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In at least one jurisdiction, Kansas, the question of a liability insurer initiating settlement negotiations is not a question of duty but a question of fact under all the circumstances:
Under this hypothetical, both the insurer and insured know liability is clear and the claim filed by the insured exceeds policy limits, creating a conflict of interest that requires the insurer to exercise reasonable care and to act in good faith. [Citation omitted.] They also know the claim can be settled within policy limits if they act quickly, even though the third party has not made formal demand. We cannot conclude, as a matter of law, that the insurer could never breach the duties of reasonable care and good faith by failing to explore settlement under these (or any other possible set of) circumstances simply because the third party has not yet made a formal demand. See, e.g., Keeton and Widiss, Insurance Law § 7.8(c), 889-90 (1988) (“In most circumstances the insurer, having reserved to itself the right to control the defense and the decision whether to agree to a settlement, should be obligated to explore the possibility of a settlement even in the absence of actions by the third-party or an express request by the insured.”).[1]
[1]Granados v. Wilson, ___ Kan. ___, 523 P.3d 501, 513 (2023) (emphasis added).
The Granados decision is explored along with other cutting-edge decisions which address a Duty to initiate settlement negotiations in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 3:16 (Thomson Reuters 3d Edition, 2023 Supplements in process).
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