Duty to settle refers to an insurance company’s (insurer’s) obligation to make reasonable efforts to settle a claim against its insured (policyholder). This duty comes from the implied promise (covenant) of good faith and fair dealing that most courts recognize in liability insurance policies.

Most states require a demand within policy limits to trigger an insurer's duty to settle—and some states require a demand within policy limits or some expression of interest (from the injured claimant) in settlement or an "opportunity to settle.”

But in some states the insurer has an affirmative duty to initiate settlement negotiations and cannot wait for a policy limits demand. And in Florida, bad faith may be inferred from a delay in settlement negotiations that is willful and without reasonable cause.

An insurance company generally must accept a settlement offer that is (1) reasonable and (2) within policy limits when there is a substantial likelihood that a verdict at trial will exceed the policy limits. This duty to settle applies to primary insurance coverage as well as excess insurance coverage.

When an insurance company breaches its duty to settle, it can be held liable for the full verdict against its insured policyholder—including amounts in excess of the policy limits. And some jurisdictions (state courts, federal district courts) also allow the recovery of punitive damages, attorney fees, prejudgment interest, postjudgment interest, economic losses caused by the insurer’s breach of its duty to settle, and emotional distress.

In Idaho, the duty to settle is an obligation of an insurance company to make reasonable efforts to settle a claim against its policyholder. This duty arises from the implied covenant of good faith and fair dealing inherent in liability insurance policies. Idaho law requires that an insurer act in good faith and deal fairly with both its insured and the claimant. While Idaho does not have a statute that specifically outlines the duty to settle, case law in Idaho supports the principle that an insurer may be liable for bad faith if it fails to settle within policy limits when there is a substantial likelihood of a verdict exceeding those limits. If an insurer unreasonably refuses to settle a claim within the policy limits, and a verdict later exceeds those limits, the insurer may be held liable for the entire judgment, potentially including amounts above the policy limits. Additionally, the insurer could be responsible for other damages such as attorney fees and prejudgment interest. Idaho does not explicitly require an insurer to initiate settlement negotiations absent a demand within policy limits, but insurers are expected to handle claims with the best interests of their insured in mind, which can include proactive settlement discussions.