A Duty (to Settle) Too Far

Larry Golub wrote an article that appeared in the Insurance Journal on September 10, 2012, A Duty (to Settle) Too Far, about a recent decision by the Ninth Circuit Court of Appeals that threatens to upend law developed decades ago involving a liability insurer's duty to settle third party claims.

According to Golub, the Ninth Circuit panel's July 11, 2012, ruling in Du v. Allstate Insurance Company would “open the floodgates to higher insurance premiums not to mention more (and wholly unnecessary) bad faith litigation. Indeed, such a rule change would make settlement less likely, contrary to the accepted public policy in favor of settlement and protecting insureds from personal liability.”

In its decision, the court stated that insurers have a duty to try to settle when the liability of the insured is fairly clear, even if the injured party has not made a settlement demand made. Without a demand from a third party, Golub notes, the insurer is left with little to base a settlement on.

“As a federal court decision seeking to apply California state law, but based on no actual state court authority, California courts are under no obligation to follow the Du reasoning and hopefully it will be ignored,” he wrote. “Better yet, when next confronted with a bad faith failure to settle case, perhaps the California Supreme Court or one of the panels of the California Court of Appeal will relegate Du to the graveyard of appellate decisions dead on arrival.”

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