Primary and excess carriers often find themselves at odds during settlement negotiations. The primary owes the excess a duty to resolve the case within the primary limits, but the primary carrier also wants to strike the best possible deal and not simply tender its limits. Once a case is settled, the dispute usually becomes moot, and typically only becomes a major problem if the case is tried and the claimant is awarded an excess judgment.
However, in the recent case of Quincy Mutual v. New York Central Mutual, the excess carrier sued the primary, alleging that the excess carrier was unreasonably required to contribute to a settlement because the primary carrier improperly handled settlement negotiations.
The specifics are discussed in great detail in the attached decision: Quincy Mutual. Briefly, the mutual insured, Randolph Warden, was involved in a serious auto accident with claimant Peggy Horton. Warden failed to yield the right of way at a stop sign. He pleaded guilty to a traffic violation, and summary judgment was awarded against him. Horton sustained significant injuries and required six surgeries, including disc fusion.
While the summary judgment award was on appeal, Horton’s attorney demanded the $500,000 primary policy limits and rejected the primary’s offer of $75,000. He kept that offer open even after he later learned of the excess limits. Months passed, and the award was affirmed.
When the parties appeared for a pre-trial conference, the demand now exceeded both policy limits, but the primary carrier stuck with its $75,000 offer. Months and months passed and the plaintiff continued to have surgery and presented expert opinions regarding increased damages. Despite the efforts of the excess carrier, the insured’s personal counsel, and the court, the primary carrier stuck with their offer of $75,000. Finally, over three years after the summary judgment decision was affirmed on appeal, the primary carrier tendered its $500,000 limits. The case settled for about $1.5 million, which included about $500,000 in accrued interest, when the excess carrier tendered its $1 million limit as well.
The excess carrier then sued the primary carrier, and a bench trial was held in federal court. The court rejected the primary’s argument that the excess carrier could have dropped down and settled within the primary limit if it wanted to mitigate its damages. The magistrate seemed particularly peeved that a reinsurer paid most of the primary carrier’s contribution, and that very little of its own money was at stake during the negotiations.
As such, the magistrate found that the primary carrier, having no liability defense, should have settled the matter for its policy limits of $500,000, and awarded the excess carrier $1 million, finding that it should not have needed to contribute to the settlement.
Please write to Mike Bono for more information.