VictimsGuide • Wyoming Liability Insurance
Third-Party Liability Insurance, Failure to Settle & Excess Exposure
Liability insurance protects the insured against claims made by other people. When the insurer controls the defense and settlement decision, Wyoming law requires the insurer to consider the insured's financial exposure as well as its own.
Three Different Participants
The Injured Claimant
Asserts the underlying tort claim against the allegedly negligent person or business.
The Insured Defendant
Faces liability and potentially personal exposure beyond available insurance limits.
The Liability Insurer
Defends and evaluates settlement under the liability insurance contract.
The Central Conflict
The insurer may risk only its policy limit while the insured can risk personal assets if a judgment exceeds that limit.
The Insurer Cannot Gamble Only With the Insured's Money
When deciding whether to settle a claim within policy limits, the liability carrier must give appropriate consideration to the insured's personal exposure rather than protecting only the insurer's own financial interests.
The Fowler Equal-Consideration Rule
Wyoming's foundational failure-to-settle case requires the liability insurer to exercise intelligent, honest and conscientious judgment in protecting the common interests of both insurer and insured.
The insured's financial interest must receive at least equal consideration.
The Settlement Decision Is Judged When It Is Made
Third-party bad faith is evaluated from the circumstances existing when the settlement opportunity was considered and rejected.
Relevant factors can include:
- strength of liability evidence
- comparative fault
- severity of injuries
- documented damages
- likely future damages
- available defenses
- witness credibility
- potential verdict range
- policy limit
- settlement demand
- probability of excess exposure
- information available to insurer
A Demand Within Policy Limits Does Not Automatically Have to Be Accepted
Wyoming does not impose automatic bad-faith liability merely because an insurer rejects a settlement demand below the policy limit.
The issue is whether rejection was objectively unreasonable in light of the insured's realistic exposure at the time.
Excess Exposure Is Central
Wyoming's traditional failure-to-settle tort protects the insured from being exposed to liability beyond the protection purchased.
The classic situation is:
Jarvis: No Excess Judgment, No Traditional Failure-to-Settle Claim
Wyoming declined to extend third-party bad faith merely because the insured incurred attorney fees, anxiety or other consequences from an insurer's alleged failure to settle before trial.
The traditional Wyoming claim requires qualifying excess judgment exposure.
The Injured Claimant's Position
| Claim | Wyoming Rule |
|---|---|
| Tort claim against negligent insured | Yes. This is the ordinary personal-injury or property-damage claim. |
| Direct bad-faith claim against liability insurer | Generally no. The insurer's implied good-faith duty runs to its insured, not to the adverse claimant. |
| Private claim under unfair-settlement statute | The Wyoming Supreme Court has rejected an implied private cause of action under the unfair-claims statute for the third-party claimant. |
| Assigned insured bad-faith claim | Potentially. A claimant may in appropriate circumstances receive an assignment of rights belonging originally to the insured. |
Direct Claim and Assigned Claim Are Not the Same Thing
The injured claimant does not ordinarily acquire a bad-faith claim merely because settlement negotiations went poorly.
An assigned claim derives from rights that belonged first to the insured because the insurer allegedly exposed that insured to excess liability.
GAINSCO: Excess Judgment Through Settlement
An excess judgment need not necessarily result from a fully contested jury trial.
In appropriate circumstances, an insured facing coverage uncertainty can enter a reasonable settlement involving:
- a judgment;
- a covenant not to execute personally against the insured; and
- an assignment of the insured's rights against the insurer.
Wyoming recognizes that a judgment can remain a legal detriment to the insured even where the claimant agrees not to execute directly against the insured's personal assets.
A Covenant Not to Execute Is Not the Same as Erasing the Judgment
Under the circumstances recognized by Wyoming law, the judgment can remain sufficient to support an assignable third-party bad-faith claim.
The insurer remains entitled to challenge an improper settlement, including issues of reasonableness, fraud and collusion.
Settlement-Demand Documentation
When a serious claim realistically threatens the liability limit, preserve the record surrounding every settlement opportunity.
- complete demand letter
- delivery confirmation
- policy limit identified
- liability evidence
- comparative-fault evidence
- medical records
- medical bills
- future-care evidence
- lost-income evidence
- other damages evidence
- response deadline
- insurer response
- counteroffer
- request for additional information
- acceptance or rejection
- withdrawal of demand
- insured's excess-exposure notice
Insured's Excess-Exposure Checklist
An insured facing a serious liability claim should understand:
- liability policy limit
- umbrella/excess coverage
- estimated claimant damages
- comparative-fault assessment
- settlement demands
- carrier's evaluation
- reservation of rights
- coverage exclusions
- personal excess exposure
- need for personal counsel
- trial risk
- settlement opportunities
Unfair Claims Settlement Standards
Wyoming insurance law separately regulates unfair claims settlement practices, including unreasonable investigation, misrepresentation of coverage provisions, failure to respond reasonably promptly, and failure to attempt fair settlement when liability becomes reasonably clear.
Those standards are important to insurance regulation, but Wyoming does not treat the statute itself as creating a direct private bad-faith action for an adverse third-party claimant.