In this article we review significant recent decisions over the past year and a half—approximating the post-recessionary period—in New York state and federal courts regarding good faith in settlement negotiations. Notably, three New York state court decisions found at least a factual issue with regard to the good faith of a party in entering into a settlement agreement.1 The federal opinions upheld the good faith of settlement negotiations, but also provided amplification regarding some less-known aspects of the law in this area—the validity of “pre-negotiation agreements” (agreements controlling some of the terms of anticipated settlement negotiations) and the good faith duties of parties to a court-ordered mediation.
State Court Decisions
The three New York state court opinions that found issues of bad faith in connection with settlement negotiations all involved insurance companies. As discussed below, the evidence of bad faith varied widely, from delays during negotiations to the failure to advance a potential defense in order to manipulate the scope of reinsurance coverage. While these decisions implicate the special rules governing settlements in the insurance context, they nonetheless illuminate the approach New York courts have taken in assessing good faith in the settlement context.2
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