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Settlement of a Pre-Litigation Fatality Claim: Can All Risk Be Eliminated?

Settlement of Fatality Claims after a lawsuit is filed on behalf of the Claimants can be complex. However, with the assistance of experienced counsel and the benefit of the “One-Action Rule,” carriers are rarely exposed to post-settlement claims. The One-Action Rule was first articulated by the California Supreme Court over 100 years ago. Salmon v. Rathjens (1907) 152 Cal. 290, 294-295, 92 P. 733. The Rule requires all persons who qualify as heirs in a wrongful death lawsuit (Code of Civil Procedure Section 377.60) either be represented by the “personal representative of the decedent,” who is the “Plaintiff” in the case (acting as a trustee for all heirs), or that all heirs be included as Plaintiffs in the lawsuit. Where a known heir refuses to join a wrongful death lawsuit, the defendants or the plaintiffs can require the non-party heirs be joined as defendants.  Code of Civil Procedure Sections 377.60 and 382. Consequently, settlement of the case should bring the carrier and its insureds peace of mind as the One-Action Rule acts as a bar to future lawsuits by unknown heirs. See Gonzales v. Southern California Edison Co. (1999) 77 Cal. App. 4th 485, 91 Cal. Rptr. 2d 530 (action allowed due to Defendant’s waiver of the One-Action Rule).

Why then is a settlement of a fatality claim made pre-litigation less than certain? For many years, it was assumed the One-Action Rule also applied to settlement of pre-litigation claims. In January of 2012, a decision came down from the California Court of Appeal, Second District, holding that the One-Action Rule did not apply to settlement of a fatality claim where a lawsuit was not filed on behalf of the heirs. Moody v. Bedford (2012) 202 Cal. App. 4th 745.* There, the carrier exhausted its policy limits in settling a fatality claim with the daughter of the decedent after obtaining written assurances from her attorney that the daughter was the sole surviving heir. After the settlement, a wrongful death lawsuit was filed against the carrier’s insureds on behalf of 5 minor Plaintiffs alleged to also have been children of the decedent. Defendants successfully argued to the Trial Court the lawsuit was barred by the settlement but the Court of Appeal reversed and sent the case back to the Trial Court, holding the One Action Rule applied only to litigated cases. The California Supreme Court later refused to review the decision of the Court of Appeal but ordered the opinion cited above “not to be officially published.”

The Legal Consequences of the Order that the Opinion Not Be Published

The Court of Appeal’s decision reversing the summary judgment and forcing the Defendants to continue forward with the case was not affected by the Supreme Court’s Order. Their carrier was left having to incur the costs of defense and potentially having to pay extracontractual damages to resolve a lawsuit that most in the industry assumed would have been barred by the fact of the pre-litigation settlement.

On the other hand, the Supreme Court’s Order could not be taken as approval or disapproval of the decision. Rule of Court Rule 8.1125(d). The opinion “…must not be cited or relied on by a court or a party in any other action.” Rule of Court Rule 8.1115(a). The legal effect on the those not parties to the action essentially is as though the decision was never written. However, the practical effect was noticeable as it became apparent that any given Court in California might choose not to apply the One-Action Rule to a pre-litigation settlement.

Potential Pitfalls Peculiar to Settlement of a Pre-Litigation Fatality Claim

  1. Identifying the Heirs: A frequent source of frustration is determining the identities of all of the heirs of the decedent. There is no guidance in the cases or statutes as to how far a carrier must go to confirm the claimants are the sole surviving heirs. Can the claimants’ declaration under oath they are the sole heirs be trusted? Should the carrier incur the expense of doing a search of public data, retain a private investigator or hire a genealogy expert?
  2. Obtaining a Global Settlement: There are occasions where the all heirs are identified but uncooperative or not located. Where a lawsuit has been filed, those heirs can be named as defendants, and served by publication or otherwise. The One-Action Rule bars them from filing once the case is settle and dismissed. What can be done in the pre-litigation setting to prevent a later lawsuit? Should the carrier risk settlement with less than all known heirs?

              Considerations in Settlement of a Pre-Litigation Fatality Claim

The most obvious course of action, and least favored perhaps, is to reach an agreement whereby a complaint for wrongful death and survival damages, if any, on behalf of the heirs and successors in interest is prepared, filed and served on the defendants. The obvious advantage is to secure the certainty of the application of the One-Action Rule to the settlement. However, it understandably can be difficult to explain to both the insured and internally why the carrier is funding a lawsuit against the insured when parties have agreed to settle.

Keep in mind that the result in the Moody v. Bedford case discussed above is not a reliable predictor of the outcome in other claims or cases. There have not been any published decisions that address the application of the One-Action Rule in the absence of a lawsuit. The Legislature, like the Supreme Court, has not chosen to address the issue. That result very well could be an aberration in the long run. Reason would seem to dictate that the One-Action Rule or its equivalent be determined to apply to all pre-litigation fatality settlements either by the Courts or by statute.

In the meantime, the decisions to be made are essentially based on practical considerations that involve a risk vs. cost benefit analysis. For example, where the policy limits are low and it appears likely the claimants are the sole heirs, delaying settlement to hire a private investigator or genealogy expert may involve greater risk (opening the policy limits) than that presented by the unlikely event of a future lawsuit by persons currently unknown. On the other hand, there may be situations (very high limits) where the costs of further investigation are warranted because the risk of lawsuit after a contemplated settlement is very real.

Each claim should be evaluated individually. A blanket approach requiring a lawsuit to be filed in every fatality claim is likely not practical and may even create more risk in the long run than it is intended to avoid. Similarly, a policy of entering into settlements where there is no investigation or confirmation of the proper heirs may save costs in the short run but result in greater losses down the line. Presently, risk cannot be eliminated when settling a fatality claim pre-litigation. It can be significantly reduced by a timely and thorough investigation.

ABOUT THE AUTHORS

Leslie Price is a Senior associate at Tyson & Mendes LLP.  Les has 30+ years of experience as an insurance litigator. He has extensive experience in all phases of litigation including investigation and discovery, mediation, arbitration, trial and appeals.  Contact Les at 858.459.4400 or lprice@tysonmendes.com.

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