Opinion ID: 1225573
Heading Depth: 3
Heading Rank: 5

Heading: Duty to Minimize the Insured's Liability

Text: {28} The insurance company's duty to the insured is not an inflexible requirement that it utterly eliminate its insured's liability. There are probably many circumstances-and there is evidence that this case may present one such circumstance-in which extinguishing the insured's liability is a practical impossibility. We think a better rule is that the insurer has a good-faith duty to minimize, if not eliminate, its insured's liability. The duty to the insured does not mandate an all-or-nothing approach. Rather, what is required is a balancing of the interests of itself and its insured, the reasonableness of the claimant's demands, and the probable outcome of litigation as opposed to settlement. {29} Herman argues that Dairyland actually maximized the risk to itself and its insured by refusing to settle when it knew that Herman reasonably resisted a settlement that potentially left him with nothing, and that the policy limits were inadequate to give him full recovery. Moreover, Dairyland knew that a jury was likely to award an amount far in excess of the policy limits. [When] the insurance proceeds are so slight compared with the totality of claims as to preclude any chance of comprehensive settlement, the insurer's insistence upon such a settlement profits the insured nothing. He would do better to have the leverage of his insurance money applied to at least some of the claims, to the end of reducing his ultimate judgment debt. Liberty Mut. Ins. Co. v. Davis, 412 F.2d 475, 480-81 (5th Cir.1969). Dairyland might have better served its insured it if had settled all of Herman's claims and left the subrogation rights outstanding. The trial court may find that this case presents a circumstance in which the insurer showed mistaken judgement in appraising its own interest and also demonstrated a bad-faith disregard for the interests of its insured. See Lujan, 84 N.M. at 237, 501 P.2d at 681; Comunale, 328 P.2d at 201.