Excess Insurer’s “Duty To Settle” Is Implicated When Primary Insurer Offers Policy Limits

An excess insurer owes a duty of equal consideration to an insurer whenever a primary insurer makes it known it will settle for policy limits, not merely when the primary insurer actually pays. So ruled Judge Rosyln Silver, U.S. District of Arizona, in State Farm Mut. Auto. Ins. Co. v. Mendoza, 2006 WL 44376 (Jan. 5, 2006).
Judge Silver denied State Farm’s motion for summary judgment in a bad faith lawsuit in which the tortfeasor insured allowed default judgments of almost $3.5 million to be taken against her, and then assigned the claims to the injured parties, one of whom filed suit against State Farm alleging failure to settle. Silver also granted plaintiff’s cross-motion for summary judgment that State Farm had a duty of equal consideration to the insured, even before primary insurance was exhausted. In a treat for insurance coverage geeks like me, Judge Silver had a long analysis based on Law and Economics theory, and cited The Duty to Settle, a 1991 landmark law review article by Kent Syverud, now the dean of Washington University Law School (and in 1995-96, my Civil Procedure professor at the University of Michigan and a really nice guy).

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