In Purscell v. Tico Insurance Co., No. 13-2362, 2015 WL 3855253 (8th Cir. June 22, 2015), the US Court of Appeals for the Eighth Circuit, applying Missouri law, concluded that an insurer did not act in bad faith or breach a fiduciary duty to its policyholder by declining a settlement offer within policy limits received when the insurer had not yet completed its investigation of coverage issues, nor did the insurer act in bad faith by attempting to reach a global settlement of all claims against the policyholder.
Purscell involved claims arising from an automobile accident that injured two third-parties and killed one. See id. at *1. The automobile policy at issue limited liability to $25,000 per person and $50,000 per accident. See id. at *2. Within days of the accident, the insurer put the full $50,000 policy limits on reserve, with $25,000 designated to the fatality and $25,000 designated to the two injuries. See id.
Three weeks after the accident, the two injured people made a settlement offer for the full policy amount of $50,000. See id. at *2. The insurer did not immediately accept the offer because it “had not yet completed its investigation and had questions about whether its policy extended coverage because of the intentional nature of [the] conduct” that caused the accident. Id. at *2. The settlement offer was withdrawn before the insurer could act on it. See id.
The wrongful death claimant also wanted to settle for the full policy limits. See id. at *3. Having completed its investigation, the insurer sought input from the policyholder as to how a global settlement of all three claims could be reached without needing to interplead the policy limits. See id. at *3. No response was received, so the insurer proceeded with an interpleader. See id. Together, the judgments in the underlying tort actions for the two injured parties and the deceased party exceeded the policy limits. See id. As a result, the policyholder sued the insurer, contending that the insurer acted in bad faith by refusing to settle for policy limits on the claims for the two injured individuals and exposing him to an excess judgment. See id. at *4.
The district court granted the insurer summary judgment on the bad faith claim because (a) the insurer was entitled to reject the early settlement offer while it investigated the claim and considered the separate wrongful death claim and (b) following the withdrawal of the first settlement offer, the policyholder did not make a “sufficiently definite demand” upon the insurer to settle the injured parties’ claims. Id. (citation omitted). The district court also concluded that the insurer did not breach its fiduciary duty to the policyholder because the insurer kept the policyholder fully abreast of the claim and the policyholder’s potential exposure. See id.
On appeal, the policyholder argued that the insurer acted in bad faith by failing to accept the early settlement offer and focusing instead on reaching a global settlement. See id. at *5. The policyholder also asserted that the insurer should have tried to settle the biggest claim (asserted by one of the two injured parties), “even if he might face personal exposure to the other two claims.” Id. In response, the insurer argued that it never had the opportunity to settle within limits because the early settlement offer was withdrawn unexpectedly and before the investigation was complete. See id. Further, the policyholder “was living paycheck to paycheck and wanted [the insurer] to do whatever it could to completely protect him from liability, which included any personal exposure he had to” the wrongful death claim. See id.
Like the district court, the Eighth Circuit agreed with the insurer. Specifically, the Eighth Circuit “disagree[d] that [the insurer’s] focus on settling all three claims is evidence of bad faith,” and “disagree[d] with the premise that an insurer’s attempt to reach a global settlement of competing claims, without ever denying the responsibility to pay the full policy limits, can serve as evidence that the insurer is placing its own interests over that of its insured.” Id. at *6. The court noted that “[w]hen a global settlement could not be reached, [the insurer] appropriately filed an interpleader action,” which indicated that the insurer was not trying to avoid the responsibility of paying the full limits of its policy. Id. (citations omitted). As to the argument regarding making a special effort to settle the largest claim, the court concluded the insurer never had an opportunity to settle that claim because the settlement offer was withdrawn before the insurer’s investigation was complete and, in any event, there was no evidence that the policyholder had made such a request of the insurer. See id. The Eighth Circuit, relying on the district court’s reasons, also affirmed the grant of summary judgment on the policyholder’s separate claim for breach of fiduciary duty. See id. at n.6.
Purscell provides helpful guidance to insurers attempting to settle multiple claims that collectively may exceed policy limits.