Pavia v. State Farm Mutual Automobile Insurance Co.

Rosato caused an accident while driving a vehicle that was owned by his mother and covered by a liability insurance policy with a $100,000 policy limit by State Farm Mutual Automobile Insurance Co. (State Farm) (defendant). Pavia (plaintiff), who was injured in the accident), brought a personal injury suit against the Rosatos. State Farm initially determined that the Rosatos were fully liable for the accident, but the Rosatos’ subsequent version of events suggested that they may not have been 100% liable, and State Farm embarked on a thorough investigation of potential defenses to liability. In June 1987 Pavia offered State Farm a settlement for the $100,000 policy limit, and set a 30-day deadline to respond to the offer. State Farm failed to respond within 30 days. In November 1987, State Farm’s investigation into defenses was abandoned because it could not locate witnesses to corroborate the Rosatos’ version of events. In December 1987, State Farm authorized the attorney it had retained on the Rosatos’ behalf to offer Pavia a settlement for the $100,000 policy limit, which Pavia rejected as being too late. The trial jury found the Rosatos liable and awarded damages to Pavia. The Rosatos then assigned any claims they might have against State Farm to Pavia, in exchange for an agreement that Pavia would not seek to recover any portion of the judgment against the Rosatos in excess of the amount already paid by State Farm. The Rosatos and Pavia then brought this action against State Farm, claiming that State Farm acted in bad faith in failing to accept Pavia’s settlement offer within a reasonable time. The trial court instructed the jury to determine whether State Farm had acted in gross disregard of the Rosatos’ interests. The jury answered in the affirmative, and the court entered a judgment against State Farm for the full amount of the original jury award in excess of the policy limit. The Appellate Division affirmed, finding that the trial court properly instructed on the gross disregard standard, and that the evidence was sufficient as a matter of law to present a jury question as to State Farm’s bad faith.