Legal Memorandum: Primary Insurer's Duty to an Excess Insurer

Issue: In Florida, must a primary insurer report to an excess insurer an insured’s demand that exceeds the limits of the primary policy?

“Under Florida law the primary insurer must ‘investigate the facts, give fair consideration to a settlement offer that is not unreasonable under the facts, and settle, if possible where a reasonably prudent person faced with the prospect of paying the total recovery would do so.'”  Galen Health Care, Inc. v. American Cas. Co., 913 F. Supp. 1525, 1535 (M.D. Fla. 1996) (quoting Hollar v. International Bankers Ins Co., 572 So. 2d 937, 939 (Fla. Dist. Ct. App.—3d Dist. 1990)). 

Because the primary insurer controls the insured’s defense, it has a duty to negotiate toward settlement in good faith.  Id. at 1532.  Another case describes the primary insurer’s duty:

When an insurance policy gives the primary carrier full control of the litigation, including the right to determine whether the case should be tried or settled, . . . the insurer is required to exercise this authority in good faith, regardless of the insured’s consent.  The primary carrier has superior knowledge and should act reasonably under all circumstances and exercise due care in regard to settlements.

Id. at 1153.

An excess insurer is said to be subrogated to the rights of the insured and assumes the insured’s rights.    “Accordingly . . . the primary carrier must conduct the defense in good faith and at minimum give notice to the excess carrier of the […]