What do the Cases Say?
Whether there is ever such a duty, and if so, when, depends upon some background. What follows is an analysis of research compiled by Dennis J. Wall and published online and in print, in "Litigation and Prevention of Insurer Bad Faith" (Second Edition Shepard's/McGraw-Hill, 2009 Supplement West Publishing Company), particularly Section 3:13.
Since the generally accepted standard for measuring the settlement conduct of a liability insurer is whether the ordinary and prudent liability insurer without policy limits would settle for a given sum, liability insurers are under a duty to make reasonable offers in response to the settlement demands of third parties.[FN99]A reasonable offer is one based on an objective assessment of liability and damages. It does not include other facts, such as how much reinsurance the liability insurer has for its own protection,[FN100]whether or in what amount the insured purchased excess insurance[FN101]unless the demand is in excess of the limits of the primary liability insurer considering whether to offer its own limits,[FN102]or the naked desire to "'try to negotiate some savings on our limits."'[FN103]Thus, the participants' more-or-less contemporaneous remarks on this comparison may well be admitted in evidence in a later bad faith case.
Asterisks (***) indicate omitted material.
[FN99]See, e.g., Continental Casualty Co v United States Fidelity & Guar Co, 516 F Supp 384, 390 & n7 (ND Cal 1981) (applying California law); Vencill v Continental Casualty Co, 433 F Supp 1371, 1374 & n5, 1375 & nn6 & 7, 1374 & n5, 1375 & nn6 & 7 (SD W Va 1977) (applying West Virginia law); ***. "An insurer may ignore a frivolous offer." Mowry v Badger State Mut Casualty Co, 129 Wis 2d 496, 385 NW2d 171, 185 (1986).
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[FN100]E.g., American Fidelity & Casualty Co v Greyhound Corp, 258 F2d 709, 712 (5th Cir 1958) (applying Florida law); Zumwalt v Utilities Ins Co, 360 Mo 362, 228 SW2d 750, 754-55 (1950).
[FN101]Vencill v Continental Casualty Co, 433 F Supp 1371, 1377-78 (SD W Va 1977) (applying West Virginia law). Cf. Allstate Indem. Co. v. Oser, 893 So. 2d 675, 677 (Fla. 1st DCA 2005)***.
[FN102]Continental Casualty Co v United States Fidelity & Guar Co, 516 F Supp 384, 388-89, 391 n8 (ND Cal 1981) (applying California law).
[FN103]Vencill v Continental Casualty Co, 433 F Supp 1371, 1374 (SD W Va 1977)(emphasis by the court). ***
From Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith," published by West, a Thomson Reuters business.
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