Ace American Ins. Co. v. Fireman’s Fund Ins. Co.

Even without entry of a judgment in excess of primary policy limits, an excess insurer that has paid part of a settlement in excess of the primary insurance policy’s limits may sue the primary insurer on a claim for equitable subrogation to the insured’s bad faith claim against the primary insurer, for unreasonably failing to settle within policy limits.  Siding with Fortman v. Safeco Ins. Co. (1990) 221 Cal.App.3d 1394 and against RLI Ins. Co. v. CNA Casualty of California (2006) 141 Cal.App.4th 75, this decision holds that, even without entry of a judgment in excess of primary policy limits, an excess insurer that has paid part of a settlement in excess of the primary insurance policy’s limits may sue the primary insurer on a claim for equitable subrogation to the insured’s bad faith claim against the primary insurer for unreasonably failing to settle within policy limits.  The payment of the settlement is sufficient proof of injury from the primary insurer’s breach of the duty of good faith to allow the action to proceed.  There is no need to force the excess insurer to go through a trial and entry of an excess judgment on the underlying claim against the insured.

California Court of Appeal, Second District, Division 4 (Collins, J.); August 5, 2016; 2016 WL 4156686

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