Citations
- 135 Cal. App. 4th 958
Full opinion text
Opinion
DOI TODD, J.
Appellants Certain Underwriters at Lloyd’s, London and Certain London Market Insurance Companies (collectively LMI); Stonewall Insurance Company (Stonewall); Transcontinental Insurance Company and Columbia Casualty Company (collectively CNA); First State Insurance Company, New England Reinsurance Corp., and Twin City Fire Insurance Company (collectively First State); and International Insurance Company (International) appeal from a judgment entered in favor of respondent Fuller-Austin Insulation Company (Fuller-Austin) following a phased bench and jury trial.
This action raises the issue of the effect of an insured’s bankruptcy under title 11 United States Code section 524(g) on an excess insurer’s obligations. Fuller-Austin utilized the unique provisions of that statute to resolve its liability for present and future asbestos claims. The trial court ruled that those bankruptcy proceedings not only conclusively determined Fuller-Austin’s liability but also provided a mechanism for determining the aggregate value of that liability for the purposes of indemnification. Thereafter, a jury calculated and found appellants liable for a fixed sum that constituted the amount of Fuller-Austin’s aggregate liability to present and future asbestos claimants.
Though the judgment comports with the goals of title 11 United States Code section 524(g) to ensure that all asbestos claimants are treated fairly and—to the extent possible—equally, it is inconsistent with the parties’ contractual rights and obligations under their insurance policies. Accordingly, significant portions of both the trial court’s statement of decision and the special verdict must be reversed. The bankruptcy confirmation proceedings were not an actual trial of Fuller-Austin’s liability triggering appellants’ indemnification obligations. Moreover, estimations of the individual and aggregate value of present and future asbestos claims served neither to affix nor to accelerate appellants’ indemnification obligations, and did not provide a basis for coverage of those claims to be presumed. Rather, the bankruptcy confirmation constituted a settlement of Fuller-Austin’s liability, the effect of which was subject to challenge by appellants. While we do not intend to undo the efficiencies afforded by title 11 United States Code section 524(g), we cannot conclude that the statute was intended to eradicate appellants’ rights under their insurance policies.
FACTUAL AND PROCEDURAL BACKGROUND
A. The Parties and the Insurance Policies.
From the mid-1940’s to the mid-1980’s, Fuller-Austin was involved in the installation and removal of building materials containing asbestos. In 1974, DynCorp acquired Fuller-Austin, which continued to operate as a subsidiary until it ceased operations in 1987.
Several insurance companies, including appellants, issued excess insurance policies to Fuller-Austin or DynCorp that covered periods during which Fuller-Austin was in operation. Five sets of policies are at issue in this appeal. LMI issued two categories of excess liability insurance comprised of five “London General” policies and four “Cities Service” policies covering the period from January 1966 to June 1971. Stonewall issued two excess policies covering the period from January 1973 to December 1975. CNA issued five excess or umbrella policies covering the periods from February 1977 to February 1978 and July 1981 to July 1985. First State issued three excess policies covering the period from February 1977 to February 1978 and July 1983 to July 1984. International issued one excess policy covering the period from July 1980 to July 1981.
The excess policies generally “follow form”; this means that they incorporate the provisions of the immediately underlying policies. Each of the excess policies incorporates substantially similar “loss payable provisions” that provide the excess insurer has no obligation to indemnify the insured until “after the Insured’s liability shall have been fixed and rendered certain either by final judgment against the Insured after actual trial or by written agreement of the Insured, the claimant, and the Company.” The excess policies allow but do not require appellants to defend Fuller-Austin against a claim. They similarly allow but do not require appellants to participate in the investigation, settlement or defense of any claim.
B. Fuller-Austin’s Coverage Action.
About the same time that Fuller-Austin discontinued operations in the late 1980’s, it began to face thousands of personal injury complaints filed by individuals claiming to have been injured by exposure to its asbestos materials. Fuller-Austin tendered those claims to its primary general liability insurers; they defended Fuller-Austin until it filed for bankruptcy in 1998.
In the early 1990’s, the number of complaints began to escalate dramatically. In March 1993, Fuller-Austin sent letters to its excess insurance carriers stating: “The insurers who provided primary general liability coverage have agreed to defend the claims brought against DynCorp. At this point, we are providing you with notice of those underlying claims because it appears possible that excess general liability coverage may be implicated by these or future claims upon exhaustion of the primary limits.” In response, Stonewall issued a reservation of rights letter indicating that it did not have enough information to determine whether there was coverage for the asserted losses and setting forth several possible bases under which coverage could be denied. Other insurers responded with letters requesting additional information.
In November 1994, Fuller-Austin filed the instant coverage action against approximately 20 excess insurers, seeking to establish coverage for past, present and future asbestos bodily injury claims under multiple general liability, excess and umbrella policies.
C. Fuller-Austin’s Bankruptcy.
1. Prebankruptcy negotiations.
In 1997, while the coverage action was pending, DynCorp and Fuller-Austin began to explore the possibility of Fuller-Austin’s filing for bankruptcy in accordance with title 11 United States Code section 524(g) (section 524(g)). Enacted in 1994, section 524(g) addresses the unique bankruptcy-related problems that arise in the context of asbestos mass tort litigation. The statute provides a mechanism by which an entity can transfer its assets to a trust, which is then responsible for paying asbestos claimants over time. (See 11 U.S.C. § 524(g)(2)(B).) This procedure is intended to enhance the likelihood that present and future claimants will be treated equally. Once a bankruptcy plan is confirmed under section 524(g), a permanent injunction is issued barring any further asbestos-related lawsuits against the debtor, and present and future claimants must seek compensation for their asbestos-related injuries from the trust alone. (See 11 U.S.C. § 524(g)(1).)
On October 2, 1997, Fuller-Austin invited attorneys representing asbestos claimants to a meeting scheduled on October 21, 1997. The purpose of the meeting was to explore the possibility of filing a “prepackaged” bankruptcy plan, which would require Fuller-Austin and at least 75 percent of its creditors to reach agreement on the terms of a proposed bankruptcy plan before jointly seeking court approval. (See 11 U.S.C. § 524(g)(2)(B)(ii)(V).) On October 17, 1997, Fuller-Austin notified appellants of the meeting. The letter invited them to “participate] in this settlement process in an appropriate manner” subject to the execution of a confidentiality agreement, but expressly conditioned any involvement beyond participation: “Fuller’s insurance companies have the option of directing Fuller not to engage in such negotiations or settlements, however, Fuller will accept such a direction only if accompanied by written binding commitments wherein all insurers accept tender of asbestos claim defense and asbestos claim indemnity without a reservation of rights.” Representatives from two of the excess insurance companies attended the meeting.
Fuller-Austin and asbestos claimant representatives thereafter continued to negotiate, and in June 1998, they documented their agreement in the form of a bankruptcy plan (Plan) and disclosure státement. In August 1998, Fuller-Austin received approval of the Plan from 75 percent of the asbestos claimants. Though appellants knew about the negotiations, Fuller-Austin neither sought nor obtained approval of the Plan from appellants.
2. Bankruptcy confirmation proceedings.
On September 4, 1998, Fuller-Austin filed for chapter 11 bankruptcy protection in the Delaware federal district court, seeking confirmation of the Plan prepared in accordance with section 524(g). In conjunction with the Plan, Fuller-Austin filed a disclosure statement setting forth the factual bases for the Plan. Appellants received the Plan and disclosure statement approximately two weeks after the filing.
The Plan provided for the creation of the “Fuller-Austin Settlement Trust” (the Trust) in accordance with section 524(g). The Trust assumed Fuller-Austin’s liability for all present and future asbestos claims, and Fuller-Austin and DynCorp received a full release and injunction barring any further litigation against them concerning present or future asbestos claims. In return, DynCorp contributed approximately $14 million in cash and other assets to the Trust, and Fuller-Austin contributed its insurance policies as well as its continued prosecution of this coverage action on behalf of the Trust.
The Plan created claims resolution procedures (CRP) that set forth the procedural mechanisms by which the Trust would resolve claims alleging asbestos injuries. The CRP created no “substantive right for any claimant.” According to the CRP, the Trust must determine whether to allow or disallow a claim at the time it is submitted. In general, the CRP provided that the Trust would allow a claim if the claimant demonstrated that he or she suffered from an asbestos-related illness or injury and had worked anywhere at a project site during or after Fuller-Austin’s handling of asbestos-containing material at the site. If allowed, a claim would then be assigned a predetermined “allowed liquidated value” (ALV) corresponding to one of five asbestos-related disease categories. The claimant could either accept the Trust’s determination or seek a different ruling through binding or nonbinding arbitration, or a jury trial. In view of the Trust’s limited resources, however, the CRP expressly provided that a claimant would receive only a periodically adjusted “Payment Sum Percentage” of the ALV, based on the Trust’s assets, that would amount to only a fraction of the ALV.
As originally proposed, the CRP also contained language mirroring the excess insurance policies’ indemnification provisions. Specifically, the Plan required the bankruptcy court to determine an aggregate amount of Fuller-Austin’s total asbestos liabilities to present and future claimants, and provided that the Plan’s confirmation would constitute “an adjudication of liability on the part of Fuller-Austin and the Trust for the Allowed Aggregate Asbestos Claim and to holders of Asbestos Claims, and shall be a determination of a sum that Fuller-Austin and the Trust shall be legally obligated to pay.”
Asserting that this provision was an attempt to adjudicate the issues raised by the coverage litigation, appellants filed objections to the Plan and sought to intervene in the bankruptcy proceedings. As summarized by the bankruptcy court, appellants “objected] to the confirmation of the Plan and approval of the Disclosure Statement on the grounds that confirmation of the proposed Plan would ‘summarily adjudicate the liability of excess carriers under excess insurance policies,’ thus impacting and possibly influencing the resolution of the pending Coverage Litigation and impairing the rights and obligations of [appellants] under their insurance policies.” Appellants also challenged the Plan’s criteria for proof of exposure to asbestos and disease category valuations.
As a result of appellants’ objections, Fuller-Austin unilaterally deleted the challenged language concerning any aggregate amount it would be legally obligated to pay and added a new provision that stated: “12.9.1 Maintenance of the Coverage Litigation. Notwithstanding any other provision in this Plan, all claims and defenses of any Asbestos Insurance Company that is a party to the Coverage Litigation shall be adjudicated in the Coverage Litigation, and all rights of the Asbestos Insurance Companies under the Asbestos Insurance Policies shall remain unaffected by the Plan and the Confirmation Order.”
On October 15, 1998, the bankruptcy court held the confirmation hearing and heard argument concerning appellants’ standing to intervene in the bankruptcy proceedings. First, the court proceeded with Fuller-Austin’s presentation of evidence in support of the disclosure statement and the proposed Plan, allotting Fuller-Austin one hour with no cross-examination. Two witnesses testified—a law professor who helped prepare the prepackaged Plan on Fuller-Austin’s behalf, and a valuation consultant who helped Fuller-Austin to estimate the number, cost and timing of future asbestos claims and to develop the CRP. Fuller-Austin also submitted eight affidavits from seven individuals (including the two who testified) who assisted in the negotiations and supported the Plan.
Second, the bankruptcy court heard argument concerning appellants’ standing to intervene. In view of its modification to the Plan, Fuller-Austin represented: “Our view is that these carriers simply do not have any interest as affected by this plan of reorganization. The interests of the carriers in Fuller-Austin arise through a contract between Fuller-Austin and the carriers, a contract of insurance. What we have done, to make it clear, to the extent there is any doubt, is we have, in 12.9.1, said that all of their rights under those policies are unaffected by the plan of reorganization. [|] Further, we all understand there is coverage litigation pending in California. We have tried to make clear, to the extent that that first proposition isn’t sufficient, that these proceedings have absolutely no impact on the proceedings in California in terms of the claims and defenses that those carriers have raised and are litigating in California. [1] . . . Q] I think we have made perfectly clear in our amendment to the plan of reorganization that [the carriers’] rights are not affected, and we have made perfectly clear in our amended plan that their claims and defenses in the coverage litigation is [szc] not affected.”
On November 10, 1998, the bankruptcy court issued an order finding that appellants lacked standing to appear in the bankruptcy proceedings and overruling their objections to the Plan. It concluded that appellants were “not ‘directly and pecuniarily affected’ by the proposed Plan” because their rights under the insurance policies were preserved for adjudication in the coverage litigation. Thereafter, on November 13, 1998, the bankruptcy court issued findings of fact and conclusions of law, and confirmed the Plan. The confirmation order restated section 12.9.1 of the Plan, providing that appellants’ rights under their policies were to remain unaffected by the Plan. The Plan became effective on December 11, 1998.
D. The Coverage Action Trial and Judgment.
Following Plan confirmation, Fuller-Austin resumed the coverage litigation. In the operative fifth amended complaint, Fuller-Austin alleged claims for declaratory relief, breach of contract and bad faith. Claims against many insurers were resolved by way of motion or settlement. In 2000, the trial court bifurcated the trial against the remaining insurers into a phase IA and IB bench trial and a phase II jury trial.
In phase IA, tried between December 4 and December 18, 2000, the trial court resolved two legal issues by way of a statement of decision issued on July 20, 2001. First, it determined that the excess policies generally “follow[] form,” which means that they incorporate the terms and conditions of their underlying policies. Second, it found that horizontal rather than vertical exhaustion applied to determine the point at which an excess policy would be on the risk. The court concluded “that all of Fuller-Austin’s applicable primary policies must be exhausted before any excess policy attaches.” Appellants do not challenge either of the phase IA rulings.
The trial court conducted the phase IB bench trial between September and December 2001, and issued its initial statement of decision on February 26, 2002, and a revised statement of decision on August 6, 2002. In phase IB, Fuller-Austin adopted a position it did not take in the bankruptcy proceedings; it asserted that its confirmed Plan was a final adjudication that established its liability to asbestos claimants and therefore obligated appellants to pay the full ALV established by the bankruptcy court with respect to each asbestos claim.
The trial court agreed with Fuller-Austin’s new position, ruling that “Fuller-Austin’s confirmed bankruptcy plan is a binding federal court judgment and adjudication that establishes Fuller-Austin’s liability and its legal obligations to pay damages to all pending and future asbestos claimants.” It found that the bankruptcy proceedings constituted an “actual trial” of Fuller-Austin’s liability; alternatively, it reasoned that the Plan constituted a “settlement” for which appellants’ consent was unnecessary because appellants had received notice of and an opportunity to participate in the bankruptcy proceedings. In connection with these findings, the trial court further ruled that appellants’ “insuring obligations were triggered by knowledge of asbestos liabilities potentially exceeding their attachment points and by Fuller-Austin’s request that excess insurance companies participate in the handling and settling of the asbestos lawsuits,” and that appellants “are obligated to pay the full allowed amount established by the federal court with respect to each asbestos claim, notwithstanding the fact that Fuller-Austin will only be able to pay a percentage of these values because of its bankrupt status.” With respect to the issues remaining for phase II, the trial court ruled that “[t]he asbestos liabilities adjudicated in the bankruptcy are presumed to be harm within coverage” and “[i]t is [appellants’] burden at trial to prove otherwise,” and that “[t]he determination of the ‘aggregate value’ of Fuller-Austin’s liabilities to pending and future asbestos claimants—i.e., the dollar amount of the bankruptcy court judgment against Fuller-Austin—will be determined in the jury phase of this case, based on expert testimony and statistical evidence, as is typical in assessing damages in contract or tort disputes.”
With respect to the other legal issues adjudicated in phase IB, the trial court adopted a continuous trigger of coverage, ruling that all policies in effect from the date of first asbestos exposure until the date of death or claim are triggered by an asbestos bodily injury claim. It further ruled that the excess insurers could not apportion any loss to an insolvent period at a lower coverage level; that the excess insurers were not required to drop down to respond to losses below their policies’ stated attachment points; that the excess insurers’ obligations to pay were triggered by Fuller-Austin’s legal obligation to pay losses—not its actual payment thereof; and that insurance policies issued by settled and dismissed insurance companies were deemed exhausted as a matter of law.
In September 2002, we summarily denied First State’s petition for writ of mandate challenging the trial court’s phase IB rulings. (First State Ins. Co. v. Superior Court (Sept. 25, 2002, B160737) [summary denial by order].) Before commencement of the phase II jury trial, appellants CNA, First State and International settled, reserving their right to appeal the two legal issues of whether they were obligated to provide coverage to Fuller-Austin on the basis of an estimation of the value of present asbestos claims and future demands, and whether they were obligated to indemnify Fuller-Austin for the ALV or the payment percentage received by each claimant.
Phase II began in February 2003 against LMI, Stonewall and Highlands Insurance Company (Highlands). The jury’s task was to ascertain the scope of Fuller-Austin’s present and future asbestos liabilities and to determine the obligations of the individual insurers with respect to those liabilities. The trial court instructed the jury on the basis of its phase IB mlings. Significant instructions included that “[t]he confirmed bankruptcy plan established Fuller-Austin’s liability for asbestos-related injuries, the amount of damages to which each asbestos victim is legally entitled, and the procedure for satisfying the liability”; “the asbestos bodily injury claims resolved in the bankruptcy proceedings are presumed to be harm within the coverage provided by the insurance policies issued by the insurance companies in this action”; the bankruptcy court determined that the damage amounts set forth in the Plan were reasonable; and “[e]ven if an excess insurance company has not denied coverage or refused to defend, the insurance company has a duty to accept a reasonable settlement of covered claims . . . .”
In May 2003, the jury returned a 22-question special verdict, finding: With the exception of LMI under the Cities Service policies, no insurer breached its insurance policy before confirmation of the Plan; with the exception of Stonewall under one of its policies, all insurers breached their insurance policies after Plan confirmation, causing damage to Fuller-Austin; Fuller-Austin did not fail to cooperate with the insurers or to mitigate damages; the Plan was not the product of collusion or unclean hands; and the value of Fuller-Austin’s allowed asbestos claims was $108,175,000, the value of pending but unresolved claims was $108 million and the value of future claims was $750 million. The jury allocated specific dollar amounts to both time periods and policies for present and future asbestos liability. The jury also resolved other issues specific to the Stonewall and LMI Cities Service policies.
After apportioning the jury’s award among multiple insurance policies, the trial court entered judgment on August 1, 2003. It denied motions for a new trial and judgment notwithstanding the verdict on September 18, 2003. It also awarded certain costs to Fuller-Austin.
All appellants timely appealed from the judgment; Stonewall and LMI also appealed from the postjudgment orders. Fuller-Austin filed a notice of cross-appeal from the judgment, but we dismissed its cross-appeal after it failed to file an opening brief. We consolidated the matter for briefing and decision.
DISCUSSION
Appellants’ claims may be classified into three general categories. First, appellants contend that the phase IB rulings are legally insupportable. Specifically, they contend that the bankruptcy confirmation of the Plan did not trigger their indemnity obligations because it was neither an actual trial of Fuller-Austin’s liability nor a settlement with their consent; that a jury’s estimate of Fuller-Austin’s present and future claims obligation cannot trigger their indemnity obligations because such an estimate is not an award of damages in a fixed amount; and that they cannot be required to indemnify Fuller-Austin in the amount of the ALV for each claim when—according to the Plan’s own terms—Fuller-Austin will pay a lesser amount to each claimant. Second, they contend that the jury instructions erroneously and prejudicially imposed a presumption of coverage for present and future asbestos claims and prevented the jury from determining whether the bankruptcy settlement was reasonable. Finally, appellants LMI and Stonewall contend that legal errors infected and substantial evidence did not support the verdict as it relates to certain specific policies they issued.
Resolution of the majority of these claims requires us to reconcile the provisions of section 524(g) with the language of the excess insurance policies. Our goal is to ensure that—to the extent reasonably possible—the parties have the same rights and duties that they possessed prior to bankruptcy. Because a debtor’s property rights are determined by state law, bankruptcy provides “no greater rights in property than those held by the debtor prior to bankruptcy.” (In re Coupon Clearing Service, Inc. (9th Cir. 1997) 113 F.3d 1091, 1099; see also H.R. Rep. No. 95-595, 1st Sess., reprinted in 1978 U.S. Code Cong. & Admin. News, p. 6323 [bankruptcy “is not intended to expand the debtor’s rights against others more than they exist at the commencement of the case”]; In re Jones (Bankr. E.D.Pa. 1995) 179 B.R. 450, 455 [“the owner of an insurance policy cannot obtain greater rights to the proceeds of that policy than he would have under state law by merely filing a bankruptcy petition”].) Just as bankruptcy does not enhance Fuller-Austin’s rights, nor does it minimize appellants’ obligations. (See Ins. Code, § 11580 [insurer is not relieved of its obligations because of insured’s bankruptcy or insolvency]; Haisten v. Grass Valley Medical Reimbursement (9th Cir. 1986) 784 F.2d 1392, 1403 [Ins. Code, § 11580 is aimed at preventing an insurer from avoiding responsibility for its insured’s conduct].)
Keeping these principles in mind, we turn first to provisions of section 524(g) and the courts’ application of those provisions to insurers before we address appellants’ specific claims.
I. Overview of Section 524(g) and Its Impact on Insurers.
Section 524(g) is a type of chapter 11 bankruptcy. “ ‘In amending § 524(g) in 1994, Congress intended to address the unique situation faced by asbestos debtors and their creditors, specifically envisioning that the bankruptcy plan would set aside funds to provide for future claimants.’ ” (In re G-I Holdings, Inc. (Bankr. D.N.J. 2005) 323 B.R. 583, 620.) It is the compromise of future claims that makes section 524(g) unique: Section 524(g) “is a significant departure from typical bankruptcy cases, which compromise claims existing as of the date the bankruptcy petition is filed, but not claims that arise thereafter. [Fn.] In asbestos cases, the creditor body includes not only existing or present claimants, but also a significant number of future claimants: persons who were exposed to asbestos prior to a defendant’s bankruptcy filing may not develop asbestos-related injuries until much later. Section 524(g) permits the debtor to protect itself against these ‘future’ claims, [f] Section 524(g) is therefore significant because it is the mechanism by which an asbestos defendant may shield itself from liability by diverting not only present, but also future or unknown claimants, to a limited fund for payment.” (From Free-Fall to Free-For-All: The Rise of Pre-Packaged Asbestos Bankruptcies (Winter 2004) 12 Am. Bankr. Inst. L.Rev. 441, 444 (Asbestos Bankruptcies).)
To qualify for the protection afforded by section 524(g), “a court must find that the debtor has been named in an action for damages allegedly caused by asbestos, that the debtor is likely to be subject to substantial demands for payment in the future arising out of the same or similar conduct, that the amounts and timing of such future claims are uncertain, and that permitting the pursuit of such claims outside the trust mechanism would threaten the plan’s attempts to deal equitably with current and future demands. 11 U.S.C. § 524(g)(2)(B)(i)(I), (ii)(l-ni).” (In re Combustion Engineering, Inc. (3d Cir. 2004) 391 F.3d 190, 234, fn. 45.) A debtor satisfying these criteria may propose a bankruptcy plan that provides for a trust to assume its liabilities for asbestos claims that is funded in whole or in part by the debtor’s securities and obligation to make future payments. (11 U.S.C. § 524(g)(2)(B)(i)(I)-(II).) To ensure that both present and future asbestos claimants are treated alike, “the trust will operate through mechanisms such as structured, periodic, or supplemental payments, pro rata distributions, matrices, or periodic review of estimates of the numbers and values of present claims and future demands, or other comparable mechanisms, that provide reasonable assurance that the trust will value, and be in a financial position to pay, present claims and future demands that involve similar claims in substantially the same manner.” (11 U.S.C. § 524(g)(2)(B)(ii)(V).)
To be confirmed, the section 524(g) plan must be approved by 75 percent of the claimants whose claims will be addressed by the trust. (11 U.S.C. § 524(g)(2)(B)(i)(IV)(bb).) If the plan is confirmed, the bankruptcy court issues a “channeling injunction” directing those holding prepetition claims to bring their claims against the trust established by the debtor, rather than against the debtor itself. (11 U.S.C. § 524(g)(2)(A); In re Quigley Co., Inc. (S.D.N.Y. 2005) 323 B.R. 70, 78.) Section 524(g) authorizes the issuance of a channeling injunction against a nondebtor third party, including the debtor’s insurer, when that third party contributes to the trust. (11 U.S.C. § 524(g)(4)(A)(ii)(III).) Apart from this provision, however, section 524(g) does not address any issues relating to insurance.
The absence of statutory language concerning the impact of a section 524(g) confirmation on the debtor’s insurers and insurance policies has begun to lead to litigation concerning insurer challenges to confirmation. (See Asbestos Bankruptcies, supra, 12 Am. Bankr. Inst. L.Rev. at p. 446 [noting that Fuller-Austin was one of the first significant entities to negotiate a prepackaged bankruptcy under section 524(g)].) In one case, the parties avoided such a challenge by adding a plan provision that permitted the insurers to participate in the resolution and defense of an asbestos claim at the claim allowance stage in the bankruptcy court. (In re Celotex Corp. (Bankr. M.D.Fla. 1996) 204 B.R. 586, 615.) Most published cases to date, however, sanction section 524(g) bankruptcy plans that expressly permit insurers to retain their policy rights under state law.
For example, in In re Combustion Engineering, Inc., supra, 391 F.3d 190, the bankruptcy plan provided “that nothing in the Plan ‘shall in anyway [¿ic] operate to, or have the effect of, impairing insurers’ legal, equitable or contractual rights, if any, in any respect.’ ” (Id. at p. 217.) Holding that the insurers did not have standing to challenge plan confirmation, the court concluded that this language demonstrated that the plan did not diminish the insurers’ rights or increase their burdens under the subject insurance policies and settlements, as the insurers retained their prepetition rights to dispute coverage and raise claims and defenses to payment. (Id. at pp. 217-218.) In In re Western Asbestos Co. (Bankr. N.D.Cal. 2004) 313 B.R. 456, the bankruptcy court confirmed a plan with similar language; the plan provided that the debtors’ insurance policy rights would vest in a trust and that “such vesting of Insurance Rights shall neither diminish nor impair the enforceability of any of the Asbestos Insurance Policies against a party that is not a Released Party. Neither shall the vesting of the Insurance Rights in the Trust expand those rights.” (In re Western Asbestos Co., supra, 313 B.R. at p. 462.)
Similar to the foregoing bankruptcy plans, the plan in In re Mid-Valley, Inc. (Bankr. W.D.Pa. 2004) 305 B.R. 425 provided that it would “ ‘neither diminish nor impair the rights of a party under any Asbestos/Silica Insurance Policy or the rights, if any, of any Asbestos/Silica Insurance Company to assert any claim, defense, or counterclaim in connection therewith.’ ” (Id. at p. 428.) Explaining that the insurers lacked standing to challenge the plan because they retained all their rights under their policies, the court stated: “The fact that Debtors agreed to pay more to asbestos claimants to settle their liabilities than the certain insurers think Debtors should have agreed to does not create an injury to the certain insurers. The insurers retain rights to dispute whatever they may be asked to pay in future proceedings. Moreover, Debtors’ agreement with asbestos claimants to a limit of liability does not bind the certain insurers to pay that same amount. The certain insurers can raise challenges at the appropriate time and place. The insurers’ liability under their policies is untouched.” (Id. at p. 432; see also In re A.P.I., Inc. (Bankr. D.Minn. 2005) 331 B.R. 828, 842 [insurers lacked standing to challenge plan where it expressly preserved their state law rights, providing that it did not affect “ ‘the right of any Asbestos Insurance Companies under any Asbestos In-Place Coverage’ ” and that all insurers “ ‘shall be deemed to have reserved all rights ... to contest or defend any claims against them on the merits of such claim to the extent permitted under applicable non-bankruptcy law’ ”]; compare Baron & Budd, P.C. v. Unsecured Asbestos Claimants (D.N.J. 2005) 321 B.R. 147, 157-162 [insurers held to have standing to challenge section 524(g) plan confirmation where the trust was funded primarily through insurance proceeds and plan language concerning the impact on insurers remained in flux].)
One would expect the logical consequence of the foregoing bankruptcy plan language to be state law coverage actions involving asbestos claims. But we have not located—nor have the parties cited—any case in the state courts resolving the state law issues left open by a section 524(g) bankruptcy plan that expressly provides it does not affect the debtor’s and insurer’s policy rights. We therefore turn to the first impression issues raised by the coverage action here.
II. The Phase IB Statement of Decision.
A. Standard of Review and Rules of Policy Interpretation.
Appellants challenge the trial court’s interpretation of their insurance policies as they relate to the bankruptcy confirmation under section 524(g). The interpretation of an insurance policy is a question of law which we review de novo. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18 [44 Cal.Rptr.2d 370, 900 P.2d 619]; Safeco Ins. Co. of America v. Parks (2004) 122 Cal.App.4th 779, 789 [19 Cal.Rptr.3d 17]; Hendrickson v. Zurich American Ins. Co. (1999) 72 Cal.App.4th 1084, 1089 [85 Cal.Rptr.2d 622].) But “to the extent the trial court had to review the evidence to resolve disputed factual issues, and draw inferences from the presented facts, an appellate court will review such factual findings under a substantial evidence standard.” (Shapiro v. San Diego City Council (2002) 96 Cal.App.4th 904, 912 [117 Cal.Rptr.2d 631].)
In general, we interpret insurance policies using rules of contract interpretation. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264 [10 Cal.Rptr.2d 538, 833 P.2d 545].) In Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115 [90 Cal.Rptr.2d 647, 988 P2d 568], the court summarized those rules: “ ‘While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.’ [Citation.] Thus, ‘the mutual intention of the parties at the time the contract is formed governs interpretation.’ [Citation.] If possible, we infer this intent solely from the written provisions of the insurance policy. [Citation.] If the policy language ‘is clear and explicit, it governs.’ [Citation.] [f] When interpreting a policy provision, we must give its terms their ‘ “ordinary and popular sense,” unless “used by the parties in a technical sense or a special meaning is given to them by usage.” ’ [Citation.] We must also interpret these terms ‘in context’ [citation], and give effect ‘to every part’ of the policy with ‘each clause helping to interpret the other.’ [Citations.]” (Accord, AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 821-822 [274 Cal.Rptr. 820, 799 P.2d 1253].)
B. The Effect of the Bankruptcy Court’s Confirmation of the Plan.
The focus of the trial court’s statement of decision in phase IB was the impact of the bankruptcy court’s section 524(g) Plan confirmation on appellants’ indemnity obligations. In general, those obligations arise from the policies’ “loss payable” provisions, which appear in each of the excess policies in substantially similar language. Those provisions generally provide that the excess insurer has no obligation to indemnify the insured until “after the Assured’s liability shall have been fixed and rendered certain either by final judgment against the Assured after actual trial or by written agreement of the Assured, the claimant, and [insurer].”
Finding that the bankruptcy confirmation satisfied the “actual trial” requirement of the loss payable provision, the trial court stated: “[T]he Court concludes that the confirmed Bankruptcy Plan (‘Plan’) served to establish Fuller-Austin’s liability for asbestos-related injuries, the quantum of damages to which each asbestos victim is legally entitled, and the procedure for satisfying the liability. . . .” “The policies pay legal obligations after adjudication or compromise (i.e., settlement). The confirmation of the plan of reorganization is, as a matter of law, a judgment. . ..[][]... [1] .. . [and] the bankruptcy adjudication satisfies the two components of an ‘actual trial’: ‘(1) an independent adjudication of facts based on an evidentiary showing; and (2) a process that does not create the potential for fraud and abuse.’ [Citations.]” The trial court found that the bankruptcy court’s independent review of the Plan and specific findings confirming the Plan constituted an actual trial within the meaning of the policies.
1. Plan confirmation was not an actual trial.
The trial court’s finding that the confirmation proceedings amounted to an actual trial is contrary to California law. In Wolkowitz v. Redland Ins. Co. (2003) 112 Cal.App.4th 154 [5 Cal.Rptr.3d 95] (Wolkowitz), this district held that a bankruptcy court order allowing a claim against an insured did not constitute a judicial finding that the insured was liable in the claimed amount. (Id. at p. 166.) In Wolkowitz, the insured’s bankruptcy trustee and the claimant reached an agreement as to the amount of the claim. At a hearing, the bankruptcy court granted the trustee’s unopposed motion to approve the agreement and allow the claim. (Id. at p. 159.) The trustee then filed an action for breach of contract against Redland, the insurer, alleging “that the bankruptcy court’s allowance of [the] claim constituted a ‘final judgment’ against [the insured] and that Redland is liable to the trustee in that amount.” (Ibid.)
Affirming the trial court’s sustaining of Redland’s demurrer, the appellate court reasoned that “a bankruptcy court allowance of a claim does not provide sufficient assurance that a stipulated claim, approved without objection and without a contested evidentiary hearing, will accurately or reliably reflect the debtor’s actual liability on the claim.” (Wolkowitz, supra, 112 Cal.App.4th at p. 166.) The Wolkowitz court analogized these circumstances to those in Hamilton v. Maryland Casualty Co. (2002) 27 Cal.4th 718 [117 Cal.Rptr.2d 318, 41 P.3d 128] (Hamilton), where the court concluded that a stipulated judgment, confirmed in good faith pursuant to Code of Civil Procedure section 877.6, “did not amount to a judicial finding that the insured was actually liable in the agreed amount because (1) there was no evidentiary hearing to determine the insured’s liability, (2) the settlement resulted from negotiation rather than factfinding, and (3) the purpose of a good faith determination is to ensure that the settling tortfeasor pay no less than its proportionate share of liability, while the insurer’s concern is that the insured pay no more than its share. (Hamilton, supra, 27 Cal.4th at pp. 729-730 [117 Cal.Rptr.2d 318, 41 P.3d 128].)” (Wolkowitz, supra, 112 Cal.App.4th at p. 163.) In the absence of a judicial finding after a contested evidentiary hearing, Wolkowitz concluded that the order granting the claim allowance may bind the debtor insured, but not the insurer. (Id. at p. 165.)
Like the claim allowance hearing in Wolkowitz, the bankruptcy confirmation proceedings here contained none of the attributes of an actual trial. The confirmation hearing was not a contested evidentiary hearing. Indeed, the bankruptcy court expressly limited the scope of the hearing to Fuller-Austin’s one-hour presentation of evidence in support of disclosure and the proposed Plan, without any cross-examination. Moreover, the “evidence” offered during the hearing did not address Fuller-Austin’s liability; rather, the testimony focused on the Plan’s fairness to the claimants. Further, the Plan was the result of negotiation—not factfinding. As indicated in the disclosure statement and repeated in the bankruptcy court findings, the Plan developed during four months of intense negotiations between DynCorp, Fuller-Austin and representatives of present and future asbestos claimants. Additionally, the key purpose of the bankruptcy court’s findings was to ascertain the Plan’s good faith and reasonableness as to the asbestos claimants. (See, e.g., In re General Teamsters, Local 890 (Bankr. N.D.Cal. 1998) 225 B.R. 719, 728-729 [for chapter 11 plan to be confirmed, it must exhibit fundamental fairness in dealing with creditors].) The bankruptcy court intentionally did not address the Plan’s fairness to appellants, as it found that they were “not ‘directly and pecuniarily affected’ ” by the Plan.
Though both Hamilton and Wolkowitz arose in a different factual context— where the absence of a judicial finding of liability precluded the insureds from seeking damages for their insurers’ alleged bad faith refusal to settle—we can discern no reasoned basis to depart from the conclusion reached in those cases that court confirmation of a negotiated settlement lacks the attributes of an actual trial. (See Hamilton, supra, 27 Cal.4th at p. 729; Wolkowitz, supra, 112 Cal.App.4th at pp. 165-166.)
The two California cases relied on by the trial court do not compel a different result. Pruyn v. Agricultural Ins. Co. (1995) 36 Cal.App.4th 500 [42 Cal.Rptr.2d 295] (Pruyn) simply foreshadowed Hamilton by finding that a stipulated judgment determined to be made in good faith pursuant to Code of Civil Procedure section 877.6 did not exhibit the attributes of an “actual trial”: “ ‘(1) an independent adjudication of facts based on an evidentiary showing; and (2) a process that does not create the potential for abuse, fraud or collusion.’ ” (Pruyn, supra, at p. 517.) At best, such a judgment would be entitled to evidentiary weight as against an insurer that wrongfully refused to defend its insured. (Id. at pp. 527-529.) Pruyn relied on National Union Fire Ins. Co. v. Lynette C. (1994) 27 Cal.App.4th 1434 [33 Cal.Rptr.2d 496] (Lynette C.), the second case cited by the trial court, for its two indicia of an “actual trial.” While Lynette C. bears some superficial similarity to the instant action to the extent that the trial involved a one- and one-half hour uncontested presentation of evidence, any resemblance ends there. In Lynette C., unlike here, the trial court was asked to and did make independent findings on liability and damages. (Id. at pp. 1449-1450.) The appellate court expressly contrasted the situation where “the injured party and the insured resolved the issues of liability and damages by agreementconcluding that “the uncontested proceeding involved a court independently adjudicating the facts based on an array of evidence.” (Id. at pp. 1445, 1451.) Significantly, Lynette C. further found that the trial court proceeding did not create the potential for fraud or collusion, both because the insurer benefited from a nondisclosure agreement that sealed its insured’s court records, thereby limiting the scope of future potential plaintiffs, and because there was significant evidence of the insurer’s participation in the events leading up to the uncontested proceeding. (Id. at pp. 1451-1452.)
The confirmation proceedings here possessed neither of the Lynette C. attributes. Fuller-Austin and the asbestos claimant representatives had resolved all issues before seeking confirmation, and appellants did not participate in prehearing negotiations and were precluded from participating in the confirmation hearing. Accordingly, the bankruptcy court confirmation proceedings were not an “actual trial” within the meaning of the insurance policies.
2. Plan confirmation was a settlement, the effect of which appellants may challenge on retrial.
Our conclusion that the confirmation proceedings were not an actual trial does not end our inquiry. Rather, it leads us to the further question of whether Plan confirmation constituted an agreement or settlement under the policies. According to the policies’ loss-payable provisions, appellants must indemnify only settlements made with their written consent. Though concluding it need not reach the issue of consent given its finding that the confirmation proceedings were an “actual trial,” the trial court issued conclusions of law and made factual findings that, alternatively, Fuller-Austin was not required to obtain appellants’ consent before settling with the asbestos claimants.
In connection with its conclusion that the prebankruptcy negotiations triggered appellants’ obligations to Fuller-Austin, the trial court relied on several related legal principles: “An excess insurance company has a duty to accept reasonable settlements on its policyholder’s behalf’; “[e]ven if an excess insurance company has not denied coverage or refused to defend, the insurance company has a duty to accept a reasonable settlement, and its refusal to settle may give rise to the insured’s action for reimbursement of the settlement”; and “[a]n excess insurance company’s right to participate in settlement negotiations and to consent to settlements only arises where it has acknowledged coverage. If an excess insurance company reserves its right to contest coverage, the policyholder is excused from any provision requiring insurance company consent.” In addition to these principles, the trial court expressly adopted the following principles with respect to the issue of consent: “ ‘An insurer that has erroneously denied coverage cannot avoid liability for its failure to settle or defend by claiming lack of opportunity to do so. By denying coverage, the insurer waives its right to control defense of the third party action.’ ...[][]... ‘[W]here an insurer does not respond to notice from the insured that it intends to settle with an adversary, the insurer may not then invoke a clause in the policy requiring the insured to obtain approval prior to settling any claims.’ ”
In terms of factual findings, the trial court characterized the undisputed evidence as establishing that, as of February 1993, Fuller-Austin gave notice to appellants that it may be subject to asbestos claims that would impact its excess and umbrella insurance coverage; that thereafter, it gave appellants notice of potential settlements that it believed would impact their coverage; and that appellants did not pay any portion of the settlements prior to bankruptcy. The trial court also found it “undisputed that (i) Fuller-Austin provided notice to [appellants] that it would entertain global settlement negotiations with representatives of both present and future asbestos claimants with a goal to accomplish a global settlement in conjunction with a filing for bankruptcy, and (ii) Fuller-Austin provided notice to [appellants] of the bankruptcy plan and hearings.”
Applying the foregoing legal principles to the undisputed evidence, the trial court found that Fuller-Austin complied with its policy obligations by giving appellants notice of the settlement, that appellants had a duty to Fuller-Austin to accept a reasonable settlement, and that they acted at their own peril by refusing to accept the settlement. In other words, by reserving their rights instead of acknowledging coverage and assuming the defense of the matter, appellants surrendered their right to rely on any policy provision requiring their consent to a settlement.
Appellants do not dispute that Fuller-Austin’s bankruptcy reorganization constituted a settlement. Documents filed in the bankruptcy court uniformly characterized the Plan as a “settlement.” For example, one section of the disclosure statement captioned “Plan Negotiations” outlined the negotiation process that resulted in the Plan documents, while the following section captioned “Global Settlement” stated: “These negotiations ultimately resulted in a global settlement by Fuller-Austin, DynCorp, the Committee and the Legal Representative which called for the filing of a prepackaged plan of reorganization by Fuller-Austin in the Bankruptcy Court.” Similarly, the bankruptcy court findings provided: “The Plan Documents, including without limitation, the CRP, are the product of negotiations and represent a non-collusive settlement among the Debtor, the Committee and the Legal Representative (the ‘Global Settlement’).”
The settlement, however, is unique to the extent that it establishes criteria and procedures for resolving asbestos claims, but does not serve actually to resolve any claim. Nonetheless, because the Plan is designed to provide a single mechanism for resolving all present and future claims against Fuller-Austin, and, more importantly, because Fuller-Austin has elected to characterize the Plan as a binding resolution of its liability, we find that it possesses indicia of a settlement. Fuller-Austin’s conduct distinguishes this matter from In re A.P.I., Inc., supra, 331 B.R. 828. There, the court rejected the insurers’ argument that they had a right to consent to a settlement effected by a plan confirmation under section 524(g). It determined that the insurers’ fear of collateral consequences stemming from the settlement was unfounded, because the plan expressly provided that it had no binding effect in any other forum. (In re A.P.I., Inc., supra, at pp. 844—846.) Though the Plan here contains similar language indicating that appellants’ rights are unaffected by the Plan, appellants’ concerns regarding the effect of the settlement are well founded in view of the successful position taken by Fuller-Austin below that confirmation of the section 524(g) Plan was a determination of its liability binding on appellants.
It is undisputed that Fuller-Austin did not obtain appellants’ consent to the Plan. Appellants contend that the trial court misapplied the law in concluding that they surrendered their right to consent simply by reserving their right to contest coverage. They assert that only an insurer that has breached its duty to an insured by erroneously denying coverage or a defense waives its right to consent. On an abstract level, their position is correct. California law provides that where an insurer provides a defense to its insured—even under a reservation of rights—the insured may not settle the matter without its insurer’s consent. (Safeco Ins. Co. v. Superior Court (1999) 71 Cal.App.4th 782, 787 [84 Cal.Rptr.2d 43] [“When the insurer provides a defense to its insured, the insured has no right to interfere with the insurer’s control of the defense, and a stipulated judgment between the insured and the injured claimant, without the consent of the insurer, is ineffective to impose liability upon the insurer”]; accord, Low v. Golden Eagle Ins. Co. (2003) 110 Cal.App.4th 1532, 1546-1547 [2 Cal.Rptr.3d 761]; Wright v. Fireman’s Fund Ins. Companies (1992) 11 Cal.App.4th 998, 1024 [14 Cal.Rptr.2d 588].) Conversely, “if the insurer wrongfully refuses to defend, leaving the insured to his own resources to provide a defense, then the insurer forfeits the right to control settlement and defense. In that event, the insured is free to settle the lawsuit on his own, and the insurer is bound by a stipulated judgment. [Citations.]” (Safeco Ins. Co. v. Superior Court, supra, 71 Cal.App.4th at p. 787; see also United Services Automobile Assn. v. Alaska Ins. Co. (2001) 94 Cal.App.4th 638, 644 [114 Cal.Rptr.2d 449] [“when an excess insurer denies excess coverage for a third party claim, it waives the right to challenge the reasonableness of the primary insurer’s settlement of the claim”].)
Summarized, California law provides that a defending insurer must consent to a settlement in order for there to be coverage, but “if an insurer ‘erroneously denies coverage and/or improperly refuses to defend the insured’ in violation of its contractual duties, ‘the insured is entitled to make a reasonable settlement of the claim in good faith and may then maintain an action against the insurer to recover the amount of the settlement . . . .’ [Citation.]” (Isaacson v. California Ins. Guarantee Assn. (1988) 44 Cal.3d 775, 791 [244 Cal.Rptr. 655, 750 P.2d 297].) The trial court erred in finding that these principles mandated the conclusion that appellants had surrendered their right to consent solely by reserving their rights and not undertaking the defense of the matter. An insurer does not breach any duty to the insured merely by reserving its rights under the policy. (Prichard v. Liberty Mutual Ins. Co. (2000) 84 Cal.App.4th 890, 895, 908 [101 Cal.Rptr.2d 298].) Thus, by reserving their rights to contest coverage, appellants did not wrongfully deny coverage in violation of their policies. Moreover, appellants did not breach any duty to defend Fuller-Austin, as their policies did not contain any defense obligations. Finally, the jury verdict further establishes that appellants did not relinquish their right to consent to a settlement by reason of any breach of the policies. The jury responded “Did Not Breach” in answer to the question “Did any defendant breach its insurance contract(s) with Fuller-Austin before confirmation of Fuller-Austin’s Bankruptcy Plan on November 13, 1998?” Accordingly, neither the law nor the facts support the trial court’s conclusion that appellants waived their right to consent to the Plan because they breached their policies by erroneously denying coverage or refusing to defend.
On the other hand, because appellants were neither acknowledging coverage nor providing a defense, and therefore were in no way exercising control over the asbestos claims brought against Fuller-Austin, we find it difficult to permit appellants to rely, without qualification, on a consent provision that is designed to protect defending insurers. (See, e.g., Low v. Golden Eagle Ins. Co., supra, 110 Cal.App.4th at pp. 1546-1547 [defending insurer not bound by settlement negotiated by insured without insurer’s consent].) Indeed, appellants have not directed us to a case holding that a nonbreaching excess insurer with knowledge of an impending settlement may decline to participate in settlement negotiations, yet then rely on the policy’s consent provision to avoid responsibility under the settlement.
An insurer and an insured owe reciprocal duties of good faith to one another. (Commercial Union Assurance Companies v. Safeway Stores, Inc. (1980) 26 Cal.3d 912, 918 [164 Cal.Rptr. 709, 610 P.2d 1038] (Safeway Stores); Diamond Heights Homeowners Assn. v. National American Ins. Co. (1991) 227 Cal.App.3d 563, 578 [277 Cal.Rptr. 906] (Diamond Heights).) The nature of each party’s duty is to refrain from doing anything that would injure the other’s right to receive the benefits of the contract. (Safeway Stores, supra, 26 Cal.3d at p. 918.) In view of the nature of excess insurance, the insured has no duty to an excess insurer to accept or reject a settlement offer that protects the insurer from liability. (Id. at pp. 919-921.) In other words, an excess insurer “has no legitimate expectation that the insured will ‘ “give at least as much consideration to the financial well-being” ’ of the insurance company as he does to his “ ‘own interests’ ” [citation].” (Id. at p. 919.) On the other hand, an excess insurer, although not contractually obligated to take an active part in the defense of an insured, still owes its insured a duty of good faith when faced with an offer of settlement that exhausts the underlying policy limits. (Kelley v. British Coml. Ins. Co. (1963) 221 Cal.App.2d 554, 563 [34 Cal.Rptr. 564] [excess insurer “obviously under a duty to exercise good faith toward its insured in considering any offer of compromise within the limits of its policy”].)
Diamond Heights provides the most analogous application of these good faith principles as between an excess insurer and its insured. There, a primary insurer sued an excess insurer, seeking contribution toward a stipulated judgment, and the excess insurer (Central) moved for summary judgment on the ground that the settlement violated a policy provision—a “no-action” clause—requiring its consent. (Diamond Heights, supra, 227 Cal.App.3d at pp. 570-571.) In the settled action, an insured developer had been sued for construction defects. Its primary insurer provided a defense and notified Central that settlement demands exceeded primary coverage and that it was likely primary policy limits would be exhausted. (Id. at pp. 569-570, 574.) Central responded by investigating the case, and thereafter reserving its rights under the policy. (Id. at p. 575.) A few months later, defense counsel notified Central that both its assessment of the repair work and the plaintiffs’ settlement demand exceeded primary policy limits, and sought information on Central’s position. Though Central offered to contribute a nominal sum toward settlement, the matter settled on the first day of trial, without Central’s contribution and with its objection to the settlement on the record. (Ibid.) Defense counsel then sought and obtained an order confirming a good faith settlement pursuant to Code of Civil Procedure section 877.6. The trial court found that the settlement was reasonable and not the product of fraud or collusion, thereby overruling Central’s objections on those grounds. (Diamond Heights, supra, at p. 575.)
Central’s summary judgment motion was premised on the notion that a nonbreaching insurer acts within its contractual rights “whenever it refuses to voluntarily settle a claim and insists on adjudication of the matter on the merits. [Citation.]” (Diamond Heights, supra, 227 Cal.App.3d at p. 576.) Though the trial court concluded that summary judgment was warranted, the appellate court reversed. Significantly, it framed the dispositive issues as: “Were the primary insurers entitled to settle the case for an amount which invaded excess coverage without the excess insurer’s consent? Conversely, did the excess insurer have the absolute right under [the policy] to object to and therefore preclude any settlement which invaded excess coverage, even if reasonable and made in good faith, thereby compelling the primary insurer to continue the litigation and provide a defense through trial?” (Id. at p. 580.) The court concluded that, subject to certain conditions, “a primary insurer may negotiate a good faith settlement of a claim in an amount which invades excess coverage, and that the primary insurer may enter into such settlement binding upon the excess insurer without the excess insurer’s consent,” notwithstanding a policy provision requiring consent to a settlement. (Ibid.)
The Diamond Heights court explained that the good faith duties owed by an excess insurer include the obligation to evaluate settlement options realistically and in good faith where a claim may exceed primary policy limits. (Diamond Heights, supra, 227 Cal.App.3d