BREAKING NEWS: California Supreme Court To Weigh In On Excess Insurer’s Standing To Sue Primary Insurer For Bad Faith Failure To Settle When Excess Insurer Contributes To A Settlement On Behalf Of The Insured

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As we have previously reported, there is a split of authority in the California Court of Appeal as to whether an excess insurer has standing to sue a primary insurer for failure to settle a case within its limits when the excess insurer contributes to a settlement on behalf of the insured.   Fortman v. Safeco Ins. Co. (1990) 221 Cal.App.3d 1394 (“Fortman”) held that an excess insurer could pursue a claim for equitable subrogation against the primary insurer after contributing to a settlement in excess of the primary carrier’s policy limits. In contrast, the Court of Appeal in RLI Ins. Co. v. CNA Cas. of Cal. (2006) 141 Cal.App.4th 75 (“RLI”) subsequently held that an excess judgment against the insured was a prerequisite to any claim by the excess insurer against the primary insurer for failure to settle within the primary limits.

In August, the Court of Appeal in ACE American Insurance Company v. Fireman’s Fund Insurance Company (Aug. 5, 2016) 2 Cal.App.5th 159, rejected the reasoning and holding of RLI in favor of Fortman.

It now appears that the California Supreme Court will address the split of authority.  On November 9, 2016, the Supreme Court granted the Petition for Review in Ace American, Docket No. S237175.  We will keep you advised of developments before the Supreme Court.

Cheryl A. Orr is a partner with Musick, Peeler & Garrett in its Los Angeles office.  Her full bio and contact information can be found at: