A recent decision by the Ninth Circuit expanded the scope of insurers' duty to attempt to settle claims in California, which may lead to more bad faith claims against insurers. In Du v. Allstate the Court held that under California law, an insurer has a duty to effectuate settlement where liability is reasonably clear, even in the absence of a settlement demand.
Appellant Yang Fang Du and three others were injured in an accident caused by Joon Hak Kim, who was insured by Allstate’s Deerbrook Insurance Company ("Deerbrook"). Deerbrook attempted for months to obtain medical documentation from Du but was not successful. Notwithstanding Du's lack of cooperation, Deerbrook determined that Du's claim involved serious injury. Months later, Du made a global demand of the $300,000 for all four plaintiffs. Deerbrook replied that there was insufficient information about the three other plaintiffs but made a $100,000 policy limit offer to Du.
Two months later Du’s lawyer rejected the offer as “too little too late,” and thereafter obtained a judgment in excess of $4,000,000 against Kim. Du, as assignee of Kim, filed a bad faith claim against Deerbrook alleging that Deerbrook breached the implied covenant of good faith and fair dealing when it failed to affirmatively attempt to settle Du's claim after it became clear the judgment could exceed the policy limits. The district court denied Du’s request for an instruction that the jury could consider Deerbrook’s failure to attempt to effectuate a settlement in the absence of a demand from the claimant in determining whether Deerbrook acted in bad faith. On appeal, the Court held that the requested instruction was consistent with the law and that an insurer can violate the duty of good faith and fair dealing by failing to attempt to effectuate a settlement within the policy limits after liability has become reasonably clear even when there has been no demand. The Court went on to find, however, that there was no evidentiary basis for the instruction and affirmed the district court’s judgment in favor or Deerbrook.
Although this holding expands the scope of the duty to settle, insurers may find some solace in the Court's ultimate ruling. Du's bad faith claim asserted that his claim would have been settled within policy limits if Deerbrook had initiated earlier negotiations. The Court held that Deerbrook initiated timely settlement talks in view of the circumstances, noting that Deerbrook could not make an earlier offer because it initially had only uncorroborated assertions from Du and her counsel as to the extent of her injuries and medical bills. Moreover, Deerbrook initially had no proof of the injuries of the other individuals injured in the accident, and a policy limit settlement as to Du could have left insured Kim unprotected if the remaining claims were serious. The Court concluded that there was no evidence that Deerbrook should have or could have made an earlier settlement offer to Du.
Thus, although the Court expanded the duty to effectuate settlement where liability is reasonably clear, even in the absence of a settlement demand, insurers can use the Du decision to argue that the duty does not arise in the first instance if plaintiff's counsel does not timely provide insurers information necessary to evaluate the claims.