California Court Allows Uninsured Motorist Bad Faith Suit to Proceed

by Traub Lieberman Straus & Shrewsberry LLP
Contact

In its recent decision in Maslo v. Ameriprise Auto & Home Insurance, 2014 Cal. App. LEXIS 564 (Cal. App. June 27, 2014), the California Court of Appeals for the Second Appellate District had occasion to consider whether an auto insurer’s election to compel arbitration regarding uninsured motorist benefits relieved the insurer of its statutory and common law duties to have fairly investigate, evaluate and process the claim.

Following an auto accident, the insured sought the entire $250,000 limit under his auto policy’s uninsured motorist coverage as compensation for injuries he sustained in an accident with an uninsured, at-fault motorist. Despite providing all medical records concerning his alleged injuries to the insurer, the insurer failed to respond to the claim for coverage. Some five months after the medical records were provided, the insured renewed his demand for payment of UM benefits and demanded a timely response. Two weeks later, the insurer requested an extension of time in which to respond. The insurer subsequently commenced an arbitration proceeding, and in doing so, rejected the insured’s offer to mediate the claim and also failed to make a settlement offer to the insured. The arbitration process took nearly two years to complete, the result of which was an award to the insured in an amount significantly less than the policy’s UM limit.

The insured subsequently commenced a lawsuit alleging that the insurer breached the covenant of good faith and fair dealing by forcing the insured into arbitration without investigating, evaluating and attempting to resolve the claim. Specifically, the insured argued that the insurer had breached its statutory duty of good faith and fair dealing under California Insurance Code section 790.03 by failing to attempt to effectuate a prompt, fair and equitable settlement for a claim in which liability had become reasonably clear, and that as a result, “Plaintiff was forced to go to Arbitration and to incur costs in excess of $25,000 as well as additional attorney fees.”

The insurer demurred on the basis that there had been a “genuine dispute” regarding payment due under the policy, as demonstrated by the arbitrator’s ultimate decision to award less than the policy’s $250,000 limit. The insurer further argued that the insured failed to demonstrate that its failure to make a settlement offer caused a delay in resolving the claim, but instead it was the insured’s overvaluation of his injuries that caused a delay in the claim being resolved. The trial court sustained the demurrer, reasoning that the insured “could not allege causation, as the fact did not show that the appellant’s damages ‘plainly exceed[ed] the unin[su]ed motorist coverage policy limits.”

On appeal, however, the court rejected the trial court’s reasoning. In so ruling, the court held that under California law, the insurer had a duty to act in good faith in the uninsured motorist context just as with any other claim. While the court acknowledged that the “genuine dispute” rule can serve as a defense to a bad faith claim, the court rejected the insurer’s contention that the arbitration award of less than policy limits was evidence of a “genuine dispute,” since the allegations were that the insurer failed to thoroughly and fairly investigate the UM claim before commencing the arbitration. The complaint’s allegations that the insurer was promptly advised of the accident and was provided with medical records, but otherwise made no attempt to investigate the loss until after it rejected the benefits and commenced an arbitration proceeding, demonstrated the lack of a genuine dispute, at least for purposes of sustaining a demurrer.

The court also rejected the insurer’s argument that its statutory right to arbitrate disputes over the amount of damages precluded a bad faith finding on the basis of failure to investigate. Specifically, the insurer had argued that it could only be liable for bad faith where the “damages plainly exceed the policy limits.” The court noted that prior California case law made clear that an insurer cannot use the arbitration process to “stonewall” UM/UIM claims by refusing to pay benefits until ordered to do so by an arbitrator. Thus, when damages and liability are reasonably clear, the insurer is under a duty to attempt to effectuate a prompt and fair settlement, the failure of which can constitute bad faith. As the court explained:

An insurer’s statutory duty to attempt to effectuate a prompt and fair settlement is not abrogated simply because the insured’s damages do not plainly exceed the policy limits. Nor is the insurer’s duty to investigate a claim excused by the arbitrator’s finding that the amount of damages was lower than the insured’s initial demand. Even where the amount of damages is lower than the policy limits, an insurer may act unreasonably by failing to pay damages that are certain and demanding arbitration on those damages.

The court, therefore, held the insured adequately pled a cause of action for bad faith, as he alleged that the insurer breached its duties by failing to adequately investigate, evaluate, and process the claim, and by failing to attempt to settlement after its liability became reasonably clear.

Finally, the court rejected the lower court’s reasoning that a demurrer should be sustained based on the insured’s failure to demonstrate causation between the insurer’s conduct and the delay in having the claim resolved, agreeing that it was not the insured’s “inflated” settlement demand that caused the delays, but instead the “insurer’s alleged refusal to investigate and process his claim.” Such allegations, agreed the court, in tandem with the allegation that the insurer refused to offer payment and refused to mediate the claim, were sufficient to state a cause of action and to avoid demurrer.

 

Written by:

Traub Lieberman Straus & Shrewsberry LLP
Contact
more
less

Traub Lieberman Straus & Shrewsberry LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.