Ace American Insurance Co. v. Fireman's Fund Insurance Co.
2 Cal. App. 5th 159
| Cal. Ct. App. | 2016Background
- John Franco was severely injured on a film set; Warner Brothers (the insured) faced suit and was defended by primary insurer Fireman’s Fund (primary limits $2M and $3M umbrella) and excess insurer Ace American (excess $50M).
- The Francos made within-limits settlement demands to Fireman’s Fund in 2012; Ace American alleges Fireman’s Fund unreasonably refused those demands.
- The underlying case ultimately settled for an amount exceeding Fireman’s Fund’s primary limits, with contributions from both Fireman’s Fund and Ace American; the case was dismissed with prejudice.
- Ace American (as excess insurer and assignee/subrogee of Warner Brothers) sued Fireman’s Fund for equitable subrogation and breach of the covenant of good faith and fair dealing, alleging it paid the excess settlement because Fireman’s Fund failed to settle reasonably within its limits.
- Fireman’s Fund demurred, arguing that equitable subrogation (and related bad-faith claims) by an excess insurer requires an excess judgment against the insured (not merely a settlement), relying on RLI v. CNA and related authority; the trial court sustained the demurrer without leave to amend.
- The Court of Appeal reversed, holding that where an excess insurer has actually paid an excess settlement (and the primary insurer participated in and consented to that settlement), lack of a litigated excess judgment does not bar equitable subrogation or bad-faith claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an excess insurer can assert equitable subrogation/bad-faith claims when the underlying action settled (no excess judgment) but the excess insurer paid above-primary limits | Ace: An excess insurer who actually paid an excess settlement may sue; a judgment is not required if the excess insurer suffered actual damages from primary insurer’s failure to reasonably settle | Fireman’s Fund: Subrogation/bad-faith claims require a litigated excess judgment against the insured; settlements without a judgment (or with stipulated judgments not executed) are insufficient | Court: Judgment not required; where excess insurer paid and alleges primary insurer unreasonably refused within-limits offers and participated in the excess settlement, claims may proceed |
Key Cases Cited
- Fortman v. Safeco Ins. Co., 221 Cal.App.3d 1394 (Cal. Ct. App. 1990) (excess insurer may pursue equitable subrogation after paying excess settlement when primary insurer unreasonably refused within-limits offers)
- RLI Ins. Co. v. CNA Cas. of Cal., 141 Cal.App.4th 75 (Cal. Ct. App. 2006) (held equitable subrogation barred absent an excess judgment; settlement alone insufficient)
- Hamilton v. Maryland Cas. Co., 27 Cal.4th 718 (Cal. 2002) (insurer’s duty to accept reasonable within-limits settlements; stipulated judgments with covenants not to execute are unreliable proof of damages)
- Isaacson v. Cal. Ins. Guarantee Assn., 44 Cal.3d 775 (Cal. 1988) (CIGA’s statutory duty can require accepting reasonable settlements; insured who contributes to settlement may recover)
- Fireman’s Fund Ins. Co. v. Maryland Cas. Co., 65 Cal.App.4th 1279 (Cal. Ct. App. 1998) (elements of equitable subrogation; subrogee stands in insured’s shoes and must plead actual damages)
- Archdale v. Am. Internat. Specialty Lines Ins. Co., 154 Cal.App.4th 449 (Cal. Ct. App. 2007) (claims for failure to settle accrue on an excess judgment; focus on reliable proof of damages)
- Safeco Ins. Co. v. Superior Court, 71 Cal.App.4th 782 (Cal. Ct. App. 1999) (insurer defending a case controls settlement; stipulated judgments without insurer participation are unenforceable against insurer)
- Wolkowitz v. Redland Ins. Co., 112 Cal.App.4th 154 (Cal. Ct. App. 2003) (bankruptcy settlement allowing a claim did not reliably establish insured’s liability for bad-faith damages)
- Northwestern Mut. Ins. Co. v. Farmers’ Ins. Group, 76 Cal.App.3d 1031 (Cal. Ct. App. 1978) (excess insurer who paid may recover from primary insurer when primary’s refusal to settle caused the loss)
- Twin City Fire Ins. Co. v. Country Mut. Ins. Co., 23 F.3d 1175 (7th Cir. 1994) (endorses Fortman reasoning; insurer’s temptation to gamble should not excuse failure to settle reasonably)