Filed 8/5/16 CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

ACE AMERICAN INSURANCE COMPANY , Plaintiff and Appellant,

v.

FIREMAN ’ S FUND INSURANCE COMPANY , Defendant and Respond ent. B 264861
(Los Angeles County Super. Ct. No. BC559203 )

APPEAL from a judgment of the Superior Court of Los Angeles County, Rafael A. Ongkeko , Judge. Reversed

. Clyde & Co., David Anthony Gabianelli and Marianne G. May for Plain tiff and Appellant. Sheppard Mullin Richter & Hampton, Marc Jeremy Feldman and Peter H. Klee for Defendant and Respondent.2 INTRODUCTION A film industry worker was seriously injured on a film set. His employer had two primary insurance policies with Fireman ’ s Fund Insurance Company, and an excess insurance policy with Ace American Insurance Company. The injured worker sued,
Fireman ’ s Fund defended the case, and the case eventually settled with the participation
of and contributions from both insurer s

. Ace American then sued Fireman ’ s Fund for equitable subrogation, alleging that the injured worker initially offered to settle his case within the limits of the Fireman ’ s Fund policies, and that Fireman ’ s Fund unreasonably rejected those settlement offer s. Ace Am erican alleged that as a result , it was required to contri bute to the eventual settlement, which exceeded the limits of the Fireman ’ s Fund policies. The question before us is wh ether Ace American has stated viable cause s of action
for equitable s ubrogation and breach of the duty of good faith and fair dealing , or whether the lack of a judgment in the employment injury case bars Ace American ’ s cla i ms . We
find that because Ace American, the excess insurer, alleged it was required to contribute

to t he settlement of the underlying case due to the primary insurer ’ s failure to reasonably settle the case within policy limits, the lack of an excess judgment against the insured in the underlying case does not bar an action for equitable subrogation and bre ach of the duty of good faith and fair dealing

.

FACTUAL AND PROCEDUR AL BACKGROUND
The facts below are take n from Ace American ’ s complaint and first amended complaint. Because the case is on appeal following a demurrer, we a ccept the alleged
facts as tru e for the limited purpose of determining whether Ace American has stated a viable cause of action. ( Stevenson v. Superior Court (1997) 16 Cal.4th 880, 885.)
A. The underlying action In July 2010, John Franco was working on a film set when a special effects
accident caused him to suffer serious injuries. Franco ’ s injuries included pelvic crush injuries, a broken hip, fractures to both femurs, crush injuries to both knees, broken tibias and fibulas, broken ribs, a punctured lung, and soft tissue injuries to h is face. Franco3

alleged that the incident left him with permanent nerve pain, an eye injury, urinary and sexual dysfunction, and fear and depression. In April 2011, Franco and his wife sued Warner Brothers Entertainment, Inc. and
related entities for dam ages and loss of consortium. Fireman ’ s Fund provided the Warner
Brothers entities a primary insurance policy with a $2 million limit, and an umbrella insurance policy with a $3 million limit. Ace American provided the Warner Brothers
entities an excess i nsurance policy with a $50 million limit.
Fireman ’ s Fund defended the Warner Brothers entities in the Francos ’ lawsuit. In April and May 2012, the Francos made settlement demands within the limits of the
Fireman ’ s Fund policies. According to Ace America n ’ s complaints, t he demands were
reasonable and su pported by substantial evidence, but Fireman ’ s Fund “failed and/or refused to pay those demands within [the insurance policies ’ ] limits.” In October 2012, the Francos settled their lawsuit “for an amount s ubstantially in excess” of the limits of
the Fireman ’ s Fund policies

. According to Ace American, Fireman ’ s Fund “consented to
the set tlement and contributed to it” , and Ace American contributed the amount s in
excess of the Fireman ’ s Fund policies ’ limits

. Following the settlement, the case was dismissed with prejudice.
B. This action Ace American filed an action against Fireman ’ s Fund for equitable subrogation and breach of the covenant of good faith and fair dealing. In the first amended complaint,
whic h is relevant here, Ace American alleged the facts of the Franco lawsuit, as stated above. It alleged that the Francos ’ settlement demands within the limits of the Fireman ’ s Fund policy were reasonable, and there was a substantial likelihood that a jury v erdict
would exceed the limits of the Fireman ’ s Fund policies. It alleged that “Ace American sustained a loss for which [Fireman ’ s Fund] is liable because of [Fireman ’ s Fund ’ s] wrongful conduct in failing to settle the Underlying Action within its policy limits, despite repeat[ed] opportunities to settle within its limits.” Ace American also alleged
that its policy provided that if the insured had a right to recover all or part of any payment Ace American made under the policy, those rights were transferr ed to Ace American.4

Fireman ’ s Fund demurred, arguing that the rights of an excess insurer such as Ace
American derive from the rights of the insured , Warner Brothers

. As such, an excess insurer may only sue for equitable subrogation if there has been a j udgment agains t the insured that exceeds the limits of the primary policy. Because the Franco lawsuit settled and there was no judgment against Warner Brothers , Fireman ’ s Fund argued, Ace American could not sue for equitable subrogation. Fireman ’ s Fund r elied on RLI Insurance Company v. CNA Casualty of California (2006) 141 Cal.App.4th 75 ( RLI ), which stated that an “insured ’ s right to recover from t he primary insurer hinges upon ‘ a judg ment in excess of policy limits. ’ ” ( RLI, supra , 141 Cal.App.4th at p . 82, quoting Hamilton v. Maryland Casualty Co . (2002) 27 Cal.4th 718, 725 ( Hamilton ).) RLI also stated, “W ithout an excess judgment, the primary insurer ’ s refusal to settle is not actionable.” ( RLI, supra , 141 Cal.App.4th at p. 82

. ) Ace American oppose d the demurrer, arguing that a judgment is not required for an equitable subrogation action by an excess insurer. Ace American argued that it was irrelevant whether the underlying action was resolved by a settlement or a judgment, as long as the insured

— a nd by extension, the excess insurer

— was liable for any amount beyond the limits of the primary policy as a result of the primary insurer ’ s bad faith refusal to settle within policy limits. Ace American relied in part on Fortman v. Safeco
Insurance Co . (19 90) 221 Cal.App.3d 1394 ( Fortman ) , which held that an excess judgment was not a prerequisite to an equitable subrogation claim, as long as the excess insurer demonstrated that it actually paid an amount in excess of the primary insurer ’ s policy limits.
Th e trial court sustained Fireman Fund ’ s demurrer without leave to amend. The court held, “ RLI is directly on point. RLI was clear: Until the judgment is actually entered, the mere possibility or probability of an excess judgment does not render the
refus al to settle actionable. Here, there is no dispute a judgment was not entered. The demurrer is sustained.” The trial court entered judgment, and Ace American timely appealed.5 STANDARD OF REVIEW “We review de novo the trial court ’ s order sustaining a de murrer.” ( Cansino v. Bank of America (2014) 224 Cal.App.4th 1462, 1468.) We accept as true all well

pleaded allegations in the complaint, and treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusi ons of fact or law. ( Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6; Serrano v. Priest (1971) 5 Cal.3d 584, 591.)
DISCUSSIO N
A. Equitable subrogation and breach of the covenant of good faith and fair dealing

“ ‘ Primary coverage is insurance coverage whereby , under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability

. . . . [¶] “ Excess ” or secondary coverage is coverage whereby, under the terms of the policy, liability attaches only after a predetermined amount of primary coverage
has been exhausted. ’ [Citation.]” ( Transcontinental Ins. Co. v. Insurance Co. of the State of Pennsylvania (2007) 148 Cal.App.4th 1296, 1304.) 1 Here, Fireman ’ s Fund is the primary insurer, and Ace American is the excess insurer. California recognizes “an implied duty on the part of the insurer to accept

reason able settlement demands on [covered] claims within the policy limits.” ( Hamilton
, supra, 27 Cal.4th at p. 724

. ) “An insurer ’ s liability for failing to a ccept a reasonable
settlement offer ‘ is imposed not for a bad faith breach of the contract but for failure to meet the duty to accept reasonable settlements, a duty included within the implied covenant of good faith and fair dealing

. ’ ” ( Archdale v. Americ an Intern at . Specialty
Lines Ins. Co . (2007) 154 Cal.App.4th 449, 465

- 466 ( Archdale ), quoting Crisci v.

1 In its opposition to Fireman’s Fund’s demurrer, Ace American encouraged the court to overr

ule the demurrer because New York law may apply and “there has been no choice of law determination in this case.” Toward the end of its opening brief on appeal, Ace American again mentions that “there has been no choice of law determination,” and argues i t was “premature” for the trial court to sustain the demurrer. Ace American has provided no argument or analysis on the choice

- of

- law issue, and both parties’ analyses focus almost exclusively on California law. We therefore apply California law.6

Security Ins. Co. of New Haven, Conn . (1967) 66 Cal.2d 425, 430 ( Crisci ) (emphasis in
Archdale ).) “An insurer that breaches its duty of reasonable sett lement is liable for all the
insured ’ s damages proximately caused by the breach, regardless of policy limits.” ( Hamilton , supra , 27 Cal.4th at p. 725.) “Subrogation is defined as the substitution of another person in place of the
creditor or claimant to w hose rights he or she succeeds in relation to the debt or claim.” ( Fireman ’ s Fund Ins. Co. v. Maryland Cas. Co . (1998) 65 Cal.App.4th 1279, 1291 ( Fireman ’ s Fund v. Maryland ) .) “Equitable subrogation allows an insurer that paid coverage or defense costs to be placed in the insured ’ s position to pursue a full recovery from another insurer who was primarily responsible for the loss.” ( Maryland Casualty
Co. v. Nationwide Mutual Ins. Co. (2000) 81 Cal.App.4th 1082, 1088.) “Since the
insured would have been ab le to recover from the primary carrier for a judgment in excess of policy limits caused by the carrier ’ s wrongful refusal to settle, the excess carrier, who discharged the insured ’ s liability as a result of this tort, stands in the shoes of
the insured and should be permitted to assert all claims against the primary carrier which the insured himself could have asserted.” ( Commercial Union Assurance Companies v. Safeway Stores, Inc . (1980) 26 Cal.3d 912, 917

- 918.) “The subrogated insurer is said to

‘ “ stand in the shoes ” ’ of its insured, because it has no greater rights than the insured and is subject to the same defenses assertable against the insured.” ( Fireman ’ s Fund v. Maryland , supra, 65 Cal.App.4th at p. 1292.)
The elements of an insurer ’ s cause of ac tion for equitable subrogation include:
Ace American has paid the claim of its insured , Warner Brothers, to protect its own
interest and not as a volunteer ; Ace American has suffered damages caused by Fireman ’ s Fund ’ s act or omission; and Ace American ’ s d amages are in a liquidated sum. 2 ( Fireman ’ s Fund v. Maryland , supra, 65 Cal.App.4th at p. 1292.)

2 “The essential elements of an insurer’s cause of action for equitable subrogation are as follows: (a) the insured [Warner Brothers] suffered a loss for which the defendant [Fireman’s Fund] is liable, either as the wrongdoer whose act or omission caused the los s or because the defendant is legally responsible to the insured for the loss caused by the7

B. Case law and analysis
1. Fortman and RLI
In this case , we are faced with conflicting decisions from different divisions of this
district. In Fortman , supra , 22 1 Cal.App.3d 1394, Division One held that an equitable subrogation action could proceed against a primary insurer that initially breached its duty to settle a case within policy limits, resulting in a settlement that exceeded policy limits. By contrast, i n RLI , supra , 141 Cal.App.4th 75, Division Five held that an equitable subrogation action could not proceed under the same circumstances

. RLI rejected the reasoning of Fortman , and held that because the case resulted in a settlement rather than

an excess judgment against the insured, any equitable subrogation action was barred. We discuss both cases below, along with additional cases that guide our determination, and conclude that it is appropriate to follow the reasoning of Fortman rather than that of RL I

. In Fortman , supra , 221 Cal.App.3d 1394, three

- year

- old Nichole Fortman was injured when she fell from a moving Jeep driven by her mother. ( Fortman, supra , 221 Cal.App.3d at p. 1397.) The Jeep was covered with a molded shell that included a door
hand le manufactured by Austin Hardware and Supply, Inc. ( Ibid .) Austin had a $300,000 primary insurance policy from Safeco Insurance Company of America, and an excess insurance policy from U.S. Fire Insurance Company and Industrial Indemnity Company. ( Ibid

. ) Before trial, Safeco refused offers to settle the case for $125,000. ( Ibid .) During trial, Austin settled with Fortman for the full amoun t of the Safeco policy, plus $1, 125 ,000 from U.S. Fire; U.S. Fire assigned its equitable subrogation claim to

wrongdoer; (b) the claimed loss was one for which the insurer [Ace American] was not primarily liable; (c) the insurer has compensated the insured in whole or in pa rt for the same loss for which the defendant is primarily liable; (d) the insurer has paid the claim of its insured to protect its own interest and not as a volunteer; (e) the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer; (f) the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends; (g) justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and (h) the insurer’s damages are in a liquidated sum, generally the amount paid to the insured. [Citations.].” ( Fireman ’ s Fund v. Maryland , supra, 65 Cal.App.4th at p. 1292.)8

Fort man. ( Ibid .) Trial continued against the manufacturer of the molded shell, and the jury was asked to apportion damages among the manufacturer, Fortman ’ s mother, and Austin. ( Id . at pp. 1397

- 1398.) The jury awarded Fortman nearly $24 million, finding
th e mother 75 percent, the shell manufacturer 25 percent, and Austin 0 percent responsible. ( Id . at p. 1398.) Fortman brought an equitable subrogation claim. Safeco moved for summary judgment, arguing that because the jury found Austin not responsible for Fortman ’ s injuries, equitable subrogation was not available because there had been no judgment against the insured in excess of the policy limits. ( Fortman, supra , 221 Cal.App.3d at p. 1398.) The trial court granted the motion, and the Court of Appeal re versed. The court said that actions between liability insurers are not based on contract, but instead are based
on “ ‘ equitable principles designed to accomplish ultimate justice in the bearing of a specific burden. ’ ” ( Id . at p. 1399, quoting American Aut o. Ins. Co. v. Seaboard Sur. Co

. (1957) 155 Cal.App.2d 192, 196.)
The court noted that in Fortman ’ s underlying case, “Safeco repeatedly, and allegedly in bad faith, refused settlement offers below its policy limits. Had the case been settled for any of those amounts, U.S. Fire would have paid nothing. Instead, U.S. Fire actually paid $1,125,000 toward the eventual settlement. If we adopted Safeco ’ s position, U.S. Fire would suffer that loss without a remedy.” ( Id . at p. 1401.) Safeco argued that allo wing an equitable subrogation action to proceed without an excess judgment against the insured could encourage collusive settlements, but the court rejected that argument: “In the equitable subrogation context before us, the excess insurer must
show it act ually paid an amount in excess of the primary insurer ’ s policy limits. Courts easily could distinguish equitable subrogation cases with facts suggesting a collusive settlement from cases like this one in which the excess insurer actually paid a
settlement .” ( Id . at p. 1402.) The court therefore rejected Safeco ’ s argument that a judgment was required before an excess insurer could recover from a primary insurer.
In RLI , Division Two of this district reached a different result. In that case, a
driver was involved in a traffic accident that caused a victim ’ s death. ( RLI, supra , 1419

Cal.App.4th at p. 79.) The driver had a primary insurance policy with a limit of $1 million, and an excess insurance policy with a limit of $1 million. ( Ibid .) The victim ’ s f amily sued, and offered to settle their claims for $1 million. The primary insurer rejected the offer. ( Ibid .) One year later, the case settled for $2 million; each insurer paid $1 million. ( Ibid .) The excess insurer then asserted a claim for equitab le subrogation against the primary insurer. ( RLI, supra , 141 Cal.App.4th at p. 79.) The trial court granted the primary insurer ’ s motion for judgment on the pleadings, and the Court of Appeal affirmed. The court noted that a “claim for equitable subroga tion may be pursued against a primary insurer that unreasonably refuses to settle a case within its policy limits, thereby exposing its insured (or an excess insurer) to liability on the claim.” ( Id . at p. 80.) The court held, however, that when a case r esulted in a settlement, rather than a judgment, equitable subrogation was not available: “Without an excess judgment, the primary insurer ’ s refusal to settle is not actionable.” ( Id . at p. 82.) The court went on to say, “The subrogation complaint in th is case alleges that the [underlying] lawsuit settled. Missing from the complaint is the critical allegation that an excess judgment was entered against [the driver] in the [underlying] lawsuit. Because there is not an excess judgment, [the driver] suffe red no harm, and has no claim to assert against the primary insurer. As a result, the excess insurer has no claim to assert against the primary insurer because the subrogation rights of the excess insurer are co

- equal to and derivative of the rights of th e insured.” ( Ibid .) The court concluded, “The excess insurer cannot sue the primary insurer for failure to settle within the limits of the primary insurer ’ s policy, absent an excess judgment against the insured.” ( Ibid .)
The RLI court specifically rejec ted the reasoning of Fortman , saying it was “flawed” in three respects. We do not agree with this assessment. First, RLI said that
Fortman conflicted with Hamilton ( RLI , supra , 141 Cal.App.4th at p. 83), a conclusion
we do not share for reasons discussed in the following section. Second, RLI said
Fortman followed a rule relevant to equitable contribution rather than equitable10

subrogation. 3 ( Ibid .) Discussing policy, Fortman did discuss principles relating to equitable contribution ( see Fortman , supra , 221 Cal.App.3d at p. 1399), and RLI is correct that such principles are generally inapplicable in equitable subrogation cases. ( RLI , supra , 141 Cal.App.4th at pp. 83

- 84.) Although Fortman ’ s discussion of policy may have blurred the line distinguishing th ese two equitable principles, we do not find
Fortman ’ s reasoning and ruling to be unreliable as a result. The Fortman court base d its decision on established equitable subrogation cases and principles, it fully recognized that
the insurers were not co

- obl igors, and did not apply an equitable contribution analysis to determine liability. Third, RLI asserted that Fortman improperly relied on Continental Casualty Co. v. Royal Ins. Co . (1990) 219 Cal.App.3d 111, in which the primary insurer
abandoned its defe nse of the insured. ( RLI , supra , 141 Cal.App.4th at p. 84, referencing
Fortman , supra , 221 Cal.App.3d at p p . 1400

- 1401.) However, Fortman cited Continental Casualty in only a single paragraph, distinguishing equitable subrogation
from third

- party bad fai th claims. ( Fortman , supra , 221 Cal.App. 3d at p p . 1400

- 1401.)
We do not find that Fortman ’ s passing citation to Continental Casualty undermines the strength of its main holding: Where an excess insurer can show actual damages as a result of the primary insurer ’ s failure to reasonably settle the case within primary policy limits, an excess judgment is not required to establish damages in an equitable subrogation case.

2. Hamilton and Isaacson
The RLI court stated, “The Supreme Court makes clear in Hamilton t hat a judgment in excess of the policy must be entered before there can be a claim for breach of the primary insurer ’ s duty to settle. Because Fortman is contrary to the holding in
Hamilton , we cannot follow Fortman .” ( RLI, supra , 141 Cal.App.4th at p. 8 5.) We

3 “‘Equitable subrogation allows an insurer that paid coverage or defense costs to be placed in the insured’s position to pursue a full recovery from another insurer who was primarily responsible for the loss. . . .’” [¶] “‘Equitable contribution, on the other hand, applies to apportion costs among insurers that share the same level of liability on the same risk as to the same insured.’” ( Transcontinental Ins. Co. v. Insurance Co. of State of Pennsylvania (200 7) 148 Cal.App.4th 1296, 1303.)11

disagree that Hamilton requires a judgment to be entered before an insured or its assignee may recover for bad faith failure to settle within policy limits

. Although the
circumstances in Hamilton were dissimilar to the facts here , the Hamilton opi nion , in dicta, specifically acknowledged that equitable subrogation could proceed under the
circumstances of RLI and this case

. Hamilton focused on whether a stipulated judgment against an insured , coupled with an agreement not to enforce the judgment , w as adequate evidence of damages in a
breach of contract case. In the underlying action , clients of a dating service sued multiple franchises of the service, alleging that confidential conversations had been recorded and
broadcast without the clients ’ perm ission. ( Hamilton , supra , 27 Cal.4th at p. 722.) One franchise owner, VLP, was insured by Maryland Casualty Company with two successive commercial policies, each with a $1 million limit. ( Ibid .) The clients made a settlement demand of $1 million to VLP , which Maryland denied. ( Id . at p. 723.) Eventually the case settled without the participation of Maryland. The franchises agreed to stop recording private conversations, discount coupons were offered to class members, and
some franchises

— not including VLP

— contributed cash to a settlement fund. ( Ibid .) VLP agreed to have a stipulated judgment in the amount of $3 million entered against it, and it assigned all claims against Maryland to the clients; in return, the clients agreed not to execute the judg ment against VLP. ( Ibid .) The plaintiff

- clients then sued Maryland for breach of contract. ( Hamilton, supra , 27 Cal.4th at p. 723.) They moved for summary judgment, arguing that “the insurer had breached its contractual duties by failing to accept the ir offer to settle their claims against VLP for $1 million and that the $3 million stipulated judgment was presumptive evidence, which Maryland had done nothing to rebut, of VLP ’ s damages from the breach.” ( Id . at p. 724.) The trial court agreed, and ent ered judgment in the amount of $3 million for the plaintiffs. ( Ibid .) The Supreme Court presented the question before it and
its holding as follows: “[I]s the amount of the stipulated judgment presumptively binding on the insurer as to the damages suffe red by the insured as a result of the alleged contract breach? We conclude it is not; a defending insurer cannot be bound to a settlement to12

which it has not agreed and in which it has not participated, even where the settlement has been approved under Co de of Civil Procedure section 877.6.” ( Id . at p. 722.) The Court added, “[I]n light of the settlement before trial and the covenant not to execute against the insured, the stipulated judgment is insufficient to prove that the insured suffered any damages from the insurer ’ s b reach of its settlement duty.” ( Ibid .)
The Court reasoned , “An insurer that breaches its duty of reasonable settlement is
liable for all the insured ’ s damages proximately caused by the breach, regardless of policy limits. [Citations. ] Where the underlying action has proceeded to trial and a judgment in excess of the policy limits has been entered against the insured, the insurer is ordinarily liable to its insured for the entire amount of that judgment.” ( Hamilton , supra , 27 Cal.4th at p. 725.) The facts of the case set Hamilton apart from that rule , however: “In this case, the underlying action did not proceed to trial. It was terminated by settlement, resulting in a stipulated judgment coupled with a covenant not to execute again st the insured. The question is whether such a stipulated judgment may be treated as a presumptive measure of the damages the policyholder has suffered as a result of the
insurer ’ s breach of contract.” ( Ibid ., emphasis in original.) The Court noted a li ne of cases holding that “settlements reached without the consent or participation of the defending insurer, and incorporating a covenant not to execute or similar device, are entitled to no weight in a later action against the insurer for failure to settl e.” ( Id . at p. 726.) It made no difference that the court had approved the settlement , because even court approval “cannot transform an agreed judgment that, by covenant, the insured will never have to pay, into a determination of the existence and exten t of the insured ’ s liability.” ( Id . at p. 729.) The court added, “A defending insurer cannot be bound by a settlement made without its participation and without any actual commitment on its
insured ’ s part to pay the judgment, even where the settlement ha s been found to be in good faith for purposes of section 877.6.” ( Id . at p. 730.) The focus of Hamilton , therefore , was whether there was sufficient evidence that the insured had suffered actual damages

— not whether damages came in the form of an excess j udgment versus an
excess settlement.13

The Hamilton Court also referenced its decision in Isaacson v. California Ins.
Guarantee Assn . (1988) 44 Cal.3d 775 ( Isaacson ) , and indicated that the holding of
Isaacson could be applicable in a case such as this one

. In that case, two doctors who were insured by an insolvent insurance company sought damages from the California Insurance Guarantee Association (CIGA) following settlement of a lawsuit relating to a series of unsuccessful back surgeries that left a patien t in pain. The patient demanded a settlement of $1 million, the limit of the doctors ’ insurance policy. ( Id . at p. 782.) After
the insurer was determined insolvent and CIGA assumed the doctors ’ defense, the patient demanded $500,000, the limit of CIGA ’ s coverage. ( Ibid .) CIGA refused to pay more than $400,000. ( Ibid .) At the mandatory settlement conference before trial, the doctors, “at the suggestion of the settlement judge, and with CIGA ’ s knowledge, agreed to pay $100,000 in addition to CIGA ’ s $40 0,000 and thus ensure a settlement.” ( Id . at pp. 782

- 783.) The doctors then sued CIGA to recover the $100,000 they contributed to the
settlement.
The Court held that CIGA ’ s liability was limited to fulfilling its duties as required by statute. ( Isaacs on , supra , 44 Cal.3d at p. 788.) Unlike an insurer, therefore, CIGA could not breach of the duty of good faith and fair dealing, because such a duty arises only from a contractual rel ationship, not a statutory one. ( Id . at p. 789.) CIGA
nevertheless had a duty to accept a reasonable settlement offer: “Although CIGA ’ s obligations are imposed by the Guarantee Act, and not by a contractual relationship with the insured (or the Unfair Practices Act), we hold that CIGA ’ s statutory duty to defend and pay ‘ cove red claims ’ encompasses a duty to accept a reasonable settlement offer in appropriate cases.” ( Id . at p. 792.) Thus, “[i]f CIGA fails to accept a reasonable settlement offer within its statutory limit, in a case in which a judgment against the
insured in excess of that limit is likely, it violates its statutory duty to pay and discharge

‘ covered claims. ’ It may thereby become liable to the insured for reimbursement if the insured expends his own funds to settle, within the statutory limit.” ( Ibid .) “I n order to recover reimbursement from CIGA following its refusal to settle a claim, an insured must prove that CIGA breached its duty to settle the case for a reasonable amount.” ( Id . at p.14

793.) Because liability in the doctors ’ case was unclear, howeve r, the Court held that the doctors failed to prove that CIGA ’ s denial of the $500,000 demand was unreasonable. ( Ibid .) Although Isaacson addressed CIGA ’ s statutory duties, the Hamilton opinion referenced the implications of Isa acson for cases directly inv olving insurers: “ Isaacson indicates that when an insured, faced with the insurer ’ s unreasonable refusal to pay a settlement demand within the policy limits and exposed to potential personal liability substantially beyond the policy limits, actually contri butes payment to conclude the settlement (in which the insurer also participates), the insured may recover the amount of his or her payment from the insurer in an action for bad faith failure to settle. In those circumstances, a bad faith action may be br ought by the insured, or the claimant as the
insured ’ s assignee, despite the absence of a litigated excess judgment.” ( Hamilton , supra , 27 Cal.4th at p. 731.) The Court contrasted the facts of Hamilton , where the
insured neither contributed to the settle ment nor risked execution of an excess judgment: “Where, as here, the insured, without the insurer ’ s agreement, stipulates to a judgment against it in excess of both the policy limits and the previously rejected settlement offer, and the stipulated judgmen t is coupled with a covenant not to execute, the agreed judgment cannot fairly be attributed to the insurer ’ s conduct, even if the insurer ’ s refusal to settle within the policy limits was unreasonable.” ( Ibid .) Here, the situation is more akin to Isaacs on than Hamilton

— Ace American alleged that Fireman ’ s Fund unreasonably refused to settle within policy limits, and as a result, Ace American (as Warner Brothers ’ subrogee ) actually contributed to the eventual
settlement , in which Fireman ’ s Fund, as the pri mary insurer, also participated . There was

no stipulated judgment or agreement not to execute , as in Hamilton . As the opinions in
Hamilton and Isaacson indicate, this is a situation in which a bad faith action may be brought by the insured or the insured ’ s assignee, “despite the absence of a litigated excess judgment.” ( Hamilton, supra , 27 Cal.4th at p. 731; see also Smith v. State Farm Mut.
Auto. Ins. Co . (1992) 5 Cal.App.4th 1104, 1114 [“a judgment against the insured (or, if
we read the Isaacson and C ontinental Casualty decisions correctly, a payment by the15

insured in settlement of a claim) is a condition to the insured ’ s right to assign to the claimant a cause of action for bad faith against the insurer.”].) We therefore reject the
assertion in RLI , urged here by Fireman ’ s Fund, that Hamilton requires entry of a judgment against the insured before a claim arises for equitable subrogation.
Fireman ’ s Fund points to RLI ’ s reliance on a statement from Hamilton that a

“ pretrial settlement

. . . ‘ is insuff icient to show, even rebuttably, that the insured has been injured to any extent by [the prima ry insurer ’ s] failure to settle, much less in the amount of the stipulated judgment. ’ ” ( RLI , supra , 141 Cal.App.4th at p. 82, quoting Hamilton , supra , 27 Cal.4th at p. 726.) But Hamilton ’ s focus was on the sufficiency of evidenc e of
actual damages

— not on whether the damages arose as a result of a settlement or a judgment. In the section RLI quoted, the Hamilton Court already had noted the parties ’

covenant not t o execute the stipulated judgment, and then state d , “In these circumstances, the judgment provides no reliable basis to establish damages resulting from a refusal to settle, an essential element of plaintiffs ’ cause of action.” ( Hamilton , supra , 27 Cal.4t h at p. 726.) Fireman ’ s Fund argues that “ Hamilton was clear that an excess judgment is an essential element of a failure to settle claim.” We disagree. As discussed above , Hamilton focused on reliable proof of damages; it did not limit the form of that proof to an excess judgment versus an excess settlement

.

3. Other California cases
Fireman ’ s Fund points to a number of other cases stating that an equitable subrogation action may not proceed without an excess judgment against the insured. Indeed, many cas es in clude language to that effect. (See, e.g., Finkelstein v. 20th Century Ins. Co . (1992) 11 Cal.App.4th 926, 929 ( Finkelstein ) [“It is well established that an insurance company is liable to an insured when the insurer unreasonably refuses to
settle th e case within the insured ’ s policy limits and a ‘ judgment ’ in excess of those limits is ultimately rendered against the insured.”]; Safeco Ins. Co. v. Superior Court (1999) 71 Cal.App.4th 782, 788 ( Safeco ) [“A cause of action for bad faith refusal to settl e arises only after a judgment has been rendered in excess of the policy limits.”]; Wolkowitz v.
Redland Ins. Co . (2003) 112 Cal.App.4th 154, 162 [“In the Absence of an Excess16

Judgment Determining the Fact and Amount of Sha mrock ’ s Liability, Redland Can Ha ve No Liability for Alleged Bad Faith Refusal to Accept a Policy Limits Settlement Offer”]; Archdale v. American Intern. Specialty Lines Ins. Co ., supra , 154 Cal.App.4th at p. 474 [“No cause of action for breach of contract based on an insurer ’ s failure to settle a claim exists until a judgment in excess of policy limits has been rendered against the insured.”].) However, “[t]he holding of a decision is limited by the facts of the case being decided, notwithstanding the use of overly broad language by the court in stating the issue before it or its holding or in its reasoning.” ( McGee v. Superior Court (1985) 176 Cal.App.3d 221, 226; see also PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1097 [“[T] he language of an opinion must be construed with reference to the facts presented by the case; the positive authority of a decision is coextensive only with such facts.”].) A
closer examination of the c ases cited by Fireman ’ s Fund makes clear that the purpose
behind the statements requiring a judgment in an unde rlying lawsuit is simply to ensure that a plaintiff has a reliable basis for alleging that damages have resulted from the
insurer ’ s alleged breach of the du ty to settle within policy limits

— the same concern
reflected in Hamilton

. As noted above, two requi red elements for equitable subrogation are that the insurer has suffered damages caused by the defendant ’ s act or omission, and “the insurer ’ s damages are in a liquidated sum, generally the amount paid to the insured.” ( Fireman ’ s Fund v. Maryland , supra , 65 Cal.App.4th at p. 1292.) A judgment may constitute reliable evidence of damages. (See Crisci , supra, 66 Cal.2d at p. 431 [“The size of the judgment recovered in the personal injury action when it exceeds the policy limits, although not conclusive, fur nishes an inference that the value of the claim is the equivalent of the amount of the judgment and that acceptance of an offer within those
limits was the most reasonable method of dealing with the claim.”].) But it does not follow that a judgment is the only manner by which an insured or subrogee may prove damages resulting from a n unreasonable failure to settle within policy limits

. (See, e.g., Camelot by the Bay Condominium Owners ’ Assn. v. Scottsdale Ins. Co. (1994) 27 Cal.App.4th 33, 48

- 49 [“[T]here is no explicit requirement for bad faith liability that an17

excess judgment is actually suffered by the insured, since the reasonableness analysis of settlement decisions is performed in terms of the probability or risk that such a judgment may be forthcom ing in the future . . . . However, the actual excess judgment, if any, is highly relevant in any bad faith damages determination.”].) For example, RLI relied on Safeco , supra, 71 Cal.App.4th 782 , which was similar

to Hamilton in that it involved a stipula ted judgment and an agreement not to execute the judgment against the insured . In that case , several teenagers were involved in the death
of a driver. The driver ’ s family sued the owners of the home where the teenagers had spent the day drinking before t he incident that caused the driver ’ s death ; the defendants ’
auto insurer and homeowners ’ insurer both defended the lawsuit. ( Id . at p. 785.) The plaintiffs and defendants stipulated to a judgment for $645,000 , but t he defendants ’
homeowners ’ insurer , Saf eco Insurance Company of America, did not agree to the
settlement . ( Id . at p p . 786 , 787 .) The auto insurer agreed to pay $145,000, the plaintiffs agreed not to execute the remainder of the judgment against the defendants , and the
defendants assigned thei r rights under the homeowner s ’ policy to the plaintiffs. ( Ibid .) The plaintiffs then sued the homeowners ’ insurer, Safeco, seeking the $500,000 limit of
the homeowner s ’ policy. Safeco moved for summary judgment, arguing that it had no obligation to pay the stipulated judgment. ( Ibid .) The trial court denied the motion, and Safeco petitioned for a writ in the Court of Appeal.
The court held that because Safeco had provided a defense in the underlying litigation, the plaintiffs “ had no authority to settl e the matter without the consent of
Safeco ,” so “ the stipulated judgment between the [homeowners] and the [plaintiffs] is unenforceable against Safeco.” ( Id . at p. 787.) The court also stated that where “ the insurer is providing a defense but merely refu ses to settle, the insured has no immediate remedy. A cause of action for bad faith refusal to settle arises only after a judgment has been rendered in excess of the policy limits.” ( Id . at p. 788.) This is necessary, the court reasoned, because “[u]nti l judgment is actually entered, the mere possibility or probability of an excess judgment does not render the refusal to settle actionable.” ( Ibid .) The court concluded, “Because we find that Safeco was providing a defense to the18

[defendants], Safeco was entitled to control the defense and to decide whether to litigate the [plaintiffs ’ ] claim. If Safeco ’ s decision to go to trial had resulted in a verdict above the policy limits, then Safeco ’ s refusal to settle, if found to be unreasonable, could have

ren dered it liable for the full amount of the verdict. But until a litigated excess judgment is obtained, Safeco ’ s refusal to settle is not actionable.” ( Id . at p. 789.) Therefore, Safeco

— like Hamilton

—holds that a stipulated judgment entered into
without the involvement of the insurer, coupled with an agreement not to execute the judgment on the insured, is not reliable proof of damages for the insurer ’ s failure to settle within policy limits. M oreover, this case is unlike Safeco or Hamilton because here , Fireman ’ s Fund consented to the excess settlement and contributed to it. This case does not present a situation where the parties settled without the insurer ’ s consent while the insurer was actively defending the case , as in Safeco and Hamilton

. 4
Firema n ’ s Fund also cites Wolkowitz , supra, 112 Cal.App.4th 154 in support of its argument that a judgment is a required element of a failure

- to

- settle claim. In Wolkowitz , a man installed a “ ‘ lift kit ’ ” on his car and was subsequently injured when he lost cont rol of the car; he sued Shamrock Tire, Etc., Inc., the lift kit maker. ( Id . at p. 157.) Shamrock
tendered its defense to its insurer, Redland Insurance Company, and Redland later refused an offer to settle the case within policy limits. ( Ibid .) Shamroc k then declared bankruptcy. The bankruptcy trustee and the injured driver reached an agreement that

“ expressly provide[d] that [the driver] had a $26,225,000 claim against the bankruptcy estate, and that the claim would be allowed (without objection by th e trustee) as a general
unsecured claim. It further provided that [the driver] would not seek any recovery from Shamrock, but would look solely to proceed s to be recovered from Redland.” ( Id . at pp.

4 Another case with similar facts is Doser v. Middlesex Mutual Ins. Co . (1980) 101 Cal.App.3d 883, in which a passenger’s heirs sued the estate of a pilot following a fatal small plane crash. The plaintiff heirs and the p ilot’s estate, without the involvement of the insurer, settled in an amount determined by plaintiffs’ counsel, and the heirs agreed to release all claims against the estate. In exchange, the defendant estate assigned the heirs its rights to a bad faith ac tion against the insurer. In the heirs’ case against the insurer, the Court of Appeal held that the collusive settlement reached without the participation of the insurer could not support a damages claim against the insurer.19

158

- 159.) The trustee then sued Redland, alleging bad faith for failure to settle the
driver ’ s case within policy limits. ( Id . at p. 159.) Redland successfully demur red, and the trustee appealed. The Court of Appeal, relying on Hamilton , stated, “The question here is whether
the [bankruptcy case] order allo wing the claim constitutes a judicial determination of
Shamrock ’ s liability that accurately reflects Shamrock ’ s actual liability to [the injured driver] and provides a reliable basis to establish damages proximately caused by
Redland ’ s refusal to settle. ( Hamilton , supra , 27 Cal.4th at pp. 725

– 727, 730 .) We conclude that the clear answer to this question is that it does not.” ( Wolkowitz , supra , 112 C al.App.4th p. 165.) The court continued, “Quite obviously, the agreement between [the driver] and the tru stee was not premised on the expectation that Shamrock or the bankruptcy estate would ever pay [the driver ’ s] claim, but rather entirely upon a potential recovery from Redland, Shamrock ’ s insurer, which recovery would be shared in some agreed ratio. As wi th the ‘ good faith ’ settlement in Hamilton , supra , 27 Cal.4th at page 730, the bankruptcy court ’ s order was not a judicial finding that Shamrock was actually liable to [the driver] in the agreed amount.” ( Wolkowitz , supra , 112 Cal.App.4th at p. 165.) Th e court concluded, “Since, as we have explained, the allowed claim can provide no reliable basis to establish damages in any amount, the complaint does not properly allege damages resulting from the refusal to settle . We therefore conclude that
Redland ’ s demurrer was properly sustained on the ground of a failure to state a cause of action.” ( Id . at p. 166, emphasis in original.) As in Hamilton , therefore, the focus of Wolkowitz was whether the parties ’ agreement was sufficient evidence of damages arising from a failure to settle. Wolkowitz does not hold that damages must take the form of a judgment rather than a settlement.
Fireman ’ s Fund also relies on Archdale , supra, 154 Cal.App.4th 449 , in which an 18

- wheeler collided with two other vehicles. A dri ver of one of the vehicles sued the truck driver and his employer, who were insured by AIS. ( Id . at p. 457.) AIS allegedly failed to accept multiple reasonable settlement offers within its $500,000 policy limit. ( Id . at p. 455.) A jury trial resulted i n a judgment of $1,269,000 against the insureds.20

( Ibid .) AIS paid $357,500 to the plaintiffs, which constituted the remainder of the policy
limits after a settlement with another claimant involved in the same accident. ( Id . at p. 458.) The plaintiffs, the truck driver, and driver ’ s employer then sued AIS for breach of contract and breach of the duty of good faith and fair dealing. ( Ibid .) The trial court granted AIS ’ s motion for summary judgment based on the statute of limitations, and the appeal focu sed on when the cause of action against AIS accrued, and whether it was tolled by events in the underlying litigation.
The C ourt of Appeal stated , “A breach of the duty to settle within policy limits while the action is pending in the trial court presents only the possibility that a judgment might be rendered in excess of policy limits. Even if the insurer rejects a settlement offer within policy limits, it is not subject to liability if it successfully defends the litigation and obtains a complete defense verdict or a judgment is rendered that is below the settlement offer or within policy limits. The cause of action arises only upon entry of a judgment in excess of policy limits.” ( Archdale , supra , 154 Cal.App.4th at p. 474.) The court reasoned that “u ntil the judgment is final it cannot be determined with certainty whether, and in what amount, the insured has been harmed.” ( Id . at p. 478, citing Hamilton , supra , 27 Cal.4th at pp. 725

- 728.) The court held that such claims are tolled until any appeal
f ollowing the judgment is complete: “Had AIS prevailed on [its appeal], the judgment would have been reversed, and a retrial could have potentially altered the jury ’ s comparative negligence finding so as to reduce the liability of [the defendants] to the

p olicy limit, or to a figure below that limit, or to zero.” ( Archdale , supra , 154 Cal.App.4th at p. 478.) The running of a limitations period was therefore tolled until the judgment was complete following appeal, to ensure that the amount of damages was d etermined and ascertainable. Here, Fireman ’ s Fund cites Wolkowitz and Archdale for the proposition that “a judgment is a required element of a failure to settle claim.” 5 W e do not read Wolkowitz

5 Fireman’s Fund also cites F inkel stein , supra, 11 Cal.App.4th 926, saying that the “trial court granted the insurer’s motion for summary judgment” based on the fact that the underlying claim was resolved by a settlement, rather than a judgment.” In fact, the21

or Archdale as supportive of that statement. The issue in each case was whether the damages claimed by the plaintiffs were fixed and ascertainable, not whether the underlying cases had been litigated to judgment

. The same was true in Hamilton , where
the Court considered whether a stipulated judgment with a coven ant not to execute was sufficient evidence of damages. The focus of these cases was whether the insured ha d
incurred measurable damages

— not whether those damages had been reduced to a judgment.
Fireman ’ s Fund argues that “a conventional settlement between the parties, which is not approved by the court and does not result in even a nominal judgment, does not establish the damages required to settle a claim.” It also argues that “[w]ithout a judgment, there is nothing to establish whether and to what exten t the case was worth more than the primary limits.” But whether the settlement will ultimately be sufficient to prove Ace American ’ s damages is not at issue in this appeal. 6 Because this case is before us following a demurrer, issues of eventual proof ar e not relevant. “To survive a demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff ’ s proof need not be alleged.” ( C.A. v. William S. Hart Union High S chool Dist . (2012) 53 Cal.4th 861, 872.)

underlying action in Fin kel stein settled for less than the policy limits, and the Court of Appeal held that the possibility of damages for failure to settle “ never ri pened into an actionable event.” ( Id . at p. 930.) The court did not hold that the fact of the settlement alone b arred the claim.

6 Isaacson stated that a settlement may be considered as evidence of damages: “[I]f an insurer wrongfully fails to provide coverage or a defense, and the insured then settles the claim, the insured is given the benefit of an evidentiary pr esumption. In a later action against the insurer for reimbursement based on a breach of its contractual duty to defend the action, a reasonable settlement made by the insured to terminate the underlying claim against him may be used as presumptive evidenc e of the insured’s liability on the underlying claim, and the amount of such liability.” ( Isaacson , supra , 44 Cal.3d at p. 791.) Hamilton cautioned that even with court approval under Code of Civil Procedure section 877.6, a collusive settlement may not be sufficient evidence of damages. ( Hamilton, supra , 27 Cal.4th at p. 722.) Thus whether the settlement ultimately will constitute sufficient evidence of damages is an issue for the trier of fact. Here, for purposes of a demurrer, Ace American has adequa tely alleged that it was damaged because it contributed to the settlement.22

Ace American has alleged that Fireman ’ s Fund unreasonably failed to settle the Franco action within policy limits, and that as a result, the eventual settlement of that case exceeded the policy limits. Ace Americ an therefore has alleged that it was damaged
in an ascertainable amount as a direct result of Fireman ’ s Fund ’ s failure to accept the
Francos ’ reasonable, within

- limits settlement offers. We see no persuasive reason to hold
that either Warner Brothers or i ts assignee, Ace American, must suffer that loss with no remedy simply because the case reached an eventual settlement instead of being litigated through trial. Ace American ’ s alleged damages are clear, liquidated, and certain, and
Fireman ’ s Fund particip ated in reaching the settlement. These facts set this case apart
from Hamilton , Safeco , and Wolkowitz . As the Fortman court aptly noted, “Courts easily [can] distinguish equitable subrogation cases with facts suggesting a collusive settlement
from cases like this one in which the excess insurer actually paid a settlement.” ( Fortman , supra , 221 Cal.App.3d at p. 1402.)

4. Non

- case authorities
Fireman ’ s Fund also cites a California practice guide, which opines that “ RLI
seems correct and Fortman seems incorrec t because Excess I nsurer is subrogated to
Insured ’ s rights against Primary Insurer (see ¶8:338)

. . . and, as long as Primary Insurer is defending the action (even under a reservation of rights), Insured has no action for
unreasonable refusal to settle unt il an excess judgment has been rendered .” (Croskey et al., California Practice Guide, Insurance Litigation, ¶ 8:345.3 [emphasis in original] , citing Safeco , supra , 71 Cal.App.4th at p. 788, and Hamilton , supra , 27 Cal.4th at p. 725.) Fireman ’ s Fund also notes that CACI No. 2334, the jury instruction for bad faith refusal to accept a reasonable settlement within policy limits, includes as an element , “That a monetary judgment was entered against [ name of plaintiff ] for a sum greater than the policy limits. ”
These simple summaries , however, fall short in that they cast the issue in dualistic

terms: e ither the insurer settled the case for a reasonable amount within primary policy limits, or the case went to trial and ended with an excess judgment against th e insured

. C ases are much more likely to settle than proceed to trial , however . The most recent data23

available from the Superior Courts of California show that in 2015, 37,502 cases were disposed of following trial, while 135,918 cases were disposed of b efore trial

— thus,
more than 78 percent of cases were resolved before trial. (See Judicial Counsel of California, 2015 Court Statistics Report, p. xv, available at http://www.courts.ca.gov/12941.htm .) Even one of the earliest equitable subrogation

cases, Comunale v. Traders & General Ins. Co . (1958) 50 Cal.2d 654, noted that “[i]t is common knowledge that a large percentage of the claims covered by insurance are settled without litigation and that this is one of the usual methods by which the insured recei ves protection.” (50 Cal.2d at p. 659.) Indeed, California statutes and case law encourage multiple settlement offers as a case develops . (See, e.g., T. M. Cobb Co. v. Superior
Court (1984) 36 Cal.3d 273, 281 [“the policy of encouraging settlements is b est promoted by making section 998 offers revocable” because a “ [ p ] arty is more likely to make an offer pursuant to section 998 if that party knows that the offer may be revised if circumstances change or new evidence develops. . . . The more offers that are made, the
more li kely the chance for settlement.”].) To cast the issue in dualistic terms

— either a
reasonable settlement within primary policy limits or a fully litigated excess judgment

— fails to account for cases like this one, where multiple settlem ent opportunities occur , and
an unreasonable refusal to settle early in a case may result in measurable damages to the
insured or excess insurer in the form of a later excess settlement.

5. Non

- California cases
C ases from other jurisdictions support our concl usion. The Ninth Circuit, in an unpublished decision, recently considered whether an excess settlement could serve as the basis for an equitable subrogation action. 7 ( RSUI Indem. Co. v. Discover P & C Ins.
Co . (9th Cir., May 3, 2016, No. 14

- 15825)

___ Fed .Appx.

___ , 2016 WL 1745119.) The
court considered the conflict between Fortman and RLI , and concluded that “ the rule

7 Unpublished federal opinions have persuasive value, and are not subject to California Rules of Court, rule 8.1115, which governs citation to unpublished California opinions. ( Har ris v. Investor ’ s Business Daily, Inc . (2006) 138 Cal.App.4th 28, 34; Haligowski v. Superior Court (2011) 200 Cal.App.4th 983, 990.)24

announced in Fortman is more likely to be adopted by the California Supreme Court because it more faithfully ap plies California insurance law.” ( Id . at p. *2.) The Ninth
Circuit discussed Hamilton ’ s distinction between a settlement to which an insured or excess insurer contributed, and a collusively inflated settlement or stipulated judgment to
which an insured or excess insurer did not c ontribute. The Ninth Circuit noted that
Fortman recognized this “critical distinction,” and stated that Fortman “applied this principle to disputes between contributing excess insurers and primary insurers: when an excess insurer, faced with a primary in surer ’ s unreasonable refusal to pay a settlement demand within the policy limits, actually contributes payment to conclude settlement, it may state a claim for equitable subrogation despite the absence of a litigated excess judgment. [ Fortman ,] 271 Cal.Rp tr. at 119. Fortman ’ s conclusion is consistent with
Hamilton and Issacson . The collusive risk that Hamilton wished to avoid is not present when an excess insurer contributes to settle a case on behalf of an insured.” ( Id . at p. *3.)
The Seventh Circuit , in an opinion by Judge Posner , also relied on Fortman in rejecting an argument that a judgment is required in an equitable subrogation action by an
excess insurer: “Country Mutual [the primary insurer] argues that a breach of the
insurer ’ s duty to act in good faith in settlement negotiations is not actionable unless, by refusing to settle, the insurer precipitates a trial that results in the entry of a judgment against the insured. This is not a ridiculous argument. If the temptation at which the duty i s aimed is the tempta tion to gamble with the insured ’ s money, it is not obviously a violation merely to dawdle in settling until the golden moment of opportunity passes. But though the case law is sparse, we are pretty confident that the line should not b e drawn here. Fortman v. Safeco Ins. Co. [ , supra ,] 221 Cal.App.3d 1394 ). The basic temptation of the insurer comes from the fact that its liability is capped at the policy limits, so that it can shift many of the losses of a risky strategy to the insured (or any excess insurer). It may dawdle in settling, hoping to drive a harder bargain and knowing that if it fails and the case goes to trial and it loses big, still most of the loss will fall on
the insured or on an excess insurer rather than on itself. The fact that on the eve of trial it may throw in the towel because it sees no hope of winning should not excuse it from25

having failed to settle earlier on better terms if it would have settled earlier on those terms
had all the risks of loss lain on itse lf. ” ( Twin City Fire Ins. Co. v. Country Mut. Ins. Co

. (7th Cir. 1994) 23 F.3d 1175, 1181 .) We agree with this reasoning. In addition, most other jurisdictions that have considered this issue have found that
an insured or excess insurer that contribute s to a settlement can pursue the primary insurer for failing to accept reasonable settlements within primary limits. ( See, e.g., St. Paul Fire & Marine Ins. Co. v. Liberty Mutual Insurance Co . (2015) 135 Haw. 449, 456 [in a case involving a post

- verdict s ettlement in excess of primary limits, “the public interest in encouraging reasonable settlement is best served by permitting an excess insurer to seek relief under the doctrine of equitable subrogation”]; Scottsdale Insurance Company v. Addison Insurance Company (Mo. 2014) 448 S.W.3d 818, 831

- 832 [where the underlying case settled, “an excess insurer who pays a third

- party claim on behalf of its insured after a primary insurer refuses in bad faith to settle the claim has a right to equitable subrogation to obtain the amount paid from the primary insurer”]; American
Centennial Ins. Co. v. Canal Ins. Co. (Tex. 1992) 843 S.W.2d 480, 483 [an excess carrier may bring an equitable subrogation action against the primary carrier in a case that settles
in excess of the limits of the primary policy]; Maine Bonding & Cas. Co. v. Centennial
Ins. Co . (1985) 298 Or. 514, 525 [allowing equitable subrogation by an excess insurer following a settlement where the claimant “came to insist upon a higher settlement figure
than h e would have if the claim had been handled more expeditiously”]; Continental Cas.
Co. v. Reserve Ins. Co . (1976) 307 Minn. 5, 13

- 14 [holding that a judgment in the underlying action is not required in an action by an excess insurer against a primary
insure r for failure to accept a reasonable settlement offer]; see also Allan D. Windt, Insurance Claims and Disputes § 9:2 (6th ed., 2013) [“[A] cause of action for a carrier ’ s breach of its duty to settle should accrue when an excess judgment is entered or an e xcess settlement agreement is entered into, at which time the insured will have been damaged by reason of the earlier failure to settle.”].)26 6. Policy of encouraging settlement “California ’ s public policy is to encourage settlement.” ( Tower Acton Holdings v. Los Angeles County Waterworks Dist. No. 37 (2002) 105 Cal.App.4th 590, 602.)
Fireman ’ s Fund argues that if California courts follow Fortman rather than RLI , settlements will be discouraged because “[p]rimary insurers would be hesitant to participate with excess insurers in settlements, for fear of the excess insurers turning around and suing them.” However, o ur holding places no additional duties upon primary insurers that they do not ordinarily have. Primary insurers already have the duty to accept rea sonable settlement offers within policy limits , and liability for resulting damages when they breach that duty . Moreover, our decision protects insureds, because insurers whose mishandling of settlement offers cause s damages will be liable for the
losses they cause . The RLI rule , on the other hand, leaves insureds without recourse when primary insurers mishandle reasonable early settlement offers, resultin g in later
excess settlements. Moreover, “when a primary insurer breaches its good

- faith duty to

set tle within policy limits, it imperils the public and judicial interests in fair and reasonable settlement of lawsuits.” ( Continental Cas. Co. v. Reserve Ins. Co. (1976) 307 Minn. 5, 9.)
In sum , we conclude that i n an equitable subrogation action, “ an ex cess insurer which has settled and discharged the insured ’ s liability may recover from the primary insurer an amount in excess of the primary insurer ’ s policy limits if the excess insurer can prove the primary insurer ’ s unreasonable refusal to settle withi n its policy limits resulted in loss to the excess insurer in an amount in excess of the policy limits of the primary insurer it would not otherwise have had.” ( Northwestern Mut. Ins. Co. v. Farmers ’ Ins. Group (1978) 76 Cal.App.3d 1031, 1050.) An excess judgment is not a required element
of a cause of action for equitable subrogation or breach of the duty of good faith and fair dealing; where the insured or excess insurer has actually contributed to an excess settlement, the plaintiff may allege that the primary insurer ’ s breach of the duty to accept reasonable settlement offers resulted in damages in the form of the excess settlement

.27

We therefore reverse the judgment sustaining Fireman ’ s Fund ’ s demurrer, and remand for further proceedings.
DISPOSITION The judgment is reversed. Ace American shall recover its costs on appeal.

CERTIFIED FOR PUBLICATION

COLLINS , J.

We concur:

EPSTEIN, P. J.

WILLHITE, J.