Yan Fang Du Ex Rel. Joon Hak Kim v. Allstate Insurance
681 F.3d 1118
9th Cir.2012Background
- Du was injured by Kim’s vehicle; Deerbrook insured with $100,000 per person and $300,000 per accident.
- Kim’s judgment against him was $4,126,714.46, and Kim assigned his bad-faith claim to Du.
- Du sued Deerbrook for breach of the implied covenant of good faith and fair dealing by not attempting to settle after liability became reasonably clear.
- Deerbrook offered $100,000 within policy limits; a global $300,000 demand for all four plaintiffs was rejected.
- The district court rejected Du’s proposed instruction allowing consideration of failure to settle without a demand, and gave modified instructions focusing on accepting reasonable settlement offers within policy limits.
- The Ninth Circuit held there is a duty to effectuate settlement when liability is reasonably clear, but found no evidentiary basis for Du’s proposed instruction in this case.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to settle without a demand | Du argues insurer must initiate settlement when liability is clear | Deerbrook contends no duty to initiate without a demand | Duty to effectuate settlement exists when liability is clear, but insufficient evidence for instruction |
| Genuine dispute doctrine applicability | Du asserts doctrine does not apply to third-party claims | Deerbrook argues genuine dispute shields from bad faith liability | Doctrine not controlling in third-party settlement context; not applicable here |
| Support for proposed jury instruction | Instruction accurately states law | No evidentiary basis to support it | District court did not abuse discretion in rejecting the instruction for lack of foundation |
Key Cases Cited
- Gibbs v. State Farm Mutual Automobile Insurance Co., 544 F.2d 423 (9th Cir. 1976) (insurer must take affirmative action when reasonable settlement opportunity exists within policy limits)
- Kransco v. Am. Empire Surplus Lines Ins. Co., 2 P.3d 1 (Cal. 2000) (duty to settle when substantial likelihood of recovery in excess of limits)
- Crisci v. Sec. Ins. Co. of New Haven, Conn., 426 P.2d 173 (Cal. 1967) (insurer may be liable for unreasonable rejection of reasonable settlement within limits)
- PPG Indus., Inc. v. Transamerica Ins. Co., 975 P.2d 652 (Cal. 1999) (duty to settle within policy limits when liability is reasonably clear)
- Pray ex rel. Pray v. Foremost Insurance Co., 767 F.2d 1329 (9th Cir. 1985) (California law imposes duty to actively investigate and settle when liability is reasonably clear)
- Johansen v. Cal. State Auto. Ass’n Inter-Ins. Bureau, 123 Cal. Rptr. 288 (Cal. Ct. App. 1975) (conflicts in third-party settlement context and insurer’s duty to settle)
- Boicourt v. Amex Assurance Co., 93 Cal. Rptr. 2d 768 (Cal. Ct. App. 2000) ( Merritt dicta not controlling; insurer may be liable without a settlement offer)
- Coe v. State Farm Mutual Automobile Insurance Co., 136 Cal. Rptr. 331 (Cal. Ct. App. 1977) (broad language about failure to settle; context matters)
- Jordan v. Allstate Ins. Co., 56 Cal. Rptr. 2d 312 (Cal. Ct. App. 2002) (affirmed that section 790.03(h) can support bad faith evidence; not exclusive)
- Morris v. Paul Revere Life Ins. Co., 135 Cal. Rptr. 2d 718 (Cal. Ct. App. 2003) (genuine dispute doctrine in first-party cases; different in third-party)