On June 11, 2012, the Ninth Circuit Court of Appeals aligned California law with modern case law which requires a Liability Insurance Company to initiate settlement negotiations when liability of its Policyholder or other Insured has become reasonably clear (and damages are great, meaning likely in excess of policy limits, as in this case): Yan Fang Du v. Allstate, (9th Cir. June 11, 2012), Download Yan Fang Du v. Allstate (9th Cir. 06.11.12). The consequence of not initiating settlement negotiations is exposure to Bad Faith Claims in the ordinary case. Parenthetically, in this particular case, the Ninth Circuit panel actually upheld the District Court's rejection of the Appellant's claim of reversible error, because the appellate panel agreed with the District Judge that there was no evidentiary basis for a Jury Instruction to this effect, in this particular case.
The Ninth Circuit did not use the word, "initiate," however. Failure to "effectuate" settlement when the underlying liability is reasonably clear can constitute Insurer Bad Faith in California under a Jury Instruction approved by the Ninth Circuit in this case.
It is of interest that Ms. Du's proposed Jury Instruction did not use either the word, "initiate," or the Ninth Circuit's word of choice, "effectuate". (Ms. Du sued as the assignee of one Mr. Kim's Claims against his Liability Insurance Company, Deerbrook, including assignment of the Claim for alleged Bad Faith in settlement here.) Here is the Jury Instruction she proposed, which the Ninth Circuit panel in this case ruled should have been given by the District Judge (but the refusal to give which instruction was upheld on appeal, because there was no evidentiary basis to give it in this particular case):
In determining whether Deerbrook Insurance Company breached the obligation of good faith and fair dealing owed to Mr. Kim, you may consider whether the defendant did not attempt in good faith to reach a prompt, fair, and equitable settlementof Yan Fang Du’s claim after liability [of its insured Kim] had become reasonably clear.
The presence or absence of this factor alone is not enough to determine whether Deerbrook Insurance Company’s conduct breached the obligation of good faith and fair dealing. You must consider Deerbrook Insurance Company’s conduct as a whole in making this determination.
[Emphasis added.]
A second ruling is also noteworthy. In its decision, the Ninth Circuit also firmly held that the "genuine-dispute doctrine" simply does not apply outside of First-Party Cases under California law. Specifically, the doctrine does not apply to Third-Party or Liability Insurance. It is simply no defense to a Liability Insurer accused of Bad Faith under California law, that the Liability Insurer genuinely and legitimately contested its Insurance Coverage as a reason for its failure to settle the underlying claims against its Policyholders.
The author is indebted to Mr. Gene Murray for forwarding this decision to my attention.
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