[00:00:00] Speaker 00:
And I'll call the last case set for argument this morning is Garcia and Valencia versus Geico Casualty Insurance Company.

[00:00:36] Speaker 00:
You may proceed, Council.

[00:00:38] Speaker 01:
Thank you, Your Honors.

[00:00:39] Speaker 01:
Good morning.

[00:00:40] Speaker 01:
I'd like to save three minutes for rebuttal, if I may.

[00:00:42] Speaker 01:
My name is Ben Cimino.

[00:00:44] Speaker 01:
I represent the plaintiffs and appellants.

[00:00:47] Speaker 01:
I'd like to touch on two points with my time today, if I may.

[00:00:50] Speaker 01:
The first is that there are tribal issues regarding whether GEICO reasonably regarded Hernandez as an additional insured under the Herrera policy.

[00:01:02] Speaker 01:
And second, even if Geico did reasonably regard Hernandez as an additional insured, there are tribal issues regarding whether Geico reasonably concluded that settling Herrera out for his policy limits would have left Hernandez bereft of coverage.

[00:01:17] Speaker 03:
Let me take the second issue first.

[00:01:19] Speaker 03:
Sure.

[00:01:19] Speaker 03:
Because there is California case law, which I take it you don't contest.

[00:01:24] Speaker 03:
You don't ask us to come up with a different California rule that says that an insurer

[00:01:32] Speaker 03:
does not breach the implied covenant of good faith and fair dealing by making a policy limits offer, but demanding in return a release of all of its insureds.

[00:01:46] Speaker 03:
So if Hernandez is appropriately an insured, I'm having great difficulty seeing what the factual, what issue proved to prevent summary judgment.

[00:01:56] Speaker 03:
Would you help me with that first?

[00:01:57] Speaker 01:
Sure, Your Honor.

[00:01:58] Speaker 01:
So my response to that is that there is case law that actually qualifies that a little bit and says that if the settlement would offset the insurance, the additional punitive insurance liability, then it's a non-issue.

[00:02:15] Speaker 01:
And that case law is both from this court and from California.

[00:02:19] Speaker 01:
And it's the Parks and Flint cases, which we cited on page seven.

[00:02:23] Speaker 01:
and 13 through 15 of our apply, and then the Hundley case, which we discussed in both briefs.

[00:02:28] Speaker 01:
And those cases stand for the premise that here, if Geico had paid plaintiffs $15,000, the limits under Herrera's policy, that would have offset Hernandez's exposure.

[00:02:41] Speaker 01:
and not only offset his exposure, it would have extinguished it, because by law, his exposure was capped at that same $15,000.

[00:02:49] Speaker 03:
So, this is... How would it have extinguished his exposure?

[00:02:54] Speaker 01:
Sure, because under California law, and here I'm referencing specifically its vehicle code, California vehicle code 17151A,

[00:03:07] Speaker 01:
And 17151A says, outside of the employer employee context, okay, this doesn't apply to like Domino's pizza drivers, but in the ordinary household context, like this one, an owner, if they're just liable by virtue of being an owner of a vehicle, their liability is capped at $15,000.

[00:03:26] Speaker 00:
Right, 17150 caps liability at $15,000.

[00:03:32] Speaker 00:
$15,000 for an owner who is vicariously liable.

[00:03:37] Speaker 00:
Was there any other theory alleged other than vicarious liability in this case?

[00:03:42] Speaker 01:
No.

[00:03:43] Speaker 00:
And was there a possibility of amendment to add something else such as negligent entrustment?

[00:03:48] Speaker 00:
Was Geico vulnerable to that risk?

[00:03:51] Speaker 01:
I suppose there's always that possibility, but it's GEICO that wants to come in here and use the four corners of the complaint as the be-all end-all of their coverage determination.

[00:04:01] Speaker 01:
And so we say, if that's what you're going to do, well, then you have to look at it as it stands.

[00:04:05] Speaker 01:
And as it stands, it's just simply alleging an ownership vicarious liability theory against Hernandez, which is by law kept at the same.

[00:04:13] Speaker 03:
So I want to understand your position.

[00:04:14] Speaker 03:
If you had settled against Hernandez,

[00:04:22] Speaker 03:
If you'd settled against Herrera, I'm sorry, with Geico.

[00:04:26] Speaker 03:
In other words, if they had accepted your counteroffer, is it your position that your maximum, the maximum exposure of a Hernandez would have been $15,000?

[00:04:36] Speaker 01:
Correct.

[00:04:37] Speaker 03:
So what I'm having difficulty understanding about this case, and unfortunately I've dealt with a bunch of these in the past and even in practice dealt with them, it sounds to me like there's a game going on here.

[00:04:50] Speaker 03:
You go to GEICO and they say, no, our obligation is to settle on behalf of both.

[00:04:56] Speaker 03:
And you say, fine.

[00:04:58] Speaker 03:
Then you go to Anchor and you get the $15,000 that takes Hernandez out of the case.

[00:05:03] Speaker 03:
Why don't you go back to GEICO at that point and say, give me the other 15?

[00:05:08] Speaker 03:
I mean, it sounds to me like this whole case was tried and maybe there's nothing wrong with that or procedurally done in order to set up a bad faith claim.

[00:05:17] Speaker 03:
rather than simply to get the $30,000 from the two insurers that they surely would have paid had you gone back to Geico thereafter and said, look, you don't have to worry about Hernandez anymore.

[00:05:30] Speaker 03:
He's out of the case.

[00:05:31] Speaker 03:
Give me the 15.

[00:05:33] Speaker 03:
How do you respond to that?

[00:05:34] Speaker 01:
Yeah, I think it's a fair question, Your Honor.

[00:05:36] Speaker 01:
And I think I would bifurcate that a bit.

[00:05:39] Speaker 01:
I really don't agree with the premise that the initial offer and request counter, I guess you could characterize it as a counteroffer to GEICO, was part of a game.

[00:05:47] Speaker 01:
I think that the plaintiffs really just wanted to get the 15s from both GEICO and Anchor General.

[00:05:53] Speaker 03:
So why didn't you just, I mean, this is like the last case.

[00:05:58] Speaker 03:
It's sort of, I understand the law may be different than the way the world operates.

[00:06:02] Speaker 03:
If you'd gotten both insurers in a room and said, we want 30,000 bucks, which is the limits of both of your policies, and we know your clients both have no money, they would have surely both said yes.

[00:06:16] Speaker 03:
And so what you did was you did it sequentially, made an offer to GEICO that they couldn't accept, and then made an offer to Anchor that they had to accept, and never went back to GEICO then and said, now we've solved your problem.

[00:06:30] Speaker 03:
And so this may have no effect on the legality of your case.

[00:06:35] Speaker 03:
It just strikes me that there's something wrong here.

[00:06:38] Speaker 03:
I just wanted to lay that out for you to think about.

[00:06:40] Speaker 01:
Yeah, and I appreciate that, Your Honor.

[00:06:41] Speaker 01:
And I think, again, I do bifurcate it very much in the beginning.

[00:06:45] Speaker 01:
I mean, I think that

[00:06:48] Speaker 01:
Well, let me say the threshold matter before I forget it that I think your point is the best point, which is that this may be relevant to a bad faith analysis in this context by a jury.

[00:06:59] Speaker 01:
But I don't think it's relevant to the analysis here, whether there's tribal issues.

[00:07:03] Speaker 01:
And again, I really do think we tried to do exactly what you suggested, which is go to both carriers and try to get as much as we could.

[00:07:10] Speaker 01:
I think we need to remember that in this posture, Anker General had a reservation of rights and had filed a deck relief action and didn't look like it.

[00:07:18] Speaker 03:
Okay, so I wanted to ask you about that.

[00:07:20] Speaker 03:
Because Anker has a reservation of rights, can Geico really assume

[00:07:27] Speaker 03:
that Hernandez is not going to be held liable for greater than $15,000 in the case.

[00:07:33] Speaker 03:
Once it exhausts its policy, settling for Herrera, which is what you want, isn't there at least the possibility of some liability for Hernandez?

[00:07:46] Speaker 03:
In other words, isn't he at least liable for 15 in addition to the 15 that Herrera puts in?

[00:07:53] Speaker 01:
I don't think he's liable for an additional 15.

[00:07:56] Speaker 01:
I think he's capped the 15 that would be offset by her.

[00:07:59] Speaker 00:
And he gets credited.

[00:08:01] Speaker 01:
He gets credited, right.

[00:08:02] Speaker 00:
But let me ask you, counsel, because the threshold question is whether there was, Geico was reasonable in treating the father, now I'm going to get the names mixed up, so let me say father and son-in-law, in treating father as an insured, because then that triggers the whole line of cases about equal duty to the insureds.

[00:08:21] Speaker 00:
Now, one of your arguments is, well, there was a duty to investigate because there were serious questions about whether the father was even an appropriate insured under the GEICO policy.

[00:08:34] Speaker 00:
What is the best case that you have on the duty to investigate that sort of mirror these facts?

[00:08:39] Speaker 00:
Because I don't think I've found a case.

[00:08:41] Speaker 00:
that speaks to that situation in California law.

[00:08:44] Speaker 01:
Yeah, I would point you to page 21 of our opening brief on that I think would be some of the best cases, plural.

[00:08:52] Speaker 03:
Those cases, I've read them.

[00:08:53] Speaker 03:
are duty to investigate in order to give coverage.

[00:08:57] Speaker 03:
In other words, there are cases where the insurance company didn't investigate very well, denied coverage, and the court said, if there's only the potential of coverage, you ought to cover.

[00:09:08] Speaker 03:
I haven't found any case anywhere that found that an insurance company engaged in bad faith by extending coverage.

[00:09:16] Speaker 03:
Do you have one?

[00:09:17] Speaker 01:
Well, we've got cases where insurance companies were found to not engage in bad faith when they did exactly what we say GEICO should have done.

[00:09:25] Speaker 03:
No, but that's a separate question.

[00:09:27] Speaker 03:
What you're saying here is that

[00:09:29] Speaker 03:
You know, you're saying, well, GEICO should have taken the risk because there was good case law out there that would have allowed it not to be in bad faith.

[00:09:36] Speaker 03:
I think you've got to persuade us that they acted in bad faith by extending coverage to Hernandez.

[00:09:43] Speaker 03:
And so I'm trying to find a case anywhere that says that extending coverage is bad faith.

[00:09:48] Speaker 00:
It's slightly different, right?

[00:09:49] Speaker 00:
Because once you determine, once we determine or the district court determined that Geico reasonably covered the father, then that triggers the Leto case, right?

[00:10:00] Speaker 00:
But if they had a duty to investigate under these circumstances, because it was inevitable that there would be a conflict between these two insurers.

[00:10:08] Speaker 00:
And so I haven't found a case that speaks to this situation where

[00:10:13] Speaker 00:
the insurance company has to undertake some investigation to figure out whether the father is an appropriate additional insured because of there is this inevitably conflict between the two of them, right?

[00:10:25] Speaker 00:
And because they extended coverage, now they've left the son-in-law holding the bag of liability for six

[00:10:32] Speaker 00:
million dollars but there aren't cases like that because California is very protective of insurers and the cases kind of drive in the direction of providing coverage.

[00:10:42] Speaker 00:
So I haven't seen one like this where providing coverage then actually hurts the named insurer which is what happened in this case.

[00:10:51] Speaker 01:
Right, and rather than spend the time here, I'm prepared to do that on rebuttal and come with the cases because I do believe they exist, but I do want to push on this point because I think it's significant that we're sort of adopting the frame that the district court did, which is, you know, there's just sort of a limitless well of coverage and, you know, throwing it out to Hernandez doesn't necessarily detract from Herrera, but this case disproves that.

[00:11:13] Speaker 03:
Well, assume that there is case law about the duty to investigate.

[00:11:17] Speaker 03:
I'm reading the policy, and the policy just says resides, family member who resides.

[00:11:23] Speaker 03:
He's a family member, so there's no, that's clear.

[00:11:27] Speaker 03:
You know, he resides some of the time, but not all the time was residing at this point.

[00:11:32] Speaker 03:
I mean, if an insurance company had denied coverage based on the facts you should have uncovered,

[00:11:39] Speaker 03:
I kind of think I'd be sympathetic to a bad faith case from the additional insured that, come on, resides doesn't mean at this precise moment, at this precise time.

[00:11:52] Speaker 03:
We interpret this policy against the insurer.

[00:11:54] Speaker 03:
So even assuming you're right about all those things, why was this an insufficient investigation?

[00:12:00] Speaker 03:
What more would they have found out?

[00:12:02] Speaker 03:
Simply that he spent half the time someplace else and that he was in Mexico at this time, but does that mean he doesn't reside?

[00:12:08] Speaker 01:
No, I don't think so at all, Your Honor.

[00:12:10] Speaker 03:
Or he didn't have permission.

[00:12:11] Speaker 01:
It's the permissive use.

[00:12:12] Speaker 01:
It's a permissive use policy.

[00:12:14] Speaker 01:
So the whole question here, the whole game is, did Hernandez give Herrera permission?

[00:12:18] Speaker 01:
Right.

[00:12:18] Speaker 03:
But now they've got to try the evidence of permissive use, right?

[00:12:21] Speaker 03:
So they've got to say, well, I've investigated and he says he didn't allow him to use it.

[00:12:28] Speaker 03:
The other guy says, oh, I could use it.

[00:12:30] Speaker 03:
Doesn't that have to cover him under that circumstance?

[00:12:32] Speaker 01:
I think not.

[00:12:34] Speaker 01:
Let's take a very obvious case.

[00:12:36] Speaker 01:
Let's say Hernandez gives a sworn, notarized statement to Geico that says, I never in a million years gave Herrera permission to use my car.

[00:12:45] Speaker 01:
Period.

[00:12:46] Speaker 01:
End of story.

[00:12:46] Speaker 01:
And that's in Geico's file.

[00:12:48] Speaker 01:
I can't see how Hernandez has a bad faith case at that point.

[00:12:52] Speaker 03:
Are you on summary judgment here?

[00:12:54] Speaker 03:
We are.

[00:12:55] Speaker 03:
OK.

[00:12:56] Speaker 03:
So what evidence did you produce that there was no permission?

[00:13:01] Speaker 01:
We have the next best thing, which is one rung below the sworn declaration or statement that I just described, which is we have Hernandez, his own lawyer, his own insurance defense lawyer, who's probably pretty familiar with these issues, calling Geico and saying he did not give Herrera permission to use the car, period.

[00:13:20] Speaker 03:
Is that admissible evidence under Rule 56?

[00:13:23] Speaker 01:
It's in Geico's claim file.

[00:13:25] Speaker 03:
There's lots of things.

[00:13:27] Speaker 03:
Geico's claim file may have something in it that says Judge Hurwitz is stupid, but that's not admissible evidence.

[00:13:33] Speaker 03:
Is his lawyer calling them up?

[00:13:35] Speaker 03:
His lawyer's trying to get this case settled, after all.

[00:13:40] Speaker 03:
Is his lawyer calling them up admissible evidence of the absence of permission?

[00:13:45] Speaker 01:
If the question is, did Geico act reasonably, and the lawyer for the Petitive Insured called Geico and said the foundational predicate for insurance under this policy is not true, yes, that's admissible in an insurance bad faith case.

[00:13:58] Speaker 03:
If it's not, then... Did the lawyer call Geico and say, my client would like not to be insured by you?

[00:14:05] Speaker 01:
Not in so many words.

[00:14:07] Speaker 03:
If he had, this would be an easy case, wouldn't it?

[00:14:10] Speaker 01:
If you had, it would be an easy case.

[00:14:12] Speaker 01:
I think it might be summary judgment for us.

[00:14:13] Speaker 03:
Please withdraw your coverage.

[00:14:15] Speaker 03:
I'm happy to rely on the contested anchor policy.

[00:14:19] Speaker 01:
Right.

[00:14:20] Speaker 01:
And again, I would submit that we've got the next best thing, which I think maybe it's not as good at trial, but it should be good enough here at summary judgment.

[00:14:29] Speaker 01:
And we don't have just that.

[00:14:31] Speaker 01:
We've also got other evidence.

[00:14:33] Speaker 01:
One additional piece is that Hernandez expressly excluded Herrera under his own policy, which begs the question, why would he exclude Herrera from coverage under the car that's at issue, only to then turn around and give permission to Herrera to do it?

[00:14:48] Speaker 01:
And the third piece is that we've got statements from Hernandez's daughters, one of whom is Herrera's wife, to both police and insurance investigators with anchor general saying, under no circumstances, absolutely unequivocally no permission.

[00:15:01] Speaker 01:
And in fact, one of the daughters said, in my opinion, he stole the car.

[00:15:05] Speaker 01:
So every piece of evidence that was available to GEICO at the time, including the Putative Insurance own statement through his lawyer, said no permission and thus no coverage.

[00:15:16] Speaker 01:
So we're saying maybe there's some more difficult cases.

[00:15:18] Speaker 01:
But in this case, it was pretty darn clear to GEICO that Hernandez didn't give Herrera permission, therefore that there was no coverage under that provision.

[00:15:27] Speaker 00:
You're almost out of time.

[00:15:28] Speaker 00:
Did you want to say something?

[00:15:29] Speaker 01:
I would.

[00:15:29] Speaker 01:
I would love to.

[00:15:30] Speaker 00:
I'll put a minute back on the clock for rebuttal.

[00:15:32] Speaker 01:
Thank you, Your Honor.

[00:15:42] Speaker 02:
Good morning.

[00:15:43] Speaker 02:
Mitch Tilner of Horvitz and Levy for Apelique Geico.

[00:15:47] Speaker 02:
Let me set the record straight or set the law straight here.

[00:15:52] Speaker 02:
We are not aware of any case

[00:15:54] Speaker 02:
in which an insurer can be liable for bad faith because of extended coverage to a fugitive insured in a doubtful case.

[00:16:04] Speaker 02:
No case finds that to be bad faith.

[00:16:06] Speaker 00:
But do you have to investigate to figure out whether it really is in fact doubtful?

[00:16:11] Speaker 00:
As counsel said, there are plenty of facts presented in this case, at least creating a triable question of fact as to whether any reasonable investigation was done.

[00:16:20] Speaker 02:
Yes, there certainly was a tribal issue of fact whether Mr. Hernandez granted permission.

[00:16:25] Speaker 02:
And that is what his status as an insured turned on.

[00:16:30] Speaker 02:
That was an issue in the litigation.

[00:16:33] Speaker 02:
Plaintiff's complaint against Mr. Hernandez alleged he gave Herrera permission.

[00:16:40] Speaker 02:
The jury would have to decide that.

[00:16:42] Speaker 03:
So your position is that on the basis of the complaint, you were required to extend coverage to Mr. Hernandez

[00:16:49] Speaker 03:
because the complaint alleged that he, in effect, facts that would make him covered.

[00:16:54] Speaker 02:
That is exactly right.

[00:16:55] Speaker 00:
Well, you were required to provide the defense at a minimum and provide, possibly count him as an additional insured under reservation of rights, right?

[00:17:05] Speaker 00:
But when you got the settlement offer, the problem is the conflict is such that failing to settle then leaves your named insured exposed for, as it turns out, quite a bit more than the policy limits.

[00:17:18] Speaker 02:
Your Honor, this court has already addressed and resolved that problem.

[00:17:23] Speaker 02:
In the Harp case from 2015, the court rejected an argument which is essentially identical to the argument you're hearing this morning from opposing counsel.

[00:17:32] Speaker 02:
In that case, one of the defendant's status as an insured depended on whether that defendant was vicariously liable for the other insured's conduct.

[00:17:44] Speaker 02:
That would make this defendant an insured.

[00:17:46] Speaker 02:
The underlying complaint alleged

[00:17:49] Speaker 02:
vicarious liability.

[00:17:51] Speaker 02:
So we wouldn't know until the jury returns a verdict whether this defendant was or was not an insured.

[00:17:58] Speaker 02:
And the company, in the meantime, gets a pretrial settlement proposal, just like in this case.

[00:18:04] Speaker 02:
And this court held, when a defendant's status as an insured will depend on the jury's findings in the action, the insurer acts properly and not in bad faith.

[00:18:17] Speaker 02:
by treating that defendant as an insured for purposes of considering a pre-trial settlement offer.

[00:18:23] Speaker 02:
That must be the rule, because the carrier doesn't know yet whether this defendant is or is not an insured.

[00:18:30] Speaker 02:
The carrier is required to give the benefit of the doubt to this possible insured when it gets a settlement offer pre-trial.

[00:18:39] Speaker 03:
See, here's what—I want to—I said this to your friend, and I want

[00:18:43] Speaker 03:
have you respond to it too.

[00:18:45] Speaker 03:
Here's what troubles me about this case.

[00:18:47] Speaker 03:
You've got two insurers.

[00:18:49] Speaker 03:
There's a total of $30,000 of coverage.

[00:18:51] Speaker 03:
It looks like a slam dunk liability case for lots and lots of money.

[00:18:57] Speaker 03:
The two insurers apparently don't talk to each other and don't go to the other side and say, here's policy limits on both policies.

[00:19:08] Speaker 03:
Take the $30,000, and I'm sorry that we don't have more, but we don't.

[00:19:13] Speaker 03:
Is there any duty on the part of your client to do that?

[00:19:18] Speaker 03:
It just strikes me that both sides here are not operating in the real world.

[00:19:22] Speaker 02:
The information available to GEICO, at the time it was considering this settlement offer.

[00:19:28] Speaker 02:
was that anchor general had denied coverage and in fact it had an action pending seeking a declaration.

[00:19:35] Speaker 03:
Have they denied coverage or were they covering under reservation of rights?

[00:19:39] Speaker 02:
The information Geico received was they denied coverage.

[00:19:42] Speaker 02:
Is that in a record?

[00:19:44] Speaker 02:
Yes, I believe so.

[00:19:45] Speaker 00:
But they provided the defense.

[00:19:47] Speaker 02:
They did provide a defense under a reservation of rights and at the same time they filed a declaratory relief action

[00:19:53] Speaker 02:
seeking a declaration of no coverage, no duty to defend.

[00:19:56] Speaker 02:
So that was the situation at the time Geico gets this offer.

[00:20:00] Speaker 03:
I know I'm dealing in the world with a hypothetical, but a lot of judges are spending a lot of time on this case.

[00:20:08] Speaker 03:
This is what bothers me.

[00:20:10] Speaker 03:
At some point, Anker throws in the towel.

[00:20:13] Speaker 03:
And they say, gee, if we can get out of this for $15,000, I don't care whether we have a good defense or not.

[00:20:20] Speaker 03:
And we do.

[00:20:21] Speaker 03:
At that point, do you go back to the plaintiffs and say, OK, we no longer have the Hernandez problem because he's been dismissed and they've settled.

[00:20:33] Speaker 03:
Here's our $15,000 on behalf of Herrera.

[00:20:36] Speaker 03:
Now, I know they didn't ask you for it.

[00:20:38] Speaker 03:
But don't you have some obligation at that point, with your conflict having been cleared up, to go back to them and avoid the possibility of a great access judgment against your client, your insured Herrera?

[00:20:51] Speaker 02:
I don't believe the law imposes a duty on the insurer to go back and open a settlement discussion, but in any event— I mean, you have no duty to offer policy limits at that point.

[00:21:02] Speaker 02:
Geico offered policy limits six days after it got the claim.

[00:21:05] Speaker 03:
I understand, but with a condition.

[00:21:07] Speaker 03:
Now that condition—the condition that led them to turn it down has been solved.

[00:21:12] Speaker 03:
So why didn't they come back?

[00:21:16] Speaker 03:
You didn't do it either.

[00:21:17] Speaker 03:
That's what troubles me about this case.

[00:21:19] Speaker 00:
Did you know that the father had settled out the case for $15,000?

[00:21:24] Speaker 02:
I believe Geico found out in maybe August, which was about a month after the settlement interaction and had concluded.

[00:21:34] Speaker 00:
Fell apart.

[00:21:34] Speaker 00:
Fell apart.

[00:21:35] Speaker 00:
So then at that point, did Geico consider putting your $15,000?

[00:21:38] Speaker 00:
Because the impediment to settling against Herrera is now removed.

[00:21:45] Speaker 02:
The record doesn't reflect whether that happens.

[00:21:47] Speaker 03:
But your legal position is your only duty is to not turn down a settlement.

[00:21:54] Speaker 03:
a policy limits demand.

[00:21:56] Speaker 03:
It's not to make a policy limits offer.

[00:21:59] Speaker 02:
Your Honor, plaintiffs knew that the $15,000 was on the table.

[00:22:03] Speaker 03:
Well, I understand what they knew and I can put fault on both sides.

[00:22:06] Speaker 03:
I'm asking a legal question.

[00:22:08] Speaker 03:
The legal question is, your position is that the duty of good faith and fair dealing only requires you to accept a policy limits demand under appropriate circumstances, not to make a policy limits offer.

[00:22:22] Speaker 02:
the duty is to accept a reasonable settlement offer where there is a significant risk of excess exposure.

[00:22:30] Speaker 03:
Not to make a reasonable settlement.

[00:22:31] Speaker 02:
That is correct.

[00:22:33] Speaker 00:
Is that a question for the jury to get to decide whether with the knowledge that Geico knew it wasn't sufficiently protective of Herrera's interests?

[00:22:42] Speaker 02:
Your honor, the law is clear.

[00:22:44] Speaker 02:
This court's opinion in Harp is clear.

[00:22:46] Speaker 02:
The Court of Appeal in California in Leto is clear.

[00:22:50] Speaker 02:
In the situation in which Geico found itself, it would have been bad faith to accept.

[00:22:57] Speaker 00:
No, we're talking afterwards.

[00:22:58] Speaker 00:
We'll accept that.

[00:22:59] Speaker 00:
Afterwards.

[00:23:00] Speaker 00:
Let's assume that you acted reasonably in saying, well, we don't want to leave the father exposed to greater liability, release them both.

[00:23:09] Speaker 00:
Let's say that's reasonable.

[00:23:11] Speaker 00:
You get summary judgment so far, but then once you find out that the father had settled the case.

[00:23:17] Speaker 00:
And now Herrera could also be released for the policy limits.

[00:23:21] Speaker 00:
You're saying there's no duty to circle back to plaintiffs' counsel at this point.

[00:23:25] Speaker 00:
My question to you is, is that a jury question then, whether that conduct in failing to reach out, knowing that a settlement would have released Herrera too at this point, and all impediments are gone, does the jury get to decide whether the failure to reach out to plaintiffs' counsel constitutes bad faith?

[00:23:42] Speaker 02:
Your Honor, that is not plaintiffs'

[00:23:45] Speaker 02:
claim, they haven't briefed it, we haven't briefed it.

[00:23:48] Speaker 00:
Those facts are all in the record, so we're trying to figure out whether this case should go to the jury or whether I go get summary judgment affirmed at this point.

[00:23:58] Speaker 00:
You're right.

[00:23:58] Speaker 00:
Relevant.

[00:23:59] Speaker 02:
Yes, Your Honor.

[00:24:00] Speaker 02:
The district court didn't address this.

[00:24:02] Speaker 02:
They didn't plead it.

[00:24:03] Speaker 02:
We didn't brief it.

[00:24:04] Speaker 03:
No, I understand.

[00:24:05] Speaker 03:
I understand.

[00:24:06] Speaker 03:
Their claim is that the bad faith was turning down their initial offer.

[00:24:12] Speaker 03:
That's their theory.

[00:24:13] Speaker 03:
But I guess whether or not it affects this case,

[00:24:18] Speaker 03:
it's of interest to us.

[00:24:21] Speaker 00:
We're both trying to figure out.

[00:24:22] Speaker 00:
Do you have a position?

[00:24:24] Speaker 02:
Yeah.

[00:24:24] Speaker 02:
Well, my position, without having researched or briefed it, my initial reaction is there's no duty on the part of an insurer to go out and start a settlement conversation.

[00:24:35] Speaker 02:
The duty is to accept a reasonable settlement proposal from the other complainant.

[00:24:39] Speaker 03:
I think that's true in the abstract.

[00:24:40] Speaker 03:
What I think we're both asking is this is not an abstract case.

[00:24:46] Speaker 03:
You already knew you could

[00:24:48] Speaker 03:
They wanted your policy limits.

[00:24:50] Speaker 03:
You already knew that they weren't willing to release Herrera in return for your policy limits and that the stumbling block was the possible liability of Hernandez.

[00:25:01] Speaker 03:
Now you know Hernandez is out of the case.

[00:25:04] Speaker 03:
So under those circumstances, is there a duty to go back under California law?

[00:25:09] Speaker 03:
I think this is a question of law, not a question of fact.

[00:25:12] Speaker 03:
So the question is, do the California cases suggest that there might be a duty on your part at that point to reach out and say, OK, we've solved the Hernandez problem?

[00:25:21] Speaker 03:
Now, it may be that they would have said no.

[00:25:23] Speaker 03:
It may be what they were more interested in was a bad faith case.

[00:25:27] Speaker 03:
against you for a rare excess liability.

[00:25:30] Speaker 03:
But the question is—and we may not—at this point in the case, we may not know whether they would have taken that offer.

[00:25:38] Speaker 03:
But do you have a duty to make it?

[00:25:41] Speaker 02:
Your Honor, my understanding, without having researched, but based on many years of practicing insurance law, is that there was no duty on the part of GEICO to then go back and reopen or make a new proposal to the plaintiffs.

[00:25:55] Speaker 03:
It's up to them.

[00:25:56] Speaker 03:
Your duty was only to respond to settlement proposals from the other side.

[00:26:00] Speaker 02:
Yeah, reasonable settlement proposal.

[00:26:02] Speaker 03:
And by the way- I want to ask your friend that too, because looking at case law, I can't find anything that suggests that either.

[00:26:08] Speaker 00:
The case law doesn't address the situations.

[00:26:10] Speaker 00:
We're trying to figure out what the California courts would do in a situation like this.

[00:26:15] Speaker 00:
Before your time runs out, can I have you address your opposing counsel's argument that a settlement with Herrera would have extinguished Hernandez's liability?

[00:26:25] Speaker 00:
Because there is that statute.

[00:26:27] Speaker 00:
You're asking that we rely on the complaint, and the complaint is proceeding on a vicarious liability theory.

[00:26:33] Speaker 02:
Yes.

[00:26:34] Speaker 02:
Thank you, Your Honor.

[00:26:36] Speaker 02:
You intend to get to that?

[00:26:37] Speaker 02:
I'm glad you brought it up.

[00:26:39] Speaker 02:
Their argument is that had GEICO accepted the offer and settled for Herrera by paying the policy limits in exchange for a release of Herrera only, their position is that would have, quote, completely wiped away Hernandez's exposure under plaintiff's complaint.

[00:27:00] Speaker 02:
That's wrong and it's inapposite.

[00:27:02] Speaker 02:
It's wrong because Planev's complaint against Hernandez and Herrera was for wrongful death.

[00:27:11] Speaker 02:
It sought the same damages against both defendants.

[00:27:14] Speaker 00:
But I thought that the California, and tell me if I'm wrong on the law, but I thought the California vehicle code caps owner's liability at 15,000 if the theory is vicarious liability, which was the theory that they advanced in the complaint.

[00:27:29] Speaker 02:
Your Honor, that was not the theory advanced.

[00:27:31] Speaker 02:
The words vicarious liability don't appear in the complaint.

[00:27:34] Speaker 00:
As an owner of a vehicle and somebody else takes your car

[00:27:40] Speaker 00:
I don't know if the term vicarious liability was used.

[00:27:45] Speaker 00:
I didn't look for that, because the way they described the owner of the car being the father, I had assumed that that's a vicarious liability case.

[00:27:54] Speaker 00:
But you're saying that that's not a fair assumption.

[00:27:57] Speaker 02:
That's not a fair reading of their complaint.

[00:28:00] Speaker 02:
The law is, if the only theory against the owner is that he owned the car,

[00:28:08] Speaker 02:
and the driver caused injuries.

[00:28:09] Speaker 02:
Well, then the owner is liable, vicariously up to $15,000.

[00:28:14] Speaker 02:
But if the owner himself is negligent, his liability is open-ended.

[00:28:20] Speaker 02:
And that was their case against Hernandez.

[00:28:23] Speaker 02:
They sought the same damages against both.

[00:28:25] Speaker 02:
They alleged Hernandez and Herrera were both negligent, both responsible for wrongful death.

[00:28:32] Speaker 02:
If they really believed that settling with Herrera would have wiped out Hernandez's exposure, why didn't they release Hernandez?

[00:28:44] Speaker 02:
Why did they preserve their supposedly worthless claim against Hernandez?

[00:28:48] Speaker 02:
They were going after him for wrongful death.

[00:28:50] Speaker 00:
I didn't see any allegations in the complaint alleging that the father was independently negligent.

[00:28:58] Speaker 02:
Well, they alleged he was negligent, and they alleged a cause of action against him for wrongful death based on his negligence.

[00:29:04] Speaker 00:
You could sue this as a complaint that alleges negligent entrustment?

[00:29:10] Speaker 02:
You know, they don't use those words.

[00:29:12] Speaker 02:
It was a very cleverly drafted complaint, but the complaint could have been amended in one hour to allege negligent entrustment, and Geico

[00:29:20] Speaker 02:
looking at this complaint and considering, well, do we need to treat Mr. Hernandez as a potentially liable insured with open-ended exposure, they naturally gave him the benefit of the doubt.

[00:29:33] Speaker 02:
Yes, the complaint, if you read the complaint, it doesn't say negligent entrustment.

[00:29:38] Speaker 02:
It simply says both defendants were negligent, both are responsible for the death of- Well, let me ask the question differently.

[00:29:46] Speaker 03:
They proposed that to settle with Herrera.

[00:29:50] Speaker 03:
If they had settled with Herrera, would Hernandez still be liable under any theory of the case?

[00:29:58] Speaker 02:
Yes, he would be liable for his own negligence, which wasn't resolved by the Herrera side.

[00:30:02] Speaker 03:
But he wouldn't be liable vicariously, would he?

[00:30:07] Speaker 03:
I'm trying to figure out from their perspective why your offer doesn't solve their whole problem.

[00:30:15] Speaker 03:
Because Hernandez wouldn't be for Kairos the libel if Herrera wasn't libel.

[00:30:21] Speaker 02:
Yeah, you know, I'm not sure about that.

[00:30:23] Speaker 03:
That's why I think what we've got going on here is this little sort of kabuki dance.

[00:30:29] Speaker 02:
Let me just add a couple more points before I close out.

[00:30:35] Speaker 02:
Under the Leto case, this equal treatment rule doesn't depend on what the ultimate outcome might have been against Hernandez.

[00:30:45] Speaker 00:
The equal treatment rule is designed to prevent- But in Leto, there was no question they were both insured.

[00:30:50] Speaker 00:
That's a pretty key distinction.

[00:30:52] Speaker 02:
That's right.

[00:30:52] Speaker 00:
But in this case- We understand your argument.

[00:30:54] Speaker 02:
OK, so Leto says there are harms involved if you let the plaintiff dictate which of two insurers is going to be released.

[00:31:04] Speaker 02:
The court says that's bad public policy.

[00:31:06] Speaker 02:
You can't let the plaintiffs tell the insurance company, this is the insurer you should protect.

[00:31:12] Speaker 02:
This is the insurer we'd like to go after.

[00:31:14] Speaker 02:
So we'll release this one.

[00:31:16] Speaker 02:
We won't release that one.

[00:31:17] Speaker 02:
The court says that's bad public policy.

[00:31:20] Speaker 02:
And that's the position they're advancing.

[00:31:22] Speaker 02:
So for all these reasons, we ask the court to affirm.

[00:31:24] Speaker 00:
All right.

[00:31:25] Speaker 00:
Thank you, Council.

[00:31:32] Speaker 01:
Thank you.

[00:31:32] Speaker 01:
Thank you, Your Honors.

[00:31:33] Speaker 01:
A few quick points.

[00:31:34] Speaker 01:
So number one, I think it's true probably that there are no cases directly on point that say an insurer had engaged in bad faith because it didn't resolve this issue about two, one named and one potential insured.

[00:31:49] Speaker 01:
So how I'm getting there is two steps.

[00:31:51] Speaker 01:
One step is, again, on page 21 of our brief, our reply, I'm sorry, our opening, we cite a number of cases that do draw an important distinction between named insureds and punitive additional insureds.

[00:32:05] Speaker 01:
Named insureds, of course, were only involved in the Lato case, as Your Honor just pointed out.

[00:32:10] Speaker 01:
And then the second piece in that is that there's a duty to investigate that's owed to the named insured.

[00:32:15] Speaker 01:
And because having multiple insureds can create conflicts, as this case demonstrates, our premise is simple, that before an insurance company can just assume that someone else is an additional insured, they need to do a rigorous investigation to bear that out.

[00:32:29] Speaker 01:
And there may be marginal cases that are tough, but this is not one.

[00:32:32] Speaker 01:
This is a case where you have the puter of insured coming to the carrier himself through his attorney and saying, I'm not covered.

[00:32:39] Speaker 01:
The Harp case, you know, that's not a really helpful case for my friends for two reasons.

[00:32:46] Speaker 01:
One, it establishes the point that I just made about the distinction between named and additional insurance being significant.

[00:32:52] Speaker 01:
That's in the preamble to that decision.

[00:32:55] Speaker 01:
And then also, it just doesn't have the facts to really demonstrate exactly where that liability theory comes in, but I think it is notable.

[00:33:04] Speaker 03:
And let me ask the question I asked your friend.

[00:33:06] Speaker 03:
Under your theory of the case, if GEICO had given you $15,000 in return for a settlement against Herrera, would Hernandez have been released?

[00:33:19] Speaker 03:
If GEICO gave... Yeah, in other words, if they had accepted your counteroffer, your counteroffer was, give me your policy limits and I'll release Herrera.

[00:33:31] Speaker 03:
If that had occurred,

[00:33:33] Speaker 03:
Under your theory, because Hernandez's liability is only vicarious, wouldn't Hernandez be out of the case?

[00:33:40] Speaker 01:
I mean, so legally, would there be anything left, any meat left on the bone in that existing complaint against Hernandez?

[00:33:47] Speaker 01:
No.

[00:33:48] Speaker 01:
So why didn't you take the offer?

[00:33:49] Speaker 01:
Well, because, you know, there was an opportunity here to, I mean, if the game- I mean, my point is that if you'd taken the offer on behalf of both,

[00:33:59] Speaker 03:
you wouldn't have hurt yourself in any case against Hernandez, would you?

[00:34:04] Speaker 01:
No.

[00:34:04] Speaker 01:
And I understand, Your Honor.

[00:34:06] Speaker 03:
So you turned down an offer that would have solved the entire problem, and you're asking us to hold that by making that offer, they engaged in bad faith.

[00:34:17] Speaker 03:
That's what troubles me.

[00:34:18] Speaker 01:
Well, so there was another opportunity to get an additional 15.

[00:34:21] Speaker 01:
And I get that the carrier could say, well, there's nothing left of this claim, so we don't owe you anything.

[00:34:25] Speaker 01:
But we all know the realities of the cost of defense, et cetera.

[00:34:28] Speaker 01:
But what I'm actually asking this court to do is to just adopt a very simple rule that says that before insurance companies can go willy nilly and decide that somebody else is an additional insured, which would subordinate the rights of their actual name insured.

[00:34:42] Speaker 03:
OK, you're right.

[00:34:43] Speaker 03:
I'm assuming for purposes of my question that he is an additional insured.

[00:34:46] Speaker 01:
Sure.

[00:34:47] Speaker 00:
And the only last point- Can you wrap it up, counsel?

[00:34:49] Speaker 01:
Yes.

[00:34:49] Speaker 01:
Thank you, Your Honor.

[00:34:50] Speaker 01:
The only last point that I would emphasize is I would really urge this Court, if it has any doubt, to go back and read the Hundley case, because I think this idea of extinguishing liability, amending complaints is kind of a red herring, because Hundley just simply said, look, it was 25K under the policy.

[00:35:04] Speaker 01:
If we pay that and we release our named insured, the additional insured gets that offset and they get a defense.

[00:35:10] Speaker 01:
They get all that they're entitled to and all that they might have bargained for under this policy.

[00:35:14] Speaker 01:
So they really have no beef.

[00:35:15] Speaker 01:
There's no bad faith.

[00:35:16] Speaker 01:
That's the Hunley case.

[00:35:17] Speaker 01:
And I think that controls.

[00:35:19] Speaker 01:
So with that, your honors, we would ask that this court reverse and remain for trial.

[00:35:23] Speaker 00:
Thank you very much, counsel, to both sides for your argument.

[00:35:26] Speaker 00:
The matter submitted and that concludes our argument calendar this morning.

[00:35:30] Speaker 00:
We're in recess until tomorrow.