April 2011 Bad Faith Cases: Relationship of Good Faith and the Right of Insurer to Settle (Superior Court)

In Step Plan Services, Inc. v. Koresko, during the course of its opinion, the Superior Court observed that: “If the insured freely entered into an insurance contract that gives the insurer the express right to investigate and settle a claim, a challenge to the insurer’s decision must show more than just that the insurer settled the claim without the insured’s consent. Although an express right to settle is not absolute, judicial deference is given to the insurer’s decision to settle within the policy limits. Such settlements are actually favored, if made in good faith.”  At that point, the Superior Court includes a footnote stating that:  “In fact, established Pennsylvania legislative policy provides that insurers may not delay settling third-party claims just because the insured objects. See 40 P.S. § 1171.5(a)(10)(xv). …. Section 1171.5 of the Unfair Insurance Practices Act specifically provides that an insured’s objection cannot be the sole basis for refusing to pay a claim unless: (a) The insured claims sovereign, eleemosynary, diplomatic, military service, or other immunity from suit or liability with respect to such claim; (b) The insured is granted the right under the policy of insurance to consent to settlement of claims; or (c) The refusal of payment is based upon the insurer’s independent evaluation of the insured’s liability based upon all available information. See 40 P.S. § 1171.5(a)(10)(xv)(a)-(c).
The Court then draws a comparison to the leading case of Birth Center v. St. Paul Companies, Inc., for the point that an “insurer’s refusal to settle claim within policy limits must be justified by ‘bona fide belief…that it has a good possibility of winning’ at trial; refusal to settle can expose insured to damages in excess of policy limits and insurer might be subject to liability for full amount of excess verdict as well as claims of bad faith and unfair practices; risk of liability in excess of policy limits to both insured and insurer works as incentive to settle).”  The court goes on, “[t]hus, the presumption in favor of settlement can withstand an insured’s objection. 40 P.S. § 1171.5(a)(10)(xv). Additional persuasive authority similarly favors settlement, even if the insured wants to go to trial.
Date of Decision:  December 15, 2010
Step Plan Servs. v. Koresko, No. 1236 EDA 2009, No. 1342 EDA 2009, Superior Court of Pennsylvania, 2010 PA Super 232, 12 A.3d 401, 2010 Pa. Super. LEXIS 4615, (Dec. 15, 2010), reargument denied by Step Plan Servs. v. Koresko, 2011 Pa. Super. LEXIS 48 (Pa. Super. Ct., Feb. 22, 2011).