Blue Ridge Ins. Co. v. Jacobsen

Blue Ridge Ins. Co. v. Jacobsen

Opinion

 [*492]  [**314]  [***536]    BROWN, J. 

In response to the request of the Ninth Circuit Court of Appeals, we answer the following certified question: "Whether an insurer defending a personal injury suit under a reservation of rights may recover [****2]  settlement payments made over the objection of the insured when it is later determined that the underlying claims are not covered under the policy." ( Blue Ridge Ins. Co. v. Jacobsen (9th Cir. 1999) 197 F.3d 1008, 1009 (Blue Ridge); Cal. Rules of Court, rule 29.5.) Here, at the time it accepted defense of the insureds, the insurer reserved its right to dispute coverage for any settlement contribution made to the injured third party. However, when a reasonable settlement offer was subsequently tendered, the insureds refused to agree the insurer could settle if the insureds would be liable for reimbursing the insurer for any noncovered claims. They also refused to either assume their own defense, or agree the settlement offer was unreasonable, and hence could not be the basis for a later bad faith action based on the  [*493]  failure to settle. Under such circumstances, we conclude an insurer may be reimbursed for a reasonable settlement payment made over the objection of its insureds.

I. FACTUAL AND PROCEDURAL BACKGROUND

The following statement of undisputed facts is derived in part from the Ninth Circuit's opinion. (Blue Ridge, supra, 197  [***537]   [****3]  F.3d at pp. 1009-1011.) During the 1970's until late 1989, defendants and insureds Brigitte and John Jacobsen operated a dog kennel business in Sun Valley, California. They specialized in importing champion German shepherd and Rottweiler dogs from Germany and reselling them in the United States. Robert and E'dee Bolognesi, plaintiffs in the underlying action, also operated a dog kennel business. The Bolognesis had purchased several dogs from Brigitte Jacobsen, some directly from her kennel, and some specifically imported from Germany by her at their request.

Although Brigitte Jacobsen closed her kennel business in 1989, in 1991 she assisted the Bolognesis in purchasing a German Schutzhund III male Rottweiler dog--Benno Vom Gelderland. Approximately five months later, Benno severely mauled E'dee Bolognesi. E'dee was 29, and the mother of a young child. The Bolognesis sued the Jacobsens, alleging theories of product liability, negligence, and fraud. The Jacobsens tendered the defense to their homeowner's insurer, Blue Ridge Insurance Company (Blue Ridge).

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