California carriers have the legal obligation of good faith and fair dealing with their policyholders. The legal obligation is critically important when evaluating a defendant’s third-party claims. Failure to accept a reasonable offer of settlement, under specified circumstances, is sufficient to form a bad faith claim under CACI No. 2334: Bad Faith (Third Party) — Refusal to Accept Reasonable Settlement Demand Within Liability Policy Limits—Essential Factual Elements.
At KAASS LAW, our attorneys have considerable background knowledge in insurance bad faith disputes, including high-stakes cases where excess judgments threaten the financial security of policyholders. Understanding CACI 2334 and how California courts interpret it is critical for insureds, claimants, and attorneys navigating these complex disputes.
What Is CACI 2334 and Why Does It Matter?
CACI 2334 is a California Civil Jury Instruction. It sets forth the points a party must prove to establish an insurer's bad faith in refusing to settle the case within policy limits. This jury instruction reflects decades of California case law on insurer bad faith and refusal-to-settle claims.
More specifically, CACI 2334 shields policyholders against insurers who unreasonably put them at risk for personal liability for serious damages. Within this context, policyholders are also protected against insurance entities while allowing insurers to make reasonable business and liability decisions, even if they initially reject a settlement offer later approved.
The Essential Factual Elements Under CACI 2334
To establish liability for bad faith under CACI 2334, the plaintiff must prove all of the following:
- Insurance Policy Coverage: The plaintiff was insured under a liability insurance policy issued by the defendant insurer.
- Third-Party Claim: A claim was made against the insured by a third party that was covered under the policy.
- Reasonable Settlement Demand: The third-party claimant made a reasonable demand to settle the claim within policy limits.
- Insurer Refusal: The insurer failed to accept that settlement demand.
- Unreasonable Conduct: The refusal was a result of unreasonable conduct. It means the insurer placed its own interests above the insured’s or failed to properly assess the claim.
- Harm to the Insured: Either (a) a judgment was entered against the insured exceeding the policy limits, or (b) the insurer’s conduct was a substantial factor in causing harm to the insured.
Defining a “Reasonable” Settlement Demand
A demand is considered to be reasonable if, “at the time the insurer decides, it knew or should have known that a potential judgment would likely exceed the settlement demand.” There are several circumstances to consider:
- The nature and extent of the third party’s injuries/ losses
- The likely liability of the insured
Nevertheless, a demand may also be found unreasonable on a basis other than the dollar cost, such as a demand that is unclear, lacks a complete release, or requires an admission of liability, fails to contain a complete release, or asks for an admission of liability.
The Critical Role of “Unreasonable Conduct”
The California courts have held that bad faith is not strict liability. It is not enough that the insurer refuses to accept a reasonable settlement offer. The plaintiff has the burden of proving unreasonable conduct on the part of the insurer by giving at least equal consideration to the insured’s financial interests by giving at least equal consideration to the insured’s financial interests.
Foundational Case Law Supporting CACI 2334
Several landmark California cases underpin CACI 2334:
- Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654 – Established insurers’ duty to consider settlement offers in light of the insured’s interests.
- Crisci v. Security Ins. Co. of New Haven (1967) 66 Cal.2d 425 – Confirmed that unreasonable refusal to settle can constitute bad faith.
- Johansen v. California State Auto. Assn. Inter-Insurance Bureau (1975) 15 Cal.3d 751 – Insurers must evaluate settlement offers as though they alone would bear any excess liability.
- Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718 – Bad faith liability extends to full excess judgments.
- Pinto v. Farmers Insurance Exchange (2021) 61 Cal.App.5th 676 – Reinforced that proof of unreasonable conduct is an essential element.
- Graciano v. Mercury General Corp. (2014) 231 Cal.App.4th 414 – Clarified what constitutes a sufficiently clear policy-limits demand.
These cases guide how courts evaluate whether an insurer acted reasonably and whether a policyholder may recover an excess judgment resulting from bad faith refusal to settle.
Why These Claims Are Complex
Bad faith claims involving refusal to settle within policy limits are often fact-intensive:
- Timing of the settlement demand and the insurer’s response
- Internal communications and claim-handling practices
- Evaluation of liability risk and damages
- Decision-making rationale and justification
The fact that the court will require evidence of unreasonable conduct means that these cases usually involve extensive document review, deposition testimony, and expert analysis. That is why early consultation with skilled counsel is critical.
How KAASS LAW Can Help
At KAASS LAW, our attorneys provide comprehensive guidance for clients facing excess judgments due to insurer bad faith. Our services include:
1. Early Case Evaluation
We assess settlement demand history, insurer responses, and policy limits to determine whether a CACI 2334 claim exists and evaluate the potential strength of the case.
2. Evidence Collection and Analysis
We gather and preserve adjuster files, communications, internal reports, and other critical documentation, which is essential to proving unreasonable conduct.
3. Strategic Counseling and Negotiation
We guide clients on negotiation, potential assignment of rights, and litigation strategy, helping maximize recovery while minimizing risk.
4. Trial-Ready Representation
If litigation is necessary, our attorneys are prepared to litigate aggressively in court, relying on jury instructions such as CACI 2334 to present a compelling case for damages exceeding policy limits.
Key Takeaways for Policyholders and Claimants
The case of CACI 2334 protects policyholders against insurers who do not reasonably refuse to settle claims within policy limits, which might result in an excess judgment. A bad faith case cannot be won merely on the aspect of refusal to settle a claim. There has to be substantial evidence of bad faith on the part of the insurance company if it has put its interests before those of the policyholder. The sooner a policyholder understands this, the better, as it has a bearing on future policyholder losses.
Engaging experienced bad faith insurance attorneys immediately after the rejection of a settlement demand can make all the difference. Experienced attorneys can assist in determining whether the denial of the settlement demand constitutes a breach of the covenant of good faith and fair dealing, help in the collection of evidence of unreasonable conduct on the part of the insurance company, or provide advice regarding complex litigation or settlement strategies. An attorney’s familiarity with the elements of CACI 2334 can be the determining factor in whether a policyholder can collect an excess judgment or not.
Contact KAASS LAW Today
If your insurer refused a reasonable settlement demand, leaving you exposed to an excess judgment, KAASS LAW can help. Our attorneys have extensive experience representing policyholders in bad faith refusal-to-settle cases, protecting their financial interests and holding insurers accountable. Contact us and learn how we can evaluate your potential claim under CACI 2334. Do not wait, since early action is critical in insurance bad faith cases.