Bringing Reserve Up to Policy Limits Does Not Bring Down Insured
An outpatient surgical center alleged its medical malpractice insurer acted in bad faith by failing to settle a malpractice claim for the $1 million policy limit. The insured claimed the insurer’s refusal to settle within limits caused the plaintiff to become liable for $4.17 million in excess judgment. The insured failed to make the case for bad faith because the insurer’s claims representative, the insured's clinical staff, and attorneys representing the insured in the malpractice action all thought that it would not be found liable. Also the insured's president severely undermined its defense at trial. Notably, the fact that the carrier ultimately increased its reserves to the full policy limit prior to trial, did not, standing alone, establish a reasonable probability of liability in the malpractice action. Even worse for the insured, its president repeatedly urged the insurer not to settle the malpractice case.