Court Opinion

ID: 4314911
Source: CourtListenerOpinion
Date Created: 2018-09-24 20:01:17.042344+00
Date Added: 2024-06-11T14:44:56.637702
License: Public Domain

NOT FOR PUBLICATION                         FILED
                    UNITED STATES COURT OF APPEALS                       SEP 24 2018
                                                                     MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                             FOR THE NINTH CIRCUIT

ROBERT DORROH and BARBARA                       No.   17-15068
DORROH, Trustees of the Bankruptcy
Estate of Cedar Sol Warren,                     D.C. No.
                                                1:11-cv-02120-DAD-EPG
                Plaintiffs-Appellants,

and                                             MEMORANDUM*

CEDAR SOL WARREN,

                Plaintiff,

 v.

DEERBROOK INSURANCE COMPANY,
a wholly-owned subsidiary of Allstate
Insurance Company,

                Defendant-Appellee.

CEDAR SOL WARREN,                               No.   17-15069

                Plaintiff-Appellant,            D.C. No.
                                                1:11-cv-02120-DAD-EPG
and

      *
        This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
ROBERT DORROH and BARBARA
DORROH, Trustees of the Bankruptcy
Estate of Cedar Sol Warren,

                Plaintiffs,

 v.

DEERBROOK INSURANCE COMPANY,
a wholly-owned subsidiary of Allstate
Insurance Company,

                Defendant-Appellee.

                   Appeal from the United States District Court
                      for the Eastern District of California
                    Dale A. Drozd, District Judge, Presiding

                       Argued and Submitted September 14, 2018
                               San Francisco, California

Before: RAWLINSON, WATFORD, and FRIEDLAND, Circuit Judges.

      Plaintiffs-Appellants Robert Dorroh, Barbara Dorroh, and Cedar Warren

appeal the district court’s grant of summary judgment to Deerbrook Insurance

Company in their bad faith insurance lawsuit. We affirm.

      1. Plaintiffs have waived any claims based on bad faith in connection with

Deerbrook’s 2006 rejection of the Dorrohs’ proposed stipulated judgment and

allegedly advising Warren to file for bankruptcy because they did not address those

potential bases for bad faith liability on appeal. See Orr v. Plumb, 884 F.3d 923,

932 (9th Cir. 2018).

                                         2
      2. The district court did not err in granting summary judgment to Deerbrook

on Plaintiffs’ bad faith claim related to settlement communications in 2001. “An

insured’s claim for bad faith based on an alleged wrongful refusal to settle first

requires proof the third party made a reasonable offer to settle the claims against

the insured for an amount within the policy limits. The offer satisfies this first

element if (1) its terms are clear enough to have created an enforceable contract

resolving all claims had it been accepted by the insurer, (2) all of the third party

claimants have joined in the demand, (3) it provides for a complete release of all

insureds, and (4) the time provided for acceptance did not deprive the insurer of an

adequate opportunity to investigate and evaluate its insured’s exposure.” Graciano

v. Mercury Gen. Corp., 179 Cal. Rptr. 3d 717, 726 (Ct. App. 2014) (internal

citations omitted).

      Applying these principles, Deerbrook was not required to accept the

settlement that the Dorrohs offered because it either would not have protected

Deerbrook and Warren from further liability or would have required the approval

of Dorroh’s workers’ compensation insurer, Superior National Insurance

Company.

      Plaintiffs contend that the Dorrohs offered Deerbrook a “segregated

settlement” as defined by California law, which allows a tort victim to settle with

the tortfeasor without approval of the workers’ compensation carrier. See Cal.

                                           3
Lab. Code § 3859(b). Even assuming this settlement proposal could be viewed as

a “segregated settlement,” Deerbrook was not required to agree to a settlement that

would not have protected Deerbrook and Warren from claims by Superior

National. A segregated settlement does not release the workers’ compensation

carrier’s claims. See Bd. of Admin. v. Glover, 671 P.2d 834, 842 (Cal. 1983) (in

bank). If Deerbrook had agreed to a segregated settlement, Superior National still

could have pursued Deerbrook and Warren.1 And even if the Dorrohs’ offer to

indemnify Warren as part of the segregated settlement protected Warren from

further liability, the offer did not include indemnification for potential claims

against Deerbrook. See Levin v. Gulf Ins. Grp., 82 Cal. Rptr. 2d 228, 231

(Ct. App. 1999) (holding that an insurer may be liable for interference with

prospective economic advantage if it leaves a known lienholder out of a

settlement).2

      1
        We do not agree with Plaintiffs that section 3859(b)’s statement that an
unsegregated settlement “shall be subject to the employer’s right to proceed to
recover compensation he has paid in accordance with Section 3852” means that the
employer can only recover compensation it has already paid. And Plaintiffs have
no other relevant support for their contention that an employer or its workers’
compensation carrier cannot recover from a tortfeasor who injured an employee (or
from that tortfeasor’s insurer) when the employee has entered a settlement but the
employer has not.
      2
        A segregated settlement was probably not possible, in any event, because
the Dorrohs repeatedly refused to provide the purported denial letter from Superior
National.

                                           4
      That left an offer of an “unsegregated settlement,” which would have

resolved all claims against Warren and Deerbrook but required Superior National’s

written consent. See Cal. Lab. Code §§ 3859(a), 3860. Without Superior

National’s approval, the offer was not an unsegregated settlement either. See Coe

v. State Farm Mut. Auto. Ins. Co., 136 Cal. Rptr. 331 (Ct. App. 1977).3

      3. Because summary judgment to Deerbrook was appropriate on Plaintiffs’

bad faith claim, it was also appropriate on Warren’s claim for punitive damages.

See Am. Cas. Co. v. Krieger, 181 F.3d 1113, 1123 (9th Cir. 1999) (explaining that

under California law “[i]f the insurer did not act in bad faith, punitive damages are

unavailable”).

      AFFIRMED.

      3
         Plaintiffs cite to Kelly v. Farmers Insurance Exchange, 239 Cal. Rptr. 259
(Ct. App. 1987), but the case is not helpful to them. Kelly involved distinct
subrogation rules applicable to uninsured motorist carrier coverage, which did not
require consent for a settlement from the uninsured motorist carrier. Id. at 262-63.
By contrast, the workers’ compensation subrogation rules in Coe and here require
the carrier’s approval for an unsegregated settlement. Kelly distinguished Coe
based on these subrogation rules, making clear that Coe is applicable in workers’
compensation situations like this one. See id. And to the extent that Plaintiffs
contend that Coe was overruled by the amendments to California Labor Code
section 3859, Kelly was decided following those amendments, and its citations to
Coe confirm that the case remains applicable here. See id.

                                          5