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Kransco v. American Empire Surplus Lines Insurance Company6/22/2000
As modified July 26, 2000. This modification does not affect the judgment.
KRANSCO, PLAINTIFF AND APPELLANT; INTERNATIONAL INSURANCE COMPANY ET AL., PLAINTIFFS AND RESPONDENTS,
v.
AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY, DEFENDANT AND APPELLANT.
San Francisco City & County Super. Ct. No. 939603 Ct. App. 1/1 A070954
Attorneys for Appellant: Thacher, Albrecht & Ratcliff, James F. Thacher, Arthur R. Albrecht, Frank E. Solomon; Quarles & Brady, W. Stuart Parsons, Kevin P. Crooks, Katherine H. Grebe; Irell & Manella and Thomas W. Johnson, Jr. for Plaintiff and Appellant. Anderson Kill & Olick, Jordan S. Stanzler, Deborah M. Mongan and John A. MacDonald for United Policyholders as Amicus Curiae on behalf of Plaintiff and Appellant. James T. Linford as Amicus Curiae on behalf of Plaintiff and Appellant. Latham & Watkins, David L. Mulliken, Kristine L. Wilkes, Dorn G. Bishop and Julia E. Parry for Montrose Chemical Corporation of California as Amicus Curiae on behalf of Plaintiff and Appellant. Carroll, Burdick & McDonough, Bertrand LeBlanc II, Donald T. Ramsey, David M. Rice, Rosemary Springer; Kravit Gass & Weber, J. Ric Gass, Janice A. Rhodes, Caren B. Goldberg; Newman & Company and Thomas R. Newman for Defendant and Appellant. Hancock Rothert & Bunshoft, Richard L. Seabolt, Eve F. Lynch and Robert M. Fineman for London Market Insurers as Amicus Curiae on behalf of Defendant and Appellant. Horvitz & Levy, Lisa Perrochet and Stephanie Rae Williams for Truck Insurance Exchange and Allstate Insurance Company as Amici Curiae on behalf of Defendant and Appellant. Attorneys for Respondent: Engstrom, Lipscomb & Lack, Bolson, Nishimura & Saunders, Hahn Bolson & Mendelson, Jeffrey T. Bolson and Karen-Denise Lee for Plaintiffs and Respondents International Insurance Company and Transco Syndicate #1, Ltd. Gibbons, Lees & Conley, Gibbons & Conley and Dolores M. Donohoe for Plaintiff and Respondent Agricultural Excess and Surplus Insurance Company.
The opinion of the court was delivered by: Baxter, J.
Can a liability insurer assert the insured's "comparative bad faith" as an affirmative defense in a bad faith action brought against it for breach of the covenant of good faith and fair dealing? In this case a liability insurer breached its duty of good faith and fair dealing owed its insured manufacturer by unreasonably failing to settle an injured third party's action against the insured within policy limits, thereby exposing the insured to a verdict awarding the injured party compensatory and punitive damages far in excess of policy limits. On appeal the insurer did not contest the jury's finding of bad faith, but argued the insured's comparative bad faith and comparative negligence as a litigant in the underlying third party action was a contributing legal cause of the verdict and should reduce its liability for tort damages in the bad faith action.
The trial court initially accepted this argument, instructing the jury to determine if the insured itself breached its reciprocal duty of good faith and fair dealing toward the insurer or acted negligently in failing to exercise ordinary care as a litigant in the underlying third party action. The jury found the insured's conduct did contribute to the amount of the verdict in excess of policy limits and set the insured's comparative fault at 90 percent. The trial court thereafter decided it had erred in instructing the jury on comparative bad faith and comparative negligence and entered judgment notwithstanding the verdict i
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