Four passengers in a car that Yan Fang Du was driving were injured in a June 2005 collision on a California highway. Du and his passengers sued Joon Hak Kim, the driver of the other vehicle, whom they claimed was at fault. Because Du and Kim were from different states, the case proceeded to trial in federal court.
A jury returned a verdict of more than $4.1 million for Du against Kim. Kim’s insurance policy with Allstate Insurance Co. and its subsidiary Deerbrook Insurance had a $300,000 per-incident limit, leaving Kim on the hook for the massive excess judgment. Kim assigned his right to sue his insurer to cover the excess amount to Du in exchange for an agreement that Du would not execute the judgment against him.
Prior to the original 9th Circuit decision in Du, California law was clear that insurers did not have an affirmative duty to initiate settlement discussions in the absence of a settlement demand and would not be exposed to bad-faith liability for not doing so. The 9th Circuit reversed course.