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.
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