Insurance Law

The Eastern District of California Holds That A Carrier May Have An Affirmative Duty To Attempt to Settle A Claim Against The Insured When It Is Presented With A Reasonable Settlement Opportunity

Travelers Indem. of Conn. v. Arch Specialty Ins. Co., 2013 U.S. Dist. LEXIS 169453 (E.D. Cal. Nov. 26, 2013) [enhanced version available to subscribers]

In Travelers, the district court concluded that the carrier must act in good faith in response to reasonable opportunities to settle, and cannot simply wait for a formal written settlement demand.

The claimant in Travelers was the daughter of a truck driver who was severely injured when she was run over by her father. She brought a personal injury action against her father and the insured, which was the company that hired him to drive its truck. The insured had a primary policy with a $2 million limit of liability, and an excess policy with a $24 million limit of liability. In June 2006, without knowledge of the excess policy, the claimant offered to settle for $2 million, but that offer was rejected. In August 2008, the claimant filed a mandatory settlement conference statement in which she asserted that the reasonable value of the case was $15 million. The primary carrier did not offer any money at the mandatory settlement conference. After a bench trial in state court, the insured was found to have acted as a common carrier and was held vicariously liable for the claimant’s injuries. The primary carrier then offered $2 million in settlement on behalf of the insured to the claimant for the first time, but the claimant did not respond. After a trial on damages, the jury returned a verdict of $24.3 million. The primary carrier paid $2 million and the excess carrier paid $20.5 million pursuant to a settlement agreement.

The primary carrier brought a declaratory judgment action seeking a declaration that it had not breached any duty to settle the action and that it was not obligated to reimburse the excess carrier for the amount the excess carrier contributed to the settlement. The excess carrier filed a bad faith counterclaim. The parties then filed cross-motions for summary judgment.

The court denied the excess carrier’s motion and granted the portion of the primary carrier’s motion seeking an adjudication that a bad faith claim for failure to settle could not be based solely on the rejection of the claimant’s $2 million demand due to the uncertainty regarding the value of the claim at the time that demand was issued. However, the court denied the remainder of the primary carrier’s motion and held that a failure to settle could be based on the primary carrier’s conduct after the demand was issued even in the absence of a subsequent within-limits demand. The court noted that bad faith liability for failure to settle did not require the rejection of a formal settlement demand and that the proper inquiry on such a claim concerns whether the carrier missed a reasonable opportunity to settle a claim against the insured. The court cited Reid v. Mercury Ins. Co., 220 Cal. App. 4th 262, 272 (2013) [enhanced version available to subscribers] and explained that the Reid court dispelled the notion that an insurer has a general duty to initiate settlement discussions. It then went on to find that the insurer’s duty to settle was broader than merely a duty to accept a settlement demand and determined that there was an issue of fact as to whether the primary carrier missed a reasonable settlement opportunity by, among other things, failing to counter the claimant’s $2 million demand and failing to issue an offer in response to the comment in the claimant’s mandatory settlement conference statement that her claim was worth $15 million.

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