Unpublished Disposition, 902 F.2d 40 (9th Cir. 1990)

MEMORANDUM^* 

McCullough won a judgment in California state court in an action for his wrongful termination as president of S & H Insurance Company, a subsidiary of Sperry & Hutchison Company ("Sperry"). The judgment against Sperry as remitted was for $4 million compensatory damages and $6 million punitive damages. Sperry contended it had insurance coverage in a policy issued by Utica Mutual Insurance Company ("Utica") and an excess policy issued by North River Insurance Company ("North River"). Utica provided the defense at trial and has paid $1 million, which it contends is the extent of its coverage. North River contested coverage but tendered a defense to Sperry on appeal. Sperry, however, did not accept the tender but, instead, settled with McCullough for $5 million (including the $1 million paid by Utica) and an assignment of Sperry's claim for coverage against North River. Thus, McCullough received $1 million from Utica and $4 million from Sperry and, in addition, any rights Sperry had to receive the $4 million from North River under its policy.

Although there are numerous issues raised in this appeal, including whether there is coverage under the North River policy and the extent of Utica's coverage, the resolution of one issue resolves the entire appeal. The issue is whether, even assuming coverage, North River is bound by McCullough's settlement with Sperry without any agreement by North River, when North River has tendered a defense on appeal. We hold it is not.

North River was willing to meet its obligation to defend Sperry on appeal. It was entitled to an appellate review of the judgment against Sperry before it could be liable for payment of the judgment, even if it was eventually determined that coverage existed.

The assignee McCullough stands in the shoes of assignor, Sperry, and merely acquires the interest of the assignor. Doser v. Middlesex Mut. Ins. Co., 101 Cal. App. 3d 883, 890, 162 Cal. Rptr. 115, 119 (1980). McCullough is entitled to recover against North River only if Sperry was entitled to recover under the terms of the policy. Sperry was not entitled to recover unless it afforded North River the opportunity to complete defending the litigation on appeal.

We recognize that there is California authority which holds that where the carrier wrongfully refuses to defend, the insurer loses its control of the litigation and is liable for a reasonable settlement arrived at in good faith and paid by the insured. See Hartford Acc. & Indem. Co. v. Civil Serv. Emp. Ins. Co., 33 Cal. App. 3d 26, 35, 108 Cal. Rptr. 737, 743 (1973). However, this is not such a case because North River tendered the defense on appeal.

McCullough also contends that North River did not act as a good faith insurer because it did not post a supersedeas bond on appeal. The policy did not provide that North River had to provide such a bond, only that it pay the premium. This North River was willing to do. The financial difficulties, in which Sperry found itself because of the judgment, were not something North River was obligated to resolve. It was North River's obligation to defend on appeal and it was willing to do so. It cannot be bound by Sperry's settlement without its consent.

REVERSED.