Robert Dorroh v. Deerbrook Ins. Co. ( 2018 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS SEP 24 2018
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
ROBERT DORROH and BARBARA No. 17-15068
DORROH, Trustees of the Bankruptcy
Estate of Cedar Sol Warren, D.C. No.
1:11-cv-02120-DAD-EPG
Plaintiffs-Appellants,
and MEMORANDUM*
CEDAR SOL WARREN,
Plaintiff,
v.
DEERBROOK INSURANCE COMPANY,
a wholly-owned subsidiary of Allstate
Insurance Company,
Defendant-Appellee.
CEDAR SOL WARREN, No. 17-15069
Plaintiff-Appellant, D.C. No.
1:11-cv-02120-DAD-EPG
and
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
ROBERT DORROH and BARBARA
DORROH, Trustees of the Bankruptcy
Estate of Cedar Sol Warren,
Plaintiffs,
v.
DEERBROOK INSURANCE COMPANY,
a wholly-owned subsidiary of Allstate
Insurance Company,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of California
Dale A. Drozd, District Judge, Presiding
Argued and Submitted September 14, 2018
San Francisco, California
Before: RAWLINSON, WATFORD, and FRIEDLAND, Circuit Judges.
Plaintiffs-Appellants Robert Dorroh, Barbara Dorroh, and Cedar Warren
appeal the district court’s grant of summary judgment to Deerbrook Insurance
Company in their bad faith insurance lawsuit. We affirm.
1. Plaintiffs have waived any claims based on bad faith in connection with
Deerbrook’s 2006 rejection of the Dorrohs’ proposed stipulated judgment and
allegedly advising Warren to file for bankruptcy because they did not address those
potential bases for bad faith liability on appeal. See Orr v. Plumb, 884 F.3d 923,
932 (9th Cir. 2018).
2
2. The district court did not err in granting summary judgment to Deerbrook
on Plaintiffs’ bad faith claim related to settlement communications in 2001. “An
insured’s claim for bad faith based on an alleged wrongful refusal to settle first
requires proof the third party made a reasonable offer to settle the claims against
the insured for an amount within the policy limits. The offer satisfies this first
element if (1) its terms are clear enough to have created an enforceable contract
resolving all claims had it been accepted by the insurer, (2) all of the third party
claimants have joined in the demand, (3) it provides for a complete release of all
insureds, and (4) the time provided for acceptance did not deprive the insurer of an
adequate opportunity to investigate and evaluate its insured’s exposure.” Graciano
v. Mercury Gen. Corp., 179 Cal. Rptr. 3d 717, 726 (Ct. App. 2014) (internal
citations omitted).
Applying these principles, Deerbrook was not required to accept the
settlement that the Dorrohs offered because it either would not have protected
Deerbrook and Warren from further liability or would have required the approval
of Dorroh’s workers’ compensation insurer, Superior National Insurance
Company.
Plaintiffs contend that the Dorrohs offered Deerbrook a “segregated
settlement” as defined by California law, which allows a tort victim to settle with
the tortfeasor without approval of the workers’ compensation carrier. See Cal.
3
Lab. Code § 3859(b). Even assuming this settlement proposal could be viewed as
a “segregated settlement,” Deerbrook was not required to agree to a settlement that
would not have protected Deerbrook and Warren from claims by Superior
National. A segregated settlement does not release the workers’ compensation
carrier’s claims. See Bd. of Admin. v. Glover, 671 P.2d 834, 842 (Cal. 1983) (in
bank). If Deerbrook had agreed to a segregated settlement, Superior National still
could have pursued Deerbrook and Warren.1 And even if the Dorrohs’ offer to
indemnify Warren as part of the segregated settlement protected Warren from
further liability, the offer did not include indemnification for potential claims
against Deerbrook. See Levin v. Gulf Ins. Grp., 82 Cal. Rptr. 2d 228, 231
(Ct. App. 1999) (holding that an insurer may be liable for interference with
prospective economic advantage if it leaves a known lienholder out of a
settlement).2
1
We do not agree with Plaintiffs that section 3859(b)’s statement that an
unsegregated settlement “shall be subject to the employer’s right to proceed to
recover compensation he has paid in accordance with Section 3852” means that the
employer can only recover compensation it has already paid. And Plaintiffs have
no other relevant support for their contention that an employer or its workers’
compensation carrier cannot recover from a tortfeasor who injured an employee (or
from that tortfeasor’s insurer) when the employee has entered a settlement but the
employer has not.
2
A segregated settlement was probably not possible, in any event, because
the Dorrohs repeatedly refused to provide the purported denial letter from Superior
National.
4
That left an offer of an “unsegregated settlement,” which would have
resolved all claims against Warren and Deerbrook but required Superior National’s
written consent. See Cal. Lab. Code §§ 3859(a), 3860. Without Superior
National’s approval, the offer was not an unsegregated settlement either. See Coe
v. State Farm Mut. Auto. Ins. Co., 136 Cal. Rptr. 331 (Ct. App. 1977).3
3. Because summary judgment to Deerbrook was appropriate on Plaintiffs’
bad faith claim, it was also appropriate on Warren’s claim for punitive damages.
See Am. Cas. Co. v. Krieger, 181 F.3d 1113, 1123 (9th Cir. 1999) (explaining that
under California law “[i]f the insurer did not act in bad faith, punitive damages are
unavailable”).
AFFIRMED.
3
Plaintiffs cite to Kelly v. Farmers Insurance Exchange, 239 Cal. Rptr. 259
(Ct. App. 1987), but the case is not helpful to them. Kelly involved distinct
subrogation rules applicable to uninsured motorist carrier coverage, which did not
require consent for a settlement from the uninsured motorist carrier. Id. at 262-63.
By contrast, the workers’ compensation subrogation rules in Coe and here require
the carrier’s approval for an unsegregated settlement. Kelly distinguished Coe
based on these subrogation rules, making clear that Coe is applicable in workers’
compensation situations like this one. See id. And to the extent that Plaintiffs
contend that Coe was overruled by the amendments to California Labor Code
section 3859, Kelly was decided following those amendments, and its citations to
Coe confirm that the case remains applicable here. See id.
5