Insured Fails to Allege Bad Faith Damages When Settlement Was Funded by Another Insurer

A California federal district court has held that an insured did not suffer damages sufficient to support a bad faith claim for failure to indemnify because another excess insurer during a prior policy year had paid for the settlement.  Genesis Ins. Co. v. Magma Design Automation, Inc., No. 2017 WL 4642443 (N.D. Cal. Oct. 16, 2017).

An insured engaged in ten years of coverage litigation with, among others, two different first-layer excess insurers in two consecutive policy years regarding whether a settled claim was deemed first made under the first or second policy period.  The primary insurer was the same for both policy years, and it had (incorrectly) accepted a notice of circumstances as triggering coverage under the first policy period.  After two underlying class action lawsuits were filed, the primary insurer and excess insurer on the risk during the first policy period advanced the settlement payment on behalf of the insured.  During the coverage litigation, the court held that the first excess insurer could recover the settlement payment, with interest, from the second-year excess insurer.

After those rulings, the second-year excess insurer moved for summary judgment on the insured’s two remaining claims against it for breach of contract and bad faith.  The court granted its motion and held that the insured could not meet its burden of proving any damages because the insured’s other insurers had funded the settlement.  The court also rejected the insured’s argument that it incurred damages in the form of attorneys’ fees and costs in coverage litigation with other insurers, finding that those fees were not proximately caused by the second-year insurer’s alleged breach.  Finally, the court also granted summary judgment on the bad faith claim on the basis that the insured’s bad faith claim was not viable as a matter of law without a valid claim for breach of contract.