Where a liability insurer satisfied the requirements set forth in Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal.4th 489 for seeking reimbursement of an uncovered settlement from an insured, the insurer was not also separately required to give the insured a “sufficient time” to respond to the insurer’s notice of intent to settle / offer to assume the defense. ( American Modern Home Ins. Co. v. Fahmian (2011) 194 Cal.App.4th 162)
Facts
Sohail Fahmian owned Provident Housing, Inc., which was in the business of building and selling homes for profit. While Provident was in the process of constructing a home for eventual sale, a construction-site accident occurred in which Rudy Montoya was shot in the eye with a nail gun. As a result, Montoya filed a personal injury action against both Provident and Provident’s owner, Fahmian.
Fahmian tendered defense of the personal injury action to his homeowners insurer, American Modern Home Insurance Company. The American Modern homeowners policy had limits of $300,000 each occurrence, but excluded coverage for injury arising out of an insured’s “business” activities. American Modern agreed to defend Fahmian in the personal injury action under a reservation of rights, including the right to seek reimbursement of any sums that American Modern might pay on behalf of Fahmian in settlement.
Montoya offered to settle the personal injury action against Fahmian for American Modern’s $300,000 policy limit, and left the offer open until July 8, 2005. On July 1, 2005, pursuant to Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal.4th 489, American Modern sent Fahmian a letter stating that American Modern intended to accept Montoya’s policy limits settlement demand unless Fahmian agreed to either (1) undertake his own defense in the personal injury action or (2) waive any potential claims based on American Modern’s failure to settle the personal injury action within the policy limits. American Modern’s letter further stated that American Modern needed Fahmian’s response by July 6, 2005, since Montoya’s settlement offer would only remain open until July 8, 2005.
Fahmian did not respond to American Modern’s letter. American Modern thus proceeded to accept Montoya’s settlement offer by paying its $300,000 policy limit in settlement of Fahmian’s alleged liability to Montoya.
Thereafter, American Modern filed a coverage action against Fahmian seeking (1) a declaration that the American Modern homeowners policy did not cover Fahmian’s alleged liability to Montoya in the underlying personal injury action and (2) reimbursement of the $300,000 American Modern had paid to settle that action. A jury found that Montoya’s claims against Fahmian in the personal injury action were barred from coverage by the “business” activity exclusion in the American Modern homeowners policy. However, the jury also found that Fahmian did not have “sufficient time” to make a reasoned reply to American Modern’s notice of intent to settle / offer to assume the defense. Based on this latter finding, the trial court denied American Modern’s claim for reimbursement, and entered judgment in favor of Fahmian. American Modern appealed.
Holding
The Court of Appeal reversed. The appellate court noted that under Blue Ridge , an insurer may obtain reimbursement from an insured for an uncovered settlement if the insurer has (1) made a timely and express reservation rights, (2) provided express notification to the insured of the insurer’s intent to accept the proposed settlement offer, and (3) made an express offer that the insured could assume its own defense. The appellate court noted that in this case, American Modern did all of the foregoing. The appellate court declined to add an additional requirement that the insurer give the insured “sufficient time” to respond to an insurer’s settlement advisement letter issued pursuant to Blue Ridge .
The appellate court further noted that there was no appreciable difference between the time the insureds had to respond to the insurer’s letter in the Blue Ridge case, and the time Fahmian had to respond to American Modern’s letter in the present case. In both cases, the approximate seven-day time period the insurer gave the insured to respond was tied to the time limits of the third-party claimant’s settlement demand.
In short, it was clear that the American Modern homeowners policy did not cover Fahmian’s alleged liability to Montoya in the underlying personal injury action, and that pursuant to the Blue Ridge case American Modern was entitled to reimbursement from Fahmian of the uncovered settlement. The appellate court thus directed the trial court to enter judgment in favor of American Modern and against Fahmian for $300,000 plus interest.
Comment
In Blue Ridge , the California Supreme Court established specific requirements an insurer must follow in order to obtain reimbursement from an insured of an uncovered settlement. However, Blue Ridge did not contain any separate requirement that the insurer give the insured “sufficient time” to consider the insurer’s notice of intent to settle / offer to assume the defense. In the present case, the appellate court declined to read such a requirement into Blue Ridge . That is not surprising, since a third-party claimant’s settlement offer might come at any time, and will usually contain time limits over which the insurer has little or no control. Here, since the insurer had followed the specific requirements of Blue Ridge , the insurer was entitled to reimbursement from the insured of the uncovered settlement amount.