Harp v. Converium Insurance (North America), Inc.

MEMORANDUM

1. Under California law, the implied covenant of good faith and fair dealing requires insurers to accept reasonable settlement offers within policy limits. Comunale v. Traders & Gen. Ins. Co., 50 Cal.2d 654 , 328 P.2d 198, 201 (1958). However, no breach occurs if an insurer refuses to accept a settlement that does not release all of its insureds, since an insurer owes a duty to each insured and “cannot favor the interests of one insured over the other.” Lehto v. Allstate Ins. Co., 31 Cal.App.4th 60 , 36 Cal.Rptr.2d 814, 821-22 (1995); accord Strauss v. Farmers Ins. Exch., 26 Cal.App.4th 1017 , 31 Cal.Rptr.2d 811, 814 (1994); see also Lewis v. Telephone Emps. Credit Union, 87 F.3d 1537 , 1545 (9th Cir.1996) (mandating that federal courts follow state intermediate appellate court decisions where no decision from the state’s highest court is on point and there is “no convincing evidence” that the highest court would decide differently). Because Douglas Harp’s policy-limit demand expressly excluded Mesa Contracting, Converium was obligated to accept the settlement only if Mesa was not an insured party; if Mesa was an insured party under the policy, then Converium properly…