Duty to settle

A liability insurance company's duty to settle is defined as an implied obligation to by the insurer to a policyholder and to a claimant to attempt "in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear."[1] To the surprise of many, a typical liability insurance policy makes no express contractual promise to settle.[2] In California, "an insurer, who wrongfully refuses to accept a reasonable settlement within the policy limits is liable for the entire judgment against the insured even if it exceeds the policy limits."[3] A rationale for this duty is that "[w]hen an offer is made to settle a claim in excess of policy limits for an amount within policy limits, a genuine and immediate conflict of interest arises between carrier and assured."[4] "An insurer who denies coverage does so at its own risk. Such factors as a belief that the policy does not provide coverage, should not affect a decision as to whether the settlement offer in question is a reasonable one."[5] "It is the duty of the insurer to keep the insured informed of settlement offers."[6] "[A]n insurer potentially can be liable for unreasonably coercing an insured to contribute to a settlement fund."[7]

An insurer may not "discriminate in its claims settlement practices based upon" certain protected classes.[8]

References

  1. ↑ Cal. Ins. Code § 790.03(h)(5).
  2. ↑ Typical language is: "We may, at our discretion, investigate any ‘occurrence' and settle any claim or 'suit' that may result." Peter J. Kalis et al., Policyholder's Guide to the Law of Insurance Coverage F-15 (Aspen Publishers Online 1997).
  3. ↑ Comunale v. Traders & Gen. Ins. Co., 50 Cal. 2d 654, 659–61 (1958) (ellipses omitted).
  4. ↑ Merritt v. Reserve Ins. Co., 34 Cal. App. 3d 858, 870 (1973).
  5. ↑ Johansen v. California State Auto. Assn. Inter-Ins. Bureau, 15 Cal. 3d 9, 15-16 (1975) (citations and ellipses omitted).
  6. ↑ Kinder v. Western Pioneer Ins. Co., 231 Cal. App. 2d 894, 901 (1965).
  7. ↑ Aguerre, Inc. v. American Guar. & Liab. Ins. Co., 59 Cal. App. 4th 6, 15 (1997).
  8. ↑ Cal. Code Regs § 2695.7.


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