Court Opinion

ID: 2779402
Source: CourtListenerOpinion
Date Created: 2015-02-13 22:00:55.545641+00
Date Added: 2024-06-11T10:55:28.267530
License: Public Domain

FILED
                           NOT FOR PUBLICATION                               FEB 13 2015

                                                                         MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                        U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

DOUGLAS HARP, a California resident,             No. 13-55282
and LEADING EDGE TRUCKING, INC.,
a California corporation,                        D.C. No. 5:12-cv-00760-ODW-
                                                 DTB
              Plaintiffs - Appellants,

  v.                                             MEMORANDUM*

CONVERIUM INSURANCE (NORTH
AMERICA), INC., Erroneously Sued As
Converium Insurance, Inc., DBA Allied
World Reinsurance Company, DBA Finial
Insurance Company,

              Defendant - Appellee.

                    Appeal from the United States District Court
                       for the Central District of California
                    Otis D. Wright II, District Judge, Presiding

                          Submitted February 11, 2015**
                              Pasadena, California

Before: CALLAHAN, WATFORD, and OWENS, Circuit Judges.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
        **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
                                                                           Page 2 of 4

      1. Under California law, the implied covenant of good faith and fair dealing

requires insurers to accept reasonable settlement offers within policy limits.

Comunale v. Traders & Gen. Ins. Co., 328 P.2d 198, 201 (Cal. 1958). However,

no breach occurs if an insurer refuses to accept a settlement that does not release all

of its insureds, since an insurer owes a duty to each insured and “cannot favor the

interests of one insured over the other.” Lehto v. Allstate Ins. Co., 36 Cal. Rptr. 2d

814, 821–22 (Ct. App. 1995); accord Strauss v. Farmers Ins. Exch., 31 Cal. Rptr.

2d 811, 814 (Ct. App. 1994); see also Lewis v. Telephone Emps. Credit Union, 87

F.3d 1537, 1545 (9th Cir. 1996) (mandating that federal courts follow state

intermediate appellate court decisions where no decision from the state’s highest

court is on point and there is “no convincing evidence” that the highest court

would decide differently). Because Douglas Harp’s policy-limit demand expressly

excluded Mesa Contracting, Converium was obligated to accept the settlement

only if Mesa was not an insured party; if Mesa was an insured party under the

policy, then Converium properly refused the offer.

      When the settlement offer was made, Converium properly considered Mesa

to be an insured party. An “insured” includes “both the named insured(s) and

anyone else included in the policy’s definition of ‘insured.’” Am. States Ins. Co. v.
                                                                           Page 3 of 4
Progressive Cas. Ins. Co., 102 Cal. Rptr. 3d 591, 597 (Ct. App. 2009) (internal

quotation marks omitted). Mesa was included in the policy’s definition of an

insured: George Armitage was an “insured,” insureds also included “[a]nyone

liable for the conduct of an ‘insured,’” and Harp’s underlying suit contended that

Mesa was vicariously liable for Armitage’s conduct. Under identical policy

language, id. at 599, 602, at least one California court has held that parties who are

potentially vicariously liable count as insured parties. Id. at 602. Thus, Converium

properly viewed Mesa as an insured party and could not have accepted Harp’s

policy-limits settlement offer excluding Mesa without breaching the implied

covenant of good faith and fair dealing.

      2. That the jury later exonerated Mesa does not mean that Converium could

have ignored Mesa when the settlement offer was made. At that point, of course,

Converium did not know the jury would ultimately find that Mesa was not

vicariously liable. An insurer “must defend its insured whenever it ascertains facts

that give rise to the potential of liability under the policy.” Id. at 597. When the

settlement offer was made, it was possible that the jury would find Mesa

vicariously liable, as Harp had alleged in his complaint, and Converium therefore

properly considered Mesa an insured party.
                                                                           Page 4 of 4
      3. That Mesa had not tendered a defense to Converium when the settlement

offer was made is immaterial. Because the policy language created a possibility of

liability, as discussed above, Converium had a duty to defend Mesa.

      Harp and Leading Edge argue that Mesa’s late tender of its defense, after the

settlement offer had expired, was prejudicial, such that Converium could have

settled without Mesa and later defended its decision by pointing to Mesa’s late

tender. That argument is without merit. The two cases Harp and Leading Edge

cite for support, Select Insurance Co. v. Superior Court, 276 Cal. Rptr. 598 (Ct.

App. 1990), and Earle v. State Farm Fire & Casualty Co., 935 F. Supp. 1076

(N.D. Cal. 1996), are distinguishable. Those cases concerned prejudice to insurers

not because of late tender but because of late notice; the insureds failed to provide

notice altogether of the underlying actions for which the insurers were alleged to

have a duty to defend until after initial judgments had been rendered. Select Ins.

Co., 276 Cal. Rptr. at 600 (notice after summary judgment); Earle, 935 F. Supp. at

1078 (notice after jury verdicts). Converium, which had been involved in Leading

Edge’s defense from early on in the litigation, suffered no analogous prejudice.

      AFFIRMED.