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Negligent Failure to Settle

The highly competent defense counsel you have hired to defend your insured in a case pending in Greene County, Alabama, which has been referred to in the past as "Tort Hell" by several business publications, has just provided you with a settlement demand from plaintiff's counsel which is within policy limits. Defense counsel indicates that the settlement demand is very reasonable given the facts of the case. However, you think that the plaintiff and their lawyer are liars. You do not believe the accident was your insured's fault, and you also believe that the plaintiff is lying about the extent of their injuries. You tell defense counsel that plaintiff's counsel can "go climb a rope" because you are never going to pay that much money to settle this case.

After hearing this, defense counsel calls to inform you that your insured would like to settle the lawsuit. Certainly you are within your rights to refuse to settle what you consider to be a frivolous claim. Or are you? Could your decision not to settle the case within policy limits expose your company to liability beyond the limits of the insurance policy at issue? Failing to properly investigate claims and consider valid settlement offers can lead to exposure far beyond the limits of the policy at issue.


The problem with any negligent and/or wanton failure to settle claim is that the courts of Alabama have not delineated a clear cut test the insurer must follow to protect itself under the law.

The issue of negligence is always going to be a jury question. The only clear cut rule in negligent failure to settle cases relates to the accrual of the action. Until there has been an excess verdict rendered against the insured, no cause of action for negligent failure to settle will arise.

In defending claims of negligent failure to settle, the best defense an insurer can put forth occurs long before suit is filed. Ideally, your file reflects a detailed investigation and analysis of both the liability and damage issues in the case. Please refer to the factors (see below) set forth in State Farm Mutual Auto Insurance , 554 So. 2d at 391 (quoting Garner v. Am. Mut. Lia. Ins. Co., 323 A.2d 495 (1974). If these factors are documented and given due consideration, an insurer has the opportunity of winning the case.


Factors to Consider
1) the view of the carrier or its attorney as to liability;
2) consideration of the anticipated verdict range, should the decision be adverse to the insured;
3) the strengths and weaknesses of all of the evidence;
4) the verdict history of the particular geographic area in similar cases; and the relative appearance, persuasiveness, and likely appeal of the claimant, insured, and all other witnesses at trial.

Contributing Author:

J. Michael Bowling
J. Michael Bowling, Shareholder
Email Address
Direct Line 205-278-7070
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This client alert is provided solely for educational and informational purposes. It is not intended to constitute legal advice. No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers.