The duty of a liability insurance carrier to act in good faith in settlement does not depend on a demand from the injured claimant. Not now, not for years.
“The modern view is that absence of a third party's settlement demand will not insulate a liability insurer from exposure to liability to pay sums beyond its policy limits as a result of its bad faith and unfair dealing in settlement. Regardless of other situations where good faith duties apply, courts now impose the good faith duty in settlement whenever:
- Liability is high
- Damages are relatively great
- The insured has either excess insurance or other financial resources beyond the liability insurer's policy limits, or the insured will be exposed to judgment beyond the policy limits.”
1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 3:14, Demand From Third Party (West Publishing Co. 3d Edition & 2024 Supplements)(citing authorities, pro and con; citations omitted here).
From time to time a commentator will nonetheless declare that a liability carrier must receive a settlement demand, or what the injured claimant’s attorney will almost certainly call a settlement offer, before the liability carrier has good faith settlement duties. Sometimes these statements appear without warning in respected publications like Recent Case, Louis Jimenez v. GEICO Secure Insurance Company, ___ F. Supp. 3d ___, 2024 WL 1623155 (D. Nev. April 12, 2024), 46 Ins. Litig. Rptr. 397 (Aug. 19, 2024). The Jimenez case and this case comment both illustrate the courts’ move away from concentrating on the presence or absence of a settlement demand in the bad faith case law.
The comment recites that the judge in the Jimenez case “found the reasoning” in an earlier case “persuasive and applicable to Jimenez’s case.” 46 Ins. Litig. Rptr. at 398.
No, he didn’t.
The earlier case was Chowning v. Nationwide which was decided by a magistrate judge in Nevada a year earlier. Chowning v. Nationwide Ins. Co. of Am., No. 22-cv-00798-CDS-EJY, 2023 WL 2971435 (D. Nev. 2023) (USMJ).
As the Jimenez Court wrote, “GEICO argues that I should follow Chowning, which held that a [statutory unfair claims settlement practices] claim was futile without a settlement demand from the injured party.” Jimenez, 2024 WL 1623155, at *3. But the Jimenez Court disagreed. The district judge in that case did not find the decision by a magistrate judge in Chowning to be “controlling law”:
The Supreme Court of Nevada has not decided the precise question of whether a settlement demand from the claimant is a prerequisite to an insurance bad faith claim. See Chowning, 2023 WL 2971435, at *6. Neither party cites controlling law on this point.
Jimenez, 2024 WL 1623155, at *3 (emphasis added).
“However,” as the comment described the Jimenez Court’s decision, “the court emphasized that this duty does not extend to proactively initiating settlement negotiations without a request or demand from the claimant or their representatives.” 46 Ins. Litig. Rptr. at 398.
Again, no, it didn’t.
Nevada law was involved in the Jimenez case and the Jimenez Court applied Nevada Supreme Court decisions which establish that a liability carrier cannot be held liable for its alleged bad faith in settlement if it “’has no opportunity to settle within policy limits … [o]r, if settlement is possible beyond policy limits, … that the insured would be willing to contribute the excess amount.’” Jimenez, 2024 WL 1623155, at *2, quoting Allstate Ins. Co. v. Miller, 125 Nev. 300, 212 P.3d 318, 328 (2009) (en banc).
Applying the Nevada law of bad faith, as interpreted by the Nevada Supreme Court and followed in the Jimenez case, the policyholder’s complaint at issue failed in its claim of bad faith in settlement because it did not contain any allegation that the defendant carrier had “an opportunity to settle, either within policy limits or outside of policy limits with Jimenez’s contributions.” Jimenez, 2024 WL 1623155, at *3.
Without an allegation that the defendant carrier had an opportunity to settle, both the common law claim of bad faith and the statutory claim of bad faith failed, and for that reason both of these claims were dismissed. Jimenez, 2024 WL 1623155, at *3 & *4.
The Jimenez decision is thoughtful and researched. Not once did the Jimenez Court write that a demand (or offer) is necessary to a viable claim of bad faith in settlement; what Nevada law requires is what all modern jurisdictions require, which is an opportunity for the liability carrier “to settle within policy limits or in excess of policy limits with contribution” from the bad-faith plaintiff. Jimenez, 2024 WL 1623155, at *4.
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