Written by Kevin Kennedy
Edited by Janeen Koch
Two recent Virginia circuit court opinions have thrown into confusion the pre-trial duties owed by a UIM carrier to a plaintiff. Understanding the facts of these cases and arguments that led to different rulings can help avoid any potential bad faith claims when a carrier is adverse to a policyholder who has brought a UIM claim.
The first case, Chevalier-Seawell v. Mangum, 90 Va. Cir. 420, is a decision from Norfolk Circuit Court that was issued by Judge Mary Jane Hall in April of 2015. In this case, defendant admitted liability for the collision; the plaintiff was claiming a traumatic brain injury; defendant’s insurance carrier had offered its full coverage of $100,000 (the stipulated special damages exceeded $63,000) and Allstate (the UIM carrier) had made absolutely no offer to settle the case at the time the bad faith motion was filed. Eventually, Allstate did make a settlement offer five days before trial, after Plaintiff had incurred additional expenses for trial. That initial offer was $50,000, increased to $55,000, and finally increased again the day before trial to $75,000. At trial, the jury returned a verdict to the plaintiff for $800,000.00.
Counsel for Allstate argued that it did not owe any pre-judgment duties to the plaintiff. Pursuant to Va. Code § 38.2-2206, its sole duty is to “pay the insured all sums that he is legally entitled to recover as damages from the owner or operator of an uninsured motor vehicle, within limits not less than the [legal requirement].” However, the court found that a UIM carrier is still subject to penalties for bad faith under Va. Code § 8.01-66.1. That section provides that when an insurer:
refuses or fails to pay to its insured a claim of more than $ 3,500 in excess of the deductible… under the provisions of a policy of motor vehicle insurance issued by such company to the insured and it is subsequently found by the judge of a court of proper jurisdiction that such denial… was not made in good faith, the company shall be liable to the insured[.]
Judge Hall ruled that this code section gave no indication that the legislature intended to exclude under-insurers from the duty of acting in good faith when evaluating and denying a claim. From the record of the case, it appears that Allstate reached a settlement with plaintiff’s counsel before filing an appeal or having the issue ultimately decided by the Virginia Supreme Court.
A more recent circuit court case from Spotsylvania County considered a similar bad faith claim against a UIM carrier but reached the opposite result. In the case of Conner v. Glasgow, 2015 Va. Cir. LEXIS 230, (Va. Cir. Ct. Nov. 5, 2015) the defendant’s liability policy had limits of $25,000 and the plaintiff’s insurer, Liberty Mutual, had available under-insured funds of approximately $23,000. The plaintiff presented special damages of approximately $17,000 with contested damages involving a syndrome known as TMJ for additional amounts. Prior to trial the liability insurer offered their policy limits. Liberty Mutual’s highest offer, several days before trial, was $5,000. At trial the jury returned a verdict in favor the plaintiff in the amount of $200,000. Plaintiff moved for a finding of bad faith against Liberty Mutual.
Judge Deneke found that the Virginia Supreme Court has recognized significant differences in the duties of a liability carrier and a UM/UIM carrier. Specifically, “the obligation of the uninsured motorist insurer arises only if it is determined that the insured is legally entitled to recover damages from the owner or operator of an uninsured or underinsured motor vehicle.” In other words, the duties of a UIM carrier are not triggered until after the judgment is entered. Because there can be no determination of the plaintiff’s right to recover damages from an underinsured motorist before trial, Judge Deneke found that, by extension, there can be no duty of good faith on a UIM carrier pre-judgment. The plaintiff has promised to appeal the decision, but as of today, there has been no ruling from the Virginia Supreme Court on this issue.
While the more recent decision finding no pre-trial duty of good faith exists for a UIM carrier appears to be the better reasoned decision, it is unclear how the Virginia Supreme Court may rule on the issue. What is certain is that plaintiff’s attorneys have and will continue to threaten bad faith motions against UIM carriers in an attempt to gain leverage in pre-trial settlement discussions. A plaintiff’s bad faith motion is certainly strengthened when liability is clearly adverse or has been stipulated by the defendant and a tender of the liability policy limits is made significantly in advance of trial. In those instances, UIM carriers should work with their defense counsel to make sure they take all necessary steps to protect themselves from a potential bad faith claim in case the court allows such a claim to proceed. In evaluating whether an insurance carrier has acted in good faith, the Virginia Supreme Court has held that “a reasonably diligent effort must be made to ascertain the facts upon which a good faith judgment as to settlement can be formulated . . . A decision not to settle must be an honest one. It must result from a weighing of probabilities in a fair manner. To be a good faith decision, it must be an honest and intelligent one in the light of the company’s expertise in the field. Where reasonable and probable cause appears for rejecting a settlement offer and for defending the damage action, the good faith of the insurer will be vindicated.”