Well, this is an interesting report, and though I am not quite sure exactly what to make of it, it falls within the general rubric of this blog. As Robert Ambrogi sums the reporting and blogging on this story up here, a law firm has been hit with an eighteen million dollar malpractice verdict based on the failure of a health plan; the amount of the verdict is premised on the amount of unpaid claims outstanding under the plan. Of interest to me is the side carnival, which is the defendant law firm apparently claiming that its professional liability insurer committed bad faith by failing to settle the claim within the one million dollar limits of the firm’s professional liability insurance. Anytime anyone suffers a verdict in excess of their insurance coverage, it is reasonable to look first to whether the insurer should have seen that coming and settled the case before a verdict could be taken on the case that would expose the insured to the possibility of having to pay damages greater than the amount of the existent insurance coverage. But though the law on whether an insurer can be liable for bad faith failure to settle within the policy limits under such a scenario varies from jurisdiction to jurisdiction, there are some questions that always have to be answered to consider whether the insurer should have settled the case and avoided the risk of such an excess judgment. These include whether the insurer should have seen that the case was worth the policy limits in settlement, or should have foreseen the risk of a judgment exceeding the policy limits if the case was tried to a verdict.
Beyond that, in a case such as this one where presumably the hard numbers of the loss were always obvious and so you could always know that there was a risk a verdict would exceed the insurance coverage, is that enough to require the insurer to settle the action? Probably not, since in deciding whether to settle the action or instead risk an excess verdict in that situation, one normally still has to consider how likely the case is to end up with such a large verdict. For instance, should the law really require an insurer to settle, rather than allow a trial, just because the claimed damages are sky high, if the likelihood of those damages being recovered is minimal? The likelihood of losing or winning at trial obviously always factors into the settlement negotiations of any experienced lawyer or other negotiator.
And for that matter, there is the question of why the case did not settle before a verdict came in. Was it because the plaintiff’s demands were too high, or was it instead because the insurer wouldn’t respond to an appropriate demand? And what role did the insured play in the matter? Did the insured always press for settlement within the limits of the coverage, and work towards it, or was a settlement within the policy limits just something the insured requested in a token manner prior to the verdict, so as to place itself in a position to sue the insurer if things went south at trial?
There are more questions in these types of cases than one can shake a stick at, and the fun of such cases is sorting out the answers.