UIM Claims – Still No Bad Faith for Refusal to Settle, But….

by Nexsen Pruet, PLLC
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South Carolina has never recognized a bad faith cause of action based upon the failure of an underinsured (UIM) carrier to settle a UIM claim. Maintaining the established precedent, the United States District Court recently refused to recognize bad faith based on a UIM carrier’s refusal of  its insured’s settlement offer. Significantly, based upon the merits of the case, the court also refused to certify to the SC Supreme Court the pivotal question of whether SC recognizes a bad faith claim in such circumstances. Henry v. Government Employees Insurance Company, 2017 WL 3328229 (August 3, 2017).

Henry was a passenger in his employer’s truck, and sustained injuries when the truck was rear-ended by an underinsured motorist. His employer’s UIM policy, issued by GEICO, included the standard offset language providing any sums the insured was entitled to recover would be offset by any amount the insured received from the underinsured driver and other sources, including workers’ compensation. Henry’s medical bills totaled $10,617.71. Henry’s doctor indicated Henry was able to return to work, without accommodation, a little more than a month after the accident. Despite the doctor’s position, Henry remained out of work for more than a year. He received $25,395.61 in worker’s compensation benefits and the $25,000.00 liability policy limit on behalf of the underinsured driver. Henry then sued GEICO for the $25,000.00 in UIM coverage. Weighing several factors, GEICO was doubtful a jury would award Henry sufficient damages to exceed the setoff. As a result, it offered Henry $2,500.00 in response to his last demand of $5,000. Unable to resolve the claim, the case was tried to a jury that awarded Henry $250,000.00, following which GEICO tendered its UIM limits. Henry sued GEICO for bad faith seeking payment of the excess verdict, costs of trial and punitive damages. GEICO filed its motion for summary judgment and Henry filed a motion seeking certification of two questions; whether SC recognizes a bad faith cause of action for a UIM insurer’s failure to settle a claim and if so, what damages are recoverable.

The court found no genuine dispute of material fact as to whether GEICO acted in bad faith or if it had reasonable grounds for its valuation of the claim. GEICO considered the medical expenses and lost wages that were well below the offset, and valued the claim accordingly. While its prediction as to what a jury might award was wrong, that does not establish GEICO acted unreasonably or in bad faith. The court relies, in part, on the insignificant difference between Henry’s pretrial demand and GEICO’s offer as evidence it did not act unreasonably.  Additionally, the court found that if it were clear Henry suffered damages far greater than the amount of the setoff, there would be no rational reason for GEICO’s refusal of Henry’s demand of $5,000.00 just before trial. Further finding the questions Henry sought to certify were not outcome determination, the court denied his motion.

The law does not require a settlement offer be made to every insured with UIM coverage who files a claim against an at fault driver; bad faith is not necessarily established simply because a carrier forces someone to seek damages from the court. Some claims lack merit, and insurers must have the ability to protect themselves. See Snyder v. State Farm Mut. Auto Ins. Co. Additionally, finding an insurer acted in bad faith because it inaccurately predicted a jury award risks turning every case in which the parties disagree as to value in to one for bad faith refusal to pay. Thus far, the court is unwilling to take that risk. In assessing such claims, however, the insurer should remain mindful that once an insured brings suit against the at fault driver and serves the UIM carrier with process, the carrier’s duty to act in good faith regarding UIM benefits is triggered.  In Myers v. State Farm Mut. Auto. Ins. Co., Judge Blatt found support for the court’s position from other jurisdictions that hold there is a duty of good faith when investigating and processing a UIM claim. While there has been no recognition of a bad faith cause of action in a UIM claim, an insurer’s duty to act in good faith is not excused; if it is clear damages are greatly in excess of the at fault driver’s policy limits, the UIM carrier may have a duty to make a settlement offer prior to its insured securing a judgment against or exhausting the limits of the underinsured.

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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