MARCH 2009 BAD FAITH CASE THIRD CIRCUIT UPHOLDS BAD FAITH FAILURE TO SETTLE CLAIMS BASED ON ADJUSTER’S OWN ADMISSION OF UNREASONABLE CONDUCT IN NEGOTIATIONS (Third Circuit)
In a non-precedential Third Circuit Opinion, Jurinko v. The Medical Protective Company, the case involved the assignment of a bad faith claims to the patients of the insured doctor. The case had gone to trial, and the insureds had obtained an excess verdict against the doctor for medical malpractice, and he assigned his claims against the carrier in lieu of making the excess payment. On the assigned claims against the insurer, the patients received a jury verdict of $1,658, 345 and punitive damages of $6,250,000. The trial court upheld the jury award, and then molded the verdict concerning attorney’s fees, costs and interest.
The case’s factual history reveals a story of settlement recommendations by judges, and the doctor’s own defense counsel (appointed by the carrier), that far exceeded anything the carrier was willing to pay toward settlement; and in fact, throughout the course of settlement discussions and recommendations, the carrier’s offer to contribute toward a settlement never rose above $50,000 (on a $200,000 policy), and where the insured’s potential exposure was evaluated by the judges and/or defense counsel at numbersbetween $750,000 and $2,000,000. The doctor himself had wanted to settle.
Astonishingly, the carrier’s own adjuster testified that he acted unreasonably and irresponsibly in settlement negotiations” and that he denied the doctor an effective defense by appointing the same lawyer to represent that doctor, and a co-defendant doctor (against whom plaintiffs asserted crossclaims should have been asserted, but could not be because of a conflict). Counsel denied that the purported conflict had any real effect, as there eventually was separate counsel and he could argue reliance on the other doctor at trial.
On the bad faith failure to settle claim, the Court looked to the seminal decision in Cowden v. Aetna Cas. & Sur. Co., 389 Pa. 459, 134 A.2d 223, 229 (Pa. 1957), observing the insurer’s fiduciary duty in weighing the insured’s interest no less than its own in evaluating an exposure to an excess verdict if the case goes to trial. Likewise, the Bad Faith statute, 42 Pa.C.S. § 8371, can be invoked to argue a bad faith failure to settle. The trial court had instructed the jury that: “There must be an expressed willingness on the part of the third party, the plaintiff in the underlying litigation, at some point in time, to accept an offer of policy limits.”
As the carrier’s $200,000 combined with the CAT Funds’ $1,000,000 would have settled the plaintiff’s demand of $1.1 Million, that standard was met. In a long footnote, the Appellate Court questioned whether this was really the standard under Pennsylvania law, but did not have to deal with the issue, stating at the end: “An insurer’s actions may arguably constitute bad faith whether a plaintiff makes a demand within the policy limits or not. Here we need not reach the questions of whether Pennsylvania law imposes a bright-line rule, as the court instructed the jury that an expressed willingness to settle within the policy limits must be shown and the parties did not challenge the instruction.”
The Third Circuit agreed with the trial court that there was enough evidence to find a bad faith failure to settle. The adjuster’s testimony was particularly damning. “He testified that Medical Protective’s refusal to offer more than $ 50,000 in a settlement was a ‘negotiating tactic’ – [the adjuster] thought by refusing to offer more money he could force the CAT Fund to offer more from [the other doctor’s] policy. This refusal demonstrated an abandonment of the fiduciary duty [the carrier] owed to [its insured doctor]. [The carrier] acted in its own self-interest rather than in the interest of [its insured doctor]. Such negotiating tactics do not provide a reasonable basis for failing to tender … policy limits.”
The Third Circuit added: “”[U]nder Pennsylvania law an insurer does not comply with the good faith standard when it refuses to settle merely because it believes that its insured is not liable for the claim asserted. … [and the carrier] cannot satisfy its duty of good faith “merely by showing that it acted with sincerity.”
