California, United States of America
The following excerpt is from Clarke v. Fireman's Fund Ins. Companies, 199 Cal.App.3d 607, 245 Cal.Rptr. 107 (Cal. App. 1988):
However, in the case of a pretrial settlement, such as in the instant case, there has been no adjudication of the issue of liability and a settlement does not act as an admission of liability of either the insured or the insurer. ( Rodriguez v. Fireman's Fund Ins. Co., supra, 142 Cal.App.3d 46, 55, 190 Cal.Rptr. 705.) Thus, allowing a claimant to settle the underlying lawsuit and still assert a statutory cause of action against the insurer does not foster repetitive litigation and cannot result in inconsistent adjudications. In fact, from the standpoint of judicial economy, a rule requiring a final determination of liability would result in claimants having little incentive to settle the underlying lawsuit because to do so would destroy their bad faith claims. Claimants would thus be placed in a situation of choosing between the vindication of two primary rights.
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