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Although “Imprudent” in Hindsight, ​Insurer Did Not Breach Duty of Good Faith by Refusing to Offer a Settlement at the Policy Limit

The First Department determined the insurer’s failure to make a settlement offer at the policy limit was “imprudent” in hindsight, but did not constitute a breach of its duty of good faith:

We reject plaintiffs’ argument that defendant avoided acknowledging the underlying plaintiff’s potential damages such that a refusal to offer the policy limit constituted a reckless or conscious disregard of the excess insurer’s rights. While there was some indication that damages could be significant if the medical records substantiated the underlying plaintiff’s claim of a loss of smell from a severe blow to the head, the record established that defendant’s investigation presented a great deal of medical evidence tending to show that the underlying plaintiff’s injuries were primarily preexisting soft tissue injuries unrelated to the automobile accident on April 24, 1994. Defendant’s investigation included the medical opinion of four physicians that conducted independent medical examinations; one psychologist who conducted a review of the extensive medical records; experienced defense counsel; and separate monitoring counsel for the damages trial. The review of the numerous medical records, which included contradicting evaluations of the underlying plaintiff’s treating physicians, provided a justifiable basis to fairly evaluate potential damages and assess the relative risks of declining to offer a settlement of the policy limit.

Given this evaluation, defendant’s actions do not amount to bad faith. In hindsight, it is evident that defendant’s failure to make a settlement offer of the policy limit was not prudent. However, “[a]n insurer does not breach its duty of good faith when it makes a mistake in judgment or behaves negligently” … . Here, the assessment of the insured’s exposure and the failure to make a settlement offer of the policy limit was a mistake in judgment. It does not demonstrate that defendant acted in bad faith by failing to heed contrary evidence. Instead, the record shows defendant’s reasonable belief that, under the No Fault Law, the underlying plaintiff did not sustain a serious injury causally related to the accident. Thus, we find that the record does not demonstrate any pattern of reckless or conscious disregard for plaintiffs’ rights.  General Motors Acceptance Corp v New York Cent Mut Fire Ins Co, 2014 NY Slip Op 02384, 1st Dept 4-8-14

 

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