Ron Carlson v. Century Surety Company
606 F. App'x 882
9th Cir.2015Background
- Carlsons sued Gold Mountain (insured by Century Surety) in state court over a failed real estate transaction in which Gold Mountain represented them.
- Century Surety refused to defend Gold Mountain because Carlsons' claim allegedly arose before the policy inception.
- Carlsons and Gold Mountain settled the underlying suit; settlement included Gold Mountain allowing a default judgment and assigning rights to Carlsons, with Carlsons agreeing not to execute the default.
- Carlsons then sued Century Surety in federal court for failure to defend and indemnify related to the state-court action.
- The district court granted several summary-judgment orders; the panel reversed on the duty-to-defend issue, but upheld dismissal of Carlsons’ recoveries.
- The court held Century Surety did not owe a defense under California law, and that even if a defense existed, the settlement was unreasonable and fraudulent, precluding recovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend based on facts known at inception? | Carlsons argue Carlsons’ claim could be covered; truth of notice supports defense. | Century Surety asserts no coverage since notice occurred before inception; no factual dispute supports defense. | District court erred in duty-to-defend finding; potential coverage exists only if fact support shown. |
| Recovery if there was a duty to defend? | Carlsons contend insurer breached by defense and settlement, seeking damages. | Century Surety argues settlement was fraudulent; damages not recoverable. | No recovery; settlement deemed fraudulent and unreasonable, barring recovery under California law. |
Key Cases Cited
- Montrose Chem. Corp. v. Superior Court, 861 P.2d 1153 (Cal. 1993) (duty to defend determined from insurer’s knowledge at inception)
- Nat’l Steel Corp. v. Golden Eagle Ins. Co., 121 F.3d 496 (9th Cir. 1997) (establishes standard for defense duty; potential coverage suffices)
- Friedman Prof’l Mgmt. Co. v. Norcal Mut. Ins. Co., 15 Cal. Rptr. 3d 359 (Ct. App. 2004) (no defense just from imagined facts; requires evidentiary support)
- Pruyn v. Agric. Ins. Co., 42 Cal. Rptr. 2d 295 (Ct. App. 1995) (insurer bound by settlement if not unreasonable or fraudulent)
- Amato v. Mercury Cas. Co., 61 Cal. Rptr. 2d 909 (Ct. App. 1997) (context for settlement-related damages; reasonable behavior required)
- Andrade v. Jennings, 62 Cal. Rptr. 2d 787 (Ct. App. 1997) (further guidance on settlement and coverage issues)
- Bachman v. Independence Indem. Co., 297 P. 110 (Cal. Dist. Ct. App. 1931) (fraudulent settlements preclude recovery by insureds)
- Zander v. Cas. Ins. Co. of Cal., 66 Cal. Rptr. 561 (Ct. App. 1968) (insurer may challenge a default judgment on grounds beyond jurisdiction or fraud)