UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
August 12, 2009
VEENA VAID-RAIZADA, M.D., AN INDIVIDUAL, PLAINTIFF,
LEXINGTON NATIONAL INSURANCE COMPANY, MARYLAND CORPORATION; A.I.G. DOMESTIC CLAIMS,INC.; A DELAWARE CORPORATION; F.G., BY AND THROUGH HER GUARDIAN AD LITEM, MURLINE MAXIE, DEFENDANTS.
The opinion of the court was delivered by: Dean D. Pregerson United States District Judge
ORDER DENYING DEFENDANT'S MOTION TO CORRECT OR CLARIFY COURT'S JUNE 24, 2009 ORDER [Motion filed on July 13, 2009]
This matter comes before the Court on Defendant Lexington National Insurance Company's Rule 60(a) and/or (b)(6) Motion to Correct Order or, Alternatively, for Clarification of June 24, 2009 Order.*fn1 Although Defendant does not technically frame this Motion as a Motion for Reconsideration, the Court notes that, as a practical matter, it is either a Motion for Reconsideration or an additional Motion for Summary Judgment. For the sake of clarity and in the interest of resolving cases on the merits, the Court nevertheless exercises its discretion to consider the Motion. After reviewing the materials submitted by the parties and considering the arguments therein, the Court denies the Motion.
As the allegations and prior orders in this case are well-known to the parties and the Court, the Court does not repeat that history here. Instead, the Court immediately turns to Defendant's arguments.
Defendant's Motion challenges the Court's prior orders on two basic grounds. First, Defendant argues that the Court's order finding a genuine issue of material fact on the duty to indemnify was issued in error. Second, Defendant asks the Court to enter judgment on the tortious breach of the duty to settle in its favor.
A. Duty to Indemnify
The Court denies Defendant's Motion with respect to the duty to indemnify. First, to the extent Defendant argues that the Court's recent orders departed from the rules of insurance contract interpretation, the Court notes that its orders have applied its interpretation of the insurance contract. The Court declines to revise that interpretation here. Second, the Court continues to find that the Tappan Declaration creates a genuine issue of material fact and that it was properly considered. Third, the Court's grant of judicial notice of the underlying judgment and orders does not have the effect of resolving these issues in Defendant's favor. Rather, it simply establishes what those underlying orders found.
B. Tortious Breach of the Duty to Settle
Defendant also asks the Court to address whether it tortiously violated the duty to settle. The Court has already ruled in Defendant's favor on bad faith breach of the duty to defend, as the Court's May 2008 order found that there were no genuine issues of material fact as to whether Defendant's denial of a defense for Plaintiff was unreasonable. See Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 723 (2007) ("[A]n insurer's denial of or delay in benefits gives rise tort damages only if the insured shows the denial or delay was unreasonable."). In the same Order, the Court denied the motion on the duty to settle. The Court's June 24, 2009 Order likewise denied the bad faith duty to settle claim because the Court had changed its ruling on the duty to indemnify. The Court did not address the claim in significant detail in either Order. Now, Defendant argues that the Court's finding regarding bad faith on the duty to defend requires the Court to enter summary judgment on Plaintiff's claim for tortious breach of the duty to settle, as distinct from her contractual claim.
Generally, an insurer's refusal to provide coverage only yields tort damages where that refusal is unreasonable; as a corollary, where there is a "genuine dispute" as to coverage, the insurer cannot be held liable in tort. See Wilson, 42 Cal. 4th at 723-24. Courts have consistently applied the "genuine dispute" rule in assessing bad faith tort claims on the duty to defend, the duty to indemnify, and the duty to provide benefits.
The parties dispute whether this doctrine also applies in the context of the duty to settle. Although the Court has not found a case that conclusively resolves this question, the most applicable California authority does not apply the same "genuine dispute" rule to the duty to settle. Rather, that case treats duty to settle contract and tort claims as requiring the same substantive analysis in both contract and tort, but being subject to different statutes of limitations and different recoverable damages. The Court follows this approach. Because the Court has found that there is a genuine issue of material fact on the duty to indemnify, the Court finds summary judgment on the duty to settle inappropriate in both contract and tort.
While a breach of the duty to indemnify, the duty to defend, and the duty to pay benefits originate from the language of an insurance contract, California courts have found that there is also a duty to settle that arises from the implied obligation of good faith and fair dealing. See Crisci v. Security Ins. Co., 66 Cal. 2d 425, 429 (1967). "[W]hether a liability insurer's failure to accept a settlement offer constituted a breach of the implied covenant depends on whether that settlement offer was 'reasonable.'" Archdale v. Am. Int'l Specialty Lines Ins. Co., 154 Cal. App. 4th 449, 464 (2007). Where an insurer "rejects a settlement offer without regard to its reasonableness, but solely on the ground of noncoverage," the insurer "who denies coverage does so at its own risk." Id. at 465. If the denial of coverage is found to be wrongful, the insurer "'is liable for the full amount which will compensate the insured for all the detriment caused by the insurer's breach of the express and implied obligations of the contract.'" Id. (quoting Comunale v. Traders & General Ins. Co., 50 Cal. 2d 654, 660 (1958)). Put differently, in general, the requirements for a bad faith action based on an insurer's refusal to settle include: (1) that the underlying lawsuit was for a claim covered by the insurance policy, (2) that the insurer failed to accept a reasonable settlement demand for an amount within the policy's limits of liability, and (3) that a monetary judgment was entered against the insured for an amount in excess of those policy limits. Croskey et al., Cal. Prac. Guide: Insurance Litigation, ¶ 12:233 (2008).
Archdale -- on which both parties rely in part -- appears to be the California authority most closely on point in addressing the relationship between the two different forms of a "bad faith" breach of the duty to settle. As discussed by the Archdale court, there is no difference in the substantive analysis between the two. An insurer's "breach of this implied obligation [to settle] sounds in both contract and tort." Archdale, 154 Cal. App. 4th at 466. "[T]he scope of the duty imposed on the insurer by the implied covenant of good faith and fair dealing does not turn on whether its breach is characterized as contractual or tortious." Id. "Whether the insured's remedy will be in contract or tort will depend on the nature of the relief or recovery sought by the insured." Id. Although the substantive analysis is similar, there are distinctions between a claim sounding in contract and a claim sounding in tort. The only differences discussed by the Archdale court, however, are those related to (1) the types of damages, (2) the statute of limitations, and (3) whether certain kinds of damages claims are assignable. See Archdale, 154 Cal. App. 4th at 467 & n.19; cf. Hamilton v. Md. Casualty Co., 27 Cal. 4th 718, 725 (2002) (discussing how damages in contract only at issue because the contract action was the only cause of action assigned to plaintiff).
The Archdale court nowhere suggests that a "genuine dispute" as to coverage is an appropriate consideration in the duty to settle context. Rather, all indications from that decision are to the contrary. In its statement of the law, the opinion suggests that considerations as to coverage are inappropriate in the duty to settle context, see 154 Cal. App. 4th at 463-64, and that the only question in assessing the merits of a duty to settle claim are whether the offer to settle was "reasonable," see id. at 464. By implication, the coverage position is not relevant to the analysis. Moreover, Archdale's application of the facts supports such a conclusion: although the insurer had actually covered the claims -- and therefore its coverage position was not a problem -- the only barrier to a potential tort claim was the statute of limitations. The only other authority the court has found directly addressing this issue has suggested that the "reasonable dispute" doctrine is not applicable in the duty to settle context. See Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., 78 Cal. App. 4th 847, 879 n.9 (2000).
Defendants arguments do not convince the Court that a departure from Archdale's analytical approach is the correct interpretation of the law. Defendant argues that it has found no case where a plaintiff has been permitted to recover tort damages without the insurer having taken an unreasonable coverage position. The Court has found no case -- and the parties have not cited one -- that has held that the "reasonable dispute" doctrine applies in the duty to settle context;*fn2 on the contrary, the only relevant authority the Court has found has appeared to suggest that the doctrine is inapplicable. Although the Court notes that Plaintiff will need to prove that the settlement offer was reasonable, liability flowing from an "unreasonable refusal to settle" has a different definition and application than that flowing from an unreasonable coverage position. For similar reasons, the Court is not persuaded that the approach taken by courts in non-duty to settle cases is appropriate here. See Amadeo, 290 F.3d at 1162.
Overall, then, the Court denies Defendant's motion on this ground. On the Court's reading of the most relevant California authority, tort recovery for breach of the implied duty to settle does not require Plaintiff to prove that Defendant's coverage position was unreasonable; rather, it requires Plaintiff to prove that Defendant refused a reasonable settlement offer. If coverage is ultimately found, Plaintiff may recover tort or contract damages (according to proof and as allowed by applicable statutes of limitations). If coverage is ultimately denied or if the settlement offer was found to be unreasonable, Plaintiff cannot recover on this claim. ///
For the foregoing reasons, the Court denies Defendant's Motion in full.
IT IS SO ORDERED.