Rouland v. Pacific Specialty Insurance

Citations: 220 Cal. App. 4th 280; 162 Cal. Rptr. 3d 887; 2013 WL 5511704; 2013 Cal. App. LEXIS 799Docket: G047919

Court: California Court of Appeal; October 7, 2013; California; State Appellate Court

Original Court Document: View Document

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Pacific Specialty Insurance Company appeals a postjudgment order denying its recovery of expert witness fees after successfully defending against Lars and Lisa Rouland’s claims for breach of contract and insurance bad faith. Pacific Specialty sought these fees under Code of Civil Procedure section 998, arguing that the Roulands failed to accept pretrial settlement offers and did not achieve a more favorable judgment at trial. The trial court denied the request, stating that Pacific Specialty's offers did not comply with section 998’s requirement for a valid acceptance procedure. Specifically, it ruled that the offers were invalid because they lacked a designated space for the Roulands' signatures.

The appellate court reversed the trial court's order, determining that Pacific Specialty's offers did meet the statutory requirement by instructing the Roulands to file an "Offer and Notice of Acceptance" if they accepted the proposals. This direction satisfied the requirement for a signed acceptance. The appellate court remanded the case for the trial court to reconsider whether to allow recovery of expert witness fees, as the trial court had not previously addressed this issue due to its incorrect interpretation of the offers' validity.

The background includes the Roulands' claim regarding a landslide that damaged their insured home, which Pacific Specialty denied based on policy exclusions. Prior to trial, Pacific Specialty made separate offers to settle with the Roulands, which were not accepted. After a jury ruled in favor of Pacific Specialty, awarding it judgment against the Roulands, the company sought to recover approximately $385,000 in costs, including over $331,000 in expert fees. The Roulands contested the fees, arguing the settlement offers were noncompliant and nominal gestures made without expectation of acceptance.

The trial court granted the motion to tax expert witness fees, determining that Pacific Specialty's settlement offers did not meet the requirements of section 998. The court referenced Puerta v. Torres, concluding that the offers were defective, although it did not specify the exact defect. The Roulands argued that the absence of a signature block for acceptance was the issue. Nevertheless, the court ruled that the offers were not merely token offers and that the Roulands failed to demonstrate that the expert fees were unreasonable or unnecessary. Pacific Specialty subsequently appealed. 

Section 998 allows parties to make statutory settlement offers that can lead to a judgment or dismissal based on the offer's terms, aiming to incentivize settlement before trial. A plaintiff who rejects a defendant's offer but fails to achieve a better judgment cannot recover post-offer costs and may be required to pay the defendant's costs, including reasonable expert witness fees. Conversely, if a defendant rejects a plaintiff's offer and does not secure a better judgment, the trial court may require the defendant to pay the plaintiff's expert fees and prejudgment interest may accrue at 10 percent.

The statute was amended in 2006 to clearly define valid settlement offers, requiring them to be in writing and include specific terms, including a provision allowing acceptance via a signed statement. The purpose is to eliminate uncertainty regarding acceptance validity. The key issue was whether Pacific Specialty's offers included a proper acceptance provision, which they claimed was satisfied by requiring the Roulands to file an "Offer and Notice of Acceptance" with the court. Recent rulings indicated that failure to meet the acceptance provision renders the offers invalid, thereby nullifying any cost-shifting penalties.

Failure to comply with the acceptance provision in a settlement offer invalidates the offer under section 998, although the specific requirements for satisfying this provision remain unclear. Section 998 does not mandate a particular form for acceptance but requires some indication of how to accept an offer. Legal interpretations of valid offers under section 998 are subject to de novo review. The case Whatley-Miller is notable for upholding a valid settlement offer, where the plaintiffs sent two documents: one outlining the settlement offer and another specifying acceptance, which the court deemed compliant with section 998. The court clarified that acceptance can occur in the document containing the offer or a separate acceptance document, with no specific wording required beyond being in writing and signed. In contrast, Pacific Specialty's offers included an acceptance provision stating that acceptance should be filed within a specified time frame. The Roulands challenged this, arguing it lacked a signature line and explicit acceptance language. However, the court found these offers valid, noting that while the California Judicial Council provides a form for offers and acceptances under section 998, it is not mandatory. The court affirmed that compliance with section 998 can be achieved through various means, emphasizing that the Judicial Council form is merely one option, not the exclusive method to satisfy the statute's requirements.

The statute does not mandate that an offer must include a signature line or specific language indicating acceptance by signing. There is no requirement for "magic language" or a specific format for offers or acceptances under section 998. The only requirement for valid acceptance is that it must be in writing and signed by the accepting party or their counsel. Pacific Specialty's offers met this requirement by clearly outlining how the Roulands could accept (by filing an "Offer and Notice of Acceptance" with the court), which implicitly required a written acceptance signed by their counsel. This interpretation aligns with section 998's purpose of promoting pretrial settlements and providing incentives for reasonable offers. The trial court previously ruled against Pacific Specialty based on a misunderstanding of the strict compliance needed under section 998, following a precedent in Puerta, which only required some indication of the manner of acceptance. The current ruling finds that Pacific Specialty's offers did comply with the statutory requirements, but it remands the case for the trial court to determine if Pacific Specialty can recover its expert witness fees, emphasizing that such awards are at the trial court's discretion. The court's findings regarding the reasonableness of the offers and fees do not automatically entitle Pacific Specialty to recover fees. The postjudgment order is reversed, and further proceedings are mandated. Pacific Specialty is entitled to recover costs on appeal.