Can a Settlement Demand Above Policy Limits Fall within Limits? A Calif. Appellate Court Says Yes

Michael Melendez and Rebeka Shapiro | Cozen O’Connor

California law generally requires that an insurer reject a reasonable settlement demand within the policy limits before it can be liable for a bad faith failure to settle. See Samson v. Transamerica Ins. Co., 30 Cal.3d 220, 237 (1981). But a recent California Court of Appeal (4th Dist.) decision held that a pre-litigation demand exceeding the policy limits could — under the right circumstances — provide the factual basis to assert that an insurer missed the opportunity to settle. Planet Bingo LLC v. Burlington Ins. Co., E074759, 2021 WL 1034830 (Cal. Ct. App. Mar. 18, 2021).

Burlington Insurance Company’s insured, Planet Bingo LLC, designed and supplied electronic gaming devices. In 2008, a fire broke out in a bingo hall in the United Kingdom owned and operated by Beacon Bingo. Security camera footage showed that the fire originated in or very near the racks where Planet Bingo’s devices were stored. Beacon notified Burlington that Beacon’s estimated losses totaled $2.6 million.

Beacon and Burlington conducted lengthy investigations regarding the claim. Because Beacon did not provide information to Burlington, Burlington hired its own investigator. In 2010, Burlington’s investigator concluded that one of Planet Bingo’s devices was the most likely cause of the fire. Nevertheless, in September 2010, Burlington concluded that Planet Bingo was not liable; that there were “coverage issues” relating to the claim; and that neither the distributor of Planet Bingo’s devices, Leisure Electronics Ltd., nor Leisure’s insurer seemed to be pursuing the claim.

During the ensuing nine months, Burlington conducted little further investigation. Planet Bingo complained to Burlington that it was losing business because the unpaid claim was damaging its reputation. In 2011, Burlington informed Planet Bingo that because no one appeared to be pursuing Planet Bingo for the damages, Burlington was closing its file.

Three years later, Leisure’s insurer, AIG Europe Ltd., wrote to Planet Bingo advising that Leisure settled with Beacon for approximately $2.6 million. AIG demanded that amount from Planet Bingo, but stated that it would be willing to engage in alternative dispute resolution: “We are instructed to recover our client’s outlay …. With the objective of avoiding the costs of litigation, our client is prepared to enter into alternative forms of dispute resolution. … [T]he options available … are discussions and negotiations or mediation. Please confirm which option you agree to.” (Ellipses in original.)

The court noted that AIG’s $2.6 million demand was more than twice the Burlington policy’s limits. But Planet Bingo’s expert testified that Burlington should have considered the larger context. Namely, that such an excess demand in the subrogation context actually was an invitation to settle at policy limits. Specifically, that there was an “industry custom in such subrogation claims for accepting policy limits for a full release [o]f the insured.”

Burlington did not read between the lines of AIG’s demand. Instead, Burlington denied coverage on the grounds that the claim arose outside the coverage territory and no suit had been filed in the United States or Canada, as required for Burlington to have a duty to defend. Subsequently, AIG filed suit in California, and Burlington defended its insured. Nine months into the suit, Burlington settled for the policy limits.

After the settlement, Planet Bingo sued Burlington, claiming that Burlington’s failure to settle earlier harmed Planet Bingo. Burlington prevailed on summary judgment based on the argument that because a demand was never made at or below the policy limits, it did not have the opportunity to settle within the policy limits. (Burlington did not address the lack of an excess judgment against the insured.) The question before the appellate court was whether Planet Bingo could make a prima facia case against Burlington when Burlington did not receive a formal demand within the policy limits.

Burlington argued that the lack of such a demand was dispositive, citing Howard v. American National Fire Ins. Co., 187 Cal. App. 4th 498, 525 (2010) (“the opportunity to settle is typically shown by proof that the injured party made a reasonable settlement offer within the policy limits and the insurer rejected it”). But the court ruled that this was not the typical case. It relied heavily on Boicourt v. Amex Assurance Co., 78 Cal. App. 4th 1390 (2000). There, the claimant asked the insurer to disclose the policy limits prior to filing any suit. The Boicourt court held that the pre-suit request to disclose available coverage limits signaled a willingness to settle for the limits, and that an insurer could be liable for failing to act on the opportunity.

The Planet Bingo court ruled “that the existence of an opportunity to settle can be shown by evidence other than a formal settlement offer.” Planet Bingo’s expert testified that AIG’s excess demand to settle its subrogation claim actually signaled a willingness to settle for the limits. The court ruled that this testimony created a triable issue of material fact as to whether Planet Bingo had an earlier opportunity to settle the case within limits.

The takeaway from this decision is that where a settlement demand above limits is made on an insured, a liability insurer cannot merely assume that the demand is not an opportunity to settle within the policy limits. Especially in circumstances where the insured’s liability could exceed the policy limits, the insurer should explore whether the party making the demand is actually seeking to settle within the limits.

“Specific” Means “Specific” – Florida’s Bad Faith Statute Must Be Strictly Construed

Jeffrey Michael Cohen | PropertyCasualtyFocus

The purpose of Florida’s “bad faith” statute is to “avoid unnecessary bad faith litigation.” To that end, the statute provides a civil remedy for any person damaged by an insurer’s conduct. However, as a condition precedent to filing suit, the policyholder must provide appropriate information to the Department of Insurance and the insurer by filing and serving a civil remedy notice (CRN). The CRN must specify the policyholder’s complaint and provide the insurer with a 60-day period to “cure” the alleged deficiency. If the insurer corrects the policyholder’s complaint within the 60-day period, no statutory bad faith lawsuit may be pursued. Florida’s common law does not recognize actions for first-party bad faith. Therefore, absent compliance with the statute, a policyholder may not pursue a first-party bad faith lawsuit.

In Julien v. United Property & Casualty Insurance Co., the court, on motion for rehearing, emphasized well-recognized precedent, i.e., “[b]ecause the statute is in derogation of the common law, we strictly construe the statutory requirements.”

In Julien, the policyholder claimed that a fire damaged his home. He filed a CRN alleging claim delay, an unsatisfactory settlement offer, unfair trade practice, failure to properly investigate the claim, and failure to acknowledge and act promptly to communications regarding the claim. The insurer timely responded to the CRN and denied Julien’s contentions. Julien filed suit, and the insurer moved to dismiss with prejudice because the CRN was facially invalid and, therefore, Julien could not state a cause of action for statutory bad faith.

The trial court granted the motion because the CRN did not comply with the statutory mandate to “state with specificity” five expressly enumerated pieces of information:

  1. The statutory provision, including the specific language of the statute, which the insurer allegedly violated.
  2. The facts and circumstances giving rise to the violation.
  3. The name of any individual involved in the violation.
  4. Reference to the specific policy language that is relevant to the violation.
  5. A statement that the notice is given in order to perfect the right to pursue the statutory remedy.

It seems that Julien, perhaps from a concern that one of his complaints would be omitted, “listed every statutory provision and every policy provision available to him as the insured.” He included 14 statutory provisions, followed by 21 sections of the Florida Administrative Code, and referenced “the entire policy.” The dismissal was affirmed by the appellate court, which held that “Julien did not substantially comply with the specificity standard and this was more than a mere technical defect.”

Julien moved for rehearing, rehearing en banc, and certification of a question of great public importance, arguing that in Pin-Pon Corp. v. Landmark American Insurance Co., No. 2:20-cv-14013, 2020 WL 6588379 (S.D. Fla. Nov. 10, 2020), Judge Middlebrooks granted rehearing and withdrew dismissal of a bad faith claim based on deficiencies in the CRN. Judge Middlebrooks had held that the statute’s specificity standard will not bar a statutory bad faith action where the defect in the CRN information was “purely technical,” the policyholder “substantially complied” with the specificity standard, the insurer received “fair notice” of the policyholder’s claim, and the insurer was “not prejudiced.”

As a result of Judge Middlebrooks’ intervening order, the Fourth District Court of Appeal withdrew its first opinion to “avoid confusion,” but it did not change its conclusion that Julien’s CRN was fatally defective. The court held that it was bound to strictly construe the bad faith statute because it was in derogation of common law, that Julien had not substantially complied with the specificity standard of the statute, and that Julien’s reference to substantially all policy sections and the 35 statutory provisions was more than a technical violation of the statute. In short, the policyholder’s contention that the insurer breached the entire policy and all of Florida’s bad faith laws did not meet the statute’s specificity requirement.

Injured Subcontractor Employee Asserts Premise Liability Claim Against General Contractor

David Adelstein | Florida Construction Legal Updates

In an interesting opinion, an injured employee of an electrical subcontractor sued the general contractor of a parking garage project under a premise liability theory after being injured when stepping on an uncovered floor drain at the project site.  There is no discussion in the opinion as to workers compensation immunity.  Rather, the discussion centers on the injured employee’s premise liability claim as to whether the general contractor “breached its duty to maintain the premises in a reasonably safe condition by leaving the drain uncovered and failing to warn of the danger of the uncovered drain.”  Pratus v. Marzucco’s Construction & Coatings, Inc., 46 Fla.L.Weekly D186a (Fla. 2d DCA 2021)

The trial court granted summary judgment in favor of the general contractor finding that the drain was open and obvious on the site.  The Second District Court of Appeal reversed the summary judgment with a discussion as to premise liability claims, particularly as it pertains to a business invitee, which is what the injured employee of the electrical subcontractor was.

First, the Second District held that as a business invitee, the general contractor owed the injured employee two duties: “(1) the duty to use reasonable care in maintaining the property in a reasonably safe condition; and (2) the duty to warn of dangers of which the owner has or should have knowledge and which are unknown to the invitee and cannot be discovered by the invitee through the exercise of reasonable care. ”  Pratus, supra (internal quotations and citation omitted).

Second, the Second the Second District held that “[t]he obvious danger doctrine provides that an owner or possessor of land is not liable for injuries to an invitee caused by a dangerous condition on the premises when the danger is known or obvious to the injured party, unless the owner or possessor should anticipate the harm despite the fact that the dangerous condition is open and obvious.”  Pratus, supra (internal quotations and citations omitted).

Third, the Second District held that the issue was not whether the floor drain was open and obvious, but whether the uncovered floor drain—the alleged dangerous condition—was open and obvious and involves a consideration of “all of the facts and circumstances surrounding the accident and the alleged dangerous condition.”   Pratus, supra (internal quotations and citations omitted).

And fourth, the Second District held irrespective of whether the alleged dangerous condition was open and obvious, the general contractor “still had a duty to maintain the premises in a reasonably safe condition if it could have anticipated the harm to [the injured employee] as a result of the uncovered drain.” Pratus, supra (internal quotations and citations omitted).  This required the contractor to establish “it should not have anticipated the potential harm to [the injured employee] as a result of the uncovered drain, notwithstanding his knowledge of the danger.”  Id.

Does this case open the door for premise liability claims against a general contractor as a possessor of the construction site?  It is uncertain because of the lack of discussion of workers compensation immunity.  Perhaps this was an issue in the case because there was no workers compensation to cover the inured employee.  Or, perhaps this was an argument around workers compensation immunity.  Regardless, this case highlights the significance in ensuring there are safety protocols and training in place on every project, no matter how big or small!

When 1% Equals 100%: New York Rejects Fault Based Approach to Additional Insured Coverage

Laura Dowgin | Cozen O’Connor

When a named insured is only 1% responsible for an accident, what percentage of indemnity coverage is owed to an additional insured? A recent New York federal court says 100%. In New York, additional insured coverage may very well extend to the additional insured’s own independent negligence, so long as the named insured was at least 1% negligent. This is in contrast to other states where additional insured coverage might apply only to vicarious liability for the named insured’s negligence.

At the outset, the specific policy language will always control an insurer’s obligations. A standard blanket additional insured endorsement will have two requirements: (1) that the named insured has agreed in a written contract to provide additional insured coverage to an organization; and (2) that the additional insured’s liability was caused, in whole or in part, by the named insured’s acts or omissions in the performance of its ongoing operations. We refer to the first prong as the “written contract” requirement, and the second prong as the “nexus” requirement. Either prong can be modified by policy language. For example, the written contract prong can require direct contractual privity between the named insured and additional insured. The nexus requirement can be expanded to liability “arising out of” the named insured’s work.

Where both prongs are potentially satisfied, an insurer owes a duty to defend. The duty to indemnify is narrower than the duty to defend, however. There is an argument that additional insured coverage should apply only to vicarious liability for the named insured if the nexus requirement is “caused, in whole or in part,” language. If the named insured is only 30% responsible for the accident, the additional insured should not be covered for the remaining 70% that was not caused by the named insured.

The Southern District of New York has rejected this argument. In Starr Indem. & Liab. Co. v. Excelsior Ins. Co., No. 19 CIV. 3747 (KPF), 2021 WL 326209 (S.D.N.Y. Feb. 1, 2021), the underlying plaintiff was injured on a job site performing drywall and ceiling work when his scaffolding tipped. He filed a New York Labor Law action against the owner and general contractor, and the owner and general contractor sought additional insured coverage from subcontractor Tri-State Computer Flooring Co.’s  commercial general liability insurer, Excelsior. Ultimately, Tri-State was found to have been 35% at fault for the accident, and the owner/general contractor were found to have been 65% at fault.

The Excelsior policy had two additional insured endorsements. Both required a written contract obligating Tri-State to name the owner and general contractor as additional insureds, which was satisfied. The first endorsement stated that coverage was available only with respect to liability “arising out” of Tri-State’s ongoing operations. The second endorsement stated there was coverage for liability “caused, in whole or in part” by Tri-State’s acts or omissions. Both endorsements stated that additional insured coverage did not apply to bodily injury arising from the sole negligence of the additional insured.

Excelsior had agreed to defend the owner and general contractor under a reservation of rights, but refused to indemnify the owner/general contractor for their 65% share, arguing that the additional insured coverage did not apply to the sole negligence of the additional insured.

The Court held that Excelsior owed a complete duty to indemnify, under either endorsement. It acknowledged that the “arising out of” nexus requirement is broader than the “caused, in whole or in part by,” nexus, based on Burlington Ins. Co. v. NYC Transit Auth., 29 N.Y.3d 313, 79 N.E.3d 477 (N.Y. 2017).[1] However, even under the narrower “caused, in whole or in part by” language, the Court held that “so long as the named insured is more than 0% liable for the underlying plaintiff’s injuries, additional insured coverage is triggered. For, in such circumstances, the plaintiff’s damages are caused, in whole or in part, by the named insured’s operations.” Starr at *8. Tri-State had caused the accident in part because it was 35% responsible for the plaintiff’s damages. While the Court did not focus on the exclusionary language in the endorsement, it did hold that the owner/general contractor were not solely negligent and were therefore entitled to complete indemnity as additional insureds.

This case means that when an additional insured endorsement has standard “caused, in whole or in part,” language, so long as the named insured is more than 0% negligent, the additional insured is entitled to 100% coverage. This is so even if the endorsement states there is no coverage if the liability arises from the sole negligence of the additional insured.

It is critical to remember that other states may interpret this language differently and that specific policy language will control. For example, just across the Hudson River in New Jersey, courts have come out on both sides of this question. Compare Schafer v. Paragano Custom Bldg., Inc., 2010 N.J. Super. Unpub. WL 624108 (App. Div. Feb. 24, 2010), cert. denied, 202 N.J. 45 (2010) (finding coverage only for vicarious liability under “caused, in whole or in part” language) with Friedland v. First Specialty Ins. Corp., No. ESX-L-4155-15, 2016 WL 4162282, at *7 (N.J. Super. Ct. Law Div. 2016) (“Accordingly, if IPC is found to be 1% responsible for the incident, the Mall Defendants will be entitled to full indemnification pursuant to the endorsement. Conversely, if IPC is found to be 0% liable, the Mall Defendants will not be entitled to indemnification at all.”). 

To the extent an insurer wishes to limit additional insured coverage to its named insured’s fault percentage, it may do so — even in New York — by using express language indicating that intent. See, e.g., Crespo v. City of New York, 2 Misc. 3d 1008(A), 784 N.Y.S.2d 919 (N.Y. Sup. Ct., Bronx Cty, 2004) (finding additional insured coverage applies to vicarious liability percentage where endorsement states “only to the extent that such person or organization is held liable for your acts or omissions…”).

[1] For a further discussion of this case, please see

Triable Issue of Fact Exists as to Insurer’s Obligation to Provide Coverage Under Occurrence Policy

Valerie A. Moore and Kathleen E.M. Moriarty | Haight Brown & Bonesteel

In Guastello v. AIG Specialty Ins. Co. (No. G057714. filed 2/19/21 ord. pub. 2/23/21), a California appeals court held that triable issues of material fact exist which precluded summary judgment for an insurer seeking to disclaim coverage on the basis that the “occurrence” pre-dated the policy period where a dispute exists as to the timing of the subject “occurrence.”

In Guastello, a subcontractor built retaining walls from 2003 to 2004 for a housing development in Dana Point, California. In 2010, one of these retaining walls collapsed causing damage to a residential lot owned by Thomas Guastello.

Guastello initially sued the subcontractor alleging negligent design and construction and seeking various damages, including diminution in value of his property. The subcontractor had an “occurrence” policy with AIG Specialty Insurance Company with an effective period of 2003-2004. AIG denied any duty to defend or indemnify the subcontractor on the basis that the property damage occurred in January 2010 and was therefore outside of the policy period of 2003-2004.

Shortly after AIG’s disclaimer, Guastello obtained a default judgment against the subcontractor and filed a direct action against AIG for enforcement of the default judgment, breach of the covenant of good faith and fair dealing and declaratory relief pursuant to Insurance Code section 11580. AIG filed a motion for summary judgment contending Guastello did not suffer any property damage until the retaining wall collapsed in 2010, thus the occurrence did not take place until seven years after expiration of the policy.

Guastello’s opposition to AIG’s motion included a declaration by an expert civil engineer whose declaration proffered a latent construction defect theory. The expert opined that the contractor’s negligent construction of the retaining wall began to cause damage to the wall itself and to Guastello’s property within months of the wall’s substantial completion in 2003 by way of “continuous and progressive destabilization” to Guastello’s lot beginning before the end of November 2004. The engineer opined that the “continuous and progressive destabilization” eventually led to the complete collapse of the wall in 2010.

The trial court granted AIG’s motion for summary judgment as to all three causes of action, finding Guastello did not experience property damage until after the policy’s expiration and that all three causes of action were “predicated on” AIG’s “wrongful refusal to satisfy the judgment.”

Guastello appealed the trial court’s decision contending a triable issue of material fact existed as to whether the property damage took place during the coverage period of the AIG policy.

The Guastello court first discussed the general principles of law applying to liability insurance, distinguishing a “claims made” policy, which provides coverage if the claim is made during the policy period, and an “occurrence” policy, which provides coverage for damages which occur during the policy period, even if the claim is made after the policy expired. (Citing Carolina Casualty Ins. Co. v. L.M. Ross Law Group LLP (2010) 184 Cal.App.4th 196, 206-207 and Garriott Crop Dusting Co. v. Superior Court (1990) 221 Cal.App.3d 783, 792.)

The AIG policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Where ‘continuing or progressive’ property damage is at issue, the ‘property damage’ shall be deemed to be one ‘occurrence’ and shall be deemed to occur when such…;’property damage’ first commenced.”

The AIG policy defined “property damage” as “a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.”

Considering the language of the policy and the substance of the declaration of Guastello’s expert, the Guastello court found that timing of the “occurrence” — the alleged damage to Guastello’s property — was “plainly a disputed issue of material fact.”

AIG argued that the engineer’s declaration was inadmissible under Evidence Code section 720 because it lacked foundation, was speculative and conclusory because he did not personally inspect the retaining wall or affected property and Guastello had offered the expert’s opinions to rebut his own declarations as to the damages he had sustained.

The Guastello court flatly rejected AIG’s argument as to admissibility of the declaration, pointing to AIG’s failure to make an evidentiary objection to the declaration in the trial court, thereby waiving the objection. The Guastello court found the declaration was sufficient as the declarant set forth his education, training and experience and stated the bases for the opinions he gave.

Further, the Guastello court held that AIG’s arguments as to the validity of the expert’s opinions went to the weight of his testimony, which is a factual issue for a jury and not a legal issue for the court. (Citing Polk v. Ford Motor Co. (8th Cir. 1976) 529 F.2d 259, 271.)

Finally, AIG contended Guastello’s evidence in support of the default against the subcontractor established the alleged damage took place no earlier than 2010 and directly conflicted with the expert’s declaration that the damage began before the end of November 2004.

The Guastello court disagreed with AIG, stating that the evidence submitted with the default motion was not necessarily inconsistent with the latent construction defect theory of liability proffered by the expert engineer and was arguably consistent with the latent construction defect theory. Fittingly, the Guastello court concluded “Again, this is a contested issue of material fact.”

This document is intended to provide you with information about insurance law related developments. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact the authors. This communication may be considered advertising in some jurisdictions.