SW Legal Educational Publishing

Insurer Has Good Faith Duty to Minimize Insured's Liability
Description Insurance company demanded release of all claims and subrogation rights in drunk driving accident in which it was clear its client was at fault. Failure to settle in such circumstances could well be bad faith, an issue for the jury.
Topic Insurance
Key Words Good Faith, Subrogation, Release of Claims
C A S E   S U M M A R Y
Facts A drunk driver swerved into the opposing lane, killing the driver of an on-coming vehicle and severely injuring the driver's nine-year-old son, who incurred high medical expenses. The drunk driver, killed too, was insolvent. The limit of his liability insurance policy was $50,000 per incident. Insurer demanded that, before it would pay him, the injured boy's father release all claims against all parties and to destroy his health insurance company's subrogation rights for medical expenses by releasing them. A question of law regarding the rights of the insurance company was certified to the New Mexico supreme court.
Decision The insurer "may not have, as a matter of New Mexico law, satisfied its duty to treat its interests and the interests of its insured equally when it required a release of all claims, including subrogation claims, against its insured as a condition precedent to a policy-limits settlement when there was a substantial likelihood of recovery in excess of policy limits." The question of whether the insurer acted in bad faith is for the jury to determine.
Citation Dairyland Insurance Co. v. Herman, 1997 WL 836531 (Sup. Ct., N.M.)
954 P.2d 56 (Sup. Ct., N.M., 1998)

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