Communication with insureds as well as settlement of cases is considered to be the fundamental duty of an insurer. In actual fact, failure of an insurer of insurance entity to inform insureds or to communicate settlement offers might result into serious harm to the insured. “This duty to communicate most often distills to the insurer timely conveying the plaintiff's settlement offers or demands to the insured. The insurer's fulfillment of its duty to communicate allows the insured to take reasonable steps to protect its interests” (Richmond, 2014, p. 500). For example, an insured or indemnified person that is conusant of negotiations regarding settlement may disclose information or come across with specific fact that an insurer was unaware of well in advance and that might convince the insurer to accept or bring forward a settlement offer.
But what if an insurer fails to communicate adequately with the insured? According to the materials of the Insurance Coverage Litigation Committee CLE Seminar, such failure to communicate, ”including particularly informing the insured of any compromise offer” should be considered as the major factor “in determining whether a liability insurer has acted in bad faith in failing to settle or in delaying settlement of a claim against the insured” (Stickney, Gates, Heckman, & Dedman, 2015, p. 12).
One should also take into consideration that there are specific limits of the insurer’s duty to communicate with insureds. For instance, any insurer “is required to communicate only reasonable settlement offers or demands within policy limits” (Richmond, 2014, p. 501). But how do we determine and evaluate the term ‘reasonableness’ in this context? “The only permissible consideration in evaluating the reasonableness of the settlement offer becomes whether, in light of the victim's injuries and the probable liability of the insured, the ultimate judgment is likely to exceed the amount of the settlement offer” (Jackson, 2012). Therefore, in defining and qualifying the reasonableness of the settlement offer or demand, the insurer must take into consideration the following factors: the severity of the injuries or damage, any evidence attributed to the insured's liability, court judgments and rulings in analogous cases, etc.
In the meantime, some courts and tribunals conclude and hold that an insurer is responsible for communicating settlement issues to an insured only under such circumstances “when the insurer or the insured knows that there is a serious case of liability and a great risk of an excess verdict" (Richmond, 2014, p. 501). In other words, limits of the insurer’s duty to communicate can be referred to as a debatable and quite controversial matter, as ambiguity of these limits has not been resolved yet.
As a business owner or manager, when communicating with your insurance company and requesting settlement, one should act in the following manner:
Document every communication and contact with your insurance company in a written form so that you can constantly monitor and control the status of your claim and the process of its adjustment;
Confirm all the commitments and promises made by words of mouth either in person or over the phone by insurance company personnel by sending them a short follow-up e-mail or letter;
Reply to all letters, e-mails, and requests after due consideration and within a reasonable time frame;
Be proactive and initiative: Instead of waiting for your insurance company to tell you how much they owe you, provide your insurance company with the proof of your losses and demand the refund of the sum you are entitled to;
Use cases and facts of improper and unjustified conduct by your insurer to your best advantage as a leverage to negotiate the terms of settlement you might benefit from;
Always keep it professional and keep in mind that everything you write and say may be documented and recorded by your insurer. Therefore, avoid telling or writing information that may make you seem inactive and uncooperative or the cause of misunderstanding, delays or other problems;
Do not sign any contracts and agreements without consulting with an attorney. Signing an excessively broad or premature confidential agreement might substantially reduce your leverage and ability to obtain full refund of the sum you are entitled to and all the other benefits.
It is interesting to note that there are there situations in which you might be interested in settling a matter even if you believe you have a reasonable and probable winning defense. In case you made sure that from settling that particular matter you would gain material and other benefits significantly exceeding the contemplated amount of money you are entitled to.
Typically your insurer hires a lawyer to represent you in the underlying lawsuit. However, it is also advisable to have your own lawyer in relation to encouraging the insurer to settle if the facts warrant that action. It is reasonably necessary to have your own lawyer to consult with before signing any agreements with the insurer as well as for the purpose of securing you from the improper conduct of the insurance company.
In accordance with the U.S. Supreme Court case “State Farm Mutual Automobile Insurance Co. v. Campbell”, a State “may impose upon a defendant in a civil case” a measure of punishment, particularly “by means of punitive damages” (p. 412). I strongly adhere to the opinion that the imposition of punitive damages in appropriate in instances of an insurer’s bad faith refusal to settle. In actual fact, “an insurer's bad faith refusal to settle a valid claim can be viewed as a breach of the insurance contract” (Richmond, 2014, p. 506). Under all circumstances, an insurer’s bad faith refusal to settle should be viewed as improper conduct by the insurer and, therefore, entail responsibility in the form of punitive damages.
References
Jackson, C. M. (2012, June 13). The Settlement Dilemma: When a Policyholder and Insurer Disagree on Settlement. Retrieved January 27, 2016, from https://www.orrick.com/Events-and-Publications/Pages/the-settlement-dilemma-when-a-policyholder-and-insurer-disagree-on-settlement-4766.aspx
Richmond, D. R. (2014). Insurance bad faith and insurers' duty to communicate with insureds regarding settlement. Tort Trial & Insurance Practice Law Journal, 49(2), 499-513. Retrieved January 25, 2016.
Stickney, P., Gates, P. D., Heckman, D. C., & Dedman, L. M. (2015). The Right and Duty to Settle Third-Party Liability Claims: A 50-State Survey. The Insurance Coverage Litigation Committee CLE Seminar, 1-34. Retrieved January 27, 2016, from http://www.americanbar.org/content/dam/aba/administrative/litigation/materials/2015_inscle_materials/written_materials/4_1_the_right_and_duty_to_settle_thirdparty_liability_claims.authcheckdam.pdf
