Unpublished Disposition, 885 F.2d 875 (9th Cir. 1985)

MEMORANDUM^* 

Ranger Insurance Company's obligation to act in good faith required it to act in the insured's best interest when Nunnelly made a settlement demand in excess of Sutherland's policy limits. See Continental Casualty Co. v. United States Fidelity & Guaranty Co., 516 F. Supp. 384, 389 (N.D. Cal. 1981). The jury, having been properly instructed that bad faith is more than a mistaken judgment as to the likely outcome of a lawsuit, ER 93, decided that Ranger breached its duty when it refused to tender its policy limits to Mission Insurance Company when Mission expressed a willingness to spend some of its own money to settle Nunnelly's claim. The jury's verdict was supported by substantial evidence, including, inter alia, Bruce Holland's letter of March 11, 1985, pointing out the chinks in Ranger's no-liability defense.

The district court's refusal to instruct the jury on two affirmative defenses, consent and comparative fault, does not warrant reversal. The consent instruction was properly denied as there was not an adequate basis in the record from which the jury could infer that Sutherland consented to Ranger's decision not to settle. In any event, it is doubtful that consent of the policyholder bars an equitable subrogation claim where the policyholder had no uninsured exposure and was therefore not at risk. Contrast Puritan Ins. Co. v. Canadian Universal Ins. Co., 775 F.2d 76, 77 (3d Cir. 1985) (policyholder had $100,000 deductible); Commercial Union Assurance Cos. v. Safeway Stores, Inc., 26 Cal. 3d 912, 915-16, 610 P.2d 1038, 164 Cal. Rptr. 709 (1980) (policyholder was self-insured for an amount between primary and excess coverage limits).

While it probably would have been better to give the comparative fault instruction, the district court's decision not to do so, if error at all, was harmless. Mission sued Ranger under an equitable theory, making it proper for the jury to consider whether Mission acted inequitably. The district court appreciated this fact and, even though it did not give the defendant's proposed instruction, it admitted all evidence proffered on this issue and later directed the jury to award damages to Mission only to the extent attributable to Ranger's conduct. ER 96.

Finally, it was not error for the district court to permit Mission to proceed to trial on its claim under Cal.Ins.Code Sec. 790.03 (West 1989). An excess carrier suing under an equitable subrogation theory stands in the shoes of the insured, and the requirement of Moradi-Shalal v. Fireman's Fund Ins. Cos., 46 Cal. 3d 287, 758 P.2d 58, 250 Cal. Rptr. 116 (1988), that the insured's liability must be judicially determined before a section 790.03 action can be maintained, does not extend to first-party claims.

AFFIRMED.