Source: https://www.cttriallawyers.org/forum/article/?id=23
Timestamp: 2019-04-22 22:54:38+00:00

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In effect the defendant, in maintaining that although it is subject to a suit based on bad faith it is immune to an action grounded on its alleged negligence, seeks to assume a status that is historically and constitutionally enjoyed by few: those whose immunity relates to subjects involving the public welfare and considerations of public policy. The activities alleged in the complaint do not fall within that category.
Knudsen, 26 Conn. Supp at 327 (internal citations omitted).
Knudsen, 26 Conn. Supp at 327–28 (internal citations omitted).
From all of the pertinent literature enjoyed by the court, it is concluded that the trend of judicial and text opinion favors the more just and modern theory of holding an insurer accountable for want of due care in handling a case against its assured.
Knudsen, 26 Conn. Supp at 328–29, citing Capitol Fuel Co. v. New York Casualty Co., 16 Conn. Supp. 155, 158 (Conn. C.P. 1949) (emphasis added).
Judge Grillo aptly noted that this precise issue had been considered, but not “directly decided,” by the Supreme Court of Connecticut in the Hoyt case by the time he wrote his well-reasoned opinion in 1966. See Knudsen, 26 Conn. Supp. at 326, citing Hoyt v. Factory Mutual Liability Ins. Co., 120 Conn. 156, 159 (1935).
In situations analogous to that presented by this case courts have applied varying standards by which to determine whether or not an insurer is liable to an insured for failing to settle a claim. These may be generally summarized as a requirement of good faith and honest judgment on the part of the insurer or one that the insurer should use that care and diligence which a person of ordinary prudence would exercise in the management of his own business.
Hoyt, 120 Conn. at 159, citing Bartlett v. The Travelers Insurance Company, 117 Conn. 147, 155 (1933) (emphasis added).
The record does not present a situation where we can say as a matter of law that the defendant failed to use that degree of care and prudence which a person in such a situation as that in which it was placed would have used in the management of a business in which no one other than himself had an interest. The conclusion of the trial court that the defendant was not negligent must stand and this disposes of the case.
Hoyt, 120 Conn. at 161 (emphasis added).
Hutchinson, 273 Conn. at 47, citing Liberty Mutual Fire Ins. Co. v. Kaufman, 885 So.2d 905, 908 (Fla. App. 2004) (emphasis added).
Negligence as Bad Faith: Courts in Other Jurisdictions Impose Liability for an Insurer’s Negligent Failure to Settle within Policy Limits.
The basis for judicial imposition on liability insurers of a duty to exercise good faith or due care with respect to opportunities to settle within the policy limits is that the company has exclusive control over the decision concerning settlement within policy coverage, and company and insured often have conflicting interests as to whether settlement should be made . . . what gives rise to the duty and measures its extent is the conflict between the insurer’s interest to pay less than the policy limits and the insured’s interest not to suffer liability for any judgment exceeding them.
456 F.2d at 285 (internal citations and quotations omitted).
the insurer fails to inform the insured of the compromise offer or the status of the settlement negotiations.
There are six factors to be considered in determining whether an insurer’s refusal to settle a claim is bad faith: whether a verdict greatly in excess of policy limits is likely, whether a verdict on liability is doubtful, whether the insurer has given due regard to the recommendations of his or her trial counsel, whether the insured has been informed of all settlement demands and offers, whether the insured has demanded that the insurer settle within the policy limits, and whether any offer of contribution has been made by the insured. No one factor is decisive, and all circumstances must be considered as to whether the insurer has acted in good faith.
44 Am. Jur. 2d Insurance § 1391 (2011)(footnotes omitted).
Several cases, in considering the liability of the insurer, contain language to the effect that bad faith is the equivalent of dishonesty, fraud, and concealment. Obviously a showing that the insurer has been guilty of actual dishonesty, fraud, or concealment is relevant to the determination whether it has given consideration to the insured’s interest in considering a settlement offer within the policy limits. The language used in the cases, however, should not be understood as meaning that in the absence of evidence establishing actual dishonesty, fraud, or concealment no recovery may be had for a judgment in excess of the policy limits . . . liability based on an implied covenant exists whenever the insurer refuses to settle in an appropriate case and that liability may exist when the insurer unwarrantedly refuses an offered settlement where the most reasonable manner of disposing of the claim is by accepting the settlement. Liability is imposed not for a bad faith breach of the contract but for failure to meet the duty to accept reasonable settlements, a duty included within the implied covenant of good faith and fair dealing.
Crisci v. Security Ins. Co., 66 Cal. 2d 425, 430 (Cal.1967).
The Crisci court ultimately concluded that the defendant insurer “knew that there was a considerable risk of substantial recovery beyond said policy limits and that the defendant did not give as much consideration to the financial interest of its insured as it gave to its own interests. That is all that was required.” Crisci, 66 Cal. 2d at 432 (internal quotations omitted).
The prevailing view appears to be that recovery should be rested on the theory of bad faith, because the insurer has the exclusive control, under the standard policy, of investigation, settlement, and defense of any claim or suit against the insured, and there is a potential, if not actual, conflict of interest giving rise to a fiduciary duty. All authorities seem to agree that the liability is in tort, not contract, although arising out of a contractual undertaking. But many courts hold that the obligation is not merely to exercise good faith but to use due care. Professor Keeton seems to think that there is no practical difference in the results, since on either theory the question is one for the jury. Many courts allow recovery on both theories, and some courts that restrict recovery to bad faith permit evidence of negligence in the proof.
248 Md. at 329 (internal citations omitted).
The White court quoted Chief Judge Thomsen of the Federal District Court in the case of Gaskill v. Preferred Risk Mutual Insurance Company, 251 F. Supp. 66 (D.Md. 1966), where he concluded that “[i]t seems clear that the duty includes elements of both good faith and of reasonable care. This court concludes that the proper test of liability in such a case as this . . . is the good faith test, with the amplifications and limitations suggested by the New Jersey Court.” Gaskill, 251 F. Supp. 66, at 68 (citing Radio Taxi Service, Inc. v. Lincoln Mut. Ins. Co., 31 N.J. 299 (N.J. 1960)).
The Radio Taxi Service case referred to by Judge Thomsen amplifies the good faith test by stating that “[t]hose gifted with expertise in judging issues of liability and extent of injury actually suffered by a plaintiff, would probably be the first to admit that an informed judgment arrived at in good faith after reasonably diligent investigation represents the limit that should be demanded of human capacity.” Radio Taxi Service, 31 N.J. at 313.
However an insurer is obligated to exercise a reserved power to negotiate and settle with proper regard for the interest of the insured, and is liable for damage resulting from wrongful failure to settle within policy limits.
White, 248 Md. at 330–31 (internal citations omitted).
And in a large number of the more recent cases the two tests of ‘good faith’ and ‘negligence’ have tended to coalesce, with many of the courts which have in terms rejected the ‘negligence’ test agreeing, nevertheless, that the insurer’s negligence is a relevant consideration in determining whether or not it exercised the requisite good faith.
It should be borne in mind that when employing the term ‘good faith’ in conjunction with the actions of the insurer in these cases, the courts do not intend to connote or imply by the use of the term that dishonesty, misrepresentation, deceit or a species of fraud must be present. Obviously, if fraud is attendant as an element of motivation on the part of the insurer, liability will attach . . . .
In applying the ‘good faith’ theory the courts have found that the presence of one or more of the following acts or circumstances may affect the ‘good faith’ posture of the insurer: the severity of the plaintiff’s injuries giving rise to the likelihood of a verdict greatly in excess of the policy limits; lack of proper and adequate investigation of the circumstances surrounding the accident; lack of skillful evaluation of plaintiff’s disability; failure of the insurer to inform the insured of a compromise offer within or near the policy limits; pressure by the insurer on the insured to make a contribution towards a compromise settlement within the policy limits, as an inducement of settlement by the insurer; and actions which demonstrate a greater concern for the insurer’s monetary interests than the financial risk attendant to the insured’s predicament.
Labels, in an inexact science as the law, are more often noxious than helpful; courts, understandably, are reluctant to apply them to legal theories and abstract principles. However, they are helpful in the necessary pursuit of ascertaining the weight of legal authority by giving identification of the rule adopted within a jurisdiction.
248 Md. at 330–32 (citations omitted).
Judge Moraghan, in Hennessey v. Travelers Property Casualty Insurance Company, 1999 Conn. Super. LEXIS 986 (Conn. Super. Ct. 1999), when discussing good faith noted that “the definition of good faith requires not only honesty in fact but also ‘observance of reasonable commercial standards of fair dealing.’” Id. at *5, citing Cadle Company v. Ginsburg, 51 Conn.App. 392, 399 (Conn. App. Ct. 1998). Judge Moraghan concluded that “an insurance company may be liable for the breach of good faith and fair dealing if its behavior is unreasonable and beyond accepted commercial standards.” Hennessey, 1999 Conn. Super. LEXIS at *6.
In Connecticut, as discussed above, the test the Supreme Court chose to apply in Hoyt was a straight negligence test. Regardless of whether the test is called the “negligence test” or a “bad faith” test, the question the courts in and out of Connecticut look to is whether the insurer acted reasonably under the circumstances. Proof beyond negligence, such as proof of dishonesty, misrepresentation, deceit, or fraud simply is not required. It would be less confusing if claims against insurers for failure to settle within policy limits simply were referred to as “insurance negligence” claims. Let the myth of the “bad faith” label be dispelled.
 The analysis of the insurer’s liability to the insured is to be done on a case-by-case basis. Hennessey v. Travelers Prop. Cas. Ins. Co., 1999 Conn. Super. Lexis 986, at *4–5 (Conn. Super. Ct. 1999), citing Verrastro v. Middlesex Ins Co., 207 Conn. 179, 190 (1988). It is therefore uniquely a question of fact.
 Other courts have likewise held that “[w]here it appears that the probability of an adverse finding on liability is great and the amount of damages would exceed the policy limits, the insurer has a duty to settle within the policy limits or face an excess liability claim for a breach of the duty owed to the insured.” Phelan v. State Farm Mut. Auto. Ins. Co., 114 Ill. App. 3d 96, 104 (Ill. App. Ct. 1983). See also Levier v. Koppenheffer, 19 Kan. App. 2d 971 (Kan. 1994); Johnson v. Allstate Ins. Co., 262 S.W.3d 655 (Mo. Ct. App. 2008).
 A fiduciary duty typically gives rise to a heightened duty not a lesser duty. So it makes little sense to hold an insurer to a standard of conduct that is lower than negligence. In other words to act in good faith in this context should impose a more exacting standard of conduct than negligence. The Supreme Court of Vermont discussed this fiduciary duty in the context of failure to pay within the policy limits: “The insurer’s fiduciary duty to act in good faith when handling a claim against the insured obligates it to take the insured’s interest into account. The company must diligently investigate the facts and risks involved in the claim, and should rely upon persons reasonably qualified to make such an assessment. If demand for settlement is made, the insurer must honestly assess its validity based on a determination of the risks involved. In addition . . . the insurer must fully inform the insured of the results of its assessment of the risks, including any potential excess liability, and convey any demands for settlement which have been made. The insurer must be careful to give its insured full and accurate information as to settlement possibilities.” Myers v. Ambassador Ins. Co., 146 Vt. 552, 556 (Vt. 1986) (internal citations and quotations omitted).

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