Court: Court of Appeals for the Ninth Circuit; June 11, 2012; Federal Appellate Court
The court has amended the opinion filed on June 11, 2012, regarding the case of Yan Fang Du against Allstate Insurance Company and its subsidiary Deerbrook Insurance Company. The panel has denied the Appellees’ petition for panel rehearing, with Judges Pregerson and Graber voting to deny the petition for rehearing en banc, and Judge Chen recommending the same. The full court was informed of the rehearing en banc request, but no judge requested a vote on it. Consequently, both the panel rehearing and the en banc rehearing petitions are denied, and no additional petitions will be considered.
In this case, Appellant Yan Fang Du sued Deerbrook for breaching the implied covenant of good faith and fair dealing after being injured in an accident caused by Deerbrook’s insured, Joon Hak Kim. After Du secured a judgment of $4,126,714.46 against Kim, who then assigned his bad faith claim to Du, the suit was initiated. Du contended Deerbrook breached its duty by failing to settle her claims after Kim's liability exceeded the policy limit. Du appealed the district court's refusal to instruct the jury to consider Deerbrook’s failure to settle as a factor in determining the breach. The court found no evidentiary basis for such an instruction and affirmed the district court's judgment.
Factual background indicates that the accident occurred on June 17, 2005, involving Du and three other occupants in the second vehicle. Deerbrook's policy had a $100,000 limit per individual claim, with a total cap of $300,000 for the accident. Despite difficulties in obtaining necessary documentation from Du and Kim, Deerbrook acknowledged Kim's liability by February 2006. Settlement discussions began only after a global demand for $300,000 was made on June 9, 2006, which included Du’s medical costs of $108,742.92. Deerbrook’s adjuster suggested separate settlements, which Du's attorney rejected. After Deerbrook's $100,000 offer was deemed insufficient, Du filed a lawsuit, ultimately resulting in a significant jury verdict. Deerbrook paid the policy limit following the judgment, and Kim assigned his bad faith claim to Du under a covenant not to execute.
Du filed a lawsuit against Deerbrook and Allstate Insurance Company in September 2008, asserting that Deerbrook breached the covenant of good faith and fair dealing owed to Kim by failing to settle Du’s claim within Kim’s policy limits, despite clear liability on February 15, 2006. Du proposed jury instructions based on CACI 2337, suggesting the jury consider whether Deerbrook made a good faith effort to settle the claim after liability was established. The district court rejected this instruction, stating that an insurer has no obligation to initiate settlement discussions without a settlement demand from the claimant and found no factual basis for the proposed instruction, noting that the issue of settlement was raised early enough to negate any claim of failure to initiate discussions. Instead, the court provided modified instructions emphasizing that a breach could only be found if Deerbrook failed to accept a reasonable settlement offer, not for failing to settle proactively. The jury ruled in favor of Deerbrook, leading to Du's appeal.
On appeal, Du questions whether the duty to settle can be breached without a settlement demand, whether the refusal of the proposed instruction aligns with the “genuine dispute doctrine,” and if there was sufficient evidentiary support for the instruction. The appeal references California Insurance Code Section 790.03(h)(5), which outlines unfair claims settlement practices and indicates that violations can serve as evidence of a breach of good faith. The legal standards for reviewing jury instructions include an abuse of discretion standard for the formulation of instructions and a de novo review for misstatements of law, with consideration given to whether there is enough evidence to support the instruction.
The duty to settle for insurance companies extends beyond merely accepting reasonable settlement demands, as established in Pray ex rel. Pray v. Foremost Insurance Co. and further clarified in McLaughlin v. Nat’l. Union Fire Ins. Co. Section 790.03(h)(5) mandates that insurers actively attempt to settle claims once liability becomes clear, encompassing a broader obligation than simply rejecting demands within policy limits. Insurers may be found in bad faith if they fail to take proactive steps toward settlement, and a formal settlement offer is not always necessary to support a bad faith claim. However, California case law, such as Merritt v. Reserve Ins. Co. and Coe v. State Farm Mutual Automobile Insurance Co., indicates that bad faith claims typically arise from an insurer's failure to accept a reasonable offer when a demand exists. The case of Gibbs suggests that Merritt does not impose a strict requirement for a settlement demand if no reasonable opportunity for settlement was present.
Regarding the genuine dispute doctrine, Deerbrook argued against Du's proposed jury instruction based on the unsettled nature of the law concerning the duty to settle third-party claims. The district court found that the issue of settlement was raised early enough in the litigation to negate claims of failure to initiate discussions. Evidence showed that Deerbrook engaged in settlement negotiations with Du in June and July 2006, making a $100,000 policy limits offer that Du rejected. Deerbrook contended it acted timely in initiating settlement talks, supported by its inability to make an earlier offer due to lack of corroborated proof of Du's injuries and expenses prior to late June 2006.
Du's expert acknowledged that Deerbrook could not base a settlement offer solely on the claimant's and claimant's lawyer's representations. It was deemed reasonable for Deerbrook to rely on Katzman's unfulfilled promise to provide medical information until June 2006. The expert also admitted that Deerbrook had to obtain Du's medical records through his lawyers. Evidence indicated Deerbrook made multiple attempts to acquire necessary information. Prior to June 2006, Deerbrook lacked proof of injuries to three other accident victims, raising concerns that a $100,000 payment to Du might leave Kim underprotected if the other claims exceeded $200,000, especially since prior counsel claimed the Fengs had "life threatening" injuries. Ultimately, there was insufficient evidence to justify an earlier settlement offer to Du, leading the district judge to not abuse discretion in denying Du's proposed instruction. The court affirmed this judgment. Additionally, CACI 2337 outlines factors for assessing whether a defendant acted unreasonably regarding settlement offers, emphasizing the need to evaluate the defendant's conduct as a whole. The Directions for Use clarify that although there is no private cause of action under Insurance Code section 790.03(h), this instruction can guide juries in insurance bad-faith cases to assess the reasonableness of the insurer's conduct.
