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Juggling Multiple Claims With Inadequate Limits

October 15, 2003

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey’s Litigation Report: Insurance Bad Faith, Vol. 17, #12, p. 15 (October 15, 2003). © Copyright Butler 2003.

Everyone knows that an insurer has to act in good faith to its insured when settling claims with third parties. However, when an insurer is faced with multiple claims exceeding the limits of coverage, the insurer is faced with tough choices. Insurers are frequently called upon to defend these choices in “bad-faith” actions. Can an insurer get summary judgment on the issue of “bad-faith” in multiple claimant/inadequate limits cases? Will the insurer be forced to litigate the “bad-faith” issue through a trial? This article attempts to answer these questions and provide guidance to insurers on meeting their duty of good faith when met with multiple claims, the sum total of which exceed policy limits.

I. The Right And Duty To Settle Within Policy Limits

As a general rule, if the insurer acts with reasonable conduct, the insurer does not act in bad faith when it settles a claim within policy limits.(1) This is true even if the insurer settles over the insured’s objection.(2) So what is reasonable conduct?

II. The Florida Supreme Court Is Asked To Provide Guidelines For “Good Faith”

As this article is headed to publication, Florida’s Fourth District Court of Appeal has certified the following question to the Florida State Supreme Court in Farinas v. Florida Farm Bureau General Insurance Co.(3)

In an automobile accident scenario involvhttp://butlerlegastag.wpengine.coing clear liability, multiple claims, and inadequate policy limits, does insurance good faith law require that an insurer reasonably investigate all claims prior to payment of any claim, keep the insured informed of the claims resolution process, and attempt to minimize the magnitude of possible excess judgments against the insured?(4)

Sounds like a trick question . . . doesn’t it? Who would answer this question “No?” The more interesting questions are (1) how does an insurer, in good faith, apply its multi-faceted duties to the insured in multi-claimant situations, and (2) whether these good faith duties always involve issues of fact that cannot be resolved by summary judgment? When an insured is left with an excess judgment, do these situations (i.e., multiple claimant with inadequate limits cases) inevitably require a jury trial on the “bad faith failure to settle” allegations? The Farinas decision follows the decisions of Boston Old Colony v. Gutierrez,(5) Liberty Mutual Insurance Co. v. Davis,(6) Harmon v. State Farm Mutual Automobile Insurance Co.(7) and Shuster v. South Broward Hospital District Physician’s Professional Liability Trust.(8) Each merits discussion.

In Florida, the standard of care an insurer must exercise in settling claims is “the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business.” Boston Old Colony v. Gutierrez.(9) Under this obligation, an insurer must give “fair consideration” to settlement offers which are reasonable and settle where a “reasonably prudent person, faced with a prospect of paying the total recovery, would do so.(10)” The duty of good faith requires that an insurer (1) advise the insured of settlement opportunities, (2) advise the insured of the probable outcome of litigation, (3) warn the insured of the possibility of an excess judgment, and (4) advise the insured of what the insured may do to avoid such a judgment.(11)

Under current Florida law, whether a settlement is fair and reasonable is a fact question to be decided by a jury. Accordingly, the insurer should be ready to present medical evidence showing the nature and extent of injury and factual evidence of liability which demonstrate that the settlement was within an acceptable range. However, an insurer also has an obligation to settle as many claims as possible. Liberty Mutual Insurance Co. v. Davis.(12) Davis involved a multiple automobile accident which left seven people injured. The responsible party was insured by Liberty Mutual under a 10/20 policy. The policy limits were inadequate to meet all claims. Five of the seven claimants offered to settle for the $20,000 limits. Liberty Mutual’s legal counsel advised it to settle the claims for fair value on a first come first serve basis. Liberty Mutual declined out of concern that settling for the entire policy limits would leave its insured exposed to recovery by the two other claimants. The Davises filed a lawsuit and again presented Liberty Mutual with an opportunity to settle with the Davises for policy limits. Liberty Mutual declined out of concern that it would become liable to other claimants in a bad faith suit if its limits were exhausted.

Judgment was entered in favor of Mr. and Mrs. Davis for $48,500 – an amount in excess of policy limits. The Davises then brought a bad faith action against Liberty Mutual. At the trial of the bad faith action, Liberty Mutual argued that it was entitled to a directed verdict as no Florida court had permitted an insurer to exhaust its policy limits by preferential payments to some claimants but not to others.(13) The trial court denied the motion for directed verdict and found Liberty Mutual liable for the excess verdict. On appeal, the Fifth Circuit Court of Appeal affirmed finding that while the existence of other claimants was relevant to the determination of whether Liberty Mutual had acted in good faith, it did not entitle Liberty Mutual to a directed verdict in its favor.(14) The Davis court stated that when multiple claimants are involved and only minimal policy limits are available, the funds should not be exhausted without an attempt to settle as many cases as possible.(15) Even so, the court concluded that “efforts to achieve a prorated, comprehensive settlement may excuse an insurer’s reluctance to settle with less than all of the claimants, but need not do so. The question is for the jury to decide.(16)”

In 1970, shortly after Davis, the Florida courts decided their first bad faith case in a multiple claimant context. Harmon v. State Farm Mutual Automobile Insurance Co.(17) In Harmon, the court was asked whether an insurance company may settle with two insureds in the full amount of policy limits, thereby exhausting the limits of the policy to the exclusion of other insureds. The Florida Second District Court of Appeal held that when faced with multiple claims from one accident, the liability insurer has the right to enter into reasonable settlements with some of the claimants, regardless of whether the settlements deplete or exhaust the policy limits.(18) However, the court did not expand on the definition of reasonableness.

In 1992, more than two decades later, the Florida Supreme Court considered a bad faith claim filed by an insured who alleged the insurer entered into settlements without fully investigating the claims. Shuster v. South Broward Hospital District Physician’s Professional Liability Trust.(19) The Shuster court noted that the policy at issue contained a provision allowing an insurer to make such investigation and settlement of claims as it “deems expedient.” The Court commented that the act of settling a claim, regardless of the merits, cannot be considered bad faith due to the “deems expedient” clause. But, Florida’s high court cautioned that this clause is not absolute. “[W]hen there are multiple parties to a suit, we do not believe a ‘deems expedient’ clause will protect an insurer who, in bad faith, indiscriminately settles with one or more of the parties for the full policy limits, thus exposing the insured to an excess judgment from the remaining parties.(20)”

In a 2003 decision, the Florida Fourth District Court of Appeal addressed the impact of Boston Old Colony, Davis, Harmon and Shuster in a multiple claimant bad faith case. Farinas v. Florida Farm Bureau General Insurance Co.(21) The extracontractual action involved an automobile accident which injured seven and killed five people. The policy for the responsible person had limits of $300,000 which were inadequate to cover all claims. The Farinas court noted the following rules: (1) Under Boston Old Colony, an insurer must fully investigate all claims, (2) under Davis, an insurer should seek to settle with as many possible claimants as it can, (3) under Harmon, an insurer has primary control but settlements have to be “reasonable,” and (4) under Shuster, an insurer must avoid indiscriminate settlement of select claims.(22) Ultimately, the Farinas court, in reversing summary judgment, held that all of these issues were fact questions to be resolved by a jury.(23) If the Florida Supreme Court approves this ruling, then insurers will be forced to litigate every multiple claimant “bad faith” case to verdict or acquiesce to extortionate settlement demands.

III. The Rules Applicable To Multiple Claimants In Other Jurisdictions:   Depleting Policy Limits Without Settling All Claims

Some courts approach the problem of multiple claims with inadequate policy limits by applying one of two general rules: “First to Judgment” and “Pro Rata Distribution.” Other courts recognize a rule we will call “First to Settlement.” The courts also recognize a rule we will call “Knowledgeable Distribution.” Ultimately, it is all a question of what is fair, reasonable and just to everyone involved.

1.   First to Judgment

The First to Judgment rule provides that the first claimant to obtain a judgment against the insured will have priority to the policy funds available. Gerdes v. Travelers Insurance Co.(24) However, this rule is problematic in that it allows the claimant to collect the proceeds simply because it was first to obtain a judgment which may leave the insured exposed to further and more critical claims. The rule also contradicts public policy promoting settlement before litigation.

2.   Pro Rata Distributions

Pro rata distribution allows insurance proceeds to be paid based on the amount of damage each claimant has endured. For example, in Allstate Insurance Company v. Ostenson,(25) a multiple automobile accident left three individuals injured. The responsible party had insurance limits of 25/50. The policy limits were inadequate. The court noted that where several claims arising from one incident are asserted in one suit against an insurer with inadequate limits, “the proceeds are to be distributed on a pro rata basis in accordance with the amount of damage suffered by each claimant.(26)” The court further held that each claimant’s portion of pro rata recovery is limited by the maximum “per person” liability proceeds available under the policy.(27) Accordingly, the “Pro Rata” approach apportions available limits based on the severity of the respective claims.

This approach has been approved by courts whether or not the claims are joined in one suit.(28) However, the theory is problematic because some claimants may wait years before presenting a claim. This typically occurs when the claimant wants to “wait-and-see” how severe and permanent his or her physical injuries may be. There may be no way of knowing whether all viable claims have been presented until all applicable statutes of limitation have run. Moreover, one or more claimants may demand insurance proceeds before other claims can be timely investigated. Under the Pro Rata rule, reasonable settlement opportunities may pass, and the insured, therefore, may be subject to greater excess exposure.

3.   First to Settlement

The majority rule – First to Settlement – is that an insurer may settle some of the multiple claims even if that settlement significantly lowers or even depletes policy limits. Texas Farmers Insurance Co. v. Soriano.(29) The comparative severity of the injuries to various claimants is not always the deciding factor. It all comes down to what is reasonable when confronted with an opportunity to settle some (but not all) claims. An insurer may be required to settle less severe claims – even while depleting policy limits – to act in good faith.

In Soriano, the insured, Richard Soriano, collided head-on with another vehicle. Richard Soriano’s passenger, Lopez, was killed. Three of the four occupants of the other vehicle, the Medinas, were killed. Another individual in that vehicle was severely injured. The insured had a 10/20 policy which was inadequate to cover all of the potential claims. Soriano’s insurer initially tried to settle with the Medinas and offered the entire policy limits. The Medinas declined.

Both the Lopez and Medina families brought suit against Soriano which were consolidated for trial. During jury selection, Soriano’s insurer settled the Lopez matter for $5,000. No notice of the settlement was given to the Medina family. Soriano’s insurer then offered the remaining $15,000 to the Medinas who demanded the full $20,000. The matter proceeded to trial. Judgment was obtained for $172,187 against Soriano. In exchange for a covenant not to execute on the judgment, Soriano assigned the rights he had against his insurer to the Medinas. The Medinas brought an action alleging that Soriano’s insurer was negligent in handling the Medinas claim. Judgment was entered against Soriano’s insurer for $520,577.24 in actual damages and prejudgment interest, and $5 million in exemplary damages.

The Texas Intermediate Court of Appeal held that an insurer is obligated to pay the most severe of claims first or be subject to a claim for extra-contractual damages.(30) While there was no question that the limits were inadequate, it was conceded that the injuries received by the Medinas were the most severe.(31) The court of appeal stated that the Lopez and Soriano families were friends, so it was probable that the Lopez family had no intention of pursuing a lawsuit against the Sorianos.(32) This comment is odd since the Lopez family had already brought suit and did not settle until the onset of trial. Nevertheless, the court placed little value on the Lopez claim because Lopez was an adult child, so his parents could not recover for the loss of his love and affection.(33)

In a lengthy discussion, the Supreme Court of Texas reversed, holding there was no evidence of any negligence or bad faith by Soriano’s insurer.(34) At the supreme court level, the Medinas argued that the Lopez settlement was negligent because it reduced the amount of limits available to the Medinas and thereby exposed the insured to an excess judgment. The Medinas argued that the insurer “must weigh the seriousness of the claims and attempt to settle those claims within policy limits that are the greatest threat of liability for excess judgment.(35)” Soriano’s insurer argued that it had no obligation to weigh the “comparative gravity” of the claims and that as a matter of law there was no evidence it was negligent because the settlement with Lopez was reasonable.

The Texas high court reiterated the standard under Texas law that insurers must “exercise that degree of care and diligence which an ordinary prudent person would exercise in the management of its own business in responding to settlement demands within policy limits.(36)” The Soriano court noted that the insurer would not be negligent in failing to settle unless (1) it negligently rejected a demand within limits, or (2) the settlement reached was not reasonable.(37) When Soriano’s insurer received the Lopez settlement demand of $5,000, it was required to respond to that demand with reasonable care.(38) If it declined to settle with Lopez in an effort to renew its proposal to pay limits to the Medinas family, Soriano’s insurer would then clearly face a breach of its obligation for failing to settle the Lopez wrongful death claim.(39) The court then concluded that when faced with a settlement demand arising out of multiple claims with inadequate proceeds, an insurer may enter into a reasonable settlement with one of several claimants, even though the settlement will exhaust or diminish proceeds available to pay other claims.(40) This approach promotes settlement of lawsuits and encourages claimants to bring prompt claims.(41)

Other states similarly encourage the settlement of some claims while the opportunity is available. For example, in New Jersey, claim was brought against an insurer to show cause why it should not be prevented from finalizing a settlement which would deplete funds available to other injured parties. Liguori v. Allstate Insurance Co.(42) The court concluded that the mere fact that the pending settlement would constitute a substantial depletion of policy proceeds does not, standing alone, raise any element of bad faith.(43)

Similarly, in Georgia, an insurer settled claims with some claimants while lawsuits were pending by other claimants. Allstate Insurance Co. v. Evans.(44) Allstate tendered the remaining limits in equal payments to each judgment creditor. These judgment creditors brought suit to hold Allstate liable for the entire judgment amounts. However, the court stated “[a] liability insurer may, in good faith and without notification to others, settle part of multiple claims against its insured even though such settlements deplete or exhaust the policy limits so that remaining claimants have no recourse against [the] insurer.(45)” The court reasoned that if the rule were otherwise, an insurer would be precluded from settling any claims and would be required to wait for all claims to be reduced to judgment, no matter how favorable to its insured the terms of a proposed settlement might be.(46) If that were the rule, it would promote unnecessary litigation and increase the likelihood that the insured would be left with a judgment in excess of his policy limits.(47)

A similar holding was reached by the First Circuit Court of Appeal, applying Rhode Island law. Voccio v. Reliance Insurance Companies.(48) The case involved an automobile accident in which a fifty-eight year old woman was killed and an eleven year old child lost the lower part of both of his legs. The responsible party had policy limits of only $25,000. The insurer settled with the decedent for one-half the policy limits. During settlement negotiations, the insurer met with counsel for both the decedent and the child seeking suggestions on how to divide the insurance proceeds. Counsel for the child refused to participate in any equitable division of the proceeds, and consistently refused to make any offer of settlement below policy limits.

Following an excess verdict in favor of the injured child, the child brought a bad faith action against the insurer. The court noted that had the insurer refused to settle with the decedent, the insurer may have been faced with two lawsuits in excess of limits.(49) “Under these circumstances, it is difficult to see how splitting the insurance proceeds and settling [the decedent’s] claim for $12,500 could constitute ‘bad faith.'(50)”

In Louisiana, when faced with multiple claims which have the potential for exceeding policy limits, an insurer may settle with some claimants and reduce, or even exhaust, policy limits, as long as the insurer acts reasonably. Carter v. Harrison.(51) This case involved an automobile accident which left five individuals injured. The limits of 10/20 were inadequate to cover all claims. Suit was filed by all injured parties. While the insurer proposed settlement with all of the injured parties, only two accepted.(52) The insurer kept the insured informed of the developments and the possibility of his potential liability if the remaining parties would not settle.(53) The insured then deposited the remaining proceeds with the court.(54) The court found that there was insufficient evidence to find that the insurer acted in bad faith and noted that the insurer “was able to eliminate its insured’s exposure for two of the five claims pending against him.(55)”

In Illinois, an insurer can settle with some claimants without informing other claimants of the settlement which reduces, or even depletes, available limits. Haas v. Mid America Fire & Marine Ins. Co., Ill. Div.(56) After the insurer settled with other claimants, it offered the remaining limits to the plaintiff.(57) The plaintiff refused, proceeded to trial, and then sought proceeds in excess of the remaining limits.(58) The court dismissed plaintiff’s bad faith complaint. It noted that the plaintiff had made no attempts at settlement, so the insurer could reasonably conclude that the insured had a good defense against the plaintiff’s injury claim. Thus, the insurer had no duty to inform the plaintiff of the settlement negotiations with other claimants.(59)

This holding, however, should be applied with caution. The court noted, in affirming the dismissal of plaintiff’s complaint:

At least in some specific instances, where the facts would justify such conclusion, a liability insurer may owe a duty of good faith to the various claimants, to the extent of notifying them, at a minimum, of the proposed settlement negotiations. On the basis of the amended complaint in this cause and the precedents on the issue, however, no such facts are alleged in the amended complaint before us.(60)

Applying Maryland law, a United States District Court has held an insurer, after settling some of multiple claims in good faith, is entitled to a judgment releasing it from further liability after paying the remaining policy limits into the court. Hartford Casualty Insurance Company v. Dodd.(61) In that case, two were left dead and several others severely injured in an automobile accident caused solely by the insured.(62) Liability limits (10/20) were grossly inadequate to cover all claims.(63) The insurer offered to settle with all claimants, although some refused and proceeded to trial.(64) The insurer did settle with one of the claimants for $10,000, and deposited the balance of policy proceeds into the registry of the court. The court recognized that the failure to settle with one or more claimants would not have substantially increased the danger to the insured of a judgment or judgments over policy limits.(65) It reasoned that failing to settle with the claimant with whom it had settled would likely have exposed the insured to yet another judgment beyond policy limits.(66) The court concluded that the settlement with the one claimant was made in good faith and the remaining claimants would divide the balance of the policy limits among themselves “on the basis of their respective damages.(67)”

4.   Knowledgeable Distributions

Although the majority rule is that an insurer may settle some multiple claims even if that settlement significantly lowers or even depletes policy limits, some courts have found an insurer to have acted in bad faith when settling some claims involving multiple claimants.

Such a notable case is Farmer’s Insurance Exchange v. Schropp.(68) In Schropp, the Kansas court pinpointed three alternatives an insurer could have selected in an effort to avoid a bad faith finding when refusing to settle with multiple claimants: (1) the insurer could have notified all potential claimants involved that the value of the claims would likely exceed policy limits and invite them to participate collectively in efforts to dispose of the available proceeds; (2) the insurer could have attempted to settle claims within the policy limits as they were presented; or (3) the insurer could have promptly and in good faith commenced an interpleader action and paid its policy limits into court.(69) The first of these alternatives is preferable, where the claimants are readily available, and such a procedure may avoid litigation.(70) The insurer in Schropp did none of these.(71) The insurer in Schropp investigated promptly, but the claim handler miserably failed to follow through with reasonable attempts to settle. With regard to the most seriously injured, while the insurer had offered to pay his medical claims in advance, it did not do so. Although the insurer stated to that claimant’s attorney that a settlement offer would be forthcoming, it never was made. In addition, when that attorney made a settlement demand for limits, the insurer refused, even though that party’s medical expenses alone exceeded the limits. Moreover, it was eight months after the incident before the insurer paid its limits into the registry of the court for proper distribution. Finally, although liability was clear, the insurer disputed liability for more than four years after the accident. The court found that there was substantial competent evidence to support the jury finding that the insurer acted negligently and/or in bad faith in handling the settlement procedure.(72)

Similarly, the Second Circuit Court of Appeal in Brown v. United States Fidelity and Guaranty Co.(73) found that all of the injured parties were willing to participate in a global equitable settlement, but the insurer settled some of the claims unilaterally. The insurer reached a settlement with one claimant without regard to any of the prior negotiations and the consequences of reducing the available limits. The settlement ignored the relative seriousness of the injuries sustained by the parties. The insurer then settled with yet another of the claimants, leaving only $6,000 remaining, which left it unlikely that settlement was possible with the remaining two claimants who were the most seriously injured. This evidence raised a question for the jury as to the insurer’s bad faith in attempting to settle some of the claims within policy limits.(74)

Under Puerto Rican law, the United States Court of Appeal First Circuit found an insurer to be liable beyond policy limits for breaching its duty of good faith by failing to accurately inform the insured of remaining limits after settling with some of multiple claimants. Fireman’s Fund Insurance Company v. Santoro.(75) So while an insurer may settle within policy limits when reasonableness so demands, the involvement of all claimants and the insured is crucial.

IV.   Proving “Good Faith” on Summary Judgment

Under Farinas, the question of whether an insurer reasonably settles claims involving multiple claimants with inadequate limits is always submitted to a jury. This is one of the key issues that should be reviewed on appeal by the Florida Supreme Court. In Texas, the same questions of good faith may be disposed on summary judgment. See, e.g., Carter v. State Farm Mutual Automobile Insurance Co.(76) In Carter, there was a multiple automobile accident which left several individuals injured or dead. The tortfeasor had limits of 50/100. The insurer sent a letter to the attorney for claimant Carter, suggesting that all potential claimants meet for a settlement conference. Carter’s attorney replied that a settlement conference was premature as the parties were still receiving medical treatment, even though the insurer explained that it had received a demand for $50,000 from another party which required an answer that day. The insurer accepted the $50,000 demand which decreased the available limits to $50,000. It then notified the potential claimants of that settlement by letter. Carter and one of the other claimants, Goodman, then each demanded $50,000 to settle their respective claims. The insurer stood by its decision to pay the first claimant $50,000. Nonetheless, it encouraged Carter and Goodman to participate in a settlement conference. During the conference, Carter’s attorney refused to consider settling his claim for anything less than $50,000. The insurer then settled two other claims for $45,000 leaving $5,000 in policy limits. The only two remaining claimants were Carter and Goodman. The insurer unconditionally tendered a check for $4,000 to Carter and $1,000 to Goodman.

Against a bad faith claim brought by Carter, the insurer moved for summary judgment which was granted. The court of appeal affirmed and held:

In order to establish liability for breach of the duty of good faith and fair dealing [a claimant] must show that [the insurer] denied or delayed payment of his claim when liability to pay was reasonably clear, and that [the insurer] knew or should have known it was reasonably clear.(77)

The court noted that the insurer had not delayed whatsoever but to the contrary requested that the parties come together for a settlement conference to determine a fair division of the policy proceeds.(78) It was Carter’s attorney who insisted it would be premature to settle and who refused to accept settlement of any amount less than the remaining policy limits.(79) Accordingly, the insurer “did not act unreasonably in settling with the two remaining claimants who were still willing to negotiate the settlement of their claims.(80)” The court noted that when an insurer’s settlement with one of several competing claimants is reasonable, there is no violation of good faith, even if the policy proceeds are exhausted as to other insureds.(81) And, the Texas court recognizes that this issue of reasonableness may be determined without resort to a trial.

Addressing the reasonableness of settlements which reduce or deplete available limits in a multiple claimant situation on summary judgment is good policy because it promotes both settlement and judicially economy. When an insurer involves all claimants in the settlement negotiation by inviting their collective cooperation, and informs all claimants of the likelihood of inadequate limits, the insurer acts reasonably.(82) In Texas, when insurers have done this, and received settlement demands from some claimants, the insurer’s obligation of good faith requires that they accept these demands even when it reduces or exhausts available limits.(83)

The standards of good faith in both Texas and Florida are essentially the same. In each state, an insurer must exercise that degree of care and diligence which a person of reasonable care and prudence would exercise in management of its own business affairs.(84) In Florida, the reasonableness of settlement ought to be addressed on summary judgment as well. When a defendant seeks to dismiss a matter on summary judgment it must show the absence of any material fact. An insurer ought to be able to show it acted reasonably by investigating all claims, advising all claimants of the potential of inadequate limits, attempting a pro rata distribution, and seeking involvement of all claimants in settlement talks. So long as the insurer takes advantage of settlement opportunities that are reasonable, and does not squander policy proceeds on unreasonable settlements, summary judgment should be available to it.

In Farinas, the court does not discuss the process which led up to settlement with some of the multiple claimants. The case simply states that questions of fact remained because the insurer settled for limits with some of the multiple claimants and exhausted policy limits.(85) An insurer should be given an opportunity to avoid lengthy and costly bad faith litigation by showing that it (1) investigated all claims in good faith, (2) involved all claimants and the insured in the negotiations, (3) advised the claimants of the potential for inadequate limits, (4) attempted pro rata distribution, and (5) attempted to settle claims in a manner that would best limit the insured’s exposure. This test will encourage settlement and conserve judicial resources while at the same time protect insureds.

V. Guidance for Insurers When Dealing with Multiple Claimants and Inadequate Policy Limits

Here are some guidelines to consider when liability beyond policy limits is clear:

1.   Immediately ascertain whether there are multiple claimants.
2.   Send a written proposal to all claimants requesting their participation in a settlement conference. (This should be done even if it is anticipated that the parties will refuse to participate. The courts have shown no sympathy to claimants who adamantly refuse to engage in reasonable settlement talks. All writings to the claimants should contain a statement that the policy limits may not be adequate to cover all claims.)
3.   Investigate all of the claims to determine their competing values.
4.   Attempt pro-rata distribution within policy limits for a release of all insureds.
5.   Consider interpleading the policy limits for the court to determine the appropriate distribution when all other good faith efforts fail. (The cost to interplead is well worth the extra defense cost an insurer will have to pay later when defending a claim of bad faith.)
6.   If equitable distribution for all claimants and/or interpleader are not feasible, then weigh the most severe claims against the risk of exposure on the competing claims.
7.   Be sure to timely respond to all settlement demands. (Do not reject reasonable settlement demands. Do not accept unreasonable ones. The reasonableness must be considered in the context of all claim exposure and policy limits. In some cases, when one claimant has injuries which greatly exceed the injuries sustained by other claimants, an insurer may want to offer limits to the most severely injured. However, this should be done with caution as it obviously exposes the insured to an excess judgment by the other, less severely injured, claimants.)
8.   Keep all known claimants advised of competing demands for policy proceeds.
9.   Keep the insured properly advised of exposure and settlement opportunities (see the Boston Old Colony factors above).
10.   Consider seeking contribution from your insureds to fully and finally resolve all claims where policy limits are insufficient and all other good faith efforts to get a complete release from all claimants has failed. (Be careful to accurately communicate your good faith intentions to the insured).
11.   A liability insurer may even want to consider paying something in excess of policy limits to resolve all claims (even if you are not contractually obligated to do so) to save on litigation expenses and exposure to a bad faith suit.

VI. Conclusion

In summary, the settling of multiple claims seems a fine-art of balancing the factors producing a “reasonable” settlement strategy to most effectively protect the insured from excess exposures. The best approach: get the insureds and the claimants involved from the very beginning, and place the burden on the claimants facing inadequate limits to act just as reasonably as the insurer in settlement negotiations.


  1. See, Saucedo v. Winger, 915 P.2d 129, 134 (Kan. App. 1996); Marginian v. Allstate Insurance Company, 481 N.E.2d 600, 603 (Ohio 1985).
  2. Id.
  3. 2003 WL 1916837 (Fla. 4th DCA April 23, 2003). For more detailed analysis of the Farinas decision, see Rawls and Patten, What Is A ‘Reasonable’ Settlement When There Are Multiple Claimants?, Mealey’s Litigation Report: Insurance Bad Faith, Vol. 17, No. 6 (July 16, 2003).
  4. Id.
  5. 386 So. 2d 783 (Fla. 1980).
  6. 412 F.2d 475 (5th Cir. 1969)
  7. 232 So. 2d 206 (Fla. 2d DCA 1970).
  8. 591 So. 2d 174 (Fla. 1992)
  9. 386 So. 2d 783, 785 (Fla. 1980).
  10. Id.
  11. Id.
  12. 412 F.2d 475 (5th Cir. 1969).
  13. 412 F.2d at 480.
  14. Id.
  15. 412 F.2d at 481.
  16. 412 F.2d at 481.
  17. 232 So. 2d 206 (Fla. 2d DCA 1970).
  18. 232 So. 2d at 207—08.
  19. 591 So. 2d 174 (Fla. 1992)
  20. 591 So. 2d at 177.
  21. 2003 WL 1916837 (Fla. 4th DCA April 23, 2003).
  22. 2003 WL 1916837 at 4—5.
  23. 2003 WL 1916837 at 5.
  24. 440 N.Y.S.2d 976, 978 (N.Y. Sup. Ct. 1981).
  25. 713 P.2d 733 (Wash. 1986).
  26. 713 P.2d at 735.
  27. Id.
  28. .See, Weihmuller and Weill, Multiple Claims Exceeding The Policy Limits, Mealey’s Litigation Report: Insurance Bad Faith, Vol. 13, No. 8 (August 17, 1999).
    For courts which have applied the pro rata rule when multiple claimants are in different actions against the insured, see Burchfield v. Bevans, 242 F.2d 239 (10th Cir. 1957) (applying Oklahoma law); State Farm Mut. Auto. Ins. Co. v. Hamilton, 326 F. Supp. 931 (D. S.C. 1971); Century Indemnity Co. v. Kofsky, 161 A. 101 (Conn. 1932); Underwriters for Lloyds of London v. Jones, 261 S.W.2d 686 (Ky.1953). For courts applying the pro rata rule where several claims are joined in one suit, see Sheehan v. Liberty Mut. Fire. Ins. Co., 258 So. 2d 719 (Ala. 1972); Johnson v. State, 450 So. 2d 1311 (La. 1984); State Farm Mut. Auto. Ins. Co. v. Sampson, 324 So. 2d 739 (Miss. 1975); Christlieb v. Luten, 633 S.W.2d 139 (Mo. App. 1982); Wasserman v. Glen Falls Ins. Co., 240 N.Y.S.2d 917 (N.Y. App. Div. 1963); Wondrowitz v. Swenson, 392 N.W.2d 449 (Wis. Ct. App. 1986).
  29. 881 S.W.2d 312 (Tex. 1994).
  30. 844 S.W.2d 808 (Tex. App. 1993).
  31. 844 S.W.2d at 817.
  32. Id.
  33. 844 S.W.2d at 817, n.6.
  34. 881 S.W.2d at 318.
  35. 881 S.W.2d at 314.
  36. 881 S.W.2d at 314 citing Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544, 547—48 (Tex. Comm’n App. 1929).
  37. 881 S.W.2d at 315.
  38. Id.
  39. Id.
  40. 881 S.W.2d at 316. Other jurisdictions considering multiple claims issues have reached a similar conclusion. Holtzclaw v. Falco, Inc., 355 So. 2d 1279, 1286—87 (La. 1978); Alford v. Textile Ins. Co., 248 N.C. 224, 103 S.E.2d 8, 13 (1958); Bennett v. Conrady, 180 Kan. 485, 305 P.2d 823, 827—28 (1957); Allstate Ins. Co. v. Evans, 200 Ga. App. 713, 409 S.E.2d 273, 274 (1991); Harmon v. State Farm Mutual Automobile Ins. Co., 232 So. 2d 206, 207—8 (Fla. App. 1970); State Farm Mutual Automobile Ins. Co. v. Murphy, 38 Ill. App. 3d 709, 348 N.E.2d 491, 493—4 (1976); Negron v. Eveready Ins. Co., 53 A.D.2d 815, 385 N.Y.S.2d 87, 88, appeal dism’d, 40 N.Y.2d 970, 390 N.Y.S.2d 921, 359 N.E.2d 429 (1976); Liguori v. Allstate Ins. Co., 76 N.J. Super. 204, 184 A.2d 12, 16—17 (1962).
  41. 881 S.W.2d at 315.
  42. 184 A.2d 12 (N.J. Super. Ct. Ch. Div. 1962).
  43. 184 A.2d at 17.
  44. 409 S.E.2d 273 (Ga. App. 1991)
  45. 409 S.E.2d at 274, citing 7C APPLEMAN, INSURANCE LAW AND PRACTICE, § 411, P. 409 (rev. ed.)
  46. 409 S.E.2d at 274.
  47. Id.
  48. 703 F.2d 1 (1st Cir. 1983) (applying Rhode Island law).
  49. 703 F.2d at 4.
  50. 703 F.2d at 3.
  51. 684 So. 2d 546, 548 (La. App. 1997).
  52. 684 So. 2d at 547.
  53. Id.
  54. Id.
  55. 684 So. 2d at 548.
  56. 343 N.E.2d 36, 39 (Ill. App. 1976).
  57. 343 N.E.2d at 37.
  58. Id.
  59. 343 N.E.2d at 39.
  60. 343 N.E.2d at 38.
  61. 416 F. Supp. 1216 (D.C. Maryland 1976).
  62. 416 F. Supp. at 1218.
  63. Id.
  64. 416 F. Supp. at 1219.
  65. 416 F. Supp. at 1220.
  66. 416 F. Supp. at 1219—20.
  67. 416 F. Supp. at 1220.
  68. 567 P.2d 1359 (Kan. 1977).
  69. 567 P.2d at 1367.
  70. Id.
  71. Id.
  72. Id.
  73. 314 F.2d 675 (2d Cir. 1963).
  74. 7314 F.2d at 682.
  75. 376 F.2d 157, 159—60 (1st. Cir. 1967).
  76. 33 S.W.3d 369 (Tex. App. 2000).
  77. 33 S.W.2d at 372.
  78. Id.
  79. Id.
  80. Id.
  81. 33 S.W.3d at 373 citing Texas Soriano’s Insurer Insurance Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994); see also Mid Century Insurance Company of Texas v. Childs, 15 S.W.3d 187 (Tex. App. 2000).
  82. See Texas Farmers Insurance Co. v. Soriano, 881 S.W.2d 312 n.29 (Tex. 1994) and the discussion therein and Carter v. State Farm Mutual Automobile Insurance Co., 33 S.W.2d 369 n.76 (Tex. App. 2000) and the discussion therein.
  83. See Texas Farmers Insurance Co. v Soriano, 881 S.W.2d 312 n.29 (Tex. 1994) and the discussion therein and Carter v. State Farm Mutual Automobile Insurance Co., 33 S.W.2d 369 n.76 (Tex. App. 2000) and the discussion therein.
  84. See Boston Old Colony v. Gutierrez, 386 So. 2d 783, 785 n.9 (Fla. 1980) and the discussion therein and Texas Farmers Insurance Co. v. Soriano, 881 S.W.2d 312 n.36 (Tex. 1994) and the discussion therein.
  85. See Farinas v. Florida Farm Bureau General Insurance Co., 2003 WL 1916837 at 1 (Fla. 4th DCA April 23, 2003).