In March 1981, James E. Wade offered to accept $7,500 to settle his automobile accident claim against Marilyn Mowatt but her insurance company, Nationwide Mutual, refused the offer and went to trial. Three years later, a jury awarded Wade $90,000 -- $40,000 more than Mowatt was covered for.

Faced with losing her family home in Mount Rainier, Mowatt then sued Nationwide for failing to settle Wade's claim within the limits of her coverage. And yesterday, Mowatt's check for $700,000 from Nationwide cleared, ending what is apparently the first such case in the area against an insurance company for failure to settle a claim.

According to the Insurance Information Institute, a trade group, there has been only a handful of similar cases nationwide. The $700,000 settlement means that Nationwide Mutual, one of the five largest insurance companies in the nation, has been forced to pay out a total of $750,000, or 100 times the original $7,500 settlement offer for the 1980 auto accident.

James Ruth, Nationwide's regional claims attorney in Annapolis who supervised Mowatt's case, would not comment yesterday on the settlement.

Mowatt said in an interview that she contacted Michael A. Abelson, her attorney, after Nationwide notified her that the D.C. Appeals Court had upheld the D.C. Superior Court jury's $90,000 award and told her she would have to take care of her $40,000 liability on her own.

Immediately after the $90,000 award, Wade's attorney moved to collect the $40,000 Mowatt owed by placing a lien on her house. The house, at 4400 29th St. in Mount Rainier, was purchased by her parents in 1936 and has been Mowatt's home most of her life.

"It was just like pure panic," Mowatt said of her life during the three years that the $40,000 judgment against her was pending. She wouldn't talk to anyone about the case, gained 30 pounds and cried much of the time she wasn't at work, Mowatt said.

She said that during the time the legal case was pending, she was never informed of settlement proposals or any other negotiations to settle the case. Mowatt said Nationwide contacted her only right before the Superior Court trial.

"I assumed they were doing their job, and I didn't want to bother them," Mowatt said. Abelson yesterday called it a "persistent pattern of abuse" of the insured.

But in court papers filed in connection with Mowatt's suit against the insurance company, Nationwide blamed Mowatt's inattention to legal matters for its failure to settle with Wade.

During a May hearing in Mowatt's suit, U.S. District Judge Oliver Gasch questioned how Nationwide attorneys could take that position. "She thought Nationwide was on her side," Gasch said.

Documents filed in U.S. District Court show that in response to Wade's initial $7,500 proposal, the insurance company had offered $1,500 -- even though it had assessed his claim as worth $7,500. Wade was injured when Mowatt's car ran a stop sign at 11th and T streets NW.

Two months later Wade sued Mowatt in Superior Court, and shortly before trial in November 1984, Nationwide turned down another settlement proposal of $25,000. Although Wade did not appear to be badly hurt immediately after the accident, court documents show that by the time of the trial, Nationwide's own physician said that Wade had suffered serious spinal injuries that caused him continual pain.

Nationwide appealed the subsequent $90,000 jury award, signing Mowatt's name -- without her permission or knowledge -- to an appeal bond that covered only Nationwide's obligation and did nothing to protect Mowatt, according to documents filed in court.

An appeal bond is used to guarantee that money has been set aside to pay a claim while it is on appeal.

Abelson said it was only while collecting documents for Mowatt's suit against Nationwide that he discovered that her name had been signed to the appeal bond without her knowledge. He called it a "decisive" discovery. "I felt then that we would win the case," Abelson said.

In court papers, Nationwide blamed the local attorney hired to try the case for signing Mowatt's name.

Abelson said yesterday that in each instance where there was an apparent conflict between the interests of the insurance company and Mowatt's interests, Nationwide acted only to protect itself.

"It is well known that for years insurance companies have blamed lawyers for filing too many lawsuits," said Abelson. "To the contrary, this case points out that insurance companies, by selfishly placing their own interest ahead of their insured's, are actually forcing lawsuits to be filed."

"These are the same lawsuits that give rise to verdicts, which the insurance companies then use as an excuse to raise premiums," he said.

The case, in which Mowatt was seeking both compensatory and punitive damages, had been scheduled to go to trial on Jan. 13 before Gasch. Abelson said the first money spent from the settlement would be used to pay the $40,000, plus interest, owed to Wade.