Yan Fang Du v. Allstate Ins. Co.

• Decision Date: 11 June 2012
• Docket Number: No. 10–56422.,10–56422.
• Citation: 2012 Daily Journal D.A.R. 7705,12 Cal. Daily Op. Serv. 6368,681 F.3d 1118
• Court: U.S. Court of Appeals — Ninth Circuit
• Parties: YAN FANG DU, individually and as Assignee of Joon Hak Kim, Plaintiff–Appellant, v. ALLSTATE INSURANCE COMPANY; Deerbrook Insurance Company, a subsidiary of Allstate Insurance Company, Defendants–Appellees.

681 F.3d 1118

12 Cal. Daily Op. Serv. 6368

2012 Daily Journal D.A.R. 7705

YAN FANG DU, individually and as Assignee of Joon Hak Kim, Plaintiff–Appellant,

v.ALLSTATE INSURANCE COMPANY; Deerbrook Insurance Company, a subsidiary of Allstate Insurance Company, Defendants–Appellees.

No. 10–56422.

United States Court of Appeals, Ninth Circuit.

Submitted May 11, 2012.^*

Filed June 11, 2012.

Background: After insured's passenger received judgment in her personal injury action against insured in connection with automobile accident, insured assigned his bad faith claim against insurer to passenger in exchange for a covenant not to execute. Passenger brought action on assigned claim, alleging that insurer breached the implied covenant of good faith and fair dealing by failing to attempt settlement of passenger's claims after insured's liability in excess of policy limit became reasonably clear. The United States District Court for the Central District of California, George H. Wu, J., rejected passenger's proposed jury instruction, and entered judgment on jury's verdict in favor of insurer. Passenger appealed.

Holdings: The Court of Appeals, Chen, District Judge, sitting by designation, held that:

(1) implied covenant of good faith and fair dealing required insurer to effectuate settlement within policy limits, but

(2) instruction that jury could consider whether insurer did not attempt in good faith to reach prompt, fair, and equitable settlement was not warranted by the evidence.

Affirmed.Andrew N. Chang and Stuart B. Esner, Esner, Chang & Boyer, Pasadena, CA; and Matthew B.F. Biren and Sarina M. Hinson, Biren/Katzman, West Los Angeles, CA, for the plaintiff-appellant.

John T. Brooks, Luce Forward Hamilton & Scripps LLP, San Diego, CA, for the defendants-appellees.

Appeal from the United States District Court for the Central District of California,George H. Wu, District Judge, Presiding. D.C. No. 2:08–cv–06301–GW–PJW.

Before: HARRY PREGERSON and SUSAN P. GRABER, Circuit Judges, and EDWARD M. CHEN, District Judge.^**

OPINION

CHEN, District Judge:

I. OVERVIEW

Appellant Yang Fang Du brought this suit against Appellee Allstate Insurance Company and its subsidiary Deerbrook Insurance Company (collectively “Deerbrook”) for breach of the implied covenant of good faith and fair dealing. Du was injured in an accident caused by Deerbrook's insured, Joon Hak Kim. After Du received a judgment against Kim in the amount of $4,126,714.46, Kim assigned his bad faith claim to Du.

Du brought the instant suit against Deerbrook, arguing that Deerbrook breached the implied covenant of good faith and fair dealing owed to its insured Kim when Deerbrook did not attempt to reach a settlement of Du's claims after Kim's liability in excess of the policy limit became reasonably clear. Du appeals the district court's rejection of Du's request to instruct the jury that it could consider Deerbrook's failure to effectuate a settlement in determining whether Deerbrook breached the implied covenant. We conclude that Du's proposed jury instruction is consistent with the law but that there was no evidentiary basis for the instruction. Accordingly, we affirm the district court's judgment.

II FACTUAL AND PROCEDURAL BACKGROUND

1. Du's 2006 Personal Injury Lawsuit Against Kim

On June 17, 2005, Joon Hak Kim was involved in an accident when his car collided with another vehicle. All four occupants of the second vehicle—Appellant Yan Fang Du, Li Jie Wang, Wan Hai Feng, and Shuo Feng—sustained injuries. Kim's insurance policy issued by Appellee Deerbrook had a liability limit of $100,000 for each individual claim, with an aggregate maximum of $300,000 for any one accident.

Over the next several months Deerbrook corresponded with a number of lawyers who in succession represented Du. Deerbrook attempted to obtain medical documentation from Du and a statement from Kim but was not successful. Notwithstanding the lack of cooperation by Du and Kim in providing the documentation requested, Deerbrook eventually evaluated the claim file on February 15, 2006. Deerbrook was aware that there was a claim of serious injury by Du and accepted Kim's liability.

No settlement demands or offers were made until June 9, 2006, when Marc Katzman, Du's lawyer, submitted a $300,000 global demand for all four plaintiffs. For the first time, Du documented her medical costs at $108,742.92. The demand also listed medical costs to Wan Hai Feng at $6,676.00, Shuo Feng at $13,274.00, and Li Jie Wang at $13,809.00.

Anna Harcharik, Deerbrook's adjuster, told Katzman there was insufficient information about Wan Hai Feng, Shuo Feng, and Li Jie Wang and suggested settling Du's claim separately. Katzman rejected the suggestion and indicated that Deerbrook had to pay the full $300,000 policy limit and settle all claims. In August 2006, Katzman rejected Deerbrook's $100,000 settlement offer to Du as “too little too late.”

On October 31, 2006, Du filed a personal injury lawsuit against Kim, and received a jury verdict of $4,126,714.46. Deerbrook paid the $100,000 available under Kim's liability coverage to partially satisfy the judgment. Kim then assigned his bad faith claim to Du in exchange for a covenant not to execute.

2. Du's Claim Against Deerbrook

In September 2008, Du, exercising the assignment of Kim's bad faith claim, filed suit against Allstate Insurance Company and Deerbrook, alleging that Deerbrook breached the covenant of good faith and fair dealing owed to Kim. Du alleged that Deerbrook breached the implied covenant when Deerbrook failed to affirmatively settle Du's claim within Kim's policy limits even after Kim's liability for a judgment in excess of the policy limits became clear on February 15, 2006.

At trial, Du proposed the following jury instruction based on the Judicial Council of California Civil Jury Instruction (“CACI”) 2337 (“Violation of Insurance Regulation or Industry Practice”):

In determining whether Deerbrook Insurance Company breached the obligation of good faith and fair dealing owed to Mr. Kim, you may consider whether the defendant did not attempt in good faith to reach a prompt, fair, and equitable settlement of Yan Fang Du's claim after liability [of its insured Kim] had become reasonably clear.

The presence or absence of this factor alone is not enough to determine whether Deerbrook Insurance Company's conduct breached the obligation of good faith and fair dealing. You must consider Deerbrook Insurance Company's conduct as a whole in making this determination.

The district court rejected this proposed jury instruction; it concluded that an insurer has no duty to initiate settlement discussions in the absence of a settlement demand from the third-party claimant. The district court also ruled that there was no factual foundation for the instruction, as “the issue of settlement was broached at a sufficiently early time in the litigation that it vitiates any claim or effective claim insofar as a failure to initiate a settlement discussion.”

At trial, the district court gave modified forms of CACI 2334 and 2337. Both of these instructions made clear that breach of the covenant of good faith and fair dealing could be found only if Deerbrook had failed to accept a reasonable settlement demand, not for failing affirmatively to effectuate a settlement. ¹

Likewise, the jury verdict form asked, “1. Did Deerbrook unreasonably or without proper cause, fail to accept a reasonable settlement demand for an amount within policy limits?” The jury answered no. The district court then entered judgment in favor of Deerbrook.

This timely appeal followed.

III. STANDARDS OF REVIEW

[1] “The standard of review for an alleged error in jury instructions depends on the nature of the claimed error.” Jenkins v. Union Pac. R.R. Co., 22 F.3d 206, 210 (9th Cir.1994). “A district court's formulation of the jury instruction is reviewed for abuse of discretion. If, however, the instructions are challenged as a misstatement of the law, they are then reviewed de novo.” Duran v. City of Maywood, 221 F.3d 1127, 1130 (9th Cir.2000) (per curiam) (internal quotation marks and citation omitted).

[2][3] In addition, there must be a sufficient evidentiary foundation to support giving the instruction. Mendez v. County of San Bernardino, 540 F.3d 1109, 1117–18 (9th Cir.2008). Whether there is sufficient evidence to support an instruction is reviewed for abuse of discretion. Galdamez v. Potter, 415 F.3d 1015, 1021 (9th Cir.2005); see also United States v. Hairston, 64 F.3d 491, 494 (9th Cir.1995).

[4][5] Where there is legal error in instructing the jury in a civil case, reversal is required unless the error is more probably than not harmless. Dang v. Cross, 422 F.3d 800, 811 (9th Cir.2005); 28 U.S.C. § 2111; Fed.R.Civ.P. 52. An error is harmless if it is more probable than not that the jury would have reached the same verdict had it been properly instructed. Dang, 422 F.3d at 811.

IV. DISCUSSION

Du's appeal raises this central legal issue: Does an insurer have a duty, after liability of the insured has become reasonably clear, to attempt to effectuate a settlement in the absence of a demand from the claimant? Du contends that the district court erred when it refused her proposed instruction permitting such liability.

Deerbrook counters that, under California law, an insurer does not have a duty proactively to extend a settlement offer of its own and that the duty of good faith is breached only if the insurer fails to accept a reasonable policy limits demand. Deerbrook also argues that California law on the insurer's duty to settle is at best unsettled, and thus Deerbrook should not be held liable under the “genuine dispute” doctrine. Finally, Deerbrook argues that, even if an insurer had a duty proactively to attempt to settle, there was no evidentiary foundation for such an instruction in the instant case and that any error was harmless.

Because the district court's ruling below evidences potential...