It’s not everyday that you read about one insurance carrier suing another insurance carrier for bad faith damages in how it handled an insurance claim. When it happens, it usually has to do with different levels of insurance; like between primary and excess insurers. The excess insurer’s responsibility does not kick in until the primary insurer’s limit has been exhausted. The excess carrier typically argues that the primary carrier could have resolved a dispute within its policy limit, avoiding any exposure of the excess carrier and that the failure to do so exposed the liability beyond the primary policy’s limits. That recently happened in a New York Federal District Court case where the primary carrier was ordered to pay $1 million to the excess carrier. The New York Federal Court ruled that the primary carrier’s holding out at its initial settlement offer was bad faith.1
Discovery revealed that the injured party at numerous times would have accepted the primary policy limit of $500,000 for her serious personal injuries after undergoing several surgeries. Instead of tendering its policy limit, the primary carrier offered only $75,000 – the level of authority given the examiner handling the file on behalf of the primary carrier. Discovery revealed that between 2001 and 2009, the primary carrier did not have any written formal policies or procedures in place to guide their adjusters concerning settlement practices. The magistrate judge deciding the case held that the primary carrier acted in "gross disregard" for the excess carrier’s interest when it held to its $75,000 offer under the circumstances.
The primary carrier withheld the existence of the excess insurance policy for years, which is why the injured party would have accepted the policy limit of the primary carrier – thinking that was all of the coverage available.
This decision epitomizes an insurer being held accountable for its strong arm tactics and efforts to force an injured party to accept much less than what the insurer should have known it was responsible for.
1 Quincy Mutual Fire Ins. Co. v. New York Central Mutual Fire Ins. Co., No. 12-CV-1041 (N.D. N.Y. March 31, 2014).