiMare was descending the outside wooden staircase when a tread gave way, causing her to fall through the opening up to her waist and hang fifteen feet above the ground.2 She suffered physical injuries that developed into a severe psychosis.3
The DiMares sued Mrs. Crisci alleging negligence in inspecting and maintaining the stairs.4 They sought $400,000 for physical and mental injuries and medical expenses.5 Mrs. Crisci held a $10,000 general liability policy with Security Insurance Company of New Haven, Connecticut.6 The policy obligated Security to defend the suit and authorized it to make any settlement it deemed expedient.7
Security hired experienced attorney Mr. Healy to handle the defense.8 Both Healy and the claims manager concluded that a jury would probably find the accident caused the psychosis and return a verdict of at least $100,000.9 An extensive search found no evidence of prior mental abnormality.10 Mrs. DiMare and Mrs. Crisci each had psychiatrists prepared to testify that the accident caused the illness.11
The DiMares reduced their settlement demand to $10,000.12 Security was willing to pay only $3,000 for physical injuries and refused to pay anything for the mental illness claim.13 Security also rejected a $9,000 demand at a time when Mrs. Crisci offered to contribute $2,500.14 A jury awarded Mrs. DiMare $100,000 and her husband $1,000.15
Security paid its $10,000 policy limit after an unsuccessful appeal.16 The DiMares then collected the balance from Mrs. Crisci by means of a settlement that gave them $22,000, a 40 percent interest in a piece of her property, and an assignment of her claim against Security.17 Mrs. Crisci, an immigrant widow of seventy, became indigent.18 She worked as a babysitter and relied on her grandchildren to pay her rent.19 She suffered a decline in physical health accompanied by hysteria and suicide attempts.20
Mrs. Crisci brought this action against Security.21 The trial court awarded her $91,000 plus interest for the excess judgment and $25,000 for mental suffering.22 Security appealed to the Supreme Court of California.23
Whether an insurer may be held liable for the amount of a judgment exceeding policy limits after refusing settlement offers within those limits?24
In every contract, including policies of insurance, there is an implied covenant of good faith and fair dealing that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.25 The implied obligation of good faith and fair dealing requires the insurer to settle in an appropriate case although the express terms of the policy do not impose the duty.26 In determining whether to settle the insurer must give the interests of the insured at least as much consideration as it gives to its own interests.27 The test is whether a prudent insurer without policy limits would have accepted the settlement offer.28
Yes. Security hired experienced attorney Mr. Healy to handle the defense of the suit brought by the DiMares against Mrs. Crisci. Both Healy and the claims manager concluded that a jury would probably find the accident caused the psychosis and return a verdict of at least $100,000. An extensive search found no evidence of prior mental abnormality.
Mrs. DiMare and Mrs. Crisci each had psychiatrists prepared to testify that the accident caused the illness. The DiMares reduced their settlement demand to $10,000. Security was willing to pay only $3,000 for physical injuries and refused to pay anything for the mental illness claim. Security also rejected a $9,000 demand at a time when Mrs. Crisci offered to contribute $2,500.
A jury awarded Mrs. DiMare $100,000 and her husband $1,000. Security paid its $10,000 policy limit after an unsuccessful appeal. The DiMares then collected the balance from Mrs. Crisci by means of a settlement that gave them $22,000, a 40 percent interest in a piece of her property, and an assignment of her claim against Security. The trial court found that defendant knew that there was a considerable risk of substantial recovery beyond said policy limits.29
The defendant did not give as much consideration to the financial interests of its said insured as it gave to its own interests.30 That is all that was required under the rule from Comunale v. Traders & General Ins. Co.31 Security attempts to justify its rejection of a settlement by contending that it believed Mrs. DiMare had no chance of winning on the mental suffering issue.32 That belief in the circumstances present could be found to be unreasonable.33
Security was putting blind faith in the power of its psychiatrists to convince the jury when it knew that the accident could have caused the psychosis.34 Its agents had told it that without evidence of prior mental defects a jury was likely to believe the fall precipitated the psychosis.35 Mrs. DiMare had reputable psychiatrists on her side.36
Security breached its duty to consider the interests of Mrs. Crisci in proposed settlements and the award of $91,000 must therefore be affirmed.37
Whether damages for mental suffering are recoverable in an action by an insured against an insurer for refusal to settle within policy limits?38
An action of the type involved here sounds in both contract and tort and the plaintiff will ordinarily have freedom of election between an action of tort and one of contract.39 The general rule of damages in tort is that the injured party may recover for all detriment caused whether it could have been anticipated or not.40 Mental suffering constitutes an aggravation of damages when it naturally ensues from the act complained of.41 A plaintiff who as a result of a defendant’s tortious conduct loses his property and suffers mental distress may recover not only for the pecuniary loss but also for his mental distress.42
Yes. Mrs. Crisci, an immigrant widow of seventy, became indigent. She worked as a babysitter and relied on her grandchildren to pay her rent. She suffered a decline in physical health accompanied by hysteria and suicide attempts after the settlement with the DiMares that gave them $22,000, a 40 percent interest in a piece of her property, and an assignment of her claim against Security.
The breach also constitutes a tort.43 Plaintiff did not seek by the contract involved here to obtain a commercial advantage but to protect herself against the risks of accidental losses including the mental distress which might follow from the losses.44 Among the considerations in purchasing liability insurance as insurers are well aware is the peace of mind and security it will provide in the event of an accidental loss.45 It is not claimed that plaintiff’s mental distress was not caused by defendant’s refusal to settle or that the damages awarded were excessive in the light of plaintiff’s substantial suffering.46
Recovery of damages for mental suffering in the instant case does not mean that in every case of breach of contract the injured party may recover such damages because here the breach also constitutes a tort.47
The award of $25,000 for mental suffering is proper and the judgment is affirmed.48