‘Sufficient Time’ Argument Fails to Stop the Clock on Insurer’s Blue Ridge Reservation

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In American Modern Home Ins. Co. v. Fahmian, 194 Cal.App.4th 162 (April 8, 2011), the California Court of Appeal, Fourth District, declined to read a “sufficient time” requirement into two prerequisites previously pronounced by the California Supreme Court concerning an insurer’s right to reimbursement from its insured for reasonable settlements paid on uncovered claims.

Sohail Fahmian tendered an underlying action to his homeowner’s insurance carrier, American Modern, which accepted the defense under a reservation of rights. The claimant’s attorney made a policy limits demand to American Modern. American Modern wrote to Fahmian, stating that it intended to accept the demand unless Fahmian either undertook his own defense or waived any potential claims alleging that American Modern improperly failed to settle. Fahmian received American Modern’s letter on July 2, 2005, and the policy limits demand expired on July 8, 2005. Because Fahmian did not respond to American Modern before the demand expired, American Modern accepted the demand.

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