The insured dump-truck owner brought an action against its excess liability insurer, alleging that the insurer breached its policy and duty of good faith and fair dealing by not investigating claims against the insured, and by refusing to tender its policy limits to spur settlement negotiations in an underlying action.

At a rail crossing in Oklahoma, a Union Pacific Railroad train hit an SRM Inc.-owned dump truck as the truck crossed the tracks. The collision killed the truck driver and derailed the train, causing extensive damage to the train and injuring three of its workers. The three injured train workers sued SRM.

SRM was insured by Bituminous (the primary insurer) and Great American (the excess insurer). Bituminous offered its policy limits to SRM and Great American for use in negotiating a settlement. Great American rejected the offer and urged an aggressive defense. The case eventually settled for $6.5 million, with the parties agreeing to pay as follows:

  • Bituminous, $1 million.
  • Great American, $5 million.
  • SRM, $500,000.

After the dust settled on the underlying litigation, SRM sued Great American, alleging that the insurer breached its excess liability insurance contract and failed in its duty of good faith and fair dealing. The district court granted Great American's summary judgment motion, and this appeal followed.

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