Recent Case Offers Guidance on Time-Limit and Policy-Limit Settlement Demands
One of the biggest challenges that U.S. claim departments face is dealing with time-limit and policy-limit settlement demands from plaintiffs’ attorneys. We see clients confronted with such demands all the time. The plaintiffs’ bar pushes the limits on these demands, often making them very early in the case when information is not yet available or being withheld.
A recent decision from the Fourth Circuit Court of Appeals, applying South Carolina law, offered a good discussion of such situations, including the appropriate standards and respective rights and duties of all parties. In the unpublished per curium opinion Columbia Insurance Company v. Christopher Kamil Waymer, et al., the Appeals court reviewed and affirmed the South Carolina District Court’s decision to dismiss a claim for bad faith insurance practices. The Appeals court concluded there was no bad faith under the circumstances because an objectively reasonable basis existed for refusing the settlement offer, as the insurer was deprived of reasonable time to investigate the claim.
The Appeals court’s analysis included a detailed timeline of the activity in the case, including a look at the diligence of the insurance company’s investigation. The court found that the 10-day policy limits demand that the plaintiffs’ attorneys made five weeks after the accident was premature because the medical records of the plaintiffs were not yet available. The plaintiffs’ attorneys’ verbal allegations of the injuries were not enough to obligate the insurer to tender its limits.
The posting of a policy limits loss reserve by the insurance company was not viewed by the court as a significant fact. However, the court considered the fact that the insurance company did tender its limits within three weeks of the medical records being made available and determined the timing was reasonable and not in bad faith. Although the case went to trial and the plaintiffs received an award of $6.5 million, the court found the carrier to be liable only for its limits of $1 million.
The [Appeals] court discussed the “critical issue” under South Carolina law, [which] is whether there is a “reasonable basis” for an insurer’s failure to settle. The [new] question [here was] whether a lack of opportunity to investigate the claim constitutes an objectively reasonable basis to deny a short-fuse demand… [and the court] concluded that “An insurer, acting with diligence and due regard for its insured, is allowed a reasonable time to investigate a claim; no obligation exists to accept a settlement offer…without time for investigation.”1
This case was decided by summary judgment, but the Fourth Circuit Court of Appeals issued a caveat that “close cases” under this standard will be left to a jury to decide on a case-by-case basis. Notably, however, this ruling provides insight into the court’s view that a policy-limit demand is not an absolute or undefeatable device to wedge the policy open, especially absent a reasonable basis for the demand.
The Fourth Circuit provides sound guidance for insurance carriers’ best practices in this regard.
- Wieters, E., Objectively Reasonable Basis for an Insurer to Refuse a Settlement Demand, Hall Booth Smith, https://hallboothsmith.com/fourth-circuit-says-lack-of-time-to-investigate-a-claim-can-create-an-objectively-reasonable-basis-for-an-insurer-to-refuse-a-settlement-demand.