Teleflex Medical Inc. v. National Union Fire Insurance Co. of Pittsburgh
2017 U.S. App. LEXIS 4996
| 9th Cir. | 2017Background
- LMA North America (insured) faced $28M counterclaims by competitor Ambu for trade disparagement; primary insurer CNA had $1M limit and defended; excess insurer National Union had $14M excess policy and declined to participate in settlement negotiations.
- Parties mediated; LMA and Ambu agreed to a conditional global deal: Ambu pays $8.75M on patent claims; LMA pays $4.75M on disparagement claims; CNA committed its $1M limit but National Union withheld consent.
- LMA repeatedly notified National Union, provided documents and updated liability/damage analyses, and gave National Union several options: accept settlement, reject and assume defense, or reject and allow LMA to seek reimbursement later. National Union delayed and only declined consent without taking over defense.
- LMA settled with Ambu April 18, 2011, then sued National Union for breach of contract and bad faith seeking contribution of $3.75M of the disparagement settlement, fees, costs, and damages.
- District court applied the California appellate rule from Diamond Heights (excess insurer may be liable if it rejects a reasonable settlement and fails to offer the defense), denied National Union’s summary judgment, and after a jury verdict awarded LMA contract damages, prejudgment interest, and attorney fees; Ninth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (LMA) | Defendant's Argument (National Union) | Held |
|---|---|---|---|
| Whether Diamond Heights governs and permits contribution when excess insurer refuses to approve a reasonable settlement but also refuses to assume defense | Diamond Heights controls under California law; National Union had a duty to approve, assume defense, or face contribution if given reasonable opportunity and settlement was reasonable/non-collusive | Diamond Heights has been undermined by California Supreme Court (Waller) or otherwise should not apply here; excess insurer retains absolute veto under "no action"/"no voluntary payments" clauses | Diamond Heights remains controlling intermediate-appellate precedent; Ninth Circuit followed it (no convincing evidence CA Supreme Court would reject it) and applied it here |
| Whether LMA bore a heightened (clear and convincing) burden to prove waiver/breach vs. preponderance/burden-shifting | LMA urged preponderance; analogues require only preponderance and burden-shifting to insurer once insured shows wrongful refusal, reasonableness of settlement, and opportunity to assume defense | National Union urged Waller requires clear-and-convincing proof of waiver of contractual rights | Court held preponderance standard applies; California precedent uses burden-shifting and preponderance; any instructional slippage favored defendant and was harmless |
| Bad faith and genuine-dispute defense — was National Union entitled as a matter of law to rely on a genuine dispute about coverage / Diamond Heights’ viability? | LMA: insurer’s delay and refusal to assume defense/evaluate settlement was unreasonable; genuine-dispute defense was for jury factfinding | National Union: a genuine legal dispute about Diamond Heights meant its refusal was reasonable and not bad faith | Jury verdict for LMA sustained: substantial evidence supported finding National Union acted unreasonably; genuine-dispute doctrine is subsumed in reasonableness inquiry and did not require directed verdict |
| Award of attorney’s fees and apportionment between contract and bad-faith claims | LMA sought Brandt fees for work to obtain policy benefits; requested fees for mixed work with modest apportionment | National Union argued unrecoverable bad-faith work was not segregated and fees should be denied or remanded for precise allocation | Court upheld award; district court apportioned 10% to bad-faith work—apportionment was within discretion and consistent with California Brandt/Cassim principles |
Key Cases Cited
- Diamond Heights Homeowners Ass’n v. Nat’l Am. Ins. Co., 227 Cal. App. 3d 563 (Cal. Ct. App. 1991) (excess insurer may forfeit veto by rejecting a reasonable settlement and failing to offer to undertake the defense)
- Waller v. Truck Ins. Exch., 11 Cal. 4th 1 (Cal. 1995) (limits on waiver theories; waiver requires intentional relinquishment of known right)
- Fuller-Austin Insulation Co. v. Highlands Ins. Co., 135 Cal. App. 4th 958 (Cal. Ct. App. 2006) (endorses Diamond Heights’ rationale; excess insurers may be bound absent participation but may challenge fairness)
- Pruyn v. Agric. Ins. Co., 36 Cal. App. 4th 500 (Cal. Ct. App. 1995) (insured’s prima facie showing elements and burden-shifting on reasonableness/collusion)
- Brandt v. Superior Court, 37 Cal. 3d 813 (Cal. 1984) (insured entitled to attorney fees for obtaining benefits due under policy)
- Cassim v. Allstate Ins. Co., 33 Cal. 4th 780 (Cal. 2004) (apportionment principles for Brandt fee awards)
- Hyundai Motor Am. v. Nat’l Union Fire Ins. Co., 600 F.3d 1092 (9th Cir. 2010) (choice-of-law and coverage principles in diversity insurance cases)
- Laryngeal Mask Co. v. Ambu, 618 F.3d 1367 (Fed. Cir. 2010) (underlying patent litigation decision referenced in factual background)