Opinion ID: 610297
Heading Depth: 2
Heading Rank: 1

Heading: Reasonableness of the State Court Judgment

Text: 8 Relying on the testimony of Juker and the attorney whom NPIC retained in the state action, as well as case law from states other than Idaho, the magistrate held that the amount of the state court settlement was unreasonable and unenforceable in the federal action. We reverse because the magistrate had no authority under Idaho law to review the settlement amount. 9 As a general rule, an insurer who has notice of an action between an injured party and an insured will be bound by a judgment against the insured. See, e.g., 44 Am.Jur.2d Insurance § 1455 (1982). NPIC clearly had notice of Freeman's action. Although Idaho law provides for both permissive intervention and intervention as of right, NPIC did not seek to intervene in the underlying state action. See Idaho R.Civ.P. 24(a), (b). Had NPIC intervened, it would have been entitled to challenge the judgment in the state courts. 10 There are no reported Idaho cases regarding whether an insurance company may challenge the amount of a settlement which it negotiated pursuant to its duty to defend. 1 The district court based its ruling upon several cases from other jurisdictions which held that insurers should be allowed to challenge the reasonableness and good faith of these settlements. 11 The real concern in this type of case is that the settlement between the claimant and the insured may not actually represent an arm's length determination of the worth of the plaintiff's claim.... Due to this problem, the ordinary standard of collusion or fraud is inappropriate. Thus, we hold that in a case such as this, a settlement may not be enforced against the carrier if it is unreasonable in amount or tainted by bad faith. 12 Steil v. Florida Physicians' Ins. Reciprocal, 448 So.2d 589, 592 (Fla.Dist.Ct.App.1984) (citations omitted). See also Griggs v. Bertram, 443 A.2d 163, 171-74 (N.J.1982) (allocating burden of proof); Detroit Edison Co. v. Michigan Mut. Ins. Co., 301 N.W.2d 832 (Mich.Ct.App.1981); Alton M. Johnson Co. v. M.A.I. Co., 463 N.W.2d 277 (Minn.1990). 13 This reasonableness rule is not the law in Idaho. More importantly, these cases arose in a materially different factual context: in each case, the insurer who sought to litigate the issue of reasonableness had refused to defend the insured in the action which led to the settlement. None of these cases involved an insurance company who, like NPIC, retained an attorney to actively negotiate the settlement. Idaho law does not support the magistrate's reasonableness review, nor do these other jurisdictions support an extension of such review to settlements negotiated by the insurer's counsel. The court's decision had no basis in law. 2