48 N.Y.2d 871 (1979)
An insurer’s liability for bad faith failure to settle a claim against its insured requires a showing that the insured lost an actual opportunity to settle within the policy limits due to the insurer’s conduct.
Summary
This case addresses the circumstances under which an insurer can be held liable for bad faith failure to settle a claim against its insured. The Court of Appeals affirmed the Appellate Division’s decision, holding that while the insurer breached its duty to defend and indemnify the insured, the insured failed to demonstrate that the insurer’s alleged bad faith caused him to lose an actual opportunity to settle the underlying negligence claim within the policy limits. Speculation about potential settlement opportunities is insufficient to establish a claim for excess liability damages against the insurer.
Facts
Thomas Copfer was involved in a negligence action. His insurance company, United States Fidelity and Guaranty Company (USF&G), initially disclaimed coverage and refused to defend him. Copfer retained his own counsel and defended himself. The underlying complaint against Copfer alleged only negligence. Copfer’s private attorney informed USF&G that a co-defendant had settled with the plaintiff for $15,000, and Copfer’s policy limit was $25,000. Copfer later claimed USF&G acted in bad faith by not attempting to settle the claim.
Procedural History
The Appellate Division granted summary judgment to USF&G, dismissing Copfer’s claim for additional damages based on the insurer’s alleged bad faith. Copfer appealed to the Court of Appeals.
Issue(s)
Whether an insurer can be held liable for bad faith failure to settle a claim against its insured when the insured fails to demonstrate that they lost an actual opportunity to settle the claim within the policy limits due to the insurer’s conduct.
Holding
No, because the insured’s speculations about a potential settlement are insufficient to support a claim for excess liability damages against the insurer. The insured must demonstrate a lost opportunity to settle within policy limits due to the insurer’s bad faith.
Court’s Reasoning
The Court of Appeals agreed with the Appellate Division. The court acknowledged that USF&G breached its contractual duty to defend and indemnify Copfer, making it liable for his defense expenses and any judgment against him up to the policy limits. However, the court rejected Copfer’s claim for additional damages resulting from USF&G’s alleged bad faith. The court emphasized that there was “no showing whatsoever that the insured lost an actual opportunity to settle the negligence claim against him within the coverage limits of his policy by reason of the insurer’s purported ‘bad faith’.” The court distinguished this case from situations where a formal settlement offer was rejected due to the insurer’s bad faith. Mere speculation that a settlement might have been possible is insufficient to establish a claim for excess liability. The court cited precedent like Gordon v. Nationwide Mut. Ins. Co., stating that an insurer’s failure to actively seek out the injured party to negotiate does not automatically constitute bad faith. Judge Meyer dissented, arguing that USF&G’s disclaimer was unreasonable given the negligence-only complaint and the information about the co-defendant’s settlement, creating a jury issue on bad faith. He emphasized that the insurer has a duty to consider the insured’s interests when settlement is possible.