BREACH OF FIDUCIARY DUTY FOR FAILING TO SETTLE WAS QUESTION FOR THE JURY (New Jersey Federal)
The insured claimed the carrier breached its fiduciary duty in failing to consider his interests when settling the underlying action, leaving him exposed while other insureds were released. The court denied the insurer’s summary judgment motion.
Under New Jersey law, an insurer owes a duty of diligence and good faith in effecting settlements. This is not only a contractual duty, but also a fiduciary duty. By controlling the right to settle, the insurer bears the burden “to observe ordinary diligence in performing that power when in the exercise of it.” This is “the most urgent duty to act in good faith and with diligence in attempting to arrange a possible settlement.”
The diligence, however, is ordinary diligence not extraordinary diligence. Thus, the insurer must use “ordinary care to ascertain the facts on which its performance depends if he has not already done so.” “This duty [is] of particular importance [when] the insured [i]s personally liable for any damages in excess of the policy limit.” Proving this breach of good faith only requires proving a breach of fiduciary duty, without additionally proving malice or will.
In this case, material issues of fact remained and summary judgment was not appropriate. The court did not follow the insurer’s focus on its lack of a duty to protect all insureds, where the non-settling insured claimed the carrier knew or should have known about his exposure as an indemnitor, thus demonstrating a lack of diligence. The court agreed that discovery into the insurer’s settlement of the underlying claim, and expert testimony, were still needed; and that the ultimate issue was one for the factfinder on a full factual record.