Manufactured Litigation & The Bad Faith “Set Up”
Some courts recognize “set-up” or manufactured bad faith situations where claimants make settlement demands with unrealistic time limitations or otherwise force the insurance company to make a settlement decision without full access to information bearing on liability and damages. Where the court recognizes these factors, the insurance company may not be liable for failure to accept the settlement because the excess judgment or settlement was not due to the insurance company’s “unreasonable” conduct but was driven by the motives of the plaintiff. [Wade v. Emcasco Ins. Co., 483 F.3d 657 (10th Cir. 2007)]
Plaintiffs’ delay in providing promised medical records and manipulation of settlement deadlines was for the purpose of setting up a bad faith claim was found in Glenn v. Fleming, 799 P.2d 79 (Kan. 1990) and Miel v. State Farm Mutual Auto. Ins. Co., 912 P.2d 1333, 1339 (Ariz. App. 1995).
The emergence of the bad faith set-up has not gone unnoticed by the courts. One of the lead opinions articulating concerns with the conduct of claimant’s counsel in the context of the set-up case is Wade v. Emcaso Ins. Co., 483 F.3d 657 (10th Cir. 2007) (applying Kansas law). After reviewing some of the central historical decisions, the Tenth Circuit summarized its concern over what it referred to as “manufactured” litigation as follows: “In light of these decisions, we agree with the district court’s observation that courts should exercise caution ‘when the gravamen of the complaint is not that the insurer has refused a settlement offer, but that it has delayed in accepting one….”
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