The U.S. Eleventh Circuit Court of Appeals recently held that a primary insurer’s failure to settle an underlying action did not constitute bad faith against the excess insurer.  Westchester Fire Ins. Co. v. Mid-Continent Cas. Co., 2014 WL 2766764 (11th Cir. June 19, 2014).

An excess insurer brought a bad faith action against the primary insurer, alleging that the primary insurer acted in bad faith by failing to settle an underlying action in which their insured was sued for products liability.  Despite several attempts, the primary insurer was not able to reach a settlement and the jury awarded damages in excess of primary limits.  After the jury verdict, the underlying plaintiff offered to settle for an amount in excess of primary limits, and the primary insurer declined without informing the excess insurer because the primary insurer believed the net award would not exceed the amount offered due to a setoff from a worker’s compensation lien.  However, the court chose not to permit a setoff and entered judgment for the jury award and costs.  In the bad faith action, the trial court found that the primary insurer’s pre-verdict actions did not constitute bad faith, but that the primary insurer’s failure to notify the excess insurer of the post-verdict settlement offer was bad faith.  The primary insurer appealed.

On appeal, the Eleventh Circuit reversed, finding that the trial court erred in holding that the primary insurer acted in bad faith without proof of causation.  The Eleventh Circuit held that the trial court did not find that the primary insurer’s failure to communicate the post-verdict settlement offer to the excess insurer damaged the excess insurer.  The Eleventh Circuit found there was no evidence or testimony to suggest that the excess insurer would have accepted the offer, and therefore, the primary insurer was not liable on the bad faith action because there was no proof of injury to the excess insurer.