In Teleflex Med. Inc. v. National U. Fire Ins. Co., No. 14-56366, 2017 WL 1055586 (9th Cir. March 31, 2017), a policyholder sued its excess liability insurer for breach of contract and bad faith. The action was based on allegations that the excess carrier refused either to contribute to a reasonable settlement of the underlying case against the insured, or to take over the insured's defense in the underlying action.
The excess carrier did not have much luck defending the bad faith suit by raising the "no action" clause in its policy forbidding any action against the carrier until the insured's underlying liability was determined by judgment or by a settlement in which the carrier participated, basically.
In the bad faith suit, the U.S. District Court for the Southern District of California denied the carrier's motion for summary judgment, then the case went to verdict against the carrier, and then the District Court entered judgment on the verdict against the carrier.
Things did not get any better for the carrier on appeal to the Ninth Circuit. The appellate court affirmed the judgment against the carrier.
It is of interest that the appellate panel called its decision a "rule," as in a "rule" that where a liability carrier as here refuses either to contribute to a reasonable settlement of the underlying action against the insured, or to defend the underlying action, then the liability carrier (including the excess carrier in this case) cannot rely on its policy's "no action" clause as a defense to a bad faith action.
Be careful not to let judges and opposing counsel invoke this "rule" without saying what the supposed rule stands for, in other words, without saying what they say the law is.
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