Why it matters

Policyholders too often are faced with the perilous scenario of having their insurers refuse to agree to reasonable settlements of underlying claims. In a recent decision, the U.S. District Court for the Southern District of California rejected one excess insurer’s motion for a new trial in a case in which the court previously held that the excess insurer had no right to arbitrarily veto a reasonable settlement of a false advertising claim against its insured. In so holding, the court rejected the excess insurer’s arguments regarding improper jury instructions and admission of improper testimony, and ultimately upheld the prior jury verdict against the insurer of $3.75 million.

Detailed Discussion

Ambu Inc. sued competitor LMA North America, alleging that LMA’s advertisements falsely implied Ambu’s products were unsafe or less reliable than LMA’s competing products. LMA settled the lawsuit for $4.75 million. LMA’s primary liability insurer paid its full policy limits of $1 million toward the settlement.

LMA then sought the remaining $3.75 million from its excess insurer, National Union. National Union refused to pay. LMA then filed suit in California federal district court, alleging breach of contract and bad faith. After a week-long trial, the jury found unanimously in LMA’s favor. Together with fees, costs, and prejudgment interest, the trial judge entered a final judgment of just over $6 million for LMA.

National Union then sought a new trial, arguing that the evidence at trial did not support the jury’s verdict. The court disagreed, denying National Union’s motion. “Viewing the evidence presented at trial in the light most favorable to plaintiff, and drawing all reasonable inferences in plaintiff’s favor, the court finds that ‘there [was] such relevant evidence as reasonable minds might accept as adequate to support the jury’s conclusion’ that plaintiff was entitled to prevail on its claim for breach of contract.”

The court further rejected National Union’s contention that the jury instruction applying a preponderance-of-the-evidence standard was improper, and that a higher standard should have been applied. The court noted that neither party had objected to the proposed jury instruction regarding burden of proof. Moreover, the court held, even if National Union had timely objected, “the error would have been harmless given the overwhelming evidence supporting each element of the claim, including that the amount of the settlement was reasonable and that National Union was afforded a reasonable amount of time to make a decision to accept the settlement or reject the settlement and assume the defense.” Moreover, the court held, jury instructions regarding the reasonableness of the settlement, the genuine dispute doctrine, consent to settlement, and negligence, mistake, bad judgment, and unclean hands all were accurate.

National Union further challenged testimony allowed at trial, including LMA’s expert opinion regarding the reasonableness of the settlement and comments from LMA’s corporate representative that he received a recommendation to accept the underlying settlement. The court rejected these challenges as well, holding that the testimony could have been dealt with through cross-examination.

Other trial issues, including LMA’s questioning of National Union’s corporate representative whether he had “rehearsed his testimony” with defense counsel and repeated disruptions to National Union’s liability expert’s testimony by sidebars, were dealt with correctly, either by being stricken from the record or through curative instructions, the court concluded.

To read the decision in Teleflex Medical Inc. v. National Union Fire Insurance Co., click here.