10th Circuit Case Reinforces Limits Of Insurer’s Duty To Settle Disputed Claims

A recent federal appeals court case applying Utah law goes to the heart of the conflict that arises between a policyholder and insurer when an insurer defends a policyholder under a reservation of rights and receives a settlement offer. The case is Owners Ins. Co. v. Dockstader, No. 19-4156 (10th Cir. June 29, 2021).

The facts are straightforward. A third-party claimant suffered a brain injury during a fight in a gym.

The tortfeasor’s liability insurer, Owners Insurance Company, agreed to defend the tortfeasor under a reservation of rights, and filed a declaratory judgment action for a ruling that its policy did not cover the policyholder’s conduct.

The third-party claimant made a settlement offer for the policy limit of $500,000. Owners accepted the offer, but only on the condition that coverage was found to exist in the declaratory judgment action.

The third-party claimant entered into a settlement with the policyholder in excess of policy limits but agreed not to execute the judgment against the policyholder personally in exchange for an assignment of the policyholder’s rights.