Retreating from its bold pronouncement 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", the Ninth Circuit recently amended Du v. Allstate, 681 F. 3d 1118, 1123 (9th Cir. 2012) (Du #1) and narrowed the holding of the opinion solely to the issue of whether there was an evidentiary foundation for the jury instruction appellant Du sought regarding bad faith and an insurer's settlement obligations. Docket No. 10-56422, published Oct. 5, 2012 ("Du #2" or "amended opinion"). The Ninth Circuit also re-framed the Du appeal issues and took a pass on two of the newly crafted issues on the grounds that the case could be determined on evidentiary grounds alone. In light of the amendments to its earlier opinion, the Ninth Circuit denied appellees Allstate Insurance Company and subsidiary Deerbrook Insurance Company's petition for panel rehearing and rehearing en banc. 

In Du, the policyholder, Joon Hak Kim, assigned to Yang Du, his bad faith claim against his insurers Allstate Insurance Company and subsidiary Deerbrook Insurance Company ("the Insurer"). After obtaining a judgment of over $4 million against the insured, Du sued the Insurer for bad faith alleging the Insurer failed to effectuate a settlement on behalf of the policyholder after it became reasonably clear that the policyholder’s liability exceeded the policy limits. Concluding that an insurer has no obligation to initiate settlement talks before a demand from a third party claimant and that there was no factual foundation for the instruction because settlement overtures were made "sufficiently early" in the litigation, the trial court rejected Du's proposed jury instruction which was based on CACI 2337- Violation of Insurance Regulation or Industry Practice. Du appealed. 

The Ninth Circuit in Du #2, re-characterized the Du appeal issues as: 1)  whether the duty to settle in CACI 2337 can be breached absent a settlement demand from the third party claimant; 2) whether Du's proposed instruction could properly have been refused under the "genuine dispute doctrine" and, 3) whether there was an evidentiary foundation for the proposed instruction.

The amended opinion delineated but essentially bypassed the first two issues, concluding "there was no evidentiary basis for the instruction" sought by appellant which would have required the jury to consider whether, even in the absence of a settlement demand from the policyholder, the insurers acted in good faith to reach a prompt, fair, and equitable settlement of Du's claim after liability had become reasonably clear. 

Although the Ninth Circuit initially decided in Du #1 that the trial court erred in ruling that an insurer has no obligation to proactively initiate settlement talks without a demand from a claimant, it concluded that the trial court did not abuse its discretion in rejecting Du’s proposed jury instruction. The Du #1 opinion also stated that there was no evidentiary basis to establish that the Insurer could have made an earlier settlement offer because notwithstanding the Insurer’s repeated requests for information corroborating the claimant’s alleged injuries and alleged medical expenses, that information was only provided to the Insurer after settlement negotiations had commenced. In Du #2, the Court did not address the issue of whether the trial court erred but reached the same conclusion as Du #1 regarding the lack of an evidentiary foundation, for all the same reasons.

For many of us who live and practice in the coverage arena, the Du #2 amendment of Du #1 is a definite improvement. Now turning on evidentiary grounds, Du no longer has the potential to disrupt the coverage landscape based on a somewhat murky analysis, purporting to pronounce California law on an issue "not squarely addressed" in California.