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October 2012

Du v. Allstate Insurance Company, et al. ? AMENDED ? Ninth Circuit Retracts Decision That Insurer Must Proactively Attempt To Settle

Ninth Circuit Amends Opinion And Withdraws Holding That California Law Imposes Upon Insurers A Duty To Proactively Effectuate Settlement In The Absence Of A Settlement Demand

(October 5, 2012) ___ F.3d ___; 12 C.D.O.S. 11401

The Ninth Circuit recently issued an amended opinion which omits two previous holdings that raised concern for insurers in California.  In its first opinion, Du v. Allstate Ins. Co., 681 F.3d 1118 (9th Cir. June 11, 2012) (Du Opinion I), the Ninth Circuit, interpreting California law, held that an insurer can violate the duty of good faith and fair dealing by failing to initiate settlement discussions even though no demand has been made.  The Court also held that the “genuine dispute doctrine” does not apply to third party claims.

In its amended opinion, the Ninth Circuit omitted the previous holding that insurers have a duty to initiate settlement discussions in the absence of a demand.  Du v. Allstate Ins. Co., ___ F.3d ___ (9th Cir. Oct. 5, 2012) (Du Amended Opinion).  The Ninth Circuit also omitted its previous holding that the “genuine dispute doctrine” does not apply to third party claims.  Thus, the amended opinion rests entirely on the evidentiary finding that, even if an insurer has a duty to initiate settlement in the absence of a demand, the facts precluded a jury from finding the insurer breached any such duty in this case.

The coverage dispute between Yang Fang Du (“Du”) and Deerbrook Insurance Company, a subsidiary of Allstate Insurance Company (collectively “Deerbrook”), arose out of an auto accident.  On June 17, 2005, plaintiff and appellant Du and three occupants (collectively “Underlying Plaintiffs”) were injured in a car accident with opposing driver Joon Hak Kim (“Kim”).  Kim was insured by Deerbrook, under a policy with limits of $100,000 for each individual and an aggregate limit of $300,000 for any one accident.

On February 15, 2006, Deerbrook acknowledged Kim’s liability.  At the time, Deerbrook was aware that Du’s injuries were serious, but Du had not provided proof of his medical costs despite requests from Deerbrook.  On June 9, 2006, Du’s lawyer wrote to Deerbrook and demanded $300,000 as a global settlement.  The demand package included documentation of $108,742 in medical costs for Du.  Du’s lawyer asserted the other three Underlying Plaintiffs incurred medical costs of between six thousand and thirteen thousand each, but provided no evidence in support.  Deerbrook rejected the global demand citing the lack of documentation concerning the other three Underlying Plaintiffs.  Deerbrook offered Du $100,000 individually, which Du rejected in August of 2006.

In October of 2006, Du filed suit against Kim, and eventually obtained a jury verdict of $4,126,714.  Kim assigned any rights he had against Deerbrook for breach of the covenant of good faith and fair dealing to Du.  Du brought suit against Deerbrook pursuant to the assignment of Kim’s bad faith claim.

At trial in the coverage action, Du took the position that Deerbrook acted in bad faith by failing to initiate settlement discussions earlier than June of 2006.  Du proposed the following jury instruction:

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 settlement of Yan Fang Du’s claim after liability [of its insured Kim] had become reasonably clear.  …

The district court rejected Du’s proposed jury instruction.  Instead, the district court provided the jury with modified versions of CACI 2334 and 2337 which made clear that bad faith could only be found if Deerbrook failed to accept a reasonable settlement demand, not for failing to affirmatively effectuate a settlement.

In the Du Amended Opinion, the Ninth Circuit identified three issues raised by the appeal: (1) whether the duty to settle described in CACI 2337 can be breached absent a settlement demand from the third party claimant; (2) whether Du’s proposed instruction could properly have been refused under the "genuine dispute doctrine"; and (3) whether there was an evidentiary foundation for the proposed instruction.  The Court held it need not resolve the first two legal issues because there was no evidence that Deerbrook could or should have made an earlier settlement offer.  Thus, Du lacked evidentiary support for the proposed jury instruction.

The Du Amended Opinion omits the Ninth Circuit’s holding in Du Opinion I, that an insurer may have a duty to initiate settlement discussions when liability is reasonably clear, even in the absence of a settlement demand.  The Du Amended Opinion also omits the Ninth Circuit’s holding in Du Opinion I that the "genuine dispute doctrine" does not apply to third party claims.  

The Ninth Circuit retained its decision concerning the lack of evidentiary support for a jury instruction based on Deerbrook’s alleged failure to initiate settlement discussions earlier than it did.  The Ninth Circuit found Deerbrook could not have made settlement offers earlier than it did because Du had not provided proof of his injuries and medical expenses until June of 2006.  Deerbrook also lacked evidence of the injuries of the other three Underlying Plaintiffs prior to June of 2006.  In June or July of 2009, Deerbrook offered Du the individual policy limit of $100,000 which Du rejected.  There was no evidence Deerbrook could or should have made an earlier settlement offer.  Accordingly, the district court did not abuse its discretion when it rejected Du’s proposed jury instruction.

 Click here for opinion.

This opinion is not final.  It may be withdrawn from publication, modified on rehearing, or review may be granted by the United States Supreme Court.  These events would render the opinion unavailable for use as legal authority.

This and other case bulletins, as well as other publications of Gordon & Rees LLP, may be found at www.gordonrees.com.
 

Insurance

Christopher R. Wagner



Insurance