## Facts

- David E. Purdy and Marion “Buck” Partin collided while riding motorcycles, severely injuring Partin.
- Purdy was operating a motorcycle owned by Partin’s cousin; the owner and related business were insured under a liability policy issued by Pacific Automobile Insurance Company with $100,000 limits.
- Early statements suggested Partin caused the collision, but both riders suffered retrograde amnesia; later witness accounts, physical evidence, and reconstruction evidence indicated Purdy likely caused the collision and faced substantial exposure.
- Partin sued the motorcycle owner, the business, and Purdy; Pacific initially undertook Purdy’s defense and retained attorney Roger W. Roberts and his firms.
- Partin made multiple settlement demands within policy limits; Pacific rejected them despite increasing evidence of Purdy’s liability and the risk of an excess verdict.
- A jury awarded Partin $325,000 against Purdy; Pacific paid $100,000, leaving an excess judgment of $225,000 against Purdy, who later filed bankruptcy.

## Issues

1. Whether Pacific breached the covenant of good faith and fair dealing by refusing reasonable, within-limits settlement demands when an excess judgment was substantially likely.
2. Whether the bankruptcy trustee had standing to pursue the failure-to-settle claim and whether insolvency negated economic damages.
3. Whether the insured could pursue emotional-distress and punitive damages for bad-faith failure to settle, making nonsuit improper.
4. Whether insurer-retained defense counsel could be liable to the insured (or trustee) in malpractice for the insurer’s failure to accept a settlement within policy limits.

## Decision

- Affirmed the judgment for the bankruptcy trustee against Pacific for the excess judgment amount (plus interest), based on Pacific’s bad-faith failure to settle.
- Reversed the nonsuit for Pacific on Purdy’s claims for emotional distress and punitive damages; remanded for further proceedings.
- Affirmed the nonsuit in favor of Roberts and his firms on the malpractice causes of action.

## Legal Principles

- An insurer must give at least equal consideration to the insured’s interests when evaluating settlement; unreasonable refusal of a reasonable within-limits offer, when an excess judgment is substantially likely, constitutes bad faith.
- A cause of action for bad-faith failure to settle is a property right that becomes part of the bankruptcy estate and may be pursued by the trustee.
- Insolvency does not eliminate economic damage from an excess judgment; the excess liability remains a compensable harm.
- In appropriate cases, an insurer’s bad-faith failure to settle can support emotional-distress damages and punitive damages, depending on proof.
- The duty and exposure for settlement decisions primarily rest with the insurer that controls settlement; insurer-retained defense counsel are not liable in malpractice for failure to settle on these allegations where counsel communicated the litigation risk and the insurer made the settlement decision.

## Conclusion

The court held Pacific liable for bad-faith failure to settle and sustained the trustee’s recovery of the excess judgment, reinstated the insured’s personal claims for emotional distress and punitive damages against Pacific, and declined to impose malpractice liability on insurer-retained defense counsel for the insurer’s refusal to settle.


Purdy v. Pac. Auto. Ins. Co., 157 Cal. App. 3d 59 (Cal. Ct. App. 1984)