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Horvitz & Levy persuaded the Ninth Circuit Court of Appeals to affirm a summary judgment for its insurer client in a bad faith case where the named insured’s assignees, sought to collect a $6 million judgment they had secured against the named insured after the client did not accept a policy limits settlement offer.
GEICO, issued an auto policy to Herrera. The policy also covered Herrera’s relatives if they resided with Herrera and if he was driving the relative’s car with permission. While driving his father-in-law Hernandez’s car, Herrera struck and killed plaintiffs’ son. Plaintiffs sued Herrera and Hernandez for wrongful death. Plaintiffs alleged Herrera was driving the car with Hernandez’s permission. When GEICO learned of the suit, it investigated to determine whether Hernandez might qualify as an additional insured. The information GEICO gathered was conflicting, so GEICO gave Hernandez the benefit of the doubt. It agreed to treat him as an additional insured and to defend both Herrera and Hernandez in the wrongful death action. GEICO immediately offered the $15,000 policy limits to plaintiffs on behalf of both insureds.
Plaintiffs did not accept the offer and instead offered to settle for the policy limits in exchange for a release of Herrera only, leaving their action against Hernandez intact. GEICO did not accept the offer. Hernandez’s own insurer later paid its policy limits to plaintiffs and obtained Hernandez’s release from the lawsuit.
Plaintiffs’ action against Herrera proceeded to trial, where plaintiffs obtained a $6 million judgment. Herrera assigned his rights against GEICO in exchange for a covenant not to execute the judgment against him.
Plaintiffs then filed an action against GEICO, alleging it acted in bad faith toward Herrera by not accepting the offer to release Herrerra and because its investigation into whether Hernandez qualified as an additional insured was unreasonable and disregarded overwhelming evidence that Hernandez had not given Herrera permission to drive the car. The district court granted summary judgment for GEICO, holding it did not act unreasonably or in bad faith. Plaintiffs appealed, and GEICO retained Horvitz & Levy to defend the summary judgment on appeal.
The Ninth Circuit agreed with Horvitz & Levy’s arguments on appeal and affirmed. It held, under California law, an insurer cannot in good faith accept a policy limits settlement offer that would release only one of two insureds. Cases that fault an insurer’s investigation all involve a denial of coverage. The court held that the extent of an insurer’s investigation cannot amount to bad faith where it results in the insurer agreeing to extend coverage to a relative of the named insured as an additional insured.
