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Gainsco Insurance Co. v. Amoco Production Co.8/19/2002
offer to settle within policy limits is liable for a later stipulated judgment only if the amount of that judgment is reasonable. See Spangler, 881 F.Supp. at 545-46. Amoco then goes on to defend the reasonableness of its settlement with the Abraham Estate. That, of course, is not the question. The question is the reasonableness of the settlement in the later suit by Amoco against Andrews, in which Andrews not only agreed to a judgment over twice the amount of the risk, but also agreed to dismissal of its cause of action against Kobbe.
[ ] There are many views as to who has the burden of proving that a settlement was reasonable, and what proof is required. In Arizona, the test as to whether a settlement was reasonable is what a reasonably prudent person in the insured's position would have settled for on the merits of the claimant's case. United Services Auto. Ass'n v. Morris, 154 Ariz. 113, 741 P.2d 246, 254 (1987). A similar statement of the insured's obligation is that " he insured must demonstrate only that, in settling, his conduct conformed to the standard of a prudent uninsured." Myers, 789 F.2d at 1200. In deciding whether a settlement was reasonable, the reviewing court may determine whether it is "on its face unconscionable . . .." Losser, 615 F.Supp. at 61. Another factor is whether the insured made any effort to minimize his liability. Taylor v. Safeco Ins. Co., 361 So.2d 743, 746 (Fla.App. 1978).
[ ] Where the insurer has both denied coverage and wrongfully refused to defend, some courts find that a presumption of validity has been created as to the settlement agreement. "The settlement agreement is 'presumptive evidence' of the insured's liability. . . . [The insurer is obligated to] come forward with evidence that the settlement was not a good faith resolution of the claims . . . but the product of collusion or bad faith." Shawnee Auto Service Center, Ltd. v. Continental Cas. Co., 782 F.Supp. 1503, 1506 (D.Kan. 1992). Even where this presumption arises, however, the claimant may bear some of the burden of proof:
When the insurer has wrongfully refused to defend and the insured reaches a settlement with the injured party, most courts have held that a settlement is presumptive evidence of the liability of the insured and the amount of damages. In addition, the insurer has the burden of rebutting this presumption by showing the settlement was procured as a result of fraud or collusion. . . .
We hold therefore that in settlements like the one here, an insurer, relying on fraud or collusion, must plead and prove these defenses. If either defense is proven, the settlement is invalid and unenforceable against the insurer. The injured party, however, has the burden to prove by a preponderance of the evidence that (1) the underlying claim was covered by the policy, and (2) the settlement which resulted in the judgment was reasonable and prudent. The test the fact finder must apply on this issue is what a reasonable and prudent person in the position of the defendant (Coyle) would have paid to settle the plaintiff's (Red Giant's) claim. In applying this test, the fact finder must consider facts bearing on the liability and damage aspects of the claim as well as the risks of going to trial.
The fraud and collusion issues are fact questions and so are the issues of reasonableness and prudence. Here none of these issues were established as a matter of law. They are material issues of fact and therefore not subject to summary judgment determination. Red Giant Oil Co., 528 N.W.2d at 534-35.
The holding in Red Giant Oil Co. was based on an earlier Minnesota case, Miller v. Shugart, 316 N.W.2d 729 (Minn. 1982). In Miller, the court considere
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