Zalma on Insurance
Education • Business
Insurance Claims professional presents articles and videos on insurance, insurance Claims and insurance law for insurance Claims adjusters, insurance professionals and insurance lawyers who wish to improve their skills and knowledge. Presented by an internationally recognized expert and author.
Interested? Want to learn more about the community?
October 28, 2022
Plaintiffs’ and their Counsel’s Bad Faith Defeats Suit Against Insurer

No Good Deed Goes Unpunished – Plaintiffs Abused the Tort of Bad Faith

Barry Zalma

Posted on October 27, 2022 by Barry Zalma

See the full video at https://rumble.com/v1pzspr-bad-faith-set-up-fails.html and at

Julio Palma and Miriam Cortez (the Plaintiffs) appealed an order granting summary judgment in a bad faith insurance case against Mercury Insurance Company (Mercury). Mercury insured Frank McKenzie, who killed Plaintiffs’ son in a car crash. Plaintiffs obtained a $3 million judgment in a wrongful death action against McKenzie. McKenzie then assigned Plaintiffs his rights against Mercury, and Plaintiffs brought the present action against Mercury on the basis that it failed to accept their reasonable offer to settle their wrongful death claims. The trial court granted Mercury’s motion for summary judgment after determining Plaintiffs never offered to settle their claims.

In Julio Palma et al. v. Mercury Insurance Company, B309063, California Court of Appeals, Second District, Third Division (August 23, 2022) the Court of Appeals refused to buy plaintiffs’ claims of bad faith.

FACTUAL BACKGROUND

In September 2012, Frank McKenzie was driving a vehicle that struck and killed Oscar Palma, who was riding a moped. At the time, McKenzie was insured under a Mercury insurance policy with bodily injury liability limits of $15,000 and property damage limits of $10,000.

On October 15, 2012, attorney Paul Zuckerman sent Mercury a settlement letter that identified “Oscar Palma (deceased) Estate of Oscar Palma” as “Our Clients” and states: “Oscar Palma (deceased) Estate of Oscar Palma, demands that Mercury Insurance tender full policy limits to Oscar Palma (deceased) Estate of Oscar Palma to resolve their claim.

The letter stated the offer was to remain open for 14 days, until October 29, 2012.

Mercury retained attorney Jeffrey Lim and instructed him to accept the offer. On October 19, 2012, Lim faxed the Carpenter firm a letter stating Mercury “is tendering to the estate and all heirs of Oscar Palma Mr. McKenzie’s $15,000 policy limits. [¶] In order to confirm that all heirs are included in the release for the policy limits, please have the heirs complete and sign the attached affidavit of heirs.” The Carpenter firm did not respond to the letter.

On October 24, 2012, Lim told Mercury that McKenzie agreed to a settlement. The same day, Lim wrote a letter to the Carpenter firm accepting the “offer to resolve the death claim of Oscar Palma.” Lim enclosed a check for $15,000 and represented that, aside from the Mercury policy, there were no other policies in existence for the loss. Lim, however, inadvertently failed to attach McKenzie’s declaration to the letter.

Lim included with the letter his office’s standard Release of Claims form, which required the release of all “bodily injury and personal injuries and property damage claims, and wrongful death claims ….” Lim told the Carpenter firm if “you have any changes to my release, please let me know prior to October 29, 2012.” The Carpenter firm did not respond to Lim’s letter or request any changes to the release.

Between March and July 2013, Mercury sent the Carpenter firm six letters “reiterat[ing]” its offer of the $15,000 bodily injury policy limits. Lim responded by sending the Carpenter firm a copy of McKenzie’s declaration. He represented that the “declaration had been received, but was inadvertently left out of my October 24, 2012, letter to the Carpenter firm. Mercury sent the Carpenter firm a separate response stating its position that it “timely offered its $15,000 bodily injury policy limits to your clients to settle their claims against Mr. McKenzie.

Plaintiffs’ Wrongful Death Action Against McKenzie

On August 28, 2013, the Carpenter firm filed a lawsuit against McKenzie on behalf of Plaintiffs, Ana Guzman-Palma, and the “Estate of Oscar F. Palma, a deceased individual.” The complaint asserted causes of action for negligence, “survival action,” and wrongful death. Following a jury trial, the court entered judgment against McKenzie and in favor of Plaintiffs for $3 million on their wrongful death claims. Mercury paid Plaintiffs its $15,000 bodily injury policy limits.

Plaintiffs’ Bad Faith Action Against Mercury

McKenzie assigned his rights against Mercury to Plaintiffs in exchange for a covenant not to execute the judgment against his personal assets.
Mercury’s Motion For Summary Judgment

Mercury moved for summary judgment and submitted evidence establishing the facts summarized above.

The trial court granted Mercury’s motion for summary judgment after determining the Carpenter firm’s letter offered only to settle a survival action on behalf of the estate.

DISCUSSION

Plaintiffs contended the trial court erred in granting Mercury’s motion for summary judgment because there are disputed issues of fact concerning whether Mercury unreasonably failed to accept their settlement offer.

Bad Faith Refusal To Settle

California courts have derived an implied duty on the part of the insurer to accept reasonable settlement demands on such claims within the policy limits.

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. The plaintiff must also prove the insurer failed or refused to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement. In evaluating whether an insurer acted in bad faith, the critical issue is the reasonableness of the insurer’s conduct under the facts of the particular case. To hold an insurer liable for bad faith in failing to settle a third party claim, the evidence must establish that the failure to settle was unreasonable.

Plaintiffs Did Not Offer To Settle Their Wrongful Death Claims

The Carpenter firm’s October 15, 2012 letter cannot reasonably be interpreted as an offer to settle Plaintiffs’ wrongful death claims. A wrongful death claim is a statutory cause of action that allows a decedent’s heirs to recover compensation for the economic loss and deprivation of consortium they personally suffered as a result of the decedent’s death. Wrongful death claims belong to the heirs, not the decedent or the decedent’s estate. The Carpenter firm’s letter, however, does not mention Plaintiffs or Palma’s heirs, let alone identify them as the offerors. It is clear that the Carpenter firm’s letter offered to settle the estate’s survival claim, and not Plaintiffs’ wrongful death claims.

Because Mercury’s undisputed evidence shows Plaintiffs did not offer to settle their wrongful death claims, they cannot state a cause of action for bad faith refusal to settle those claims.

Mercury Did Not Act In Bad Faith

Even if the Carpenter firm’s letter had offered to settle Plaintiffs’ claims, Mercury would be entitled to summary judgment because no reasonable trier of fact could conclude it acted in bad faith. The undisputed evidence shows Mercury directed Lim to accept the Carpenter firm’s settlement offer under the terms set out in its October 15, 2012 letter. The only reasonable conclusion from this evidence is that Mercury would have settled the claims under Plaintiffs’ terms, but for Lim’s negligence in failing to deliver McKenzie’s declaration. Mere negligence, however, is insufficient to support a claim for bad faith failure to settle.

There was no evidence showing Mercury refused to remove the property damage language from the release or otherwise required it as a condition of settlement. To the contrary, the undisputed evidence shows Mercury separately attempted to resolve any property damage claims in November 2012, before the Carpenter firm informed it that there was no settlement related to the bodily injury policy limits.

Mercury made substantial efforts to accept the Carpenter firm’s offer. Among other things, it informed McKenzie of the offer, obtained his consent to accept it, tendered its full bodily injury policy limits, made substantial efforts to obtain and deliver the requested information and documents, and expressed a willingness to modify the Release of Claims form

Plaintiffs pursued a legal action against McKenzie, knowing it would hurt his credit and subject him and his family to extremely distressing and embarrassing post-judgment collection proceedings. If anyone acted in bad faith, it was Plaintiffs and the Carpenter firm.

ZALMA OPINION

The Court of Appeal established an attempt to wrongfully take advantage of the tort of bad faith by the plaintiffs acting in bad faith to an insurer who reasonably attempted to resolve a dispute against its insured by immediately accepting the offer of settlement. The insurer’s good faith acceptance was ignored by the plaintiffs’ counsel who refused to accept the policy limits. Rather, counsel brought silly arguments like expecting payment of $10,000 property damage limit for a moped worth about $1,000.00. This was an incompetent attempt at a bad-faith set up where the court concluded that the Plaintiffs acted in bad faith, not the insurer.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected] and receive videos limited to subscribers of Excellence in Claims Handling at locals.com https://zalmaoninsurance.locals.com/subscribe.Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

Now available Barry Zalma’s newest book, The Tort of Bad Faith, and “How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at
Zalma on Insurance
Insurance, insurance claims, insurance law, and insurance fraud .

By Barry Zalma

. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-libraryNow available Barry Zalma’s newest book, The Tort of Bad Faith, and “How to Acquire, Understand, and Make a Successful Claim on a Commercial Property Insurance Policy: Information Needed for Individuals and Insurance Pros to Deal With Commercial Property Insurance” the New Books are now available as a Kindle book here, paperback here and as a hardcover here available at amazon.com.

Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library

00:13:44
Interested? Want to learn more about the community?
What else you may like…
Videos
Posts
September 05, 2025
Interpleader Helps Everyone Potential Claimant to Insurance Proceeds

Interpleader Protects All Claimants Against Life Policy and the Insurer

Who’s on First to Get Life Insurance Proceeds

Post 5184

See the full video at https://lnkd.in/gyxQfnUz and at https://lnkd.in/gAd3wqWP, and at https://zalma.com/blog plus more than 5150 posts.

Go to X @bzalma; Go to Barry Zalma videos at Rumble.com at https://lnkd.in/gRthzSnT; Go to Barry Zalma on YouTube- https://lnkd.in/g2hGv88; Go to the Insurance Claims Library – https://lnkd.in/gwEYk.
Interpleader Protects All Claimants Against Life Policy and the Insurer

In Metropolitan Life Insurance Company v. Selena Sanchez, et al, No. 2:24-cv-03278-TLN-CSK, United States District Court, E.D. California (September 3, 2025) the USDC applied interpleader law.
Case Overview

This case involves an interpleader action brought by the Metropolitan Life Insurance Company (Plaintiff-in-Interpleader) against Selena Sanchez and other defendants (Defendants-in-Interpleader).

Key Points

Plaintiff-in-Interpleader’s Application:

The Plaintiff-in-Interpleader...

00:06:34
September 05, 2025
Demands for Reasons for Termination not a “Claim”

A Claim by Any Other Name is not a Claim
Post 5182

It is Imperative that Insured Report Potential Claim to Insurers

Read the full article at https://lnkd.in/gfbwAsxw, See the full video at https://lnkd.in/gea_hgB3 and at https://lnkd.in/ghZ7gjxy, and at https://zalma.com/blog plus more than 5150 posts.

In Jeffrey B. Scott v. Certain Underwriters At Lloyd’s, London, Subscribing To Policy No. B0901li1837279, RLI Insurance Company, Certain Underwriters At Lloyds, London And The Insurance Company, Subscribing To Policy No. B0180fn2102430, No. 24-12441, United States Court of Appeals, Eleventh Circuit (August 25, 2025) the court explained the need for a claim to obtain coverage.

Case Background:

This appeal arises from a coverage dispute under a Directors & Officers (D&O) insurance policy. Jeffrey B. Scott, the plaintiff-appellant, was terminated from his role as CEO, President, and Secretary of Gemini Financial Holdings, LLC in October 2019. Following his termination, Scott threatened legal action against Gemini, and ...

00:08:22
September 04, 2025
Demands for Reasons for Termination not a “Claim”

A Claim by Any Other Name is not a Claim
Post 5182

It is Imperative that Insured Report Potential Claim to Insurers

Read the full article at https://lnkd.in/gfbwAsxw, See the full video at https://lnkd.in/gea_hgB3 and at https://lnkd.in/ghZ7gjxy, and at https://zalma.com/blog plus more than 5150 posts.

In Jeffrey B. Scott v. Certain Underwriters At Lloyd’s, London, Subscribing To Policy No. B0901li1837279, RLI Insurance Company, Certain Underwriters At Lloyds, London And The Insurance Company, Subscribing To Policy No. B0180fn2102430, No. 24-12441, United States Court of Appeals, Eleventh Circuit (August 25, 2025) the court explained the need for a claim to obtain coverage.

Case Background:

This appeal arises from a coverage dispute under a Directors & Officers (D&O) insurance policy. Jeffrey B. Scott, the plaintiff-appellant, was terminated from his role as CEO, President, and Secretary of Gemini Financial Holdings, LLC in October 2019. Following his termination, Scott threatened legal action against Gemini, and ...

00:08:22
September 03, 2025

Barry Zalma: Insurance Claims Expert Witness
Posted on September 3, 2025 by Barry Zalma
The Need for a Claims Handling Expert to Defend or Prove a Tort of Bad Faith Suit

© 2025 Barry Zalma, Esq., CFE

When I finished my three year enlistment in the US Army as a Special Agent of US Army Intelligence in 1967, I sought employment where I could use the investigative skills I learned in the Army. After some searching I was hired as a claims trainee by the Fireman’s Fund American Insurance Company. For five years, while attending law school at night while working full time as an insurance adjuster I became familiar with every aspect of the commercial insurance industry.

On January 2, 1972 I was admitted to the California Bar. I practiced law, specializing in insurance claims, insurance coverage and defense of claims against people insured and defense of insurance companies sued for breach of contract and breach of the implied covenant of good faith and fair dealing. After 45 years as an active lawyer, I asked that my license to practice law be declared inactive ...

post photo preview
September 03, 2025
Barry Zalma, Esq., CFE Insurance Claims Expert Witness

The Need for a Claims Handling Expert to Defend or Prove a Tort of Bad Faith Suit
© 2025 Barry Zalma, Esq., CFE

When I finished my three year enlistment in the US Army as a Special Agent of US Army Intelligence in 1967, I sought employment where I could use the investigative skills I learned in the Army. After some searching I was hired as a claims trainee by the Fireman’s Fund American Insurance Company. For five years, while attending law school at night while working full time as an insurance adjuster I became familiar with every aspect of the commercial insurance industry.

On January 2, 1972 I was admitted to the California Bar. I practiced law, specializing in insurance claims, insurance coverage and defense of claims against people insured and defense of insurance companies sued for breach of contract and breach of the implied covenant of good faith and fair dealing. After 45 years as an active lawyer, I asked that my license to practice law be declared inactive and became a consultant and expert witness for lawyers representing insurers and lawyers ...

post photo preview
September 03, 2025
Evidence Required to Prove Breach of Contract

APPRAISAL AWARD SETS AMOUNT OF DAMAGES RECOVERED FROM INSURER

Post 5180

See the full video at https://rumble.com/v6yd2z0-evidence-required-to-prove-breach-of-contract.html and at https://youtu.be/2ywEjs3hZsw, and at https://zalma.com/blog plus more than 5150 posts.

It’s a Waste of Time to Sue Your Insurer if You Don’t Have Evidence

Evidence Required to Prove Breach of Contract

Read the full article at https://www.linkedin.com/pulse/evidence-required-prove-breach-contract-barry-zalma-esq-cfe-rfelc, see the full video at https://rumble.com/v6yd2z0-evidence-required-to-prove-breach-of-contract.html and at https://youtu.be/2ywEjs3hZsw, and at https://zalma.com/blog plus more than 5150 posts.

It’s a Waste of Time to Sue Your Insurer if You Don’t Have Evidence

In Debbie Beaty and Jonathan Hayes v. Homeowners Of America Insurance Company, No. 01-23-00844-CV, Court of Appeals of Texas, First District (August 26, 2025) Debbie Beaty and Jonathan Hayes filed a claim under their homeowner’s insurance policy with Homeowners of ...

See More
Available on mobile and TV devices
google store google store app store app store
google store google store app tv store app tv store amazon store amazon store roku store roku store
Powered by Locals