noting that, “[i]f an insurer could not unilaterally reserve its right to later assert noncoverage of any settled claim, it would have no practical avenue of recourse other than to settle and forgo reimbursement. An insured’s mere objection to a reservation of right would create coverage contrary to the parties’ agreement in the insurance policy and violate basic notions of fairness.”
How later courts described this case
- noting that, “[i]f an insurer could not unilaterally reserve its right to later assert noncoverage of any settled claim, it would have no practical avenue of recourse other than to settle and forgo reimbursement. An insured’s mere objection to a reservation of right would create coverage contrary to the parties’ agreement in the insurance policy and violate basic notions of fairness.”
- observing that the insured’s objection to a reservation of rights “would create coverage contrary to the parties’ agreement in the insurance policy and violate basic notions of fairness”
- holding an insurer may seek reimbursement for settlement of uncovered claims where the insured is aware of the reservation but acquiesces
- indicating that insurer provided notice on June 4 and requested a response by June 10, where the settlement offer was to expire on June 12
Written by the judges who cited it.
The opinion
MOSK, J.
I concur with the result and much of the reasoning of the majority opinion and in the Chief Justice’s concurring opinion. I write separately to address an issue raised only implicitly by this case. As the majority state: “[T]he Jacobsens took the position that since Blue Ridge had determined the settlement was reasonable, it had an obligation to accept the settlement or ‘ “blow[]” ’ its policy limits. Hence, they sought to receive either the benefit of an unconditional settlement of an uncovered claim, or, in the alternative, should Blue Ridge fail to settle, the opportunity to make a bad faith claim.” (Maj. opn., ante, at p. 504.) In rejecting this position as fundamentally unfair, the majority suggest that the insured has basically two options when it disagrees with an insurer about whether to settle a case for which the insurer claims noncoverage: (1) to accept the settlement anyway, including the insurer’s reservation of rights that may make the insured liable; or (2) to assume its own defense, however financially burdensome that may be.
A third option, that would neither place the insurer in a “Catch-22” position (maj. opn., ante, at p. 502) nor place an undue burden on the insured *507 is to allow the insured to refuse settlement and still retain the insurance defense, but, consistent with that refusal, waive any right to sue the insurance company for bad faith failure to refuse a settlement. This third option would not allow a windfall for the insured, but it would permit the insured the discretion of refusing a settlement it considers unfair and for which it may ultimately be financially responsible. Indeed, the insurer offered this option in the present case. This option is in harmony with the principle that the insured should truly consent to a settlement in such a situation. (See Val’s Painting & Dry-wall, Inc. v. Allstate Ins. Co. (1975) 53 Cal.App.3d 576, 588 [ 126 Cal.Rptr. 267 ].) Without this option, the insured is forced to choose between accepting an unfair settlement for which it may be liable and having to pay its own legal expenses up front. Although as a practical matter the insured may rarely exercise this third option, and did not seek to do so in this case, it should nonetheless have it.
Werdegar, J., concurred.