In the underlying action, Darrie Eason asserted a claim against CBL Path Inc., a medical diagnostic laboratory, alleging that CBL negligently switched her breast biopsy specimen with another, resulting in an erroneous diagnosis of breast cancer and subsequent unnecessary double mastectomy. CBL maintained a $1 million medical malpractice policy with Lexington Insurance Company, to whom they timely reported the claim. In February 2007, Lexington exercised its right to be the sole authority handling the Eason claim. During the months that followed, Eason’s attorney contacted Lexington numerous times in an effort to settle the claim without litigation. When Lexington did not respond with an offer, Eason filed suit against CBL and subsequently made a formal demand of $5 million dollars in excess of the policy limit. A few months later, Lexington settled the case for $2.5 million, agreeing to pay the policy limits, with CBL paying the remainder. CBL then sued Lexington claiming bad faith in refusing to enter into pre-litigation settlement discussions with Eason’s attorney. CBL contended that had Lexington done so, the case could have settled for within the policy limits. Lexington prevailed on summary judgment and CBL appealed. The Second Department affirmed the lower court’s holding that Lexington did not act in bad faith because Eason’s attorney’s pre-litigation settlement inquiries never involved an actual demand, only a request to settle. The court noted that the first actual demand to settle for a specific monetary amount was made after suit had been filed and once the demand was made, Lexington acted fairly quickly in settling the matter.

Thanks to Alex Niederman for his contribution to this post.

http://www.courts.state.ny.us/reporter/3dseries/2010/2010_04128.htm