Commercial Union Assurance Companies v. Safeway Stores, Inc.
Supreme Court of California
610 P.2d 1038 (1980)
Safeway (defendant) had layered insurance: primary coverage up to $50,000, self-insurance from $50,000 to $100,000, and excess coverage above $100,000 through Commercial Union and Mission Insurance (plaintiffs). A lawsuit against Safeway resulted in a $125,000 judgment, of which the excess carriers paid $25,000; they then sued Safeway and its primary insurers, claiming the case could have settled for under $100,000, and alleging negligence and breach of the duty of good faith. Safeway's demurrer was sustained, the plaintiffs didn't amend, and the case was dismissed.
Whether an insured owes a duty to its excess-liability insurance carrier to accept a settlement below the threshold amount of the excess-liability insurance carrier's exposure where it is likely that the insured will be found liable for an amount greater than the settlement amount.