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Revision (Section 24) 204 (2016)

handle is hein.ali/aliliabil0019 and id is 1 raw text is: § 24 Comment d revision 1 risk of any excess judgment against the claimant at trial. One practical effect of this rule is to 2 give claimants an incentive during the pretrial phase to make reasonable settlement demands 3 within the policy limits, since the insurer's rejection of such a demand creates the conditions for 4 a subsequent breach-of-settlement-duty lawsuit in the event of a plaintiff's verdict that produces 5 an excess judgment. 6 7 8 Illustration: 9 1. A claimant files a personal-injury lawsuit against the insured seeking damages. 10 The insured has a duty-to-defend liability insurance policy that assigns settlement 11 discretion to the insurer. The policy contains a policy limit of $75,000 and no deductible. 12 There is evidence supporting the conclusion that, at the time of the settlement 13 negotiations, the reasonable settlement value of the case is a range that reaches up to 14 $45,000, based on the judgment that it is reasonable to conclude that the plaintiff has a 30 15 percent chance of success and likely damages of $150,000. The claimant offers to settle 16 for $45,000. The insurer rejects the offer. The case proceeds to trial and a verdict of 17 $175,000 is entered against the insured. The insurer is subject to liability for the full 18 amount of the verdict because the insurer failed to accept a reasonable settlement offer. 19 e. Procedural factors may be considered. The reasonableness standard requires the trier 20 of fact in the breach-of-settlement-duty suit to evaluate the expected value of the underlying 21 legal action at the time of the failed settlement negotiations. That inquiry may be complex and 22 difficult in some cases. Because of the difficulty of determining, in hindsight, whether a 23 settlement demand or offer was reasonable, it is appropriate for the trier of fact to consider 24 procedural factors that affected the quality of the insurer's decisionmaking or that deprived the 25 insured of evidence that would have been available if the insurer had behaved reasonably. 26 Factors that may affect the quality of the insurer's decisionmaking include a failure to conduct a 27 reasonable investigation, and a failure to conduct negotiations in a reasonable manner or to 28 follow the recommendation of its adjuster or chosen defense lawyer or to fail to seek the defense 29 lawyer's recommendation. Factors that may deprive the insured of evidence include a failure to 30 conduct a reasonable investigation, a failure to follow the insurer's claims-handling procedures, a Liability Insurance

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