Opinion ID: 1641741
Heading Depth: 1
Heading Rank: 4

Heading: Insurer's Liability for Excess Judgment

Text: In the absence of bad faith, a liability insurer generally is free to settle or to litigate at its own discretion, without liability to its insured for a judgment in excess of the policy limits. William Shelby McKenzie & H. Alston Johnson, III, 15 Louisiana Civil Law Treatise-Insurance Law and Practice § 218 (1986). On the other hand, a liability insurer is the representative of the interests of its insured, and the insurer, when handling claims, must carefully consider not only its own self-interest, but also its insured's interest so as to protect the insured from exposure to excess liability. Holtzclaw v. Falco, Inc., 355 So.2d 1279 (La.1978) (on rehearing). Thus, a liability insurer owes its insured the duty to act in good faith and to deal fairly in handling claims. Id. This court, while recognizing in Roberie v. Southern Farm Bureau Casualty Ins. Co., 250 La. 105, 194 So.2d 713 (1967) the responsibility of a liability insurer to deal in good faith with a claim against its insured, [8] has never held a liability insurer liable for an excess judgment rendered against the insured. Nevertheless, the intermediate state courts and the federal courts have held liability insurers liable for an excess judgment when the insurer failed to deal in good faith with a claim against its insured. See, e.g., Domangue v. Henry, 394 So.2d 638 (La.App. 1st Cir.1980), cert. denied, 399 So.2d 602 (La.1981) (after a tentative agreement to a settlement for the $10,000 liability policy limits, the compromise fell through when the insurer sought further negotiation of the victim's demand for $600 for automobile depreciation under the property damage coverage; the court held the insurer liable for the excess judgment of $23,000 over the policy limits, noting that the excess exposure, in a case with a great preponderance of evidence of the insured's fault, hinged on a dispute of less than $600); [9] Fertitta v. Allstate Ins. Co., 439 So.2d 531 (La.App. 1st Cir.1983), amended on other grounds and aff'd., 462 So.2d 159 (La.1985) (in a case of clear liability with about $8,000 in special damages and $10,000 policy limits, the insurer was liable for an excess judgment of almost $39,000 because of bad faith in failing to investigate the claim thoroughly, in failing to consider properly the extent of the insured's excess exposure, and in requiring that the settlement include a $2,668 medical payments subrogation claim by the tort victim's insurer); Hodge v. American Fidelity Fire Ins. Co., 486 So.2d 233 (La.App. 3d Cir.), cert. denied, 489 So.2d 917 (La.1986) (the insurer was in bad faith and liable for an excess judgment of $40,000 for failing to tender its $10,000 policy limits when an adverse judgment was inevitable and the insurer grossly disregarded its insured's interests despite repeated warnings from its attorney); Keith v. Comco Ins. Co., 574 So.2d 1270 (La.App. 2d Cir.), cert. denied, 577 So.2d 16 (La.1991) (the court held the insurer in bad faith in a case of clear liability when the insurer arbitrarily refused to accept the treating physician's findings and rejected reasonable offers that would have totally protected the insured); Roy v. Glaude, 494 So.2d 1243 (La.App. 3d Cir.1986) (insurer was liable for excess judgment for arbitrarily refusing to settle within policy limits). See also Parich v. State Farm Mut. Auto. Ins. Co., 919 F.2d 906 (5th Cir.1990), cert. denied, 499 U.S. 976, 111 S.Ct. 1621, 113 L.Ed.2d 719 (1991) (the insurer was in bad faith by arbitrarily refusing to pay interest in addition to the policy limits when the judgment clearly would exceed the policy limits). Thus, the determination of whether the insurer acted in bad faith turns on the facts and circumstances of each case. Of course, an insurer is not obliged to compromise litigation just because the claimant offers to settle a claim for serious injuries within the policy limits, and its failure to do so is not by itself proof of bad faith. The determination of good or bad faith in an insurer's deciding to proceed to trial involves the weighing of such factors, among others, as the probability of the insured's liability, the extent of the damages incurred by the claimant, the amount of the policy limits, the adequacy of the insurer's investigation, and the openness of communications between the insurer and the insured. [10] Nevertheless, when an insurer has made a thorough investigation and the evidence developed in the investigation is such that reasonable minds could differ over the liability of the insured, the insurer has the right to choose to litigate the claim, unless other factors, such as a vast difference between the policy limits and the insured's total exposure, dictate a decision to settle the claim.