Bad faith/duty to settle

The Massachusetts Supreme Judicial Court has held that consent-to-settle clauses in professional liability policies that give the insured absolute discretion regarding settlement do not inherently conflict with the state’s unfair insurance settlement practices statute, Mass. G.L. ch. 176D § 3(9)(f).  Rawan v. Continental Casualty Company, 136 N.E.3d 327 (Mass. Dec. 16, 2019).  The case had attracted considerable attention from amici concerned about potential disruption of the professional liability insurance market in Massachusetts if such consent-to-settle clauses were deemed impermissible.

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Applying Delaware law, a Delaware state trial court has held that insurers did not act in bad faith by denying coverage for underlying settlements when they had reasonable grounds for their position and promptly sought a declaratory judgment as to their indemnification responsibilities.  Arch Ins. Co. v.  Murdock., 2019 WL 1932536 (Del. Super. Ct. May 1, 2019).

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Applying Colorado law, the United States District Court for the District of Colorado has held that a medical professional liability insurer was entitled to reimbursement of a settlement payment made on behalf of an insured to settle a dispute with a former patient.   Evanston Ins. Co. v. Aminokit Labs., Inc., 2019 WL 479204 (D. Colo. Feb. 7, 2019).

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The Supreme Court of Delaware has held that under Delaware law, the three-year statute of limitations period applicable to a statutory bad faith action governed by Louisiana law commences when the insured could plead a prima facie case and was therefore barred.  Homeland Ins. Co. of New York v. Corvel Corp., 2018 WL 6061261 (Del. Nov. 20, 2018).

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The United States District Court for the Northern District of Alabama has held that alleged constitutional due process violations under 42 U.S.C. § 1983 do not constitute professional services “caused by the negligence” of an insured.  Madison County v. Evanston Ins. Co., 2018 WL 4680213 (N.D. Ala. Sept. 28, 2018).

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The United States District Court for the Northern District of Illinois, applying New York law, has held that a real estate service firm’s professional liability insurance policies cover four claims regarding the firm’s allegedly improper use of a certain appraisal methodology because neither the prior knowledge exclusion nor an exclusion regarding investment activity applied.  Cushman & Wakefield, Inc. v. Illinois Nat’l Ins. Co., 2018 WL 1898339 (Apr. 20, 2018).  In doing so, the court determined that the four claims were related and thus all properly treated under the same policy period and, therefore, the primary insurer for that policy period is entitled to recoup all amounts paid in excess of its limit for that policy.  The court also granted summary judgment for the first excess insurer on the insured’s bad faith claim.

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Applying Minnesota law, the United States District Court for the District of Minnesota has held that, while an insured’s breach of contract claim was adequately pled, the insured could not pursue a cause of action for bad faith or seek relief in the form of extra-contractual damages.  Lunde v. Cincinnati Ins. Co., 2018 WL 1972475 (D. Minn. Apr. 26, 2018).

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A Colorado appeals court has held that Colorado law does not recognize an independent equitable subrogation claim by an excess insurer against a primary insurer to recover a settlement paid by the excess insurer.  Preferred Prof’l Ins. Co. v. The Doctors Co., 2018 WL 1633269 (Colo. App. Apr. 5, 2018).  Rather, an excess insurer’s rights under such circumstances are derivative of the insured’s rights under the insurance policy, and therefore the excess insurer must prove that the primary insurer acted in bad faith by refusing to settle.

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The U.S. District Court for the District of Kansas, applying Kansas law, has held that fact questions regarding application of an investment advising exclusion in a professional liability policy preclude summary judgment. Bridgebuilder Tax + Legal Servs. v. Torus Specialty Ins. Co., 2017 WL 6342229 (D. Kan. Dec. 12, 2017). The court also indicated that if the insurer denied coverage improperly, it could also be liable for bad faith refusal to settle.

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