Procedural Posture

Appellant insureds filed an action against respondent insurer, alleging bad faith breach of their insurance contract and breach of an oral settlement agreement. The Superior Court of Los Angeles County (California) granted the insurer’s motion for summary judgment, and the insureds appealed.

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The insurer issued a professional office insurance policy package to one of the insureds. During the coverage period, litigation arose between the insureds and a former business partner in the form of separate actions alleging defamation. The insureds tendered their claims to the insurer, but one of the insureds subsequently requested to withdraw her tender. The insurer settled all of the business partners’ claims against both insureds over their objections. On appeal, the court affirmed the grant of summary judgment to the insurer in the instant action. The policy allowed the insurer the right to settle all claims, even groundless ones, and, even if the settlement precluded a subsequent malicious prosecution claim against the other litigant; hence, the insurer did not need the insureds’ approval to settle. The court also held that the settlement did not violate the covenant of good faith and fair dealing, as that covenant did not require the insurer to fight a legal battle to the point at which the costs of defense exceeded the benefit to be achieved. The court also noted that the insureds reaped the benefits under the policy, namely the payment of legal expenses.


The court affirmed the judgment.