Insurance Coverage – Bad Faith – Uninsured Motorist Arbitration

by Low, Ball & Lynch

Ted Maslo v. Ameriprise Auto & Home Insurance

Court of Appeal, Second Appellate District (June 27, 2014)

When an auto insurer and the insured cannot agree on the value of an uninsured motorist claim, either side may demand arbitration.  This case considered whether the carrier could potentially be liable for a bad faith claim based on a refusal to accept a demand for policy limits, even though the insured ultimately recovered significantly less than the policy limits.

Ted Maslo (“Maslo”) was involved in an automobile accident with an uninsured motorist.  He sustained numerous bodily injuries, including a severe injury to his shoulder, which required two surgeries to repair.  On September 3, 2008, Maslo reported the accident to his automobile liability carrier, Ameriprise Auto & Home Insurance (“Ameriprise”), and obtained a police report.  On August 13, 2009, he provided Ameriprise with copies of his medical records and billings.  In a letter on that date, he sought settlement of the uninsured motorist claim in the amount of the policy limits of $250,000.  Ameriprise did not respond.

On January 22, 2010, Maslo renewed his demand and requested a response.  On February 26, Ameriprise retained counsel for arbitration of the claim.  From that point until the claim was arbitrated on November 2, 2011, no offer was made by the carrier.  At arbitration, the parties stipulated to medical expenses totaling $64,120.91.  The arbitrator awarded that amount plus $100,000 in general damages.

Subsequently, Maslo filed a complaint against Ameriprise, ultimately resulting in a Second Amended Complaint with one cause of action for breach of the covenant of good faith and fair dealing.  The complaint alleged that liability against the uninsured motorist was clear, and that Maslo had provided all documentation regarding his claim and injuries when he made his initial demand.  The complaint also alleged that over the next two years, the carrier made no offer, did not conduct a medical records review or an IME, and made no attempt to depose or interview plaintiff’s physicians.  Maslo alleged that Ameriprise’s failure to make any offer in settlement was contrary to Insurance Code Section 790.03(h)(5), which requires a carrier to “attempt in good faith to effectuate a prompt, fair, and equitable settlement of claims in which liability has become reasonably clear.”  As a result of the carrier’s failure to make any offer, Maslo alleged that he incurred fees and costs in undergoing arbitration that would not have been necessary had the carrier made a reasonable offer.

Ameriprise filed a demurrer, claiming that “bad faith” could only be shown when the arbitrator determined that the claim was worth more than the initial demand made by the insured.  The trial court sustained the demurrer without leave to amend, finding that the facts did not show that Maslo’s damages “plainly exceeded the uninsured motorist coverage policy limits.”  Maslo appealed.

The Court of Appeal reversed, agreeing with Maslo that he had alleged sufficient facts to state a cause of action for breach of the covenant of good faith and fair dealing.  First, the Court cited existing case law that an insurer’s obligations include a duty not to unreasonably withhold benefits due under the policy.  Secondly, while a carrier has no obligation to pay every claim its insured makes, it cannot deny a claim “without fully investigating the grounds for its denial.”

Here, Maslo alleged that the insurer was aware that he had suffered bodily injuries, and that the records and reports established the severity of his injuries.  He also alleged that the insurer knew that the police report attributed fault for the accident solely to the uninsured motorist.  Maslo also alleged that despite clear evidence of liability, the insurer agreed to pay the claim only after the arbitration, which was more than three years after the accident, and more than two years after he had provided all of his records to Ameriprise.  Under these facts, the Court held that a reasonable jury could find that the insurer was liable for breach of the covenant of good faith and fair dealing.

The Court disagreed with Ameriprise’s argument that it could rely on the “genuine dispute” as to the value of the claim.  The California Supreme Court only allows the genuine dispute theory to be used where there is evidence the carrier conducted a thorough and fair investigation, which was not evident here.

The Court also disagreed with Ameriprise’s argument that there can be no bad faith where the insurer has exercised its right to arbitrate a claim.  The Court agreed that a carrier has such a right, but that this does not relieve a carrier of its duty to attempt to effectuate a prompt and fair settlement.  Otherwise, a carrier could “stonewall” uninsured motorist claimants in every case by requesting arbitration and refusing to make any offer until after the arbitration.  Here, even in the face of reasonably certain damages, the insurer offered nothing.  Under the circumstances, the complaint sufficiently pled a bad faith claim.

The trial court order sustaining the demurrer without leave to amend was reversed, and the trial court was directed to enter a new order overruling the demurrer.


While a carrier does have the right to demand arbitration of a UM claim, this does not relieve it of its duty to conduct a reasonable investigation, or to make an offer as to any aspect or value of the claim that appears to be reasonably owed.  Merely demanding arbitration over disputed amounts does not relieve a carrier from offering what it should know the claim to be worth.

For a copy of the complete decision, see:


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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