Key Decisions

November 2013 – A Settlement Offer Was Valid

(filed under: Key Decisions Archive | November 20, 2013)

A Settlement Offer Was Valid

Rouland v. Pacific Specialty Insurance Company
(Cal. Ct. of App., 4th Dist.), filed October 7, 2013, published October 7, 2013


Lars and Lisa Rouland owned a hillside home in Laguna Beach, California that was damaged in a landslide.

Pacific Specialty insured the Roulands’ home. However, it denied their claim because their policy excluded landslide damage.

The Roulands sued Pacific Specialty for breach of contract and insurance bad faith.

Approximately two months before trial, Pacific Specialty served separate offers to settle with Lars and Lisa under Code of Civil Procedure Section 998. Each stated, “If you accept this offer, please file an Offer and Notice of Acceptance in the above-entitled action prior to trial or within thirty (30) days after the offer is made.”

The Roulands did not accept either offer.

The jury returned a verdict in Pacific Specialty’s favor. Pacific Specialty then filed a memorandum of costs seeking approximately $385,000 from the Roulands. Those costs included more than $331,000 in expert witness fees based on the Roulands’ failure to obtain a judgment more favorable than Pacific Specialty’s Section 998 settlement offers.

The Roulands moved to tax Pacific Specialty’s expert witness fees on the ground the settlement offers did not comply with Section 998’s procedure for acceptance because they lacked a signature space for the Roulands to formally accept the offers. The Roulands also argued Pacific Specialty’s offers were merely token gestures made without any reasonable expectation the Roulands would accept them and the expert fees Pacific Specialty sought were unreasonable and unnecessary.

The trial court granted the motion and taxed all the expert witness fees because it found Pacific Specialty’s settlement offers failed to satisfy Section 998’s requirements. However, it found the offers were not token offers and the Roulands failed to show the expert fees were unreasonable or unnecessary.

The Court of Appeal reversed and remanded. It found that the offers complied with Section 998’s requirements.

The purpose of Section 998 is to encourage settlements. It does so by shifting certain litigation costs when a party rejects an offer and then fails to obtain a better result at trial.

To eliminate the uncertainties that may arise if an offer can be made or accepted orally, the offer must be in writing and include a statement of the offer, containing the terms and conditions of the judgment or award, and a provision that allows the accepting party to indicate acceptance of the offer by signing a statement that the offer is accepted. Moreover, “[a]cceptance of the offer, whether made on the document containing the offer or on a separate document of acceptance, shall be in writing and shall be signed by counsel for the accepting party or, if not represented by counsel, by the accepting party.”

According to the court: “Nothing in the statute’s language requires an offer to include either a line for the party to sign acknowledging its acceptance or any specific language stating the party shall accept the offer by signing an acceptance statement.” The statute only requires the offer to specify the manner in which the offer is to be accepted.”