Liability insurance policies in the United States typically make no express contractual promise to settle.[2]
In California, "an insurer, who wrongfully refuses to accept a reasonable settlement within the policy limits is liable for the entire judgment against the insured even if it exceeds the policy limits."[3] California Insurance Code §790-790.15 states that the insurer has an obligation to attempt "in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear."[4]
A rationale for this duty is that "[w]hen an offer is made to settle a claim in excess of policy limits for an amount within policy limits, a genuine and immediate conflict of interest arises between carrier and assured."[5] "An insurer who denies coverage does so at its own risk. Such factors as a belief that the policy does not provide coverage, should not affect a decision as to whether the settlement offer in question is a reasonable one."[6] "It is the duty of the insurer to keep the insured informed of settlement offers."[7] "[A]n insurer potentially can be liable for unreasonably coercing an insured to contribute to a settlement fund."[8]
An insurer may not "discriminate in its claims settlement practices based upon" certain protected classes.[9]
The Texas Supreme Court ruled in G. A. Stowers Furniture Co. v. American Indemnity Co., that insurers can be held liable for negligently refusing a settlement within policy limits.[10]
