The Kansas Supreme Court has addressed the question of a liability insurer initiating settlement negotiations not as a question of legal duty, but as 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]
In the view of the Kansas Supreme Court, calling initiation a "duty" or absolving a carrier from not initiating settlement negotiations because there has been no demand from the injured claimant, are both too narrow to be useful to application and thus development of the law in particular cases:
When duties are framed narrowly and in a particularized fashion, the element of legal duty is conflated with the element of breach. As a result, this narrow, fact-specific framing of the insurer's implied contractual duties invades the province of the fact-finder. [Citation omitted.]
The existence of a duty is a question of law, but whether specific conduct satisfies or breaches that duty is a question of fact. [Citation omitted.] And our court has long recognized that the trier of fact must decide whether the specific conduct in any given case breaches a broadly applicable legal duty.
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The bottom line is that under Kansas law, whether certain conduct satisfies or breaches the implied contractual duties of reasonable care and good faith is a question reserved for the trier of fact (usually a jury).[2]
The Granados case and other authorities on the settled guidelines summarized by the Kansas Supreme Court in Granados are explored in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 3:16, Duty to Initiate Settlement Negotiations (3d Edition West Publishing Company, 2023 Supplements in process).
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[1]Granados v. Wilson, 317 Kan. 34, 49-50, 523 P.3d 501, 513 (2023) (emphasis added).
[2] Granados, 317 Kan. at 43, 45, 523 P.3d at 509, 510.
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