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Mesmer v. Maryland Automobile Insurance Fund3/11/1999
f an informed judgment based on honesty and diligence. Furthermore, the insurer's negligence, if any there be, is relevant in determining whether or not it acted in good faith."
In Fireman's Fund v. Continental Ins. Co., 308 Md. 315, 318, 519 A.2d 202, 204 (1987), we re-affirmed the holdings in the Sweeten and White cases, pointing out that a liability insurer's duty to attempt to settle claims within its insureds' policy limits
"arises because standard insurance policies give the insurer the exclusive control of the investigation, settlement, and defense of claims against its insureds. These provisions create the potential for conflicts of interest between insured and insurer and thus, impose a fiduciary duty on the insurance company."
In Medical Mutual v. Evans, 330 Md. 1, 25-28, 622 A.2d 103, 114-116 (1993), we declined to change the principle, first set forth in Sweeten, that the measure of damages recoverable in the tort action based upon a bad faith failure to settle within policy limits is ordinarily the amount by which the judgment in the underlying action exceeds the amount of insurance coverage.
Most recently, in Allstate Ins. v. Campbell, 334 Md. 381, 396-397, 639 A.2d 652, 659 (1994), we refused to extend the tort cause of action for bad faith failure of the insurer to settle a claim within policy limits beyond the situations involved in our prior cases. In Campbell, the liability insurer undertook to defend the liability claim against its insured, provided an attorney to represent the insured in a tort suit, notified the insured of the possibility of an excess judgment, and declined an initial offer from the plaintiff in the tort suit to settle the case within policy limits. Upon being notified of the possibility of an excess judgment, the insured retained his own attorney. Later, the liability insurer ultimately settled the underlying tort case within policy limits and obtained a release of the insured. Thereafter, the insured brought an action against the insurer to recover the costs of retaining his own attorney, relying on both a breach of contract theory and a tort theory. This Court, in an opinion by Chief Judge Murphy, held that the insurer was not liable on either theory. While recognizing that a liability insurer has a contractual duty to provide the insured with a defense, as well as a contractual duty to indemnify within policy limits, and that the damages for breach of the duty to defend will include the attorney fees incurred by the insured in defending an action, the Court emphasized that the insurer's contractual obligation "cannot be extended beyond the terms of the contract." Allstate Ins. v. Campbell, supra, 334 Md. at 394, 639 A.2d at 658. The Court continued (ibid.):
"Thus, while it [the insurer] promises to defend Campbell [the insured] and pay for damages within policy limits, it makes no promise that it will settle the claim within policy limits; it merely reserves the right to settle if it deems it appropriate."
As to the tort theory, although recognizing "that if a liability insurer acts improperly in defending the insured it may become liable to the insured for the amount of judgment obtained against the insured which is in excess of the policy limits" (334 Md. at 393-394, 639 A.2d at 658, emphasis added), the Court stated that the insured's damages in such tort action "are limited to the amount of any judgment in excess of policy limits" and that the action "will not accrue prior to the entry of a judgment against the insured in excess of policy limits." 334 Md. at 396-397, 639 A.2d at 659.
In Maryland the nature of the tort action, based on a bad faith failure to settle a liability claim
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