Reid

SUMMARY

This case involves an insurer’s duty to its insured to settle a third party claim within policy limits, when liability is clear and there is a substantial likelihood of a recovery in excess of policy limits. The question is whether the insurer, in the absence of any demand or settlement offer from the third party claimant, must initiate settlement negotiations or offer its policy limits, and if so how quickly it must do so, to avoid a claim of bad faith failure to settle.

In this case, the insured’s liability was clear almost immediately after the collision. The insurer’s claims manager had decided, within a little over six weeks, that while the insurer needed medical records, the insurer must tender the policy limits to the third party claimant “as soon as we have enough [information] available to do so.” No settlement demand was made by the claimant, who filed suit against the insured three and one-half months after the collision. The medical records were not forthcoming from the claimant until seven months after the collision, and another three months passed before the insurer offered its policy limits. Under these circumstances, the trial court found the…