Offer to Settle Within Policy Limits Not a Requirement for Bad Faith Failure to Settle Claim

The United States District Court for the Western District of Washington, applying Washington law, has held that an offer to settle within policy limits is not a requirement for a bad faith failure to settle claim.  Cox v. Cont’l Cas. Co., 2014 WL 2011238 (W.D. Wash. May 16, 2014).

Hundreds of dental malpractice claims were made against an insured dentist.  From 2008 to 2012, the insurer settled individual claims on behalf of its insured, rather than pursuing a global settlement of all claims.  In 2012, the insurer attempted to negotiate a global settlement with the remaining claimants.  After rejecting the proposed settlement, the claimants proceeded to arbitration and secured a judgment exceeding policy limits.

Pursuant to a settlement with the insured, and an assignment by the insured of his claims against the carrier, the claimants brought an action against the insurer stemming from the insurer’s allegedly bad faith settlement conduct.  The claimants alleged that there were multiple opportunities to pursue a global settlement, including in connection with a 2008 letter from counsel for a plurality of claimants, in which counsel demanded that the insurer tender the policy limits, and to which the insurer failed to respond.

The insurer moved to dismiss the bad faith claims, arguing that, in order to state a claim for bad faith failure to settle, the claimants were required to allege that a specific opportunity to settle the claims on a global basis existed.  In rejecting this argument, the court ruled that such an opportunity is not an explicit element of the tort of bad faith in Washington.  According to the court, the claimants need merely allege that a receptive climate for settlement existed, and not that there was an “unmistakable offer from all known and potential claimants accompanied by an explicit promise of a release from liability,” as suggested by the insurer.  The court held that the claimants plausibly alleged that the insurers acted in bad faith by ignoring the 2008 letter from counsel, and instead pursuing a strategy of settling each claim individually, which eventually resulted in a judgment in excess of policy limits against the insured.