Opinion ID: 802014
Heading Depth: 3
Heading Rank: 2

Heading: Du’s Claim Against Deerbrook

Text: In September 2008, Du, exercising the assignment of Kim’s bad faith claim, filed suit against Allstate Insurance Company and Deerbrook, alleging that Deerbrook breached the covenant of good faith and fair dealing owed to Kim. Du alleged that Deerbrook breached the implied covenant when Deerbrook failed to affirmatively settle Du’s claim within Kim’s policy limits even after Kim’s liability for a judgment in excess of the policy limits became clear on February 15, 2006. At trial, Du proposed the following jury instruction based on the Judicial Council of California Civil Jury Instruction (“CACI”) 2337 (“Violation of Insurance Regulation or Industry Practice”): In determining whether Deerbrook Insurance Com- pany breached the obligation of good faith and fair dealing owed to Mr. Kim, you may consider whether the defendant did not attempt in good faith to reach a prompt, fair, and equitable settlement of Yan Fang Du’s claim after liability [of its insured Kim] had become reasonably clear. DU v. ALLSTATE 6581 The presence or absence of this factor alone is not enough to determine whether Deerbrook Insurance Company’s conduct breached the obligation of good faith and fair dealing. You must consider Deerbrook Insurance Company’s conduct as a whole in making this determination. The district court rejected this proposed jury instruction; it concluded that an insurer has no duty to initiate settlement discussions in the absence of a settlement demand from the third-party claimant. The district court also ruled that there was no factual foundation for the instruction, as “the issue of settlement was broached at a sufficiently early time in the litigation that it vitiates any claim or effective claim insofar as a failure to initiate a settlement discussion.” At trial, the district court gave modified forms of CACI 2334 and 2337. Both of these instructions made clear that breach of the covenant of good faith and fair dealing could be found only if Deerbrook had failed to accept a reasonable settlement demand, not for failing affirmatively to effectuate a settlement.1 Likewise, the jury verdict form asked, “1. Did Deerbrook unreasonably or without proper cause, fail to accept a reasonable settlement demand for an amount within policy limits?” 1 The modified CACI 2337 stated in part: In determining whether Defendant Deerbrook acted unreasonably or without proper cause, you may consider whether the Defendant actions violated an applicable California state insurance regulation or an accepted insurance industry practice . . . . [A]ny such violation/lack of reasonableness on the part of the insurance company would not be relevant to the Plaintiff ’s claims in this case unless the violation/lack of reasonableness relates to the Defendant’s purported refusal to accept a reasonable settlement demand within policy limits. (Emphasis added.) 6582 DU v. ALLSTATE The jury answered no. The district court then entered judgment in favor of Deerbrook. This timely appeal followed.