California Supreme Court To Consider Whether Contributing Excess Insurer Can Sue Primary Insurer For Unreasonably Rejecting Prior Settlement Demands When Case Settles Before Judgment
Ace American Ins. Co. v. Fireman’s Fund Ins. Co., 2 Cal. App. 5th 159 (Cal. App. 2d Dist. Div. 4, Aug. 5, 2016), petition for review granted by 382 P.3d 1135 (Cal., Nov. 9, 2016)
Categories: Insurer-vs-Insurer Disputes – Equitable Subrogation – Bad Faith Refusal of Settlement Demand – Absence of Litigated Excess Judgment
The California Supreme Court has granted review of Ace American Ins. Co. v. Fireman’s Fund Ins. Co., which addressed an important question of law that has generated conflicting decisions in the Second District Court of Appeal: if a primary liability insurer unreasonably rejects a settlement demand within its policy limits and then, later, consents to a settlement above its policy limits, can the excess insurer that paid the excess amount state a cause of action against the primary insurer when there is no litigated excess judgment against the insured?
In Ace American v. Fireman’s Fund, the Fourth Division sided with the First Division, holding that an excess insurer properly pled a cause of action against a primary insurer and that a litigated excess judgment is not essential, following Fortman v. Safeco Insurance Co., 221 Cal. App. 3d 1394 (Cal. App. 2d Dist. Div. 1 1990) (holding that an excess insurer’s equitable subrogation claim does not depend on the entry of an excess judgment) and rejecting RLI Ins. Co. v. CNA Casualty of California, 141 Cal. App. 4th 75 (Cal. App. 2d Dist. Div. 2 2006) (declining to follow Fortman) in holding that “[a]n excess judgment is not a required element of a cause of action for equitable subrogation or breach of the duty of good faith and fair dealing.” Rather, “where [an] insured or excess insurer has actually contributed to an excess settlement, the plaintiff may allege that the primary insurer’s breach of the duty to accept reasonable settlement offers resulted in damages in the form of the excess settlement.” The California Supreme Court is in a position to resolve this split in deciding if Ace American v. Fireman’s Fund is correct.
Meanwhile, the Ace American v. Fireman’s Fund court rendered an additional decision on point, which it decided the same way. Starr Indemnity & Liability Co. v. Old Republic General Ins., 2016 Cal. App. Unpub. LEXIS 7754 (Cal. App. 2d Dist. Div. 4, Oct. 26, 2016) (“We recently … found that where the plaintiff excess insurer alleges it was required to contribute to the settlement of the underlying case due to the primary insurer’s unreasonable failure to settle the case within policy limits, the lack of an excess judgment against the insured in the underlying case does not bar an action for equitable subrogation. We follow that reasoning”).
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