Steven Plitt, Expert Witness

Insurance Bad Faith Claim Handling Expert Serving Clients Nationwide

Phone: 602-322-4038

Steven Plitt, Expert Witness

Insurance Bad Faith Claim Handling Expert Serving Clients Nationwide

INSURER NOT OBLIGATED TO INVESTIGATE THE AVAILABILITY OF INSURANCE COVERAGE TO SETTLE A CLAIM

| Dec 24, 2020 | Insurance Law

In Progressive Northwestern Ins. Co. v. Gant, 957 F.3d 1144 (10th Cir. 2020) (interpreting Kansas law), the 10th Circuit held that a liability insurance company is not obligated to investigate the availability of other insurance to fund a settlement for excess exposures.

In this case, the plaintiff argued that the policy’s implied covenant of good faith and fair dealing, in conjunction with the policy’s express duty to defend, imposed a broader duty on insurance companies to make reasonable efforts to settle cases which included, according to plaintiff’s argument, a duty to discover and disclose additional policies that may provide coverage.  No Kansas court had recognized such a duty.  The plaintiff’s attorney argued, however, that the duty to investigate the availability of other insurance coverage could be inferred from a line of equitable contribution cases.  See, e.g., American Star Ins. Co. v. Allstate Ins. Co., 12 Or. App. 553, 508 P.2d 244, 250 (1973) and Casualty Indemnity Exchange Ins. Co. v. Liberty National Fire Ins. Co., 902 F.Supp. 1235, 1240 (D. Mont. 1995).  In both the American Star and Casualty Indemnity cases, the liability insurance company had settled a claim against the insured and then sought partial contribution from (1) another insurer who received untimely notice of the lawsuit, and (2) the insured, who had failed to give timely notice.  The Court rejected the insurer’s contribution action because the Court found that they had failed to exercise due diligence in determining whether there was another insurer.  However, the 10th Circuit Court of Appeals found these two cases unpersuasive.  While it was true that it would have been helpful to the insured to know if there was additional coverage, neither the American Star nor Casualty Indemnity cases provided any rationale for requiring insurers to tell the insured about other insurers.  The Court found no reason to impose such a duty on the insurance company.  In fact, in this case the insured was in possession of the other insurance and had repeatedly told Progressive that no other insurance was available in response to multiple inquiries from Progressive.