Insurance Policy Settlement Disclosure In California

Early on, the Supreme Court held that insurance policies (and, by extension, the limits set forth in them) were the proper subject of discovery. ( Superior Ins. Co. v. Superior Court (1951) 37 Cal. 2d 749 235 P.2d 833.) Among other things the high court noted that "knowledge of low policy limits" could benefit defendants (that is, policyholders) because that knowledge would tend "to discourage a seriously injured plaintiff from holding out for a settlement commensurate with the extent of the injuries." (Id. at p. 755.) Along these lines, any number of jurisdictions have stressed the relationship between the disclosure of policy limits and settlement in the context of discovery. See Johanek, v. Aberle, 27 F.R.D. at p. 278 " 'Such knowledge, furthermore, would also lead to more purposeful discussions of settlement, and thereby effectuate the dispatch of court business' "; Kunkel v. United Security Ins. Co. of New Jersey (1969) 84 S.D. 116 168 N.W.2d 723, 731 despite lack of affirmative duty to disclose, disclosure "has been recognized as relevant to evaluating a case and as an aid in achieving settlements"; Szarmack v. Welch (1972) 220 Pa.Super. 407 289 A.2d 149,153 "Such knowledge would tend to adjust the plaintiff's settlement objective"; Mosca v. Pensky (1973) 73 Misc.2d 144 341 N.Y.S.2d 219, 231 "The primary rationale in support of discovery is that both counsel and the parties will realistically negotiate their claims, thereby maximizing efforts at settlement".) Accordingly, jurisdictions which have considered the disclosure problem in the context of bad faith (as distinct from discovery) have said that bad faith liability may indeed be predicated on a refusal to disclose policy limits. See Powell v. Prudential Property & Cas. (Fla.Dist.Ct.App. 1991) 584 So.2d 12, 14 "liability may be predicated on a refusal to disclose policy limits"; Szarmack v. Welch, 289 A.2d at p. 153 "An insurance company would violate its obligation to an insured to act in good faith if it did not reveal the existence of low policy limits when such a revelation would serve to protect the insured from a judgment far above the policy limits"; Cernocky v. Indemnity Insurance Co. of No. Amer. (1966) 69 Ill.App.2d 196 216 N.E.2d 198, 205 refusal to disclose policy limits was among factors indicating bad faith.)