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Timestamp: 2019-04-25 17:57:17+00:00

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II. INITIATE SETTLEMENT: Restatement Section 24 and the Decided Cases.
The author of this article examined every case found in which a Court addressed the issue of whether a liability insurance carrier had a duty to initiate settlement negotiations when the claimant did not make a settlement demand.
To say again, there is a dispute among the Courts and between the jurisdictions over the nature of a liability insurance company’s duty to settle claims. Some States say that the nature of the duty is negligence, others that it is contractual, and still others that the duty to settle is a fiduciary duty. The Restatement aligns all of these legal interpretations under a single standard and recites that the liability insurer has a duty to its insureds to make reasonable settlement decisions based on “equal consideration” or “at least equal consideration” of the insured’s interests.
The facts of decided cases reveal that regardless of how a Court lines up on the question of whether there is a legal duty to “initiate settlement negotiations” in any given case, the overall standard of “equal consideration” or “at least equal consideration” governs.
Just as there is a conflict in the case law among the Courts and between the States over the nature of the liability carrier’s settlement duties, there are cases which say that they require a liability carrier to initiate settlement negotiations even when the claimant has not made a settlement demand, but the facts reveal that the carrier is exonerated from extracontractual liability because of some other factor, such as lack of a reasonable opportunity to initiate the negotiations. There are other Courts that say and do exactly the opposite, both in other States and within any given jurisdiction. None of this means that the conflicts cannot be sorted out by astute judges and skillful advocates, however.
Overall, the cases contradict two statements quoted in the ALI Reporters’ Notes f and h, to the effect that (1) “[i]n most jurisdictions, the insurer cannot be liable for breaching the duty to settle unless a settlement offer within policy limits is made by the plaintiff,” and (2) “[w]ithout a settlement offer, it is not possible for the insurer to have breached its duty.” The results of the decided cases are actually the opposite of both of these further conclusions, as will be seen below.
A. How the Courts line up on a liability carrier's exposure to extracontractual liability for not initiating settlement negotiations in the absence of a settlement demand.
In an earlier article, I argued: “Courts can be broken out into three camps of cases in which the Courts have faced the question of declaring whether or not there is a legal duty in their jurisdiction to initiate settlement negotiations even in the absence of a settlement demand from the claimant. For purposes of this Article, the three camps may be labelled ‘pro,’ ‘not in the case at bar,’ and ‘con.’” Dennis J. Wall, “The American Law Institute and Good Faith Settlement Duties of Liability Carriers: The Scope of a Duty to Initiate Settlement Negotiations, What the ALI Restatement of the Law of Liability Insurance Has to Say About it, and the ALI Reporters’ Notes,” 37 Ins. Lit. Rptr. 597, 601 (Dec. 23, 2015).
I will continue to separate the cases into those three camps here.
Despite such ambiguity as may exist, and despite the disputed conflicts among the cases and States which surround the liability carrier’s duty to settle claims, it is still possible to state certain conclusions. There are still ten jurisdictions from which cases have been reported and found in which the Courts have recognized that bad-faith-in-settlement cases ordinarily go to the jury when the facts include a liability insurance company’s failure to initiate settlement negotiations, but there was no settlement demand from the claimant within policy limits.
a. Arizona. Fulton v. Woodford, 26 Ariz. App. 17, 22, 545 P.2d 979, 984 (Ariz. Ct. App. Div. 1, Dep’t B, 1976) (probably the seminal case in Arizona, holding that the “legal duty” is not absolute but is instead one factor among many to be considered on the question of whether the carrier conducted settlement negotiations in bad faith; held that under the evidence in this case, the carrier at bar did not breach its duties of good faith in settlement).
b. Florida. Powell v. Prudential Prop. & Cas. Ins. Co., 584 So. 2d 12, 14 (Fla. 3d DCA 1991), review denied, 598 So. 2d 77 (Fla. 1992) (definitely the seminal case in Florida on the rule that where liability is clear and damages in excess of policy limits are likely, then the liability carrier has a duty to initiate settlement negotiations in some way; frequently mistaken for holding that the liability carrier has an absolute duty to settle). Recent citations to this decision are worth noting here. The Powell decision has been distinguished as inapposite in a Per Curiam Federal Circuit Court decision involving a requested jury instruction, on the ground that Powell “involved a directed verdict” standard instead. Stalley v. Allstate Ins. Co., 682 F. App’x 846, 848 & n.4 (11th Cir. 2017).
The Federal District Court in Stalley also distinguished Powell on this ground. As the Circuit Court noted in its opinion, the District Judge also went further (which the Circuit Court declined to do) and in the course of the District Court’s own opinion substantively distinguished Powell as applying when the Florida appellate court in the Powell case said it applied, namely, only when liability is clear and damages in excess of policy limits are likely. Stalley v. Allstate Ins. Co., No: 6:14-cv-1074-Orl-28DAB, 2016 WL 3282371, at *3 (M.D. Fla. June 10, 2016), aff'd per curiam with opinion, 682 F. App’x 846, 848-49 (11th Cir. 2017).
c. Kansas. Roberts v. Printup, 422 F.3d 1211, 1215 (10th Cir. 2005) (Kansas substantive law recognizes duty of liability insurer to initiate settlement negotiations under certain circumstances).
d. Michigan. Commercial U. Ins. Co. v. Medical Protective Co., 426 Mich. 127, 138, 393 N.W.2d 161, 165 (1986) (recognizing duty but “when warranted under the circumstances” and only one factor among many to consider in deciding question of carrier’s liability for bad faith breach of settlement duties).
e. New Jersey. Rova Farms Resort, Inc. v. Investors Ins. Co. of Am., 65 N.J. 474, 493, 323 A.2d 495, 505 (1974), probably the seminal decision on the “initiate settlement negotiations” conundrum by other Courts throughout the United States, holding in part here pertinent: “At most, the absence of a formal request to settle within the policy is merely one factor to be considered in light of the surrounding circumstances, on the issue of good faith.” Rova Farms, 65 N.J. at 493, 323 A.2d at 505 (emphasis added). As can be seen from the many cases decided on these issues, including those cited in the course of this article, that is more or less the approach that most Courts have taken over the past 40 years.
f. New Mexico. City of Hobbs v. Hartford Fire Ins. Co., 162 F.3d 576, 583-34 (10th Cir. 1998) (case of apparent first impression under New Mexico law).
g. Oklahoma. See SRM, Inc. v. Great Am. Ins. Co., 798 F.3d 1322, 1325-26 (10th Cir. 2015) (predicting that the Oklahoma Supreme Court would not extend the duty to initiate settlement negotiations under Oklahoma law to an excess carrier where the excess carrier’s policy required that underlying, primary policy limits must first be exhausted before the excess insurance policy takes effect; case of apparent first impression).
i. The State of Washington. Cox v. Continental Cas. Co., No. C13-2288 MJP, 2014 WL 2011238, at *3*4 (W.D. Wash. May 16, 2014), aff'd in part, rev'd in part on other grounds, ___ F. App’x ___, Nos. 1535517 & 15-35525, 2017 WL 2829122 (9th Cir. June 30, 2017) (predicting Washington State law).
j. Also k, l, and m. Louisiana, Tennessee, West Virginia, and Wisconsin. It has been suggested to me that decisions under the laws of Louisiana, Tennessee, West Virginia, and Wisconsin should be added to a list of the “Pro” view. That would bring the “Pro” list to about thirteen cases. However, I said that I was basing my observations on all the cases that I had found, not on all the cases that had been decided. In three of these four additional cases that have been brought to my attention for consideration in the “pro” category, it was instead a fact that the liability carriers involved in each of these three cases either did make a policy limits offer or that the injured claimants did make a settlement demand for an amount within policy limits, and further, at least two of these also included a distinct additional issue: whether extracontractual exposure existed despite an offer that did not meet a time limit but still offered policy limits. Kelly v. State Farm Fire & Cas. Co., 169 So. 3d 328, 341 (La. 2015) (stating that a demand is not required for bad faith liability; in this case, the insurance company did make a policy limits offer and the issue was whether the fact that the offer did not meet a time limit prevented or triggered bad faith liability, an issue answered against the carrier in this case); Daniels v. Horace Mann Mut. Ins. Co., 422 F.2d 87, 89 (4th Cir. 1970) (ostensibly applying West Virginia substantive law, but the opinion does not cite a single West Virginia decision; in this case, there was a pretrial demand within policy limits); Alt v. American Fam. Mut. Ins. Co., 71 Wis. 2d 340, 345, 351, 237 N.W.2d 706, 710, 713 (1976) (case involved three settlement demands, two disputed factually and the third for policy limits before trial; the issue once again was whether there could be bad faith liability for an offer that did not meet a time-limited demand).
The facts of the fourth case that was suggested to me for this “Pro” category, which is from Tennessee, come closest to the cases I found following the Pro view, although a demand was made in this case and as I said, I limited my list of cases to those in which no demand was made and yet the courts involved let the claims of bad-faith-in-settlement go to the jury including facts reflecting liability carriers' failures to initiate settlement negotiations.
We do not hold that the insurance company has an affirmative duty to negotiate with the injured claimant in all cases. We would only say that a refusal to discuss a settlement may be considered along with other evidence in determining the issue of bad faith.
Rowland, 221 Tenn. at 434, 427 S.W.2d at 35.
n. Placing Tennessee in the Pro category on the strength of the Rowland decision would make a list of 10 cases in which no demand was made within policy limits and the Courts involved recognized that the claim of bad faith in settlement can go to the jury including in a case in which the liability carrier involved failed to initiate settlement negotiations.
I appreciate the additional research I had to make into these four suggested cases. But to say again, I was and still am basing my conclusions on the cases I found in which the Courts have recognized that bad-faith-in-settlement cases ordinarily go to the jury when the facts included a liability insurance company's failure to initiate settlement negotiations, but there was no settlement demand from the claimant within policy limits.
This selection, "Section 24 of the Law of Liability Insurance Restatement, Draft No. 4 (August 4, 2017), Reporter’s Notes F and H, and the Decided Cases," 39 No. 17 Insurance Litigation Reporter 473 (October 5, 2017), is reprinted here with permission of Thomson Reuters. Any further reproduction without the express consent of Thomson Reuters is prohibited.

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