Opinion ID: 706879
Heading Depth: 2
Heading Rank: 1

Heading: The nature of the bad faith theory to go to trial

Text: 22 The Aceveses took two claims to trial--a breach of contract claim on the policy and what remained of their bad faith claim after the district court entered partial summary judgment on that claim. Our ruling that Allstate was entitled to summary judgment on the contractual claim does not require us to rule that it is entitled to judgment on the bad faith claim. Therefore, we still review the Aceveses' appeals from several trial rulings that excluded evidence of Allstate's bad faith. We review the court's evidentiary rulings for abuse of discretion and prejudice. Roberts v. College of the Desert, 870 F.2d 1411, 1418 (9th Cir.1988). To the extent that the district court applied California law to rule on these questions, we review its application of California law de novo. See Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1220, 113 L.Ed.2d 190 (1991). 23 Before we consider the Aceveses' claims on appeal, however, we explain the precise nature of the bad faith claim that went to trial, a bad faith negotiation theory. When the district court ruled on Allstate's motion for summary judgment, it divided the Aceveses' bad faith claim into two separate theories. The first theory, bad faith denial, alleged that Allstate ultimately denied the Aceveses' coverage claim in bad faith in 1990. The district court granted summary judgment on this theory. 827 F.Supp. at 1486. The second, bad faith negotiation, alleged that Allstate stalled negotiations for five years from 1985 to 1990, until it could find a coverage opinion with a plausible legal reason why it could deny coverage. The district court denied summary judgment on this theory. Id. at 1486-88. 24 The district court held that Allstate was entitled to summary judgment on the bad faith denial theory because Prudential, Becker, and other cases gave Allstate a good faith basis to argue that the Aceveses' coverage claim was time-barred. Id. at 1485-86. However, the district court's ruling that Allstate did not deny the Aceveses' claim in bad faith still allowed the possibility that Allstate acted in bad faith in other respects. The ruling left open the possibility that Allstate might be liable for having negotiated in bad faith to stall a final settlement, until it could find a reason allowing it to argue in good faith that the Aceveses were not entitled to coverage: Such bad faith conduct [could not have been] excused by the discovery of a case [namely, Prudential,] that provide[d Allstate] with an after-the-fact justification for its prior behavior. 1 Id. The district court described the cutoff date between Allstate's actions in furtherance of negotiation and its actions in furtherance of denial of the Aceveses' coverage claim as the date when the company first relied on legal advice that the Aceveses' coverage claim was probably time-barred. See id. at 1487. The partial summary judgment ruling precluded the Aceveses from arguing at trial that Allstate denied them coverage unreasonably, but allowed them to prove that Allstate investigated the claim inadequately, stalled settlement negotiations, and undervalued the loss during negotiation from 1985 to 1990. See id. This distinction is central to the first set of evidentiary rulings that the Aceveses challenge. 25