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Vol. 11 - Issue 1

January 3, 2022


Bad Faith Failure To Settle -- But No Demand Within Limits, No Trial, No Excess Verdict And Insured Fully Released

Planet Bingo LLC v. Burlington Insurance Co., 62 Cal. App. 5th (2021)


Top 10 cases can be ones that go against conventional thinking about an issue.  The California Court of Appeal’s decision in Planet Bingo LLC v. Burlington Insurance Co. is a classic in that category.  In other words, the decision has a surprise element.

The court determined that the insurer could be liable for bad faith failure to settle.  However, here’s the rub – a settlement demand, within policy limits, was never made.  And here’s the second rub – there was no excess verdict.  And that’s because of the third rub – the underlying case against the insured never actually went to trial.  Wait, there’s one more – the insurer secured a full release for its insured.  Needless to say, these are certainly not the usual ingredients for an insurer to possibly be liable for bad faith failure to settle.  Hence, the decision is discussed here.

I’ll give away the ending.  The court concluded that, when a settlement demand is for a  subrogation claim, even if it is above policy limits, it could be deemed to be a demand for policy limits.  This is because the court was persuaded that it is a very well-known industry custom, in subrogation claims, of accepting policy limits for a full release of the insured. 
Second, the court found support for its subrogation-claim decision on the basis that, under California law, an insurer’s refusal, to simply disclose what its policy limits are, can be considered its refusal of an actual settlement demand made for policy limits.

All in all, the decision can likely be relevant to non-subrogation claims as well.

Insurers usually find protection, for bad faith failure to settle, on the basis that there was never a demand to settle within limits made.  In other words, the opportunity to settle was never there.  Based on Planet Bingo, the analysis is not just mathematical, t also situational.  

Planet Bingo involves a protracted history and the facts are a little confusing.  I’m going to stick to those that mattered the most to the court’s decision.  At issue in Planet Bingo was coverage for a fire, in September 2008 in the United Kingdom, caused by an electronic gaming device designed and supplied by Planet Bingo.  Leisure Electronics was the distributor of the devices.  The fire took place at Beacon Bingo, a bingo hall in London.  Plant Bingo sought coverage from its liability insurer, Burlington.  The policy limit was $1 million.

In November 2009, Beacon Bingo notified Burlington that its damages totaled £1.6 million – about $2.6 million. In mid-2011, while neither Beacon nor Leisure had filed suit against Planet Bingo, the company advised Burlington that it was losing business because the fire claim remained unpaid and Plant Bingo “was getting known as a deadbeat.”  Around that time, Burlington advised Planet Bingo that, since no claims were being pursued against it, the insurer was closing its file.

Meanwhile, AIG Europe Ltd., the insurer for Leisure, the distributor, settled with Beacon, the bingo hall, for £1.6 million.  In July 2014, AIG contacted Planet Bingo, advised of the Leisure settlement, and made a subrogation demand of £1.6 million.  AIG also stated that it was open to alternative dispute resolution.  [I’ll get to the importance of the subro issue soon).

Planet Bingo notified Burlington of the claim. Burlington denied coverage on the basis that, as required by the policy, the fire did not occur in the United States or Canada and Planet Bingo had not been sued in the United States or Canada.

Planet Bingo’s attorneys convinced AIG it to sue Planet Bingo in the United States.  AIG did so in California Superior Court. Burlington accepted the defense, subject to a reservation of rights, and settled with AIG for $1 million — the policy limits. AIG released any and all claims against Planet Bingo.

So case over, right?  Sure, it took a long time to get there, but all’s well that ends well.  Uh, no. 

Planet Bingo had filed a coverage action against Burlington in 2016.  Planet Bingo’s expert witness testified that “the failure to promptly pay the fire claim damaged Planet Bingo’s business reputation and ultimately caused its entire business in the United Kingdom to fail; as a result, it suffered lost profits of over $9.3 million. Burlington did not dispute this.”   (emphasis mine).

The trial court ruled that Burlington was not liable for pre-litigation failure to settle.  But the Court of Appeal reversed.   

The appeals court, while noting that this was not a “paradigm case” of bad faith failure to settle – demand to settle within limits; insurer rejects it; case goes to trial; excess verdict – the insurer could be liable for pre-litigation failure to settle.

In making this determination, the court noted that, on its face, there was never a demand within limits on the table.  AIG Europe demanded £1.6 million and Planet Bingo’s policy had a $1 million limit. And there was never an excess judgment.  While AIG did have to sue Planet Bingo, Burlington settled for policy limits.  However, Planet Bingo’s argument was that, by Burlington not settling pre-suit, its business in the UK was wiped out.  

The court concluded that there may have been a demand to settle within limits.  Wait, where?  Well, that’s the surprising part.  AIG’s £1.6 million demand was a subrogation demand.  The court observed that, because it was a subrogation demand, it could have been considered a demand for limits.         

The court explained: “It is significant that AIG was claiming as subrogee, and its letter was a subrogation demand letter. Planet Bingo’s expert witness testified that a subrogation demand letter ‘offers a clear invitation to negotiate a settlement for less than that amount . . . .’ She also testified that there is a ‘very well[-]known industry custom in such subrogation claims of accepting policy limits for a full release o[f] the insured.’  This raised a triable issue of fact as to whether the letter represented an opportunity to settle within the policy limits.”

Second, in reaching the conclusion, that a settlement demand can be a demand within limits, even if the demand is higher than the limits, the court was persuaded by Boicourt v. Amex Assurance Co., 78 Cal. App. 4th 1390 (2000), where an insurer’s pre-litigation refusal, to simply disclose what its policy limits are, could be considered its refusal of an actual settlement demand made for policy limits.  The Planet Bingo court stated that, in Boicourt, the claimant, after getting an excess verdict, testified that he would have accepted policy limits if he knew what they were.    

Planet Bingo isn’t over.  It was a denial of summary judgment on the failure to settle issue.  In addition, the court needs to decide whether Planet Bingo can recover lost profits rather than an excess judgment. 

However, the take-away from Planet Bingo is clear.  The court stated: “At a minimum, Boicourt [and now, seemingly, Planet Bingo] means that the existence of an opportunity to settle within the policy limits can be shown by evidence other than a formal settlement offer.”      

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