Insurer must pay excess consent judgment for bad-faith failure to settle for policy limit

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Eight months later, Besel and Ralston settled. Besel covenanted not to enforce the judgment against Ralston’s personal assets. In return, Ralston consented to a $175,000 judgment and assigned to Besel all of his rights of coverage and bad faith against Viking. Some three months later, Viking paid Besel its $25,000 policy limits.

Besel then sued Viking alleging bad faith and similar claims, seeking the $150,000 balance of the $175,000 consent judgment. Both Viking and Besel moved for summary judgment. The trial court dismissed most of Besel’s claims and held that any bad-faith damages were limited to the $25,000 policy limit, which Viking had paid already.

Besel appealed. The Court of Appeals reversed, holding that Viking’s bad faith could render it liable for more than its policy limit, but failing to suggest any criteria by which damages could be measured. The Supreme Court accepted review to determine that measure of damages.

Viking argued that Ralston had suffered no harm because Besel had promised not to execute the judgment against him, so that there was no compensable claim for Ralston to assign to Besel. The Besel Court disagreed, adopting as its holding earlier dicta that when an insurer acts in bad faith, "it is in no position to argue that the steps the insured took to protect himself should inure to the insurer’s benefit."

The Besel Court held that the face amount of the consent judgment is enforceable if it is reasonable, applying the same criteria as those that courts apply when weighing the reasonableness of settlements in contributory-fault situations. Those factors include the claimant’s damages; the merits of the claim and defenses; the released person’s relative fault; the risks and costs of continued litigation; the released person’s ability to pay; and any evidence of collusion or fraud in the settlement. But this ignores that as between claimant and insured, a consent judgment is almost always reasonable because both achieve their objectives — the claimant wants the largest possible consent judgment, and the insured wants to avoid personal liability.

The Lee Smart Quarterly is a publication of the law offices of Lee, Smart, Cook, Martin & Patterson, P.S., Inc. for clients and others. It is intended as general information only and is not to be construed as legal advice. You should consult an attorney if you have any specific legal questions.

Editor: Jeffrey P. Downer	Eml: jpd@leesmart.com
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