Carlile v. Farmers Insurance Exchange (1985) 173 Cal.App.3d 975
Plaintiff, who was injured when she slipped and fell in a hospital, sued the hospital for damages. The hospital had an insurance policy that contained a provision prohibiting settlement of any claim against the hospital without the hospital’s consent. The hospital refused to settle with plaintiff, and the matter proceeded to trial, where plaintiff won a judgment and was awarded damages.
Plaintiff then sued the insurer, alleging a violation of Insurance Code section 790.03, subdivision (h)(5), for failure to attempt in good faith to settle its third party claim. Defendant moved for summary judgment, claiming that, although defendant believed liability existed and considered plaintiff’s settlement offer reasonable, the hospital administrator adamantly refused to settle, as he believed the hospital was not liable. Plaintiff contended that defendant violated its duty to attempt in good faith to effectuate settlement by failing to arbitrate the issue of settlement with the hospital when liability was reasonably clear, and by failing to adequately investigate plaintiff’s claim. The trial court granted defendant’s motion for summary judgment.
The Court of Appeal affirmed.  It held that:
  1. Defendant was not liable for damages for failure to settle plaintiff’s claim, since defendant’s insured refused to consent to the settlement, such consent being a prerequisite under the insurance policy provisions.
  2. Under section 790.03, subdivision (h)(5), an insurer is not “required” to settle claims in which liability is reasonably clear, but only required to make a good faith “attempt” to reach settlement.
  3. Defendant, by respecting the hospital’s right to defend its position in court, acted in accordance with the terms of its policy.
  4. The fact that defendant failed to press arbitration of the settlement issue did not raise a triable issue of defendant’s bad faith, since the arbitration clause in the policy existed solely for the benefit of the insured and not for third parties.  Thus, plaintiff had no right to attempt to enforce the arbitration clause for her own benefit.
  5. Section 790.03 does not compel an insurer to arbitrate all disagreements with its insured, in order to avoid bad faith liability.