U.S. District Court finds insurer's failure to settle within policy limits was not a breach of duty

Andrew Gallotto,  a boiler repairman, was severely injured when he was servicing a boiler at a building owned by Parkview Condominium Trust.  He sued Parkview.  Parkview's primary insurer, Granite State Insurance Company, retained insurance defense counsel to represent Parkview. 

The Granite State policy had a $1 million limit.  Great American Insurance Company provided excess coverage for losses up to $5 million above the Granite State policy. 

The insurance defense attorney hired by Granite State sent reports to  both Granite State and Great American. While his estimated value of the case changed somewhat during discovery, he generally opined that there was a 70 percent chance of a defense verdict because of Gallotto's comparative negligence.  Close to trial he opined that the case had a settlement value of up to $1 million, but he did not believe that Gallotto would accept that offer. 



During trial Gallotto offered to settle in the $900,000 range.  Granite State counteroffered that the parties enter into a high-low agreement with a $200,000 low and a $1 million high.  Gallotto rejected the counteroffer.  He later insquired whether Granite State would settle for $650,000, but stated that the did not have authority from his clients to lower his demand to that.  Granite State subsequently increased its offer to $300,000.  Gallotto rejected that offer.

Gallotto then proposed a high-low of $300,000 to $1.5 million, which would require participation from Great American.  Great American instead demanded that Granite State settle the claim within the primary policy limit. 

A trial verdict resulted in an award of $7.5 million to Gallotto.  The two insurers paid their policy limits. 

Great American then sued Granite State, alleging that it had breached its duty to the insured and to Great American (standing in the insured's shoes), by failing to settle Gallotto's claim prior to the jury verdict.

In Great Am. Ins. Co. v. Granite State Ins. Co., __ F.3d __, 2019 WL 1435912 (D. Mass.), the United States District  Court for the District of Massachusetts found for Granite State. 

The court noted that the test for liability for an insurer's negligent failure to settle a case is whether no reasonable insurer would have failed to settle within the policy limit.

The court held that it was not unreasonable for Granite State to have rejected the demand for $900,000 made early in the trial and to instead consider other possible arrangements within  that range.  "An insurer's obligation to exercise good faith toward its insured does not require it to roll over and play dead vis-a-vis the claimants.  . . .  Negotiation is an art, not a science." The court held that the offer of a $200,000/$1 million high-low had been "far from an unreasonable offer," especially in light of the recommendations of insurance defense counsel.  "An insurer is entitled to consider the advise of trial counsel in deciding whether to settle a case and at what price."