Teleflex Medical Inc. v. National Union Fire Insurance Co., No. 14-56366 (9th Cir. 2017)
Annotate this CaseLMA filed suit against its excess insurance carrier, National Union, based on National Union's refusal to either contribute $3.75 million toward the settlement of claims brought by a third party or take over the defense. At issue was whether the district court erred in applying the rule in Diamond Heights Homeowners Association v. National American Insurance Co., instructing the jury, denying National Union's motion for judgment as a matter of law (JMOL), and awarding fees and costs. In Diamond Heights, a California appellate court ruled that an excess liability insurer has three options when presented with a proposed settlement of a covered claim that has met the approval of the insured and the primary insurer. The excess insurer must (1) approve the proposed settlement, (2) reject it and take over the defense, or (3) reject it, decline to take over the defense, and face a potential lawsuit by the insured seeking contribution toward the settlement. The court held that the district court did not err in applying the rule in Diamond Heights where National Union has not presented convincing evidence that the California Supreme Court would not follow Diamond Heights, and Diamond Heights is not distinguishable on its facts. The court also concluded that the district court did not commit prejudicial error in defining the standard of proof applicable to LMA's breach of contract claim; National Union's challenge to the bad faith claim failed because a jury could rationally conclude based on these facts that National Union acted unreasonably by refusing to take over the defense or approve the reasonable settlement, knowing full well of its obligations under California law; and the court affirmed the district court's award of fees and costs. Accordingly, the court affirmed the judgment and denied National Union's motion for certification.
Court Description: California Insurance Law. The panel affirmed the district court’s judgment in favor of the insured, LMA North America, Inc., and award of attorney’s fees, and denied National Union Fire Insurance Company of Pittsburgh, PA’s motion for certification of an issue to the California Supreme Court, in LMA’s diversity contribution action against its excess insurance carrier, National Union. In Diamond Heights Homeowners Ass’n v. Nat’l Am. Ins. Co., 227 Cal. App. 3d 563 (1991), a California appellate court held that an excess insurer has three options when presented with a proposed settlement of a covered claim that has met the approval of the insured and the primary insurer: approve the proposed settlement; reject it and take over the defense; or reject it, decline the defense, and face a potential lawsuit by the insured seeking contribution. Concerning LMA’s breach of contract claim, the panel held that the district court correctly followed the Diamond Heights rule in this diversity action governed by California law because the case had not been overruled and was not distinguishable. The panel also held that the district court did not commit prejudicial err in defining the standard of proof applicable to LMA’s breach of contract claim. TELEFLEX MED. V. NAT’L UNION FIRE INS. 3 Concerning LMA’s bad faith claim, the panel held that the district court correctly concluded that the genuine dispute doctrine was subsumed within the standard Judicial Council of California Civil Jury Instructions for breach of good faith and fair dealing, which the district court gave to the jury. The panel concluded that the district court did not err in denying National Union’s proposed jury instruction on the genuine dispute doctrine. The panel also rejected National Union’s argument that it acted reasonably due to a genuine dispute existing about the application and viability of Diamond Heights. The panel held that a jury could reasonably conclude not only that the settlement was reasonable, but also that any dispute about coverage was less than genuine. The panel, therefore, rejected National Union’s challenge to the bad faith claim based on the sufficiency of the evidence. The panel held that the district court did not err in awarding attorney’s fees that LMA failed to segregate between work done on its recoverable and nonrecoverable claims. The district court concluded that the district court’s chosen apportionment of the fees appeared to be fair under California law.
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