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California Court of Appeals Clarifies Carrier's Duty to Settle

Winter 2013 Blog

Published in the ABTL Report, Vol. 22, No. 3, Winter 2013.

Insurers and insureds have long disagreed whether an insurer’s duty to settle is limited to the duty to accept a reasonable settlement offer made by a plaintiff, or whether the insurer has a duty to affirmatively seek a settlement within limits.  This issue was recently addressed in Reid v Mercury Insurance Co., 220 Cal.App.4th 262 (2013).  In Reid, the insurer recognized shortly after the accident that the exposure exceeded the $100,000 policy limits, but decided it needed a witness interview and the claimant’s medical records before making a policy limits offer.  It requested this information, but didn’t tell the claimant it was considering a policy limits offer.  While the claimant later testified he would have accepted $100,000 to settle at that time, his counsel did not make a policy limits demand.  A few months later, after getting the medical information, the insurer offered policy limits,  which the claimant promptly rejected. The matter went to trial and judgment was entered for $5.9 million, forcing the insured into bankruptcy.  

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