Code of Civil Procedure Section 998: Understanding the Burden of Proof and Good Faith Requirements Regarding 998 Offers

In the case of Licudine v. Cedars-Sinai Medical Center (opinion filed 1/3/19), the plaintiff served a statutory offer to compromise pursuant to Code of Civil Procedure Section 998 on the defendant 19 days after filing the complaint and 5 days after the defendant answered the complaint.  The 998 offer is a litigation tool for the plaintiffs’ bar to later argue the insured’s failure to settle at policy limits “opens” the policy to full liability.  They then settle with the insured and obtain an assignment of rights from the insured as to the claim for indemnity.  The issue here was whether the 998 offer was made in good faith.  The Second District, Division Two, after applying a two-part test, determines that the 998 offer was not made in good faith.

The court began its analysis by looking into the black letter of the law: A 998 offer is valid only if it is made in good faith; a good faith offer is one in which it is realistically reasonable under the circumstances, and carries with it reasonable prospect of acceptance.  The court applied a two-part test to consider whether the 998 offer was made in good faith: 1) is the 998 offer within the range of reasonably possible results at trial, and 2) did the defendant have a fair opportunity to intelligently evaluate the offer.

1. Is the 998 Offer Within the Range of Reasonably Possible Results at Trial?

To determine the propriety of a 998 offer, it is important to inquire whether the plaintiff knew the defendant had sufficient information, based on what the defendant knew or reasonably should have known at the time the offer was made. The defendant has the burden to show that an otherwise valid 998 offer was not made in good faith.

Timing: As noted above, the plaintiff made the 998 offer only days from the filing of the complaint.  The court found the short length of time frame under the circumstances of the case was unreasonable.

Information exchange: At the time the 998 offer was made, the plaintiff had produced over 9,000 pages of medical records and evidence of the damages.  The court notes that although such extensive information exchange was a good demonstration that the 998 offer was made based upon relevant information, it was not enough.  The court finds that the “bare bones” complaint without further evidence regarding liability assessment and economic damages did not amount to a demonstration that the 998 offer was made in good faith.

2. Did the Defendant Have a Fair Opportunity to Intelligently Evaluate the Offer?

The plaintiff’s response to defendant’s objection: The court also took issue with the plaintiff’s lack of response to the defendant’s objection to the 998 motion.  The defendant stated that it was too soon for it to make any determination as to whether the 998 offer was reasonable.  The court agreed the plaintiff’s lack of response to the defendant’s objection is evidence of lack of good faith.  Furthermore, the court finds the defendant’s failure to request an extension to respond to the 998 offer is not detrimental to the defendant’s argument that the 998 offer was unreasonable.  The court holds that the 998 offer was not made in good faith.

For plaintiffs, this case cautions the need to pay special attention when making 998 offers.  Plaintiffs need to provide a full assessment of liability, causation and damages to defendants at the time a 998 offer is made.  Also, defendants’ request for additional information or an extension of time to consider the 998 offer should not be ignored.

Defendants should not over-read this case as precedent for invaliding all 998 offers.  The most important inquiry is what the defendant had in its possession to evaluate the 998 offer.  If the defendant does not believe it has enough information to assess the 998 offers, it should communicate with plaintiff’s counsel for additional information and an extension of time to respond.

It is important to note that this case does not mean early 998 offers are per se ineffective moving forward.  It indicates courts will consider evidence of what information the defendant knew and when it knew of such information necessary to respond to the 998 offer.  With more and more practitioners using 998 offers early in litigation, it is beneficial to become familiar with this case holding.