Written by Gary Reinhardt, Esq.
Edited by Bill Pfund, Esq.
The Uninsured/Underinsured Motorist statute, Va. Code Ann. § 38.2-2206, strictly controls how a carrier provides coverage to its insured. The statute limits what may be required of an insured by an insurer in order to obtain UM/UIM coverage. For instance, “No endorsement or provisions providing the coverage required by subsection A of this section shall require arbitration of any claim arising under the endorsement or provisions, nor may anything be required of the insured except the establishment of legal liability . . .” Va. Code Ann. § 38.2-2206(H). The Virginia Supreme Court interpreted this language from the Virginia UM/UIM statute to mean that “Under the statute, 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 motor vehicle… . Judgment is the event which determines legal entitlement to recovery.” Midwest Mut. Ins. Co. v. Aetna Casualty & Surety Co., 216 Va. 926, 929, 223 S.E.2d 901, 904 (1976).
Based on this, some insurers did not participate in settlement negotiations with their insureds asserting UM claims. Plaintiffs, in turn, claimed bad faith based on the statutory language of Va. Code Ann. § 8.01-66 (D) (1):
Whenever a court of proper jurisdiction finds that an insurance company licensed in this Commonwealth to write insurance as defined in § 38.2-124 denies, refuses or fails to pay to its insured a claim of more than $3,500 in excess of the deductible, if any, 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, refusal or failure to pay was not made in good faith, the company shall be liable to the insured in the amount otherwise due and payable under the provisions of the insured’s policy of motor vehicle insurance, plus interest on the amount due at double the rate provided in § 6.2-301 from the date that the claim was submitted to the insurer or its authorized agent, together with reasonable attorney’s fees and expenses.
The insured/plaintiff argued that the term “claim” in the statute applied broadly, encompassing even UM claims. Plaintiffs argued that this part of the statute came into being after the Supreme Court’s ruling in Midwest Mutual and superseded that decision.
Several courts, mostly in UIM contexts, agreed with plaintiffs and at least held causes of action for bad faith existed. The Louisa Circuit Court, in Copenhaver v. Davis, 31 Va. Cir. 227 (1993, Louisa Cir. Ct.) was probably the first Court to rule this way, basing its decision in part on the idea that Va. Code § 8.01- 66.1 (D) “intended to provide and does provide a remedy for pre-trial bad faith behavior by insurance companies.” Copenhaver, 31 Va. Cir. at 227.
Recently, the Virginia Supreme Court appeared to settle this controversy. In Manu v. GEICO Cas. Co., 798 S.E.2d 598 (2017), The Supreme Court considered the granting of a demurrer and dismissing with prejudice a bad faith action brought against Geico in a UM suit. In Manu, Manu sued Benjamin Boateng and John Doe for injuries in a multi-vehicle accident. Boateng tendered his policy limits of $25,000 and Manu sought additional recovery from GEICO because of John Doe’s negligence. GEICO refused to negotiate, actively defended John Doe and the Court ruled Doe was negligent as a matter of law. The jury returned a verdict in favor of Manu for just over $68,000 and GEICO timely paid its UM exposure to Manu.
Manu subsequently filed suit against GEICO alleging bad faith pursuant to Va. Code Ann. § 8.01-66.1(D). Manu sought the amount of the judgment above the UM coverage, interest and attorneys’ fees from GEICO. GEICO demurred and the trial court, after reconsideration, sustained GEICO’s demurrer and dismissed Manu’s case with prejudice.
The Supreme Court analyzed the UM statute and its prior decisions and started with the simple premise that “among the other prerequisites [to obtain UM benefits], an insured must be ‘legally entitled to recover’ the damages he is seeking before a UM carrier’s obligation to pay arises.” Manu, 798 S.E.2d at 598. The Court then reaffirmed its holding in Midwest Mutual, that a judgment is what determines “legal entitlement.” Id.
The Court agreed that § 8.01-66(D)(1) provided a bad faith remedy for insureds, however it did “not impose any additional conditions upon insurers; it provides a remedy to insureds against insurers who arbitrarily refuse to pay claims they owe under the terms of the insurance contract.” Manu, 798 S.E.2d at 606. In short, the statute just enforced duties already owed. In this instance, it meant for GEICO to promptly pay Manu after Manu obtained a judgment against John Doe. GEICO could not commit bad faith prior to Manu’s judgment because GEICO owed no duty to Manu until Manu obtained the judgment against John Doe. In concluding, the Supreme Court held that “Va. Code Ann. § 8.01-66.1(D)(1) does not create a duty for UM carriers to settle a case prior to trial, but rather creates a remedy for the conduct of UM carriers that refuse in bad faith to pay once the insured has obtained judgment. Therefore, for the above-stated reasons, Manu’s complaint failed to state a cognizable claim.” Id. at 608-609.
Carriers, at least in the UM context, can now breathe a little easier when holding fast against a UM claim. While insurers see this issue as settled, carriers should still expect plaintiffs/insureds to look for holes in this ruling through the UIM context.