Sequoia Insurance Company v. Royal Insurance Company of America

This appeal involves a dispute between a primary insurer and an excess insurer, arising out of an automobile accident and a consequent wrongful death action. Royal Insurance Company appeals the entry of summary judgment in favor of Sequoia Insurance Company in Sequoia’s action to recover the portion of the wrongful death judgment it paid in excess of policy limits. As is common in insurance disputes, the threshold issue with which we are presented is policy coverage. Beyond that, this case also presents a novel question under California law: whether in an action brought by a primary insurer, an excess insurer may raise defensively or by way of a declaratory judgment counterclaim the primary insurer’s alleged bad faith breach of the duty to settle. Finally, we must determine whether the primary insurer failed to keep the excess insurer adequately informed of the underlying litigation, and if so, whether summary judgment for the primary insurer was nonetheless proper.

BACKGROUND

The auto accident which led to this insurance dispute occurred in April 1981. Frank Ramirez was a passenger in a Dodge Ram Charger truck owned by Pleasant Prairie Farms and driven by Ronald Brock. Brock…