September 11, 2013
MULTIPLE CLAIMS: WHAT TO DO WHEN INSURANCE LIMITS ARE INSUFFICIENT TO PAY ALL CLAIMS?
The insurance claims professional is often confronted with the situation in which the accident/occurrence has spawned multiple third party claims and the policy limits available are clearly insufficient to fund both actual and anticipated claims. This fact scenario immediately raises a variety of issues which must be carefully considered recognizing the legal duties that are owed to advance and protect the interests of the insured. Some of the more obvious issues are as follows:
- To what extent may the insurer move forward to settle the existing claims so as to limit its defense obligations to the insured and the costs associated therewith?
- Can the insurers offer to and simply pay their policy limits to one claimant, thereby extinguishing any further indemnity or defense obligations?
- What should an insurer do to advise, as well as protect the interests of the insured in these situations, with specific reference to what sort of disclosures should be made to the insured?
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these circumstances, should an insurer take the initiative to actively solicit settlement demands where no such demands have been made to date?
We are pleased to report that the Texas Supreme Court has provided some meaningful guidance to the claims professional who is confronted with this situation. A brief description of the pertinent fact setting is worth noting.
In Texas Farmers Insurance Company v. Soriano, 881 S.W.2d 312 (Tex. 1994), the Texas Supreme Court was confronted with an all too often fact scenario involving a head-on collision resulting in multiple injuries/claims which included the unfortunate death of the innocent driver's wife of 30 years; severe injuries to their two children; and the unfortunate death of a teenage passenger in the striking vehicle. The clearly responsible party, i.e., Soriano, had only minimum insurance coverage through his parents' policy which provided for limits of $10,000 per person and $20,000 per occurrence. As expected, claims were prosecuted by the various wrongful death/survival beneficiaries and other injured parties. Prior to trial, Texas Farmers Insurance settled the wrongful death claim of the teenager passenger for $5,000, and offered the remaining $15,000 to the innocent driver and his family members. The settlement offer to the innocent driver and his family was rejected and a counter-demand was made in the amount of $20,000 (the amount of the original policy limits previously rejected). As expected, the claims brought by the innocent driver and his family proceeded to trial with the jury finding the driver (Soriano) negligent, which resulted in a substantial jury verdict and judgment in favor of the innocent driver and his family in excess of $172,000. Subsequently, the responsible driver (Soriano) agreed to assign his rights against the insurer to the innocent driver and his family in exchange for a covenant not to execute. The innocent driver and his family then proceeded to sue the insurer for negligence, gross negligence and the breach of the duty of good faith and fair dealing. This matter was subsequently called to trial with the jury finding Texas Farmers negligent and grossly negligent in the handling of these claims, holding that Texas Farmers breached the duty of good faith and fair dealing by failing to settle the claims of the innocent driver and family. The trial court proceeded to render judgment, awarding Soriano (and by assignment the innocent driver/family) actual damages in excess of $520,000, plus $5 million in exemplary damages.
The case then proceeded to the San Antonio Court of Appeals which found that there was some evidence that the settlement of the teenager passenger's wrongful death claim was unreasonable, negligent and made in bad faith. See Soriano v. Medina, 648 S.W.2d 426 (Tex.App.—San Antonio 1983, no writ). The Court of Appeals did, however, reform the judgment, reducing the amount of pre-judgment interest and ordered a remittitur of $4 million of the punitive damages awarded by the trial court. Id.
In concluding that there was no evidence in the record that Texas Farmers was negligent or that it breached a duty of good faith and fair dealing, the Texas Supreme Court reversed and rendered judgment that Soriano take nothing. In so ruling, the Court stated:
"We conclude that when faced with a settlement demand arising out of multiple claims and inadequate proceeds, an insurer may enter into a reasonable settlement with one of the several claimants even though such settlement exhausts or diminishes the proceeds available to satisfy other claims. Such an approach, we believe promotes settlement of lawsuits.
by Chris C. Pappas
Kane Russell Coleman & Logan PC
919 Milam Street Suite 2200 Houston, Texas 77002
Chris Pappas is the Managing Director of the Houston Office and practices in the Firm's Litigation Section. He has participated as lead counsel in jury trials throughout the State of Texas involving a wide spectrum of civil litigation for more than 30 years. This includes the representation of major institutional clients, corporations, individuals and insurers in a wide variety of complex legal disputes, including business/commercial litigation, construction claims, personal injury claims, oil/gas litigation, first and third party insurance disputes, labor/employment claims, hospitality/retail litigation and mass tort/product liability claims.
A graduate of the University of Houston College of Law, and the University of Texas-Austin, Mr. Pappas has been recognized by his peers as an accomplished trial attorney, which recognition includes the highest professional and ethical rating of AV "Preeminent" by Martindale-Hubbell, his selection by Thomson Reuters to their list of "Texas Super Lawyers" since 2005 and his selection as one of "Houston's Top Attorneys" by H TEXAS Magazine (2005-2012). Mr. Pappas serves and has served as Panel Counsel, Regional Trial Counsel, National Trial Counsel and Specialty Counsel for numerous institutional clients, corporations and insurance companies. References and resume are available upon request.