Olson

On June 16, 1986, plaintiff C. Dean Olson filed this bad faith suit against defendant insurer, Federal Insurance Company (hereinafter Federal), to recover attorney fees of approximately $300,000 plaintiff Olson had incurred in connection with four lawsuits while plaintiff was a director of Olson Farms, Inc. (Olson Farms). Defendant Federal had issued a policy providing claims protection for Olson Farms’ board of directors, officers and for Olson Farms itself.

Defendant insurer had refused to pay plaintiff’s attorney fees, asserting there was no coverage and that plaintiff had incurred the fees without obtaining Federal’s consent, in violation of a provision in the policy requiring such consent. Prior to filing this suit, plaintiff obtained assignment from Olson Farms of any rights involved in the four lawsuits that the corporation had with respect to Federal’s policy of insurance.

In addition to claiming that Federal had breached the insurance contract, plaintiff’s complaint also alleged breach of the covenant of good faith and fair dealing and violation of Insurance Code section 790.03, and sought both compensatory and punitive damages.

Defendant Federal answered the…