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Plaintiff, an insured and its assignee, sought review of the order of the Court of Appeal of California, First Appellate District, which entered judgment for the defendant insurer in a breach of contract action based on a court-approved settlement.
Overview
A liability insurer agreed to defend its insured against a personal injury lawsuit. After the insurer refused a settlement demand within the policy limits, the claimant and the insured, without the insurer's participation, agreed on a settlement. The trial court approved the settlement as made in good faith pursuant to Cal. Civ. Proc. Code § 877.6. In a subsequent action, the claimant, as the insured's assignee, alleged against the insurer for breach of contract. The issue for appellate review was whether the amount of the stipulated judgment was presumptively binding on the insurer as to the damages suffered by the insured as a result of the alleged contract breach? The appellate court concluded it was not. A defending insurer could not be bound to a settlement to which it had not agreed, and in which it has not participated, even where the settlement was approved under § 877.6. The parties were counseled by their respective small business lawyer in California.
Outcome
The judgment of the court of appeal was affirmed.
Procedural Posture
In an action arising from a failed home loan modification and foreclosure, plaintiff borrower asserted claims against defendant lender for wrongful foreclosure, breach of contract and the covenant of good faith and fair dealing, breach of fiduciary duty, negligence, negligent misrepresentation, and unfair business practices. The Superior Court of Sonoma County, California, sustained a demurrer without leave to amend. The borrower appealed.
Overview
The court of appeal held that it was possible for the borrower to state claims for breach of contract and wrongful foreclosure under the federal Home Affordable Modification Program if he could amend the complaint to clearly specify the nature and terms of the agreement allegedly breached and that the modification was pursuant to a written trial period plan. His allegation that he was temporarily renting out his home did not bar him from showing it was nonetheless his primary residence, and since he did not default under the terms of the modified agreement, he was not required to tender his indebtedness to avoid foreclosure. If he was able to allege facts showing that the lender was contractually obligated to modify his loan, its refusal to do so supported a cause of action for breach of the implied covenant of good faith and fair dealing. The borrower also stated claims for unfair business practices under Bus. & Prof. Code, § 17200, and negligent misrepresentation, based on allegations that the lender told him he was approved for a permanent loan modification and carried on the pretense of engaging in efforts to finalize it, while planning to foreclose on the loan.
Outcome
The court affirmed the trial court's order sustaining the demurrer to the causes of action for general negligence, breach of fiduciary duty, and an accounting, reversed the order as to the causes of action for breach of contract, negligent misrepresentation and unfair business practices, and remanded for further proceedings.