New York Law Review

Tag: Failure to Settle

  • U.S. Fidelity & Guaranty Co. v. Copfer, 48 N.Y.2d 871 (1979): Insurer’s Bad Faith Failure to Settle

    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.

  • Knobloch v. Royal Globe Ins. Co., 38 N.Y.2d 471 (1976): Insurer’s Bad Faith Failure to Settle Within Policy Limits

    Knobloch v. Royal Globe Ins. Co., 38 N.Y.2d 471 (1976)

    An insurance carrier may be liable for bad faith failure to settle a claim against its insured within policy limits if it does not consider the insured’s interests as well as its own when making settlement decisions.

    Summary

    The Knoblochs sued their insurance carrier, Royal Globe, alleging bad faith failure to settle a personal injury claim (Wickman) within their policy limits, leading to a judgment exceeding their coverage. Wickman was injured in a car accident while riding as a passenger in a vehicle driven by Fred Knobloch. Wickman initially offered to settle for $9,500, but the insurer failed to settle, eventually offering the full $10,000 policy limit on the eve of trial after years of negotiation. The jury awarded Wickman $75,383.50. The Knoblochs paid the excess and then sued Royal Globe. A jury found Royal Globe liable for $30,236.50. The Appellate Division reversed, but the New York Court of Appeals reinstated the jury verdict, finding sufficient evidence that the insurer acted in bad faith by not adequately considering the insureds’ interests during settlement negotiations.

    Facts

    Fred Knobloch was driving a car with John Wickman as a passenger when he lost control and Wickman was seriously injured. Wickman sued the Knoblochs. Royal Globe, the Knoblochs’ insurance carrier, defended the Knoblochs. Wickman’s attorney initially offered to settle for $9,500, below the $10,000 policy limit. Royal Globe did not accept, and settlement negotiations stalled. The Knoblochs’ independent counsel offered $2,500 towards settlement, in addition to Royal Globe’s contribution. On the eve of trial, Royal Globe offered the full $10,000 policy limit, but Wickman’s attorney, now aware of the Knoblochs’ independent contribution, withdrew the previous demand. At a settlement conference before trial, Wickman demanded $35,000.

    Procedural History

    Wickman obtained a judgment of $75,383.50 against the Knoblochs. The Knoblochs then sued Royal Globe, alleging bad faith failure to settle within policy limits. The trial court entered judgment on a jury verdict in favor of the Knoblochs. The Appellate Division reversed. The New York Court of Appeals reversed the Appellate Division and reinstated the trial court’s judgment.

    Issue(s)

    Whether there was sufficient evidence to support the jury’s finding that Royal Globe acted in bad faith by failing to settle the Wickman claim within the policy limits, thereby exposing the Knoblochs to excess liability.

    Holding

    Yes, because the jury was warranted in finding that the insurance carrier failed to consider the insureds’ interests as well as its own when making settlement decisions, thus supporting a finding of bad faith.

    Court’s Reasoning

    The Court of Appeals emphasized that the jury was instructed to determine whether Royal Globe acted in good faith, considering the Knoblochs’ interests along with its own when deciding on settlement. No exception was taken to this charge, making it the law of the case. The court found sufficient evidence for the jury to conclude that Royal Globe acted in bad faith. The court rejected the argument that the eventual tender of the full policy limits absolved Royal Globe of liability, stating that a belated offer does not automatically exonerate a carrier from pre-existing bad faith. The court noted the refusal of the carrier’s representative to disclose settlement negotiation progress to Knobloch, which, while not significant alone, was relevant. The court also considered the high likelihood of a jury finding negligence against the driver and the potential for damages to exceed $10,000, given Wickman’s serious injuries and special damages. Crucially, the court highlighted the absence of any evidence of Royal Globe’s evaluation of the case for settlement purposes or advice sought from counsel. The court concluded that, under the applicable standard, the jury was justified in finding Royal Globe liable for failing to settle the Wickman claim within policy limits because they did not adequately consider the Knoblochs’ interests during settlement negotiations. The court emphasized that “the carrier is obliged in most circumstances to respond accurately to requests from its insured with reference to the progress of any settlement negotiations.”

  • Knobloch v. Royal Globe Insurance Company, 38 N.Y.2d 471 (1976): Insurer’s Reliance on Counsel’s Advice and Bad Faith Refusal to Settle

    Knobloch v. Royal Globe Insurance Company, 38 N.Y.2d 471 (1976)

    An insurer’s reliance on advice of counsel is not a per se defense to a claim of bad faith refusal to settle a claim within policy limits; the question of bad faith remains a factual issue for trial.

    Summary

    In this case, the New York Court of Appeals addressed whether an insurer’s reliance on advice of counsel could automatically negate a claim of bad faith refusal to settle a liability claim within policy limits. The court held that it does not. Knobloch, the insured, sued Royal Globe, his insurer, alleging bad faith failure to settle a claim against him. Royal Globe argued that it relied on its counsel’s advice that a declaratory judgment providing coverage would be overturned on appeal. The Court of Appeals reversed the Appellate Division’s decision, finding that a factual issue remained as to whether the insurer acted in bad faith, even with the advice of counsel. The case emphasizes that reliance on counsel’s advice is a factor to consider, but it does not automatically absolve the insurer of potential bad faith.

    Facts

    The underlying case involved an accident where Knobloch was potentially liable.
    A declaratory judgment was issued, stating that Royal Globe’s policy covered Knobloch for the accident.
    Despite the declaratory judgment, Royal Globe’s counsel advised the insurer that the judgment was incorrect and would be reversed on appeal.
    Knobloch offered to settle the claim against him within the policy limits.
    Royal Globe refused to settle, allegedly relying on its counsel’s advice.

    Procedural History

    Knobloch sued Royal Globe, alleging bad faith refusal to settle.
    The Supreme Court initially denied Royal Globe’s motion for summary judgment.
    The Appellate Division reversed, granting summary judgment to Royal Globe.
    The New York Court of Appeals modified the Appellate Division’s order, reinstating the Supreme Court’s denial of summary judgment, remanding the case for trial.

    Issue(s)

    Whether an insurer’s reliance on advice of counsel automatically negates a claim of bad faith refusal to settle a claim within policy limits.

    Holding

    No, because reliance on advice of counsel is a factor to be considered but does not, as a matter of law, negate a charge of bad faith refusal to settle. The issue of bad faith is a question of fact to be determined at trial.

    Court’s Reasoning

    The Court of Appeals relied on the standard set out in Gordon v. Nationwide Mut. Ins. Co., emphasizing that an insurer can be liable for amounts exceeding policy limits if they acted in bad faith when refusing to settle a claim within those limits.
    The court acknowledged Royal Globe’s argument that reliance on counsel’s advice should negate a bad faith claim. However, the court reasoned that, under the circumstances, it could not be said as a matter of law that such reliance negates a charge of bad faith.
    The court stated, “Although the insurer here makes cogent argument to the contrary, we conclude that it cannot be said on this motion for summary judgment that an allegation of reliance on advice of counsel in such a circumstance as a matter of law negates a charge of bad faith refusal, even bad faith of the dimension demanded by Gordon.”
    The court highlighted factual issues that needed to be resolved at trial, including the extent to which the insured suffered damages due to the insurer’s alleged failure to fulfill its policy obligations. The court explicitly pointed to the incomplete record as a reason to send the case to trial.
    The court remanded the case for a full trial to determine whether Royal Globe’s conduct constituted bad faith, considering the totality of the circumstances, including the advice of counsel.