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Case looks at an insurer’s failure to settle before litigation ensues

On Behalf of | Jun 16, 2022 | Firm News |

Another post in our series examining 2021 insurance law cases in California. This particular case is Planet Bingo LLC v. Burlington Insurance Company. Planet Bingo is a United States company that designed gaming devices and then contracted with companies in other places to supply these devices to interested parties.

Here, Planet Bingo contracted with a company in the United Kingdom, Leisure Electronics Limited, to distribute machines to a bingo hall.  The agreement between Planet Bingo and Leisure stated that any legal issues would be resolved in the U.K. courts. Unfortunately, a fire that was believed to have been caused by the devices occurred at a bingo hall in the U.K.

A Denied Demand

Planet Bingo had an insurance policy with Burlington, but that policy only covered suits in the U.S. and Canada. Leisure was insured by AIG in the U.K. On behalf of Leisure, AIG had settled the claim with the bingo hall and, in exercise of its subrogation rights, asked Burlington to reimburse AIG for the $1.6M it paid. The applicable limit of the Burlington policy issued to Planet Bingo was $1M.  Burlington did not respond to the demand and, in fact, four days later denied coverage at least in part because it believed that any claim against Planet Bingo would have to be brought in the U.K. Planet Bingo informed AIG of Burlington’s coverage position.  Not surprisingly, AIG then sued Planet Bingo in a California court. Eventually the case settled for Burlington’s policy limit.

Planet Bingo believed that Burlington’s long-delay in resolving AIG’s claim, including its refusal to respond to AIG’s excess-limits, pre-suit demand, constituted a breach of Burlington’s duty to settle. Planet Bingo further alleged that AIG’s misconduct caused Planet Bingo substantial harm, including damage to its business reputation that was so severe Planet Bingo was forced to close its U.K. operations.

The Appellate Court Decision

Burlington moved for summary judgment, contending that it could not be held liable for breach of its duty to settle by failing to respond to AIG’s $1.6M demand, since the demand was indisputably more than its limits. While the trial court was persuaded, the appellate court was not. Based upon the testimony proffered by Planet Bingo’s retained expert, the appellate held that Burlington had potentially breached its duty to settle. The court reasoned that AIG’s demand to Burlington, even though it was for a sum in excess of Burlington’s applicable policy limit, triggered Burlington’s duty to settle (at least potentially), because (1) it was a subrogation demand and Planet Bingo’s expert averred that such subrogation demands “offer[] a clear invitation to negotiate a settlement for less than that amount …” and (2) there is a “very well known industry custom in such subrogation claims of accepting policy limits for a full release of the insured.”

Given such testimony, the appellate court concluded that there was a triable issue of fact as to whether the AIG pre-suit, excess-limit demand represented an opportunity to settle within the policy limits. The court further noted that Burlington responded to the demand by denying coverage less than a month later. “Thus, at this point, Burlington could be liable for bad-faith claims handling, including failure to settle.”

Key Takeaways

This case underscores the potential breadth of an insurance carrier’s duty to settle. It also emphasizes the importance of insurance carriers not ignoring pre-suit demands or demands for sums more than the policy limits. Bottom line is that an insurer’s failure to pro-actively seize on settlement offers, irrespective of when they are made and irrespective of the amounts, can give rise to a bad faith claim in some circumstance. Insureds need also be aware of its carrier’s obligations so that the insured can effectively press the carrier to protect the insured’s interests.

Knowing how to navigate these issues is extremely important. If you or your business is facing a claim, and your insurer is not proactively protecting your interests, please contact our team at McLeod Law Group to see if we can help.