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Excess Insurer Owes Nothing Until Primary Insurer’s Limits Are Exhausted
Vizio, Inc. appealed the district court’s order granting Arch Insurance’s motion to dismiss. Arch issued an insurance policy to Vizio and provided coverage excess to Navigators Insurance’s primary policy, meaning that Arch only covered losses that exceeded the $5 million limit of the Navigators Policy. The Arch Policy “followed form” to Navigators’ policy, so it has the same terms except for those specifically contradicted by the Arch Policy. Vizio also had a separate line of general liability coverage with Chubb.
In VIZIO, INC. v. ARCH INSURANCE COMPANY, et al., No. 22-55755, United States Court of Appeals, Ninth Circuit (October 30, 2023) Vizio sought coverage from an excess insurer after reaching a settlement with plaintiffs in a class action suit without first getting permission from the excess insurer.
FACTS
After consumers filed class action lawsuits against Vizio in connection with its Smart TV products (the “Smart TV Litigation”), Vizio notified both Navigators and Arch of its potential insurance claims in a February 2016 email. Arch requested more information, while Navigators denied coverage, citing a policy exclusion. Vizio twice forwarded Navigators’ denial letter to Arch, but Vizio never provided Arch with any substantive updates about the Smart TV Litigation. Arch, in turn, failed to convey a coverage decision, though internal records show that Arch decided to deny coverage.
About two years later, without seeking or receiving Arch’s consent, Vizio settled the Smart TV Litigation for $17 million. On Arch’s motion the district court dismissed Vizio’s fourth amended complaint with prejudice, holding (among other things) that Vizio failed to properly notify Arch of its claim after the underlying policy limit was exhausted.
The District Court Erred In Holding That Providing Notice Prior To Exhaustion Was Improper.
Finding that notice was given the district court incorrectly concluded Vizio failed to give proper notice but rightly determined that Arch at that time had no duty to defend or indemnify because the primary policy limit had not yet been exhausted. Vizio’s February 2016 email was adequate notice.
Vizio Failed To Comply With The Consent Provision Before Settling.
First, Vizio admits that it did not obtain Arch’s consent prior to settling the Smart TV Litigation as required under the Arch Policy. Since a following form excess policy has the same terms and conditions as the underlying primary policy and, therefore, the Navigators Policy’s consent provision is incorporated into the Arch Policy.
Second, Vizio argues that Arch’s policy conflicts with Navigators’ policy. Not so.
Lastly, Vizio argues that, if the consent provision applies, Vizio was excused from performing because Arch allegedly breached the policy first by not properly responding to Vizio’s February 2016 email. However, Vizio failed to allege facts that would plausibly show that Arch breached any of its duties under the policy. Moreover, even if Arch breached the policy as alleged, this would not excuse Vizio from seeking Arch’s consent to the settlement.
ANALYSIS
Insurance contracts in the state of California incorporate the terms of California’s insurance regulations. Vizio relies on California Code of Regulations Title 10, Section 2695.7(b) for the proposition that an insurer’s failure to accept or deny a claim within 40 days of tender is a breach of the insurance policy. But Section 2695.7(b) only applies after an insurer receives a “proof of claim,” which is defined as evidence of a claim that “reasonably supports the magnitude or the amount of the claimed loss.” 10 C.C.R. § 2695.2(s).
A “notice of claim” is not a proof of claims. Vizio’s February 2016 email to Arch was a notice of claim, not a proof of claim.
Vizio also alleged Arch breached the contract when it internally denied coverage and never informed Vizio. Arch’s alleged breach would only excuse Vizio’s non-consensual settlement if Vizio had requested and been denied coverage. But Arch never informed Vizio that it would deny coverage, and Vizio never followed up or provided Arch with any substantive updates about the Smart TV Litigation. Thus, Vizio, having never been notified of a denial of coverage, still had an obligation to obtain Arch’s consent to any settlement, notwithstanding Arch’s alleged breach. Without notice, Arch was denied the opportunity to participate in the settlement negotiations, which the insurance contract established as a prerequisite to Arch’s duty to pay.
Vizio’s Claim For The Breach Of The Implied Covenant Of Good Faith And Fair Dealing Fails.
Under California law, without a breach of the insurance contract, there can be no breach of the implied covenant of good faith and fair dealing. Because Vizio breached the policy by not soliciting Arch’s consent prior to settlement, no benefits were due, and Arch therefore did not breach the contract.
Vizio’s Equitable Contribution Claim Fails.
Equitable contribution is the right to recover, not from the party primarily liable for the loss, but from a co-obligor who shares such liability with the party seeking contribution. However, as a general rule, there is no contribution between a primary and an excess carrier.
Arch was indisputably an excess insurer because it only had an obligation to indemnify Vizio once the $5 million limit of the Navigators Policy was exhausted.
ZALMA OPINION
The Ninth Circuit read the two policies: the primary and the following excess policy. Both policies required that the insured advise the insurers of their intent to settle, obtain permission from the insurer, or lose the right to indemnity. The settlement of the class action may have been a wise decision by Vizio but its failure to seek the participation and consent of Arch cost them any possibility of obtaining contribution from Arch and deprived Arch of the ability to reject coverage or pay.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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The Professional Claims Handler
Post 5218
Read the full article at https://www.linkedin.com/pulse/zalma-philosophy-claims-handling-part-8-barry-zalma-esq-cfe-zdwsc, see the full video at https://rumble.com/v70zl4s-the-zalma-philosophy-of-claims-handling-part-8.html and at https://youtu.be/MIYcF71ffRQ, and at https://zalma.com/blog plus more than 5200 posts.
Claims Commandment X – Thou Shall Not Pretend to be a Lawyer
Some experienced and professional claims people know the law in their area of expertise better than most lawyers.
Adjusters should be adjusters and leave lawyering to lawyers. Similarly, lawyers should be lawyers and never try to be adjusters.
Claims Commandment XI – Thou Shall Empathize With the Claimant
Everyone presenting a claim is unhappy, disturbed, shocked, injured and needs help.
Empathy is identification with and understanding of another’s situation, feelings, and motives. It is the ability to understand another person’s circumstances, point of view, thoughts, and feelings....
HOW TO CREATE AN EXCELLENCE IN CLAIMS HANDLING PROGRAM
See the full video at https://rumble.com/v70wb2i-the-zalma-philosophy-of-claims-handling-part-6.html and at https://youtu.be/tL5nDKPEs40 and at https://zalma.com/blog plus more than 5200 posts.
Post 5217
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry.
An Excellence in Claims Handling program begins with a statement in the insurer’s claims manual or statement of professionalism that it is dedicated to providing excellence in claims handling to every insured who presents a claim.
The excellence in claims handling program should include, at a minimum:
A series of lectures supported by text materials explaining:
A definition of insurance.
How to read and understand an insurance policy.
How to interview an insured, witness, or claimant.
How to assist an insured in the insured’s obligation to ...
The Professional Claims Handler
Post 5216
Read the full article at https://www.linkedin.com/pulse/zalma-philosophy-claims-handling-part-5-barry-zalma-esq-cfe-jde8c, see the full video at https://rumble.com/v70q4x8-the-zalma-philosophy-of-claims-handling-part-5.html and at https://youtu.be/6b9tZQsEkB4, and at https://zalma.com/blog plus more than 5200 posts.
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry.
Standards to be a Professional Claims Adjuster
The Insurance claims professional should be a person who:
1. Can read and understand the insurance policies issued by the insurer.
2. Understands the promises made by the policy.
3. Understand their obligation, as an insurer’s claims staff, to fulfill the promises made.
4. Are competent investigators.
5. Have empathy and recognize the difference between empathy and sympathy.
6. ...
The Professional Claims Handler
Post 5219
Posted on October 31, 2025 by Barry Zalma
An Insurance claims professionals should be a person who:
Can read and understand the insurance policies issued by the insurer.
Understands the promises made by the policy.
Understand their obligation, as an insurer’s claims staff, to fulfill the promises made.
Are competent investigators.
Have empathy and recognize the difference between empathy and sympathy.
Understand medicine relating to traumatic injuries and are sufficiently versed in tort law to deal with lawyers as equals.
Understand how to repair damage to real and personal property and the value of the repairs or the property.
Understand how to negotiate a fair and reasonable settlement with the insured that is fair and reasonable to both the insured and the insurer.
How to Create Claims Professionals
To avoid fraudulent claims, claims of breach of contract, bad faith, punitive damages, unresolved losses, and to make a profit, insurers ...
The History Behind the Creation of a Claims Handling Expert
The Insurance Industry Needs to Implement Excellence in Claims Handling or Fail
Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...
The History Behind the Creation of a Claims Handling Expert
The Insurance Industry Needs to Implement Excellence in Claims Handling or Fail
Post 5210
This is a change from my normal blog postings. It is my attempt. in more than one post, to explain the need for professional claims representatives who comply with the basic custom and practice of the insurance industry. This statement of my philosophy on claims handling starts with my history as a claims adjuster, insurance defense and coverage lawyer and insurance claims handling expert.
My Training to be an Insurance Claims Adjuster
When I was discharged from the US Army in 1967 I was hired as an insurance adjuster trainee by a professional and well respected insurance company. The insurer took a chance on me because I had been an Army Intelligence Investigator for my three years in the military and could use that training and experience to be a basis to become a professional insurance adjuster.
I was initially sat at a desk reading a text-book on insurance ...