The Impact of Expanding Insurers' Duty to Settle: Evidence from the Royal Globe Doctrine

43 Pages Posted: 27 Mar 2015

See all articles by Brian Richman

Brian Richman

Independent

Sharon L. Tennyson

Cornell University - Department of Policy Analysis & Management (PAM)

Date Written: January 28, 2013

Abstract

The historic 1979 California Supreme Court decision in Royal Globe Insurance Company v. Superior Court unexpectedly extended to injured-third-parties the right to sue the injurer’s insurer for bad faith in claim settlement, expanding the set of eligible plaintiffs to those with the greatest incentive to sue. Using data on automobile bodily injury liability claims, we make use of the quasi-experimental nature of this decision and employ synthetic control methods to examine resulting changes in observed insurance settlements. Estimates indicate a significant increase in compensation amounts with little evidence of an increase in fraud indications or a decrease in insurers’ fraud monitoring, among paid claims. Effects are modest, but significant differences in treatment effects are found for claims of different sizes and characters, with small claims and claims without fraud suspicion indicators receiving more beneficial treatment under expanded bad faith liability.

Keywords: duty to settle, liability, insurance

JEL Classification: K13, G22, G28

Suggested Citation

Richman, Brian and Tennyson, Sharon L., The Impact of Expanding Insurers' Duty to Settle: Evidence from the Royal Globe Doctrine (January 28, 2013). Available at SSRN: https://ssrn.com/abstract=2585106 or http://dx.doi.org/10.2139/ssrn.2585106

Brian Richman

Independent ( email )

No Address Available
United States

Sharon L. Tennyson (Contact Author)

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

252 MVR Hall
Ithaca, NY 14853
United States
607-255-2619 (Phone)
607-255-4071 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
22
Abstract Views
267
PlumX Metrics