LMA North America, Inc. v. National Union Fire Insurance
924 F. Supp. 2d 1188
S.D. Cal.2013Background
- LMA sued National Union for breach of contract and bad faith regarding payment of a $3.75M portion of a $4.75M settlement under an umbrella policy.
- Ambu Litigation: LMA and Ambu disputed product disparagement/counterclaims; Ambu sought damages and LMA faced potential exposure.
- Primary CNA policy covered initial primary limits; National Union was excess insurer with consent rights over settlements that invade excess coverage.
- Settlement efforts included mediation with CNA and National Union; CNA signaled willingness to contribute its $1M primary limits; National Union delayed decision.
- April 2011 settlement discussions culminated in a proposed $4.75M settlement, which National Union ultimately refused to consent to take over defense or pay the amount in question.
- Court must decide if Diamond Heights allows an excess insurer to waive no action/no voluntary payments provisions or whether genuine issues of material fact exist about waiver and reasonableness of settlement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Diamond Heights governs waiver of policy provisions by an excess insurer | LMA argues waiver of no action/no voluntary payments possible | National Union argues Diamond Heights not applicable here | Issue unresolved; genuine issues of material fact exist regarding waiver |
| Whether the Ambu settlement was unreasonable or collusive | Settlement was reasonable; National Union delayed and obstructed consent | Settlement invaded excess coverage; insurer refused consent based on evidence | Questions of reasonableness/possible collusion for trial; not summarily decided |
| Whether National Union acted with bad faith in handling LMA’s claim | National Union delayed and undermined defense to coerce settlement | No breach since denial based on contract rights | Bad faith claim survive for trial; reasonable jury could find misconduct |
| Whether punitive damages are available for insurer conduct | Conduct was oppressive/malicious; actionable for punitive damages | Promissory/contract-based defenses limit punitive exposure | Punitive damages issue for jury where willful/malicious conduct shown |
Key Cases Cited
- Diamond Heights Homeowners Association v. National American Insurance Co., 227 Cal.App.3d 563 (Cal. App. Dist. 1st 1991) (excess insurer waiver of no-action clause if not participating in defense)
- Fuller-Austin Insulation Co. v. Highlands Ins. Co., 135 Cal.App.4th 958 (Cal. App. Dist. 6th 2006) (applies Diamond Heights to no voluntary payments scenario)
- Waller v. Truck Insurance Exchange, 11 Cal.4th 1 (Cal. 1995) (waiver rules; rejects automatic waivers; supports look at conduct over rights)
- CalFarm Insurance Co. v. Krusiewicz, 131 Cal.App.4th 273 (Cal. App. Dist. 2nd 2005) (promissory estoppel not based on policy terms; punitive damages context)