Insurance Recovery And Counseling Alert - Ninth Circuit Expands Duty To Settle
*This Alert was authored by Kenneth M. Gorenberg, a partner in Barnes & Thornburg LLP's Chicago office, and David Isaacson, a summer law clerk and law student at the University of Illinois.
Expanding on the growing recognition of insurers' duty to settle claims against their insureds, the United States Court of Appeals for the Ninth Circuit recently held that, under California law, "an insurer has a duty to effectuate settlement where liability is reasonably clear, even in the absence of a settlement demand." Du v. Allstate Ins. Co., No. 2:08-cv-06301-GW-PJW (9th Cir. Jun. 11, 2012).
The facts of Du are hardly unusual. Allstate issued an auto insurance policy with liability limits of $100,000 per claim and $300,000 per accident to Joon Hak Kim. Four people were injured in an accident caused by Kim, and Allstate recognized that Kim would be liable. Allstate tried to obtain medical and other claim information regarding the potential claimants, and after about a year finally received sufficient information regarding plaintiff Yang Fang Du. Du's attorney then made a demand of $300,000 to settle all four potential claims. Allstate responded that there was insufficient information regarding the other plaintiffs' injuries, suggested settling Du's claim separately, and offered the per claim limit of $100,000. Du's counsel rejected the offer and filed a personal injury lawsuit against Kim. The jury found in favor of Du and awarded him a verdict of $4,126,714.46. Allstate paid the $100,000 per claim limit, and Kim assigned a bad faith claim to Du in exchange for a covenant not to execute.
Du then commenced a lawsuit against Allstate, alleging it breached the implied covenant of good faith and fair dealing by failing to affirmatively settle Du's claim within Kim's policy limit once it became clear that Kim would be liable for an amount in excess of that limit. At trial the court rejected Du's proposed jury instruction that would have allowed the jury to consider whether Allstate "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 jury found in favor of Allstate. On appeal, the Ninth Circuit held that, under California law, "an insurer has a duty to effectuate settlement where liability is reasonably clear, even in the absence of a settlement demand."
The 9th Circuit's decision in Du v. Allstate may prove to be an important...
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