Du Two - Ninth Circuit Backs Off on Controversial Duty to Settle Decision

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In June 2012, the Ninth Circuit Court of Appeals issued a decision in Du v. Allstate Insurance Company that asserted a liability insurer must “effectuate” or initiate a settlement within policy limits after liability has become reasonably clear. That decision generated extensive criticism, including on this blog.

Less than four months later, some semblance of balance has been restored with the issuance of the Ninth Circuit’s October 5, 2012 amended decision in Du. The amended decision replaces the court’s prior ruling and, most significantly, relegates its prior ruling as to the duty to “effectuate” settlement to merely raising the concept but concluding that it “need not resolve” this legal issue. 

Whatever the reason for the court’s retreat, the Ninth Circuit panel found, as it did in its original decision, that a jury instruction proffered by the plaintiff that raised the duty to “effectuate” settlement issue was not supported by the evidence and thus the trial court did not abuse its discretion in rejecting the instruction.

While the amended decision still references case law that it asserts extends “the duty to settle beyond mere acceptance of a reasonable settlement demand,” it also cites to California case law “suggesting no breach of the good faith duty to settle can be found in the absence of a settlement demand, the typical context in which the duty has been found.”  While this language will remain in the final decision, at most it is only dicta.

The amended decision also backtracked on another criticized finding, namely, that the “genuine dispute doctrine” does not apply to third party duty to settle cases.  Once again, while the original decision found the doctrine did not apply in third party cases, the amended decision advised: “[w]e need not resolve” this legal issue. 

Hopefully, with the issuance of the amended decision in Du, the parameters of the “duty to settle” under California law have been substantially restored.

 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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