California Courts and the Duty to Initiate Settlement Negotiations

February 22, 2013

IADC Insurance and Reinsurance Committee Newsletter

The following is an excerpt from, "California Courts and the Duty to Initiate Settlement Negotiations: Ramifications of the DU Decision(s)," originally published in the February 2013 issue of the International Association of Defense Counsel's Insurance and Reinsurance Committee Newsletter.

On June 11, 2012, the 9th Circuit Court of Appeals announced its decision in Du v. Allstate Insurance Co., 681 F.3d 1118 (9th Cir. 2012),sending ripples of concern throughout the insurance industry in California. In that decision, the Court held that an insurer may be held liable for bad faith on a failure to settle theory if it fails to initiate settlement negotiations, even in the absence of a within-policy limits demand. Perhaps in response to those rumblings, the Court amended its decision on October 5, 2012 (found at 697 F.3d 753), backing off its earlier pronouncement. In its amended decision, the Court instead held that it need not address the “duty to initiate” issue because under the specific facts of this case, no such duty ever arose – at the time the plaintiff in that case suggested that the insurer should have initiated settlement discussions, it did not have enough information about the claim to do so.

With that amended decision, it could be said that the insurance industry “dodged a bullet” and that the California courts are not prepared to impose an affirmative duty to initiate settlement negotiations. Or are they? What if, under the facts of Du (or a case in the future) the insurer did have sufficient information to initiate settlement discussions prior to any settlement demand from the claimant? This Article will examine the ramifications of the Du decision and the status of the “duty to initiate” issue in California.

For the full article, please use the following link: California Courts and the Duty to Initiate Settlement Negotiations: Ramifications of the DU Decision(s).