What was less clear – at least until recently – is whether California courts would allow the excess carrier to pursue such a claim in the absence of a judgment. In a recent decision, the California Court of Appeals answered this question, yes. ACE American Insurance Co. v. Fireman’s Fund Insurance Co., No. B264861 (Cal. App. 2d Aug. 5, 2016).
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.
Id. at 26. This is consistent with the general trend we’ve discussed in previous blog posts (for example, here: http://propertycasualtyfocus.com/et-tu-buddy-excess-insurers-sue-bad-faith/) of courts’ increasing willingness to recognize the right of an excess carrier to assert failure to settle claims against primary carriers, even in the absence of an excess judgment.
The dispute underlying Fireman’s Fund arose when John Franco, a film industry worker, was seriously injured during the filming of a special effects sequence in the 2011 movie, Green Lantern. Fireman’s Fund defended Warner Brothers in the resulting suit by Mr. Franco and his wife and, in the course of that defense, declined several settlement offers made by the Francos that were within the Fireman’s Fund policies’ limits. Months later, the parties settled the case for a substantially higher sum in excess of those limits. Warner Brothers also maintained an excess policy with ACE, and the settlement involved payments by both carriers.
ACE then filed suit against Fireman’s Fund for equitable subrogation and breach of the...
