Also known as: insurer duty to settle · insurer’s duty to settle reasonably · duty to settle · reasonable settlement duty
Written by attorneys · grounded in primary & secondary sources — see below
A duty requiring an insurer with authority to settle a claim against the insured to evaluate settlement opportunities by the standard of a reasonable insurer without regard to policy limits whenever a judgment in excess of those limits is possible.
Insurer State Farm refused to tender policy limits to settle a claim against its insured despite clear evidence of substantial likelihood of an excess verdict. The insured faced personal liability for the difference. The court held that the insurer breached its duty by failing to protect the insured's interests with ordinary care and reasonable diligence.
Allstate refused to tender policy limits to settle a claim against its insured despite clear evidence of substantial likelihood of an excess verdict. The insured faced personal liability for the difference. The court held that the insurer breached its duty by failing to protect the insured's interests with ordinary care and reasonable diligence.
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The standard is whether a prudent insurer without policy limits would have accepted the settlement offer. This objective test focuses on the likelihood and magnitude of an excess verdict rather than the insurer's own financial exposure.
Yes. The duty is triggered when the insurer has authority to settle or when its consent is required for any settlement by the insured to be payable under the policy and an excess judgment is possible.
A material breach prevents the insurer from relying on other policy terms to escape liability and exposes the insurer to damages for the full amount of any excess judgment plus consequential losses to the insured.