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Insurance Law

High Court Hands Excess Insurers A Big Bad Faith Stick Against Primaries

There is nothing out of the ordinary about suits by excess insurers, against an underlying primary insurer, alleging that the primary had an opportunity to settle a claim within its limit, did not do so, and, as a consequence, there was later a verdict that reached, but should not have, the excess insurer’s policy. Such a suit is conceptually the same as one by an insured, against its insurer, for failure to settle a claim when it could have, and should have, and the result of such failure is an excess verdict for which the insured is now personally liable.

The Missouri Supreme Court’s decision in Scottsdale Ins. Co. v. Addison Ins. Co., No. SC 93792, 2014 Mo. LEXIS 335 (Mo. Dec. 9, 2014), [enhanced version available to subscribers], involves a dispute between an excess and primary insurer over a primary’s failure to settle a claim. But what makes it different from most primary-excess cases is that the excess insurer’s liability arose out of a settlement that it was forced to make, following a primary insurer’s failure to settle. In other words, the excess insurer’s liability did not stem from a verdict. And since the vast majority of cases settle, the decision is one the other courts may look to for guidance on the issue, asking the Missouri Supreme Court to Show Me how you addressed it.

The dispute in Scottsdale v. Addison grew out of an accident by a Wells Trucking employee that resulted in the death of another motorist. Wells was insured under a $1 million primary policy issued by United Fire and a $2 million excess policy issued by Scottsdale. The decedent’s family and United Fire entered into settlement negotiations. While the decedent’s family also filed suit against Wells, settlement negotiations continued. A mediation took place and the claim was settled for $2 million – United Fire paid $1 million and Scottsdale paid $1 million. Wells Trucking then assigned to Scottsdale its rights to pursue a bad faith refusal to settle claim against United Fire.

These facts don’t sound like the stuff of bad faith failure to settle cases. But here’s the rub. Among other factors, notably, the decedent’s family provided several opportunities to United Fire to settle the case for its $1 million limit. At some point, the decedent’s family withdrew its $1 million demand, raised its demand to $3 million and refused to accept $1 million to settle. When United Fire ultimately agreed to pay its $1 million limit, it knew that the amount was not sufficient to achieve a settlement and that Wells and/or Scottsdale would have to pay additional sums to settle. Scottsdale achieved a $2 million settlement by contributing $1 million under its excess policy and then pursued United Fire for bad faith failure to settle.

United Fire responded to the claim, with the following argument: “Wells Trucking and Scottsdale could not prove a bad faith refusal to settle claim because the essential elements of the claim were not met. Specifically, United Fire asserted that because it ultimately tendered its $1 million policy limits to settle the claim against Wells Trucking, Wells Trucking and Scottsdale could not prove that United Fire refused to settle or that it acted in bad faith and, because the wrongful death action was settled, United Fire and Scottsdale could not prove that Wells Trucking suffered an excess judgment.” The trial court agreed with this. The Missouri Supreme Court did not.

While the court had much to say about bad faith refusal to settle, how it works and why it exists, the most important point of the case is this. Scottsdale and Wells argued that: “Wells Trucking and Scottsdale have claimed that it was not until after United Fire acted in bad faith in refusing to settle that United Fire finally agreed to tender its $1 million policy limits. By that time, however, the decedent’s family would not settle for $1 million, and United Fire’s $1 million policy limits could no longer fully settle the wrongful death claim. If, as Wells Trucking and Scottsdale allege, United Fire’s failure to act on the decedent’s family’s earlier settlement demands was in bad faith and caused Wells Trucking to lose its opportunity to fully settle the claim within United Fire’s policy limits, United Fire should not be able to evade liability by later agreeing to pay its policy limits. United Fire’s mere payment up to the policy limits does not make Wells Trucking whole or put Wells Trucking in the same position as if United Fire had performed its obligations to settle in good faith.”

The court concluded that United Fire was not entitled to summary judgment because it was unable to show that the essential elements of a bad faith refusal to settle claim could not be proven.

As we all know, despite all kinds of protracted negotiations between parties, and threats to go to trial, just about all cases are eventually resolved by settlement. During the lead-up to that, and especially in the early stages, it is not usual for an insurer to fail to accept a settle demand within limits, on the basis that, if they don’t, they can always do so later. The primary insurer may also decline to settle within the limit when there is an excess insurer, as it gives the primary some assurance that the insured is not personally exposed. In the insurer’s defense, at the time of the limits demand, it may simply not know if the case justifies such a settlement. But sometimes the writing is on the wall -- even if you don’t know every detail.

Scottsdale v. Addison illustrates the risk for primary insurers who fail to accept a limits demand, believing that there’s always time to do so later. As time goes on, and the plaintiff spends more money on the case, and perhaps acrimony grows between the parties, the limits demand may be pulled off the table. But because cases almost always have a way of settling, the plaintiff may still eventually accept the primary limit. But now one thing has changed -- the excess insurer must also contribute to achieve a settlement.

Scottsdale v. Addison demonstrates the risk for primary insurers who go down this road. Despite paying its limit, and the insured itself having no personal liability – things that should prevent a bad faith failure to settle claim – the primary insurer still faces exposure over its limits – and perhaps by a lot – by delaying what it figured all along would be a limits settlement.

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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