While courts generally hold that insurers must act reasonably and in good faith when deciding to settle claims, how to best handle the above scenario largely depends on the facts of the case, and the law in a particular jurisdiction that applies to the policy, as different courts favor distinct approaches including:

Settling the claims by pro rating the policy limits based on several factors, including the severity of the injuries sustained/damages.
Following the "first to judgment rule," in which the first claimant to receive a judgment is entitled to be paid.
Settling as many claims as possible (regardless of the severity of the injuries).
Settling as many of the high exposure claims first.
Settling the claims based on when they are submitted (first in, first paid).

Regardless of the approach, certain actions may be considered when handling such claims to minimize the risk of alleged bad faith. These include reviewing the policy language governing the insurer's duty to defend and right to settle; evaluating which state's law applies, as the proper methodology may depend on the applicable law; investigating all of the claims and documenting your efforts; 4) placing the insured on notice that there may be insufficient limits to cover the claims, and that the insured may wish to retain independent counsel to protect its interest; 5) keeping the insured informed about the specifics of the claims and related offers/demands; 6) notifying all claimants of the situation and attempting a global settlement of all claims within the policy's limits (with a release for the insured); 7) providing the insured with an opportunity to assist with funding any reasonable settlements considering the available limits; 8) minimizing or eliminating possible excess judgments against the insured by way of reasoned settlements; and 9) considering court intervention by interpleading the policy limits, where permissible.

Special Reports /

Handling multiple claimants & insufficient policy limits scenarios

Related Stories

Recommended For You