Insurance 101 – Chapter 11 – Volume 69 – Rejection of a Third Party’s Settlement Demand

Rejection of a Third Party’s Settlement Demand

An insurer’s reliance on the opinion of counsel may be a factor in showing that its rejection of a settlement offer within policy limits was not unreasonable. Davy v. Public National Insurance Co., 181 Cal. App. 2d 387, 396 (1960). However, such reliance must be reasonable. Counsel’s opinion of the case should not be contrary to the insurer’s view. Allen v. Allstate, 656 F. 2d 487 (9th Cir. 1981). The opinion stated by counsel must be supported by the knowledge and experience of the adjuster. Advice of counsel is not an excuse to eliminate the independent judgment of the insurer. Where the insurer initiates a declaratory judgment action—a suit seeking the advice and direction of the court resolving the rights and obligations of the parties to the policy—to determine coverage and has not “otherwise abandoned, compromised or rejected the insured’s claim,” (Allen, supra) the insurer will not be held to have breached the covenant.

The following video was adapted from my book, “Insurance Claims A Comprehensive Guide” Published by the National Underwriter Company and is available at the Zalma Insurance Claims Library

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The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

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