Houston Casualty Company v. National Union Fire Insurance Company of Pittsburgh

Background

National Union was the primary insurer for Anderson Hay & Grain, and Houston Casualty was the excess insurer. National Union’s policy had a $1 million each-occurrence limit. After Bartolo Flores collapsed while delivering alfalfa to Anderson Hay’s premises, Flores sued Anderson Hay in Los Angeles Superior Court.

The defense lawyers initially estimated the potential verdict below the policy limit and recommended settlement offers ranging from $50,000 to $100,000. During a March 2017 mediation, Flores demanded $3 million, the mediator stated that the case was worth six figures rather than seven figures, and the mediator proposed $950,000. National Union considered that amount too high.

After taking the deposition of Flores’s economic expert, the defense lawyers estimated on July 31, 2017, that the verdict could be as high as $3.2 million and stated that an offer matching the mediator’s $950,000 proposal would be appropriate. The parties disputed whether National Union received that information, but the court had previously determined that a reasonable jury could find either that the email was communicated or that its contents were communicated orally. National Union later offered $200,000, rejected demands of $900,000 and $675,000, and maintained its position as the case approached trial. Flores later reduced his demand to $600,000 and then to $300,000, but National Union rejected those offers and would not offer more than $225,000. The jury ultimately returned a $3.5 million verdict against Anderson Hay.

Claims and legal standard

Houston Casualty alleged that National Union wrongfully refused to settle the underlying case within its policy limits. It pursued equitable subrogation, unjust enrichment, and declaratory relief. Equitable subrogation allows an excess insurer to assert claims that the insured could have asserted against the primary insurer.

Applying California law, the court explained that a primary insurer may be liable for a judgment exceeding its policy limit when it breaches the implied duty of good faith and fair dealing by unreasonably refusing a settlement offer. A settlement offer within the policy limit is reasonable when there is a substantial likelihood that the jury’s verdict will exceed that limit.

Ruling

The court held that a genuine dispute of material fact existed about whether National Union refused to settle for less than $1 million when there was a substantial likelihood of a larger verdict. The $950,000 mediation proposal was within the policy limit, and the July 31 estimate that the verdict could reach $3.2 million could support a finding that the risk had become substantial. The court noted that the defense lawyers had made lower estimates at other times, but concluded that those estimates did not eliminate the factual dispute.

The court therefore DENIED the defendants’ motion for summary judgment as to all claims. It also DENIED Houston Casualty’s administrative motion to seal portions of deposition transcripts and its opposition brief that referred to the July 31 email. The court ordered those documents filed publicly by January 14 at noon unless appellate relief was obtained before then, and it vacated the scheduled hearing.