Third-Party Bad-Faith Claim

Paul Evert’s RV World et al. v. Universal Underwriters Ins. Co., 720 Fed. Appx. 412 (9th Cir. April 25, 2018)

The Ninth Circuit Court of Appeals affirmed a judgment obtained by Mound Cotton’s attorneys in a significant third-party bad faith action. The suit arose from an action in which plaintiffs, who sold recreational vehicles in California, were found liable for $500,000 in compensatory damages and $4 million in punitive damages for engaging in malicious conduct calculated to put a competitor out of business. Universal paid for panel defense counsel as well as compensatory damages, but refused to indemnify plaintiffs for punitive damages. Plaintiffs sued Universal, alleging that Universal had engaged in bad faith in handling the claim, and sought to shift their punitive damages liability to Universal by arguing that Universal should pay the $4 million punitive damages award because Universal allegedly: 1) denied plaintiffs a “proper” defense and qualified counsel, 2) had a conflict of interest with plaintiffs, 3) denied plaintiffs the right to independent counsel, 4) “controlled” the defense in order to limit liability to uncovered claims, and 5) excluded plaintiffs from meaningful participation in settlement discussions. In affirming judgment for Universal, the Ninth Circuit found no evidence that Universal’s conduct constituted bad faith, and held that even if Universal’s claim-handling had been negligent in some respect, plaintiffs could not shift their punitive damages liability, which stemmed from their own malicious conduct, to their insurance carrier.

Universal Underwriters Ins. Co. was represented by partner Jonathan Gross.


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