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California Appellate Case Adds Bite to Bad Faith Litigation

by | Jul 22, 2014 | Firm News |

Insurance companies are supposed to serve the interests of their insureds. By paying a premium, insureds should expect peace of mind, financial security, and a good faith investigation in the event of an accident. Unfortunately, that isn’t the case all of the time.

Sometimes insurance companies act in “bad faith.”Bad faith” is a legal term derived from principles of contract. Certain contracts,  like insurance, require that  parties act with “good faith and fair dealing,” with one another. Specifically to insurance, insurers are mandated to fairly investigate, evaluate, and process a claim.

When an insured’s insurance company fails to properly evaluate or process a claim, it could potentially lead to “bad faith” litigation against that insurance company. Recently, a California case expanded the ability for insureds to bring a bad faith litigation case against their own insurance company.

MASLO V. AMERIPRISE AUTO & HOME INSURANCE (2014)

The Plaintiff in Maslo was involved in a motor vehicle accident where it was found that the other driver was at fault. After medical treatment for a number of months, Plaintiff submitted a demand to his own insurance company for the policy limits under his UM (uninsured motorist) provision.

Ameriprise, the insurer, asked for an extension, and then commenced arbitration proceedings. In doing so, it did not make a settlement offer and refused to mediate the matter. As a result, Plaintiff had to wait an additional 2 years to receive an award, less than the policy limits.

After arbitration, Plaintiff filed a bad faith lawsuit against Ameriprise. Plaintiff alleged that Ameriprise forced Plaintiff into arbitration without investigating, evaluating, and attempting to resolve the claim. Ameriprise rebutted, as a defense, that there was a “genuine dispute” regarding payment, and that the arbitration award evidenced as much, since it was less than the policy limits. Ameriprise further stated that it was the fault of Plaintiff for overvaluing his own claim.

The trial court agreed with Ameriprise but the California Court of Appeal, 2nd Appellate District disagreed and reversed. The Appellate Court held that an arbitration award lower than the policy limit does not necessarily preclude an insured from bringing a bad faith lawsuit. It stated, in part:

“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.”

WHAT DOES IT MEAN FOR OTHER INSUREDS?

The recent decision makes it clear that insurance companies cannot simply rely upon an award, in of itself, to clear themselves of “bad faith.” Insurance companies have a duty to thoroughly investigate, evaluate, and process a claim after liability is determined, no matter if they think that they can prevail at an arbitration proceeding. This means that insurance companies will have to make a good faith attempt to settle first party claims prior to arbitration.

It is always best to have an attorney represent your interests. Our office has a lot of experience in dealing with insurance companies — and potential “bad faith” situations. We welcome your questions, calls, and cases.