Kansas

Kan. Stat. Ann. § 40-2404and Common Law:

Kan. Stat. Ann. § 40-2404 states that insurers cannot engage in unfair methods of competition or unfair and deceptive acts or practices. This includes unfair claim settlement practices that include: . . . (f) not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. . . .”[1] Violation of the statute occurs when any of the included practices are “either committed flagrantly and in conscious disregard . . . or committed with such frequency as to indicate a general business practice.”[2]

An insurer has a duty to conduct a good faith investigation of claims.[3] When an insurance carrier knows or should know that liability is reasonably clear and the damages exceed available coverage, the duty to settle does not hinge on the existence of a settlement demand from the plaintiff.[4] “Rather, the duty to settle arises if the carrier would initiate settlement negotiations on its own behalf were its potential liability equal to that of its insured.”[5] Under such circumstances, the carrier must give equal consideration to the interests of the insured, meaning “the claim should be evaluated by the insurer without looking to the policy limits and as though it alone would be responsible for the payment of any judgment rendered on the claim.”[6] Importantly, there is no demand requirement and the duty to settle exists without regard to whether the injured party makes a settlement offer.[7]

The following factors are considered in determining whether an insurer acted with negligence or bad faith:

(1) the strength of the injured claimant’s case on the issues of liability and damages; (2) attempts by the insurer to induce the insured to contribute to a settlement; (3) failure of the insurer to properly investigate the circumstances so as to ascertain the evidence against the insured; (4) the insurer’s rejection of advice of its own attorney or agent; (5) failure of the insurer to inform the insured of a compromise offer; (6) the amount of financial risk to which each party is exposed in the event of a refusal to settle; (7) the fault of the insured in inducing the insurer’s rejection of the compromise offer by misleading it as to the facts; and (8) any other factors tending to establish or negate bad faith on the part of the insurer.[8]

Although there is no statutory provision that allows for a third-party to directly bring suit against the insurer for bad faith, the insured can assign its rights to the plaintiff in exchange for the plaintiff’s agreement not to pursue the insured’s personal assets to satisfy a judgment in excess of the coverage limit.[9] Kansas also recognizes garnishment law, which allows for a judgment creditor to take the place for the judgment debtor to enforce a judgment.[10] Furthermore, a judgment creditor may proceed by garnishment against a tort-feasor’s insurer for the unpaid balance of the judgment which is in excess of the policy limits where the insurer refused to settle within the policy limits by virtue of negligence or bad faith.”[11]

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[1] Kan. Stat. Ann. §§ 40-2404(9).

[2] Kan. Stat. Ann. §§ 40-2404.

[3] Koch, Administratrix v. Prudential Ins. Co., 205 Kan. 561 (1970).

[4] Farmers Ins. Exchange v. Schropp, 222 Kan. 612,620 (1977).

[5] Id.

[6] Id.

[7] Coleman v. Holecek, 542 F.2d 532, 537 (10th Cir. 1976).

[8] Wiebe v. Hicks, 2008 Kan. App. Unpub. LEXIS 772 at *11 (2008) (citing Bollinger v. Nuss, 202 Kan. 326, 338 (1969)).

[9] Glenn v. Fleming, 247 Kan. 296, 799 (1990).

[10] Nichols v. Marshall, 491 F.2d 177, 183 (10th Cir. 1974).

[11] Id.(citing Gilley v. Farmer, 2017 Kan. 536 (1971) and Bollinger, 202Kan. 326 (1969)).