Opinion ID: 1793652
Heading Depth: 1
Heading Rank: 4

Heading: hartford appeal

Text: Hartford first argues that under the facts of this case it was under no contractual duty to Foster to accept any of the compromise offers of settlement. To answer this we must determine and define the duties of an insurance carrier when there are offers to settle a case within policy limits. While Hartford's policy contained the standard provision giving it the absolute right to defend an action against the insured, and to make whatever settlement it deemed expedient, it is now well settled that this very power created an obligation on the part of Hartford, akin to a fiduciary duty, to consider fairly the interests of the insured as well as its own. Vol. 7C Appleman (Berdal Rev.), § 4711, p. 371; Rova Farms Resort, Inc. v. Investors Ins. of America, 65 N.J. 474, 492, 323 A.2d 495, 505 (1974). [2] Merritt v. Reserve Ins. Co., 110 Cal. Rptr. 511, 34 Cal. App.3d 858 (1974), contains thoughtful statements of the reciprocal duties of the insured and his carrier: Thus, when a settlement within policy limits is offered by claimant, the previously parallel interests of assured and carrier diverge, and a conflict of interest arises, for while it is invariably to the assured's financial interest to settle within policy limits, settlement is only to the carrier's financial interest when the relationship between settlement offer and policy limits is mathematically favorable in the light of the probabilities of winning or losing the suit.       [A]nd whenever a conflict of interest breaks out the carrier becomes obligated to protect the interests of the assured equally. with its own. 110 Cal. Rptr. at 518-519, 34 Cal. App.3d at 869-870. Quoting from a previous decision, Communale v. Traders & General Ins. Co., 50 Cal.2d 654, 328 P.2d 198 (1958), the Court held that since the insurer has reserved control over the litigation and settlement, it is liable for the entire amount of a judgment against the insured in excess of the policy limits, ... if in the exercise of such control it is guilty of bad faith in refusing a settlement. 110 Cal. Rptr. at 520, 34 Cal. App.3d at 871. One test for determining whether the carrier has given good faith consideration to the interests of the assured, ... is whether a prudent carrier on a policy of unlimited liability would have accepted the settlement offer. Further, quoting from another previous decision, Brown v. Guarantee Ins Co., 155 Cal. App.2d 679, 319 P.2d 69 (1957), the Court stated: The obligation of the insurer should not be extended beyond the duty of exercising good faith in the conduct of the matters arising from that relationship... If the insurer has exercised good faith in all of its dealings under its policy, and if the settlement which it has rejected has been fully and fairly considered and has been based upon an honest belief that the insurer could defeat the action or keep any possible judgment within the limits of the policy, and its judgments are based on a fair review of the evidence after reasonable diligence in ascertaining the facts, and upon sound legal advice, a court should not subject the insurer to further liability if it ultimately turns out that its judgment is a mistaken judgment. 110 Cal. Rptr. at 520, 34 Cal. App.3d at 872. Further, the Court held, the carrier's decision must be honest, intelligent and knowledgeable. 110 Cal. Rptr. at 521, 34 Cal. App.3d at 873. And, The duty of good faith thus imposed upon the carrier is one peculiar to this situation. 110 Cal. Rptr. at 521, 34 Cal. App.3d at 874. In summary that Court stated: When a claimant offers to settle an excess claim within policy limits a conflict of interest immediately arises between the carrier and assured. In such circumstances the carrier is required to evaluate the settlement offer in good faith, and good faith requires it to consider the interests of the assured equally with its own, or as some of the cases have said, to evaluate the settlement offer as though the carrier itself were liable for the full amount of the claim. If the carrier rejects the offer to settle within policy limits without having made an honest, intelligent and knowledgeable evaluation of the offer on its merits, then the carrier has acted in bad faith and may become liable to its assured for consequential damages caused by its bad faith rejection. 110 Cal. Rptr. at 521, 34 Cal. App.3d at 873. Also, Northwestern Mutual Ins. Co. v. Farmers Ins. Group, 76 Cal. App.3d 1031, 1040-1042, 143 Cal. Rptr. 415, 420-21 (1978); Twentieth Century Fox Film Corp. v. Harbor Ins. Co., 85 Cal. App.3d 105, 111-112, 149 Cal. Rptr. 313, 317 (1978); Crisci v. Security Ins. Co. of New Haven, Conn., 58 Cal. Rptr. 13, 66 Cal.2d 425, 426 P.2d 173 (1967); Betts v. Allstate Ins. Co., 154 Cal. App.3d 688, 201 Cal. Rptr. 528 (1984). Sargent v. Johnson, 551 F.2d 221 (8th Cir.1977), applying Minnesota law, held: Where a claim is made against an insured which may exceed policy limits, and where the insured and insurer may each incur liability, then each assumes an obligation to act in good faith, to face the facts realistically, and to maintain a mutual respect for the interests of the other. Id. at 231. In Lieberman v. Employers Ins. of Wausau, 84 N.J. 325, 419 A.2d 417 (1980), the New Jersey Supreme Court, citing Appleman, § 4687, held: While the insurer is not compelled to disregard its own interests in representing or defending an insured, the insured's interests must necessarily come first. 84 N.J. at 336, 419 A.2d at 422-23. Cousins v. State Farm Mutual Auto. Ins. Co., 294 So.2d 272, 275 (La. App. 1974) held: Our own jurisprudence accords with the majority view that the insurer is the champion of the insured's interests; that the interests of the insured are paramount to those of the insurer, and that the insurer may not gamble with the funds and resources of its policyholders.       As regards compromise, our jurisprudence is to the effect that an insurer is not required to settle a claim within policy limits under penalty of absolute liability for any excess judgment rendered against the insured. Nevertheless, an insurer may be liable for an excess judgment against its insured where the insurer's refusal to settle within policy limits is found to be arbitrary or in bad faith.       It appears that, in determining liability of an insurer to its insured for either an inadequate defense or refusal to accept a compromise offer, the courts are divided on the issue of whether liability is predicated upon negligence or breach of good faith owed the insured. Although the terms negligence and good faith are frequently used as either disjunctive or alternative tests, virtually all authorities consider the following factors in determining liability of an insurer for either failure to defend or failure to compromise: (1) The probability of the insured's liability; (2) the adequacy of the insurer's investigation of the claim; (3) the extent of damages recoverable in excess of policy coverage; (4) rejection of offers in settlement after trial; (5) the extent of the insured's exposure as compared to that of the insurer, and (6) the nondisclosure of relevant factors by the insured or insurer. Also, see Champion v. Farm Bureau Ins. Co., 352 So.2d 737, (La. App. 1977); Shelton v. Commercial Union Ins. Co., 396 So.2d 1379 (La. App. 1981). Appleman, § 4712, pp. 425-426, summarizes the insurer's obligation: [S]ome courts, in weighing the responsibilities of the liability insurer, speak of bad faith; some speak of negligence; others use the two terms interchangeably. And, in truth, they are to some extent interchangeable. The insurer, as a professional defender of lawsuits, is held to a standard higher than that of an unskilled practitioner. What might be ignorance in one instance may be unforgivable oversight of the insurer; what might be neglect in one instance could well constitute bad faith on the part of the insurer. The question is always: Did the insurer exercise that degree of skill, judgment, and consideration for the welfare of the insured which it, as a skilled professional defender of lawsuits having sole charge of the investigation, settlement, and trial of the suit may have been expected to utilize? If it did, there is no problem; it is not liable. If it did not, then a court could easily describe its conduct as being negligent, or as not in accordance with the high duty of good faith which it owed to its insured. And the insured, having surrendered to the insurer the exclusive control over these matters which impinge so closely upon his future welfare and financial well-being, is entitled to expect that skill, that judgment, and that consideration ... We adopt the prevailing view as above set forth that when suit covered by a liability insurance policy is for a sum in excess of the policy limits, and an offer of settlement is made within the policy limits, the insurer has a fiduciary duty to look after the insured's interest at least to the same extent as its own, and also to make a knowledgeable, honest and intelligent evaluation of the claim commensurate with its ability to do so. If the carrier fails to do this, then it is liable to the insured for all damages occasioned thereby. [3] The burden of proving bad faith is upon the insured. Appleman, supra, § 4712, p. 499, Hartford Acc. & Indemn. Co. v. Cosby, 277 Ala. 596, 173 So.2d 585 (1965); Roberie v. Southern Farm Bureau Cas. Ins. Co., 185 So.2d 619 (La. App. 1966), writ refused 249 La. 476, 187 So.2d 447, writ granted 249 La. 483, 187 So.2d 450 (1966), reversed on other grounds 250 LA. 105, 194 So.2d 713 (1967). Where evidence is produced either of bad faith or negligence, ordinarily the issue becomes a jury question. Appleman, § 4712, supra, p. 440; § 4713, p. 518. No precise formula can be prescribed for determining the sufficiency of the evidence. Millbank Mutual Ins. Co. v. Schmidt, 304 F.2d 640 (8th Cir.1962).