Insurer Told To “Lie In the Bed It Made” After Defending Party Not Its Named Insured
In the case of Essex Insurance Company v. Heck, No. F058139 (July 29), Essex provided a defense to a defendant in a personal injury action who was not its named insured, but did not discover its mistake until after judgment was entered following a jury verdict in the plaintiff’s favor. Litigation followed over Essex’s obligation to pay the judgment. Essex eventually entered into a global settlement with the plaintiff that resulted in the dismissal of three lawsuits, including the personal injury action and a bad faith action plaintiff brought against Essex, in exchange for a lump sum payment. The settlement agreement, however, did not allocate the payment among the three lawsuits or resolve issues regarding the identify of Essex’s insured.
Essex then sought indemnity from Dr. Richard Heck, who had treated the plaintiff in the personal injury action, through equitable subrogation, for his proportionate liability for the amount Essex paid in settlement. Dr. Heck filed a summary judgment motion, which the trial court granted on the grounds that Essex had waived any claim for equitable subrogation. The trial court also awarded Dr. Heck his expert witness costs. On appeal, Essex challenged both the judgment and the costs order.
The Fifth Appellate District affirmed. The Court noted that the loss Essex incurred — a $700,000 payment — is not the same as the loss incurred by the party Essex defended. Payment was made on a global basis to resolve all issues. Since the settlement agreement did not allocate among the various claims, in order for Essex to prove that it compensated an insured for the personal injury portion of the settlement and the amount of such compensation, Essex had to resort to evidence outside the settlement agreement. The Court found that was an impossible task. Such issues were riddled with mediation and attorney client privilege issues. Essex’s failure to resolve the issue regarding the identity of the insured and to apportion the amount paid out among his various claims placed Dr. Heck in the inequitable position of having to show that Essex did not stand in its insured’s shoes without access to the evidence necessary to do so. The Court therefore upheld the trial court’s decision Essex had impliedly waived its right to indemnification, citing USAA v. Alaska Insurance Co. (2001) 94 Cal. App. 4th 628 where such an implied waiver was found in a claim against an excess insurer when the primary had assumed the defense and settled within policy limits. The Court also upheld the expert witness award to Dr. Heck on the basis that he had made a proper Code of Civil Procedure Section 998 offer even though it would have given Essex no net recovery; the Court found the reasonableness of such an offer cannot be determined solely by its amount, but must be based, rather, on all the circumstances at issue. Here, the Court wrote, Essex failed to establish that Dr. Heck’s offer was unreasonable and, in the end, recovered nothing from him.
July 29, 2010
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