The Duty of Good Faith & Fair Dealing Continues After Court Finds No Duty to Defend
Post 5076
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Duty to Defend Required After New Facts Delivered
Nautilus Insurance Co. was entitled to rely on trial court Judge Dorsey's summary judgment ruling in a previously filed separate declaratory judgment action ("First Coverage Action" ) in which Judge Dorsey determined Nautilus did not have a duty to defend at that time. Because Nautilus was told it did not have a duty to defend Plaintiff Robert Wood, it was not liable for bad faith failure to settle during the September 2016 mediation three days after the summary judgment ruling.
In Robert Wood, et al. v. Nautilus Insurance Co., Nos. 24-293, 24-551, United States Court of Appeals, Ninth Circuit (May 8, 2025) resolved the dispute over bad faith conduct with later developed facts.
THE DECISION
The Ninth Circuit concluded that district court did not commit clear error in determining Nautilus was not liable for bad faith failure to settle, because Nautilus did not have a duty to attempt to settle until there was a duty to defend, which was not triggered until after the first ReTender of the claim.
To allege a claim for bad faith, a party must plead facts sufficient to demonstrate that the insurer had no reasonable basis for disputing coverage, and that the insurer knew or recklessly disregarded the fact that there was no reasonable basis for disputing coverage.
Arguments Not Raised "Clearly And Distinctly" In The Opening Brief Are Forfeited
Wood forfeited his claim for emotional distress damages by not "clearly and distinctly" asserting the claim in his opening brief and merely stating, "because the District Court denied Wood's failure-to-settle claim, it also denied his claim for emotional distress damages."
A plaintiff must establish a bad faith claim to be entitled to emotional distress damages. Given Nautilus was not liable for bad faith failure to settle, Wood had to tie his emotional distress damages to the denial of the Third or Fourth Re-Tenders, the only acts found to be in bad faith. Wood failed to do so and as such the district court properly denied his claim for emotional distress damages.
The district court did not commit clear error in finding that Nautilus is also not liable for bad faith failure to investigate the pre-mediation evaluation report.
The Ninth Circuit concluded that the September 23, 2016 pre-mediation report did not trigger Nautilus' duty to defend - it merely provided additional evidence of a potential duty to defend. However, Judge Dorsey's order in the First Coverage Action, three days before the mediation, made clear Nautilus did not have a duty to defend. It was reasonable, therefore, for Nautilus to rely on the court order concluding it did not have a duty to defend.
The district court properly concluded that the punitive damages awarded in the underlying suit ("Switzer Action" ) were not recoverable against Nautilus because such indemnification is prohibited by Nevada public policy.
The unjust enrichment claim hinged on whether equity requires the policyholder, Wood, to pay. The Nevada Supreme Court has determined that when a court determines that the insurer never had a duty to defend, and the insurer clearly and expressly reserved its right to seek reimbursement, it is equitable to require the policyholder to pay.
It was ultimately determined that Nautilus had a duty to defend Wood in the Switzer Action, therefore, Nautilus cannot be said to have performed in excess of what was bargained for between Wood and Nautilus. Subsequently, the district court did not err in determining Nautilus was not entitled to reimbursement of its defense costs before July 28, 2017.
The district court found that Nautilus' denial of the duty to defend became unreasonable after Wood's Third Re-Tender, when it was revealed that the Weide Email falsely stated that Switzer was banned from selling certain implants in California.
The district court concluded that "[w]hile it was reasonable for [Nautilus] to rely on Judge Dorsey's rulings to some extent," once the falsity of the Weide Email was known, Nautilus "reckless[ly] disregard[ed]" the fact that there was no reasonable basis for disputing coverage and therefore acted in bad faith.
The district court concluded Nautilus acted in bad faith in denying the Fourth Re-Tender. This account of the evidence is plausible in light of the entire record, and therefore, the district court's determination was affirmed.
ZALMA OPINION
After an insurance company receives a trial court judgment that it has no duty to defend it can refuse to defend or participate in a mediation. However, the duty of good faith does not go away and the insurer must consider, in good faith, new facts that create a duty to defend. Nautilus was not required to pay punitive damages assessed against its insured nor was it entitled to a refund of the funds it spent to defend the insured because the Fourth Tender, and its evidence, created a duty to defend.
(c) 2025 Barry Zalma & ClaimSchool, Inc.
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Post number 5289
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Deerpass Trucking, an interstate motor carrier, leased the tractor from Deerpass Farms Services, LLC, and hauled cargo for Conserv FS, Inc. under a trailer interchange agreement. The tractor was insured by Great West Casualty Company with a $1 million policy limit, while the trailer was insured by Nationwide Agribusiness Insurance Company with a $2 million ...
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Post number 5288
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Insurers Exclude Damages Due to Insured’s Products
In Matthew Dundon, As The Trustee Of The Endo General Unsecured Creditors’ Trust v. ACE Property And Casualty Insurance Company, et al., Civil Action No. 24-4221, United States District Court, E.D. Pennsylvania (February 10, 2026) Matthew Dundon, trustee of the Endo General Unsecured Creditors’ Trust, sued multiple commercial general liability (CGL) insurers for coverage of opioid-related litigation involving Endo International PLC a pharmaceutical manufacturer.
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Passover for Americans
Posted on February 19, 2026 by Barry Zalma
“The Passover Seder For Americans”
For more than 3,000 years Jewish fathers have told the story of the Exodus of the enslaved Jews from Egypt. Telling the story has been required of all Jewish fathers. Americans, who have lived in North America for more than 300 years have become Americans and many have lost the ability to read, write and understand the Hebrew language in which the story of Passover was first told in the Torah. Passover is one of the many holidays Jewish People celebrate to help them remember the importance of G_d in their lives. We see the animals, the oceans, the rivers, the mountains, the rain, sun, the planets, the stars, and the people and wonder how did all these wonderful things come into being. Jews believe the force we call G_d created the entire universe and everything in it. Jews feel G_d is all seeing and knowing and although we can’t see Him, He is everywhere and in everyone.We understand...
Passover for Americans
Posted on February 19, 2026 by Barry Zalma
Read the full article at https://www.linkedin.com/pulse/passover-americans-barry-zalma-esq-cfe-5vgkc.
“The Passover Seder For Americans”
For more than 3,000 years Jewish fathers have told the story of the Exodus of the enslaved Jews from Egypt. Telling the story has been required of all Jewish fathers. Americans, who have lived in North America for more than 300 years have become Americans and many have lostthe ability to read, write and understand the Hebrew language in which the story of Passover was first told in the Torah.
Passover is one of the many holidays Jewish People celebrate to help them remember the importance of G_d in their lives. We see the animals, the oceans, the rivers, the mountains, the rain, sun, the planets, the stars, and the people and ...
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Post number 5275
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In Lido Hospitality, Inc. v. AIX Specialty Insurance Company, No. 1-24-1465, 2026 IL App (1st) 241465-U, Court of Appeals of Illinois (January 27, 2026) resolved the effect of an anti-concurrent cause exclusion to a loss with more than one cause.
Facts and Background
Lido Hospitality, Inc. operates the Lido Motel in Franklin Park, Illinois. In November 2020, a windstorm caused one of the motel’s brick veneer walls to collapse. At the time, Lido was insured under a policy issued by AIX Specialty Insurance Company which provided coverage for windstorm damage. However, the policy contained an exclusion for any loss or damage directly or indirectly resulting from ...
