INSURER OWES NO DUTY OF GOOD FAITH AND FAIR DEALING TO THIRD PARTY CLAIMANT, EVEN IF CLAIMANT IS ALSO INSURED BY INSURER

In a case of first impression, Coleman v. Republic Indemnity Insurance Co. of California (Aug. 31, 2005, B172638) ___ Cal. App.4th ___ [05 D.A.R. 10711] ("Coleman"), the California Court of Appeal held that an insurer attempting to settle a third party's claim against its insured owes no duty of good faith and fair dealing to the claimant and cannot be liable to the claimant for negligent infliction of emotional distress -- even where the insurer also insures the claimant under a different policy.

Coleman extends the Supreme Court's decision in Moradi-Shalal v. Firemans Fund Ins. Companies (1988) 46 Cal.3d 287, which held that a third party claimant does not have a private right of action against the insurer for unfair settlement practices. In Coleman, the Court of Appeal held that the Moradi-Shalal rule applies even where the third party claimant is insured by the same insurer as the other party. The Coleman court reasoned that the coincidental fact that the claimant is insured by the same insurer as the other party does not change the claimant's position as a stranger to the other party's insurance policy and as an adversary to the insurer. It therefore follows that the insurer owes no duty of good faith and fair dealing to the claimant in settling the claim against the other party.

The Coleman court further concluded that where there is no duty of good faith and fair dealing, there is likewise no duty that would give rise to a claim of negligent infliction of emotional distress.

Click here to read the court's opinion.

If you have any questions concerning this decision, please contact Mitch Tilner or Tom Watson at (818) 995-0800 or by e-mail to mtilner@horvitzlevy.com or htwatson@horvitzlevy.com.

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