Ninth Circuit Reverses Insured’s Summary Judgment Win Concluding that Insurer’s Negligence is Insufficient to Breach Implied Duty to Settle

Ninth Circuit Reverses Insured’s Summary Judgment Win Concluding that Insurer’s Negligence is Insufficient to Breach Implied Duty to Settle

March 21, 2017

McDaniel v. Govt. Empls. Ins. Co., No. 14-17203, 2017 WL 892516 (9th Cir. Mar. 7, 2017)

On cross-motions for summary judgment, the District Court for the Eastern District of California ruled in favor of Amy McDaniel, holding that GEICO had breached the implied duty to settle her lawsuit against a GEICO insured. GEICO appealed that ruling.

McDaniel’s motion for summary judgment was premised on GEICO’s alleged unreasonable refusal to settle McDaniel’s wrongful death claim against the insured. In the underlying case, GEICO failed to accept McDaniel’s policy-limits settlement offer within the timeframe specified by McDaniel and a jury ultimately awarded McDaniel over $3 million in damages. GEICO’s insured subsequently assigned his breach of duty claim to McDaniel.

Under California law, a claim for breach of the implied duty to settle has two elements: (1) the third party must have made a reasonable offer to settle the claim against the insured for an amount within policy limits; and (2) the insurer must have “unreasonably failed to accept” that reasonable offer “within the time specified by the third party for acceptance.” Only the second element, which requires a showing that the insurer acted in bad faith—in other words, that the failure to accept was a “conscious and deliberate act”, was at issue in GEICO’s appeal.

As an initial matter, the Court of Appeals held that the District Court had misapplied California law when it determined that an insured must only establish that an insurer was negligent in its refusal to settle within policy limits to succeed on a failure to settle claim.

The Court also held, on the undisputed facts, that GEICO’s failure to accept McDaniel’s policy limits offer was caused by negligence alone. The GEICO claims adjuster responsible for the claim failed to read an email from GEICO’s attorney setting forth the deadline for the company to respond to McDaniel’s offer. When the adjuster later attempted to accept the offer, he was thus unaware that the deadline for response had already passed. Because McDaniel could not show that GEICO had intentionally allowed the settlement deadline to lapse, and because but for the claims adjuster’s negligence, GEICO would have accepted the offer, the Court of Appeals concluded that GEICO was entitled to summary judgment on McDaniel’s failure to settle claim.

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