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County of San Diego v. Ace Property & Casualty Insurance Co.2/19/2003
re noncoverage. However, in Powerine I, the court rejected the notion that public policy precluded such a result. The court explained: " ot even for considerations of public policy would we rewrite the provision imposing the duty to indemnify in order to remove its limitation to money ordered by a court. In any event, such considerations seem hardly substantial. In spite of the limitation-from all that appears both generally and specifically with regard to proceedings conducted before administrative agencies pursuant to environmental statutes-compromise is regularly achieved, and litigation is regularly avoided. . . . We may infer that, in a 'large percentage' of [potentially covered] disputes, insurers exercise their right [to settle]. [Citations.] That is because we know that, in a 'large percentage' of such disputes, they in fact achieve compromise and avoid litigation. [Citations.]" (Powerine I, supra, 24 Cal.4th at p. 971.)
Further, in Powerine I, the court set a specific standard by which an insurer's indemnity obligations can be measured. The court concluded that " n its limitation to money ordered by a court, the provision imposing the duty to indemnify commends itself to society generally as laying down a bright-line rule. It has a tendency to promote fairness and efficiency in the judicial sphere. By increasing certainty and decreasing uncertainty about the duty to indemnify, it serves to deter some litigation on the issue and to conclude what it does not deter expeditiously and soundly." (Powerine I, supra, 24 Cal.4th at pp. 965-966.) The imposition of express or implied duties of the insurer based solely on claims, notwithstanding the lack of a court order, would erode the bright-line rule.
B.
Relying on Diamond Heights, supra, 227 Cal.App.3d 563, the County suggests this case is distinguishable from Powerine I because ACE is an excess insurer, and as such, it had a duty to settle the nonlitigated third party claims. When the policy provides for a self-insured retention, as here, under certain circumstances the insured is considered the primary insurer and the carrier on the risk for sums greater than the retention is considered the excess insurer. (Croskey et al., Cal. Practice Guide: Insurance Litigation, supra, at ยงยง 7:384, 7:387, 7:387.11, pp. 7A-102 to 7A-105.) In Diamond Heights, the court explained that " ny insurer, whether excess or primary, in conducting settlement negotiations, is subject to an implied duty of good faith and fair dealing which requires it to consider the interests of the insured equally with its own and evaluate settlement proposals as though it alone carried the entire risk of loss. [Citations.]" (Diamond Heights, supra, at p. 578.)
However, it appears the Diamond Heights court did not impose a duty on an excess insurer to conduct settlement negotiations, but rather explained when it voluntarily undertakes such negotiations it must act in good faith. For instance, the court noted that the primary insurer "control . . . all aspects of the defense, including the negotiation of any settlement prior to trial. [Citations.] The excess insurer has no right to step in and try to settle the case [citation], unless perhaps it has exercised its option . . . to associate with the primary insurer in the defense." (Diamond Heights, supra, 227 Cal.App.3d at p. 578; see also Continental Casualty Co. v. Royal Ins. Co. (1990) 219 Cal.App.3d 111, 119 ["excess carrier has no duty to investigate settlement options"].) Notably, in its opening brief the County concedes that "ACE had the option of declining involvement in the adjusting process."
In any event, we are not required to resolve the issue because the appellate record reveals no
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