Summary: The Maine Supreme Court in Linscott clarified to whom insurers owe duties. Because a plaintiff who brings suit against the insured is an adversary of the insurer defending the case, the insurer is entitled to use negotiating tactics commonly used by lawyers.
Linscott v. State Farm Mutual Auto Insurance Company
Plaintiff Mervin Linscott, a resident of Maine, was injured in a car accident in Virginia with a North Carolina resident. State Farm Mutual Automobile Insurance Company insured the driver of the other vehicle and tendered a defense in the underlying personal injury action brought by Linscott. Linscott offered to settle the case for $18,000, which State Farm refused. State Farm made a counter-offer of only $2,500 in an attempt to leverage the geographical distance between Virginia where the suit was being prosecuted and Maine where Linscott and his attorney were located. Linscott ultimately pursued the case with a Virginia attorney and it was settled for $17,000. After the settlement, Linscott sued State Farm directly, alleging it failed to negotiate with Linscott in good faith, its negotiation tactics constituted economic duress, and it engaged in fraud or deceit. Linscott’s complaint was dismissed. A unanimous Supreme Court of Maine affirmed the dismissal.
The Court’s holding on Linscott’s first two arguments stems from the adversarial nature of the relationship between a third party tort claimant and a tortfeasor and his insurer. Although the duty of good faith and fair dealing exists between the insured tortfeasor and the insurer, it is only owed by parties to the insurance contract—not to third party tort claimants. Moreover, because the third party has no legal right to compel the tortfeasor to settle a claim, the third party cannot compel the insurer, as the representative of the tortfeasor, to settle a claim. As a result of a third party’s inability to compel settlement, the Court found that State Farm’s low settlement offer and threats to deplete Linscott’s funds were valid legal tactics, especially in light of State Farm’s legal right to have the case tried in Virginia.
Acknowledging the adversarial relationship between the third party tort claimant and the insurer, the Court held that low-ball settlement offers that take advantage of the third party’s economic circumstances do not constitute economic duress. As the Court said, “the adversary status of the parties precludes creation of a legal obligation to refrain from such a recognized technique of negotiating.”
Finally, the Court addressed Linscott’s fraud allegation. Linscott claimed State Farm’s low settlement offer constituted a representation it would not make a greater offer, when in fact State Farm later settled the case for substantially more. While the Court was very skeptical there actually was a misrepresentation, the claim was ultimately dismissed on the basis Linscott could not demonstrate reliance on any alleged misrepresentation. In order to demonstrate reliance on the statement, Linscott would have had to accept the $2,500 settlement offer. Instead, Linscott defied State Farm’s alleged misrepresentation and retained an attorney in Virginia who then procured a higher settlement.
By Anthony L. Martin & Brett Simon
