Strategies, Challenges, and Answers

In Deciding Whether To Settle A Claim, The Insurance Company Must Give As Much Consideration To The Interests Of Its Insured As It Gives To Its Own Interests

Landow v. Med. Ins. ExchThe former patient of a Las Vegas doctor sued him.  In their suit, the patient and his wife claimed that the doctor had misdiagnosed a cancerous tumor.

When it came time to talk settlement, the Plaintiffs demanded a settlement in excess of the policy limit.  However, the Plaintiffs said that they would accept the policy limit to resolve the case.

When the malpractice claim did not settle, the doctor sued his insurance company Medical Insurance Exchange.  The doctor alleged that the insurance company had acted in bad faith because he wanted the suit settled. In his suit, he alleged that he was afraid of the negative publicity and damage to goodwill that a malpractice judgment would have on his medical business.

In Landow v. Med. Ins. Exch., 892 F. Supp. 239, 240-41 (D. Nev. 1995), the court said:

[T]he litmus test for bad faith is whether the insurer, in “determining whether to settle a claim, [gave] as much consideration to the welfare of its insured as it [gave] to its own interests.” Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 818, 169 Cal. Rptr. 691, 620 P.2d 141 (1979). At issue is whether the insurer’s duty to consider the welfare of the insured includes a duty to consider injury to the insured that results from a decision to not settle.

The court ruled that the insurance company cannot limit its decision not to settle to the issue of an excess verdict.  Relying on the case of Bodenhamer v. St. Paul Fire & Marine Ins. Co., 192 Cal. App. 3d 1472, 1478-79, 238 Cal. Rptr. 177 (1987), the court said that

in determining whether to settle, the insurer has a duty to consider injury to the insured, such as emotional distress and injury to business goodwill that proximately flow from the failure to settle.

Landow, 892 F. Supp. 239, 241.

The malpractice case went to trial.  The verdict was against the doctor.  However, the insurance company settled the case before any judgment could be entered.  The insurance company argued that the doctor could not prove a claim for bad faith because since there was no judgment, there could be no bad faith damages.

The court disagreed with the insurance company’s argument.  It said:

Defendant’s post-verdict settlement does not bar Plaintiff from attempting to recover any damages for emotional distress and injury to business goodwill that he can prove. Whether Defendant breached its duty to settle, and whether Plaintiff was injured and suffered damages as a proximate result of the alleged breach remain issues for the jury to decide.

Id., at 242.

If you have further questions about bad faith claims, please contact Mike Mills at Bauman Loewe Witt & Maxwell.  He can be reached at 702.240.6060×114.  You can also email him at

About Michael Mills

Mr. Mills practices in the area of civil litigation and appeals, with particular experience in matters involving trucking liability, insurance defense, insurance coverage, premises liability, products liability and defense of personal injury. Mr. Mills is a member of the Trucking Insurance Defense Association, the Defense Research Institute Trucking Committee and the Nevada Motor Transport Association. Mr. Mills is licensed to practice before the Nevada Supreme Court and the Utah Supreme Court. He is also licensed to appear before the United States Supreme Court, the U.S. District Courts for the Districts of Nevada and Utah, as well as the U.S. Court of Appeals for the Ninth Circuit. Mr. Mills has created 3 Blogs for the benefit of the insurance industry. He serves as editor and publisher of the Nevada Insurance Law Blog, the Nevada Coverage and Bad Faith Blog and the Nevada Trucking Law Blog.

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