Insurance Coverage – Bad Faith – Duty to Defend Multiple Policies

by Low, Ball & Lynch

21st  Century Insurance Co. v. The Superior Court of San Bernardino County

Court of Appeal, Fourth District
(September 10, 2015)

Typically, where an insurer is defending an action, it is not bound by any independent stipulated settlement or judgment without trial reached between the plaintiff and its insured.  This case considered whether the insurer was bound by a stipulated judgment when it defended under one policy, but it was claimed to have coverage under two other policies.

Cy Tapia (“Cy”) was a teenager living with his aunt Donna Leith and his grandmother Norma Velasquez.  Cy was driving a truck owned by his grandfather at the time he was involved in an accident that resulted in fatal injuries to his passenger, Cory Driscoll.  Before Driscoll passed away, his mother filed an action for damages against Cy.  It was established that the truck was specifically listed in a policy of insurance issued by 21st Century Insurance Company (“21st Century”) to Cy’s sister, Melissa McGuire, and Cy was listed as the driver of the vehicle.  21st Century offered to settle the claim for the limits of McGuire’s policy, $100,000.  Plaintiff believed that Cy might also be covered under two additional policies issued by 21st Century to Donna Leith and to Norma Velasquez, each in the amount of $25,000.  Accordingly, plaintiff communicated an offer to settle for $150,000 to Cy’s counsel.

The offer was not accepted within the time allowed.  Although 21st Century was defending the claim, and had retained counsel for Cy, 21st Century contended that counsel never related the $150,000 offer.  Shortly thereafter, 21st Century sought to settle the case for the “full” $150,000.  Plaintiff did not accept, but one month later, he served a CCP § 998 offer for $3,000,000 for Cory Driscoll and $1,150,000 for his mother, Jenny Driscoll.  Three months later, Cy entered into a stipulated judgment in the amounts demanded by plaintiff, and assigned any and all rights he had against 21st Century, which paid the $150,000 it had offered, plus interest.  Driscoll’s family then brought a bad faith action against 21st Century.  21st Century moved for summary judgment on the grounds that the settlement without its consent vitiated any claim in excess of policy limits, and secondly that there was no coverage beyond the $100,000 McGuire policy, and thus no obligation to offer more in settlement.  The trial court denied the motion, and 21st Century appealed.

The Court of Appeal reversed.  As to the first point, the Court agreed that pursuant to Hamilton v. Maryland Casualty Co. (2002) 27 Cal. 4th 718, where the insurer has been providing a defense, it is not bound by a stipulated judgment entered into by the insured without the consent of the insurer.  The crucial element under the Hamilton case was the lack of a judgment being rendered after an adversarial trial, which raises the potential for collusion in such circumstances.  Thus, the stipulated judgment “carries no weight” in any bad faith claim.  The Hamilton court held that any bad faith claims assigned by the insured in such a situation will not become operative until after a trial and then only in the event that an excess judgment is rendered.

Plaintiff had argued that several cases that had been decided since Hamilton had found that its reasoning was not applicable where there were questions of more than one policy being implicated, and the carrier was not defending on all possible policies.  However, the Court of Appeal distinguished those cases, since they involved situations where the carrier was defending on the smaller policy and not on the larger (for example, in one case $10,000 vs. $100,000 not being defended, in another $50,000 v. $300,000).  Here, the carrier was defending on the $100,000 policy, and the difference between that amount and the total claimed at issue by plaintiff ($150,000) was not significant enough to cause anyone to suppose the defense offered would be “significantly less effective.”

The Court of Appeal felt that the second issue raised, that the other policies did not raise a duty to defend, was an even more critical factor as to why summary judgment should have been granted.  The Court held that 21st Century did not have a duty to defend Cy under either of the policies issued to his aunt or his grandmother.  Whereas the vehicle was scheduled and he was listed as the driver of the vehicle under his sister’s policy, neither the vehicle nor Cy were mentioned at all in either of the two other policies.  Secondly, the policies issued to his aunt and grandmother excluded coverage “available for…regular use” by an insured or a relative or resident of the same household.  Since the truck was available regularly for use by Cy, it was not covered under either the aunt’s or grandmother’s policy.  21st Century had no obligation to defend Cy under either policy, and was discharging its obligations by defending him solely under the McGuire policy.  As such, Hamilton provided that the stipulated judgment would not have any bearing on proving any damages for alleged bad faith suffered by Cy.

The Court of Appeal issued a writ of mandate vacating the trial court’s denial of summary judgment and entering a new order granting its motion.


As long as the carrier continues to defend, it will not be bound by any stipulated judgment without trial entered into between its insured and the injured plaintiff.  Where there are potentially more than one policy implicated in the claim, the carrier runs the risk of an argument that the stipulated judgment is still binding, if it provides a defense under one but not all of the policies and there turns out to be coverage under the additional policies.

For a copy of the complete decision, see:

21st  Century Insurance Co. v. The Superior Court of San Bernardino County

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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