Metropolitan News-Enterprise

 

Monday, June 15, 2009

 

Page 9

 

LEGAL COMMUNITY:

Insurance Law: Estate of Prindle Holds Insurance Company Liable in Claim Against Estate

 

By MARSHAL A. OLDMAN

 

(The writer is a member of the law firm of Oldman, Cooley, Sallus, Gold, Birnberg & Coleman, LLP. He practices in the areas of probate and trust administration, litigation, conservatorships and estate planning. Oldman has served as chair of the State Barís Trust and Estate Section,  chair of the Los Angeles County Bar Associationís Probate Section, and as president of the San Fernando Valley Legal Foundation. He has written extensively on probate and trust law. Oldman is currently a public member of the California Board of Accountancy.)

In the Estate of Prindle (April 20, 2009) 173 Cal.App.4th 119, the Court of Appeal in the Third District found Travelers Property Casualty Insurance Company potentially liable in an action involving the estate of decedent found liable in a case of negligence.

In May, 2002, Darrell Prindle entered the home of his estranged wife, Angela Prindle, and shot and killed her and also shot and wounded Angelaís sister, Jessica Harris, and Jessicaís daughter, Crystal Perkins.  Thereafter, Earline Harris, Angelaís mother, was appointed as administrator of Angelaís estate and gave notice to creditors that any claims must be filed by January 2003.  On May 29, 2003, which occurred after the expiration of the claims period, Jessica Harris sued both Darrell Prindle and Earline Harris in her administrative capacity for the injuries that she suffered.

The administrator informed Travelers of the action, Harris offered to settle for policy limits of $100,000, and Travelers both rejected the offer and declined to provide coverage or to defend the estate. Thereafter, a court trial was held and the estate was found liable for negligence and for damages of $7 million.  In a settlement after trial, the administrator assigned her claim against Travelers for failure to defend and indemnify to Harris in exchange for a release of Harrisí judgment against the estate.

Belated Creditors Claim

In the subsequent action by Harris against Travelers for bad faith refusal to defend and indemnify, Harris filed a belated creditors claim against the estate for the amount of the judgment in 2006. Travelers sought to have the claim stricken as late and to remove the administrator. Both orders were denied by the Probate Court and Travelers was later found liable in the civil action for the amount of the judgment against the estate notwithstanding the policy limitation of $100,000. In particular, the Probate Court determined that the actions of the administrator amounted to a waiver of the creditors claim requirement and that Travelers should be estopped from asserting a defense that the administrator had previously waived. The court also found that the filing of a late claim was irrelevant since the administrator had already waived the requirement.

On appeal, the appellate court determined that the administrator was estopped from asserting the creditors claim requirement as a defense to the action since she had allowed the matter to proceed to trial and judgment.  Travelersí ability to assert the creditors claim requirement was no greater than the administratorís ability to do so and that it was liable for the full amount of the judgment in the absence of a showing collusion in the bad faith action. The court relied on Satterfield v Garmire (1967) 65 Cal.2d 638 where an action was filed before the expiration of the claims period, the amount of the claim did not exceed the insurance coverage protecting the estate, and the administrator did not assert the failure to file a claim in his responsive pleading.  In that matter, the court reasoned that no damage to the estate would be caused by the failure to file a claim. Later the results of this case were incorporated into the Probate Code and can currently be found in Sections 550 et seq. of the Probate Code.

The court similarly reasoned in this matter that the estate would not be damaged by the failure to assert the claim as a defense since the insurance company was potentially liable for the full amount of the judgment and also because the estate had assigned its interest in the bad faith claim to the plaintiff in consideration for a full and complete release. Additionally, the court relied on the case of Rogers v Hirschi (1983) 141 Cal.App.3d 847.  In that matter, an administrator allowed a case to go to final judgment before attempting to amend and reduce the judgment to conform to the amount of the insurance policy that was paid to the plaintiff.  The court reasoned that the granting of a judgment in an action where no claim had been filed was at most acting in excess of jurisdiction.  Whether such an act should be set aside depends on equitable considerations. In this instance, the estate was estopped from claiming the lack of a claim as a defense since it had allowed the matter to go to final judgment when the action was brought in a timely manner.  The court suggested that the filing of a pleading raising the issue in a timely manner would have allowed the plaintiff to file a timely claim so that the action could proceed.

Travelers also asserted that its liability should be limited to its policy limits of $100,000. It based its argument on Sections 550 et seq of the Probate Code that only the insurance coverage under the policy should be available to pay a claim. However, the court determined that the use of the statutory provisions is elective with the plaintiff, who can always sue the personal representative under Section 377.40 of the Code of Civil Procedure.  Since the plaintiff decided to proceed against the estate rather than the insurance policy, Travelers could not rely on Sections 550 et seq of the Probate Code as a limitation.

Interaction Between Codes

Prindle offers an analysis of the interaction between the Probate Code and the Code Civil Procedure in the area of claims against an estate. Plaintiffs can bring actions against the decedentís policy or against the decedentís estate as the plaintiff may choose.  Plaintiffs have elections that need to be made at the beginning of the action, and insurance companies may be well advised to participate at all times and to take control of the action.  Travelers decided not to participate in the underlying action and took no steps to protect itself from a potential judgment much larger than its potential policy limits.  In making this decision, Travelers left itself open to the creation of an action in favor of the personal representative that was potentially far larger than its liability for the negligence action brought against the estate.

The plaintiff shrewdly decided not to sue against the insurance policy under Section 550 et seq of the Probate Code.  Normally, this procedure will offer little of value to the plaintiff for the limitation of his damages to the policy limits.  If done properly, the plaintiff will need to file a claim against the estate and wait until the claim is rejected or the expiration of 30 days, whichever comes first. The plaintiff will be able to sue in excess of the insurance coverage and attempt to hold the estate liable for any excess judgment. If the insurance company ignores the action, both plaintiff and the estate may be able to reach an agreement regarding the assignment of bad faith claims against the insurer. Alternatively, even if the insurance company offers the policy limits to settle the matter, the plaintiff will still be able to negotiate for a payment from estate assets, if any exist that could pay such claim.

A danger always exists that family members in an action may be acting collusively.  In this matter, the estate paid nothing notwithstanding a $7 million judgment in consideration for an assignment of the estateís bad faith claim.  If collusion occurred, the insurance company will need to prove that claim as a defense to the bad faith action.  Even under circumstances such as existed in Prindle, proving such a defense may be difficult.

 

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