Dewitt v. Monterey Insurance, 138 Cal. Rptr. 3d 705

Cappelletti’s Policy provides $1 million per occurrence for a property managers and certain other at-issue entities; DeWitt was alleged to be Cappelletti’s onsite manager and to have facilitated underage drinking at a New Year’s Eve party.
Howard filed the Howard Action in April 2002 against Peterson, Cappelletti, Hammett, Hammett Properties, and DeWitt, alleging DeWitt’s involvement in amplifying the party’s harms.
Respondents (Monterey and California Capital Insurance) investigated whether DeWitt was an insured and declined to defend him, concluding DeWitt was not an insured; a default and a large default judgment followed against DeWitt in 2006.
In March 2007 Howard demanded the policy limits to settle the Howard Action; respondents did not accept the offer; Cappelletti and Hammett settled for $50,000 in May 2007, and DeWitt was ultimately insuredly adjudged to be liable for the default judgment.
Respondents paid $3.5 million to Howard to satisfy the 2006 default judgment in August 2009; DeWitt filed suit in March 2008 asserting breach of the duty to defend and bad faith for failure to settle; trial occurred in 2010 and a jury found no unreasonable failure to defend; DeWitt sought CACI No. 2334 instruction on bad faith for failure to settle, which the trial court denied; on appeal, the court affirmed, holding no substantial evidence showed respondents assumed the duty to defend or that indemnity had been determined in DeWitt’s favor, so CACI 2334 was unwarranted.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the trial court erred in not giving CACI No. 2334 governing bad faith for failure to settle.	DeWitt argues insurers’ refusal to settle within policy limits can support bad faith even without a formal indemnity finding.	Respondents contend CACI 2334 applies only where the insurer assumed the duty to defend and indemnity/coverage issues are adjudicated; here those conditions aren’t proven.	No error; lack of proof of assumed defense or indemnity precluded instruction.
Whether the insurer owed a duty to defend/indemnify DeWitt in the underlying Howard Action.	There was potential coverage; insurer refused to defend, causing a default judgment against DeWitt.	No coverage was found; insurer had no duty to indemnify or settle noncovered claims.	Court upheld trial ruling that respondents did not owe a duty to indemnify based on the record.
Whether Comunale/Johansen/Myriads support liability for failure to settle where coverage later exists.	Comunale/Johansen show insurer may be liable for bad faith failure to settle if coverage exists.	These authorities require actual or potential coverage; in this case, indemnity wasn’t established.	The line of cases supports potential liability only where coverage exists or is proven; not here.

Comunale v. Traders & General Ins. Co., 50 Cal.2d 654 (1958) (insurer may be liable for unsatisfied settlement when denial of coverage is wrongful)
Johansen v. California State Auto. Assn. Inter-Ins. Bureau, 15 Cal.3d 9 (1975) (bona fide belief of no coverage not a defense to bad faith settlement refusal)
Marie Y. v. General Star Indemnity Co., 110 Cal.App.4th 928 (2003) (duty to accept reasonable settlement applies to covered claims; no coverage means no such duty)
Archdale v. American Internal Specialty Lines Ins. Co., 154 Cal.App.4th 449 (2007) (limitations of Comunale rule and coverage concepts in bad faith disputes)
Samson v. Transamerica Ins. Co., 30 Cal.3d 220 (1981) (insurer bears responsibility if coverage exists; duty to settle within limits if coverage)
Hogan v. Midland National Ins. Co., 3 Cal.3d 553 (1970) (insurer can raise coverage defenses in later actions)
Hamilton v. Maryland Casualty Co., 27 Cal.4th 718 (2002) (implied duty to accept settlements within policy limits when coverage is implicated)
Risely v. Interinsurance Exchange of the Automobile Club, 183 Cal.App.4th 196 (2010) (duty to defend/settle context in California insurance law)