Sixth Circuit Affirms Summary Judgment for Insurer on Bad Faith Claims Where Insurer Offered to Settle Claims for Policy Limit in Exchange for Release and Indemnification of Insured

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United States Court of Appeals for the Sixth Circuit rules that insurer’s offer to settle claims for policy limit in exchange for release and indemnification of insured strikes proper balance between competing duties of good faith to plaintiff and insured under Kentucky law.

Plaintiff Joseph Shaheen filed a wrongful death suit against Burgess Harrison Yonts, the alleged driver of a vehicle insured by Progressive Casualty Insurance Company, and others after Yonts allegedly struck and killed pedestrian Nadia Shaheen.  Following Yonts’s conviction in a related criminal proceeding, Progressive offered plaintiff the full policy limit of $250,000 in exchange for a release and indemnification of its insured.  Plaintiff did not accept the offer, but the case ultimately settled two years later for the $250,000 policy limit and a payment of $100,000 by Yonts’s parents in exchange for a covenant not to collect from Yonts. Although Progressive paid the policy limit, plaintiff pursued a statutory bad faith claim against Progressive.  The District Court granted summary judgment for Progressive and plaintiff appealed.

The Sixth Circuit affirmed in Shaheen v. Progressive Casualty Insurance Co., No. 15-5863 (Dec. 15, 2016)1. Under Kentucky’s Unfair Claims Settlement Practices Act, an insurer owes a duty of good faith to both the insured and the party suing the insured.  Among other things, the statute requires insurers to attempt “in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.” Plaintiff argued that Progressive’s settlement offer was not made in good faith because it knew plaintiff would not release and indemnify Yonts while the civil action was pending.  The Sixth Circuit disagreed, finding that Progressive “struck a balance between its competing duties of good faith – it made plaintiff an offer of the full policy limit in an attempt to settle the claim once ‘liability ha[d] become reasonably clear’ while also protecting the interests of its insured by conditioning payment on a full release.” The Sixth Circuit emphasized that the statute requires only that “insurers make a good faith effort to reach a ‘fair and equitable’ settlement of a claim ‘ in which liability has become reasonably clear’ – not simply to pay on such a claim.”  In this case, the court found that “unconditionally paying plaintiff the full policy limit would have settled nothing, as Yonts would have remained a defendant indefinitely in plaintiff’s civil action and vulnerable to an excess judgment.”


1. The Sixth Circuit’s decision was not recommended for publication.

 

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