## Facts

- Rosina Crisci, a 70-year-old landlord, owned an apartment building insured under a $10,000 general liability policy issued by Security Insurance Company of New Haven, Connecticut.
- Tenant June DiMare fell when an exterior wooden stair tread broke, leaving her hanging above the ground; she suffered physical injuries and later developed a severe psychosis.
- The DiMares sued Crisci for negligence, seeking $400,000 and alleging the accident caused both the physical injuries and the psychosis.
- Under the policy, Security assumed the defense and retained counsel; Security also controlled settlement decisions.
- Security’s counsel and claims manager believed that if a jury accepted causation for the psychosis, damages would likely be at least $100,000, far above policy limits.
- The insurer knew of psychiatric evidence supporting causation and found no evidence of prior mental abnormality.
- The DiMares made settlement demands within or below policy limits; Crisci offered to contribute personal funds toward settlement, but Security offered only a small amount and refused to pay anything for the mental-illness component.
- The case proceeded to trial; the jury awarded $100,000 to Mrs. DiMare and $1,000 to her husband.
- Security paid the $10,000 limit, leaving Crisci personally exposed for the excess; she partially satisfied the judgment by transferring property and assigning a portion of her rights against Security, leaving her effectively indigent.
- Crisci then sued Security for breach of the implied covenant of good faith and fair dealing based on failure to settle, seeking the excess judgment and damages for mental suffering caused by the excess exposure and threatened loss of property.

## Issues

1. Whether the insurer breached the implied covenant of good faith and fair dealing by unreasonably refusing reasonable settlement opportunities within policy limits when the risk of an excess verdict was substantial.
2. Whether tort damages for an insurer’s bad-faith failure to settle may include compensation for the insured’s mental suffering and distress, in addition to the excess judgment.

## Decision

- The Supreme Court of California affirmed the finding that Security acted in bad faith by failing to accept a reasonable within-limits settlement given the serious risk of a large excess verdict.
- The court held Security liable for the full amount of the excess judgment attributable to its bad-faith refusal to settle.
- The court held that damages for Crisci’s mental suffering were recoverable in the bad-faith action and reinstated the trial court’s $25,000 award for mental distress.

## Legal Principles

- Every insurance contract includes an implied covenant of good faith and fair dealing; the insurer must give the insured’s interests at least as much consideration as its own when deciding whether to settle.
- When there is a great risk of recovery beyond policy limits and the most reasonable disposition is a settlement within limits, good faith requires the insurer to settle.
- Bad faith in failure-to-settle cases does not require proof of actual fraud or dishonesty; the central question is whether the insurer’s refusal to settle was reasonable under the circumstances given its duty of equal consideration.
- An insurer that, in bad faith, rejects a reasonable within-limits settlement may be held liable for the entire excess judgment caused by that refusal.
- Because bad-faith breach of the implied covenant sounds in tort, recoverable damages may include mental suffering proximately caused by the insurer’s misconduct, not only economic loss.

## Conclusion

The court held that an insurer that unreasonably refuses a within-limits settlement despite a substantial risk of an excess verdict breaches the implied covenant of good faith and fair dealing and is liable for the resulting excess judgment; the insured may also recover damages for mental distress caused by the insurer’s bad-faith conduct.


Crisci v. Sec. Ins. Co., 66 Cal. 2d 425, 426 P.2d 173, 58 Cal. Rptr. 13 (1967)