An interesting case recently came before the California Court of Appeals involving an insured’s uninsured motorist (UM) demand for policy limits and the insurer’s response demanding arbitration.
In Maslo v. Ameriprise Auto & Home Ins., 227 Cal.App.4th 626 (2nd Dist. 2014), the insured sustained bodily injuries as a result of an accident caused by an uninsured motorist. The insured, Ted Maslo, filed a claim with Ameriprise seeking the $250,000 UM limit of the policy. In response, Ameriprise demanded arbitration. The matter proceeded through arbitration with the arbitrator awarding $164,120.91. The insured sued Ameriprise alleging that Ameriprise breached the implied covenant of good faith and fair dealing by forcing the insured to arbitrate the claim without fairly investigating, evaluating and attempting to resolve it. The trial court dismissed the complaint and the insured appealed.
During the arbitration it was stipulated that the insured’s medical expenses totaled $64,120.91. At the conclusion of the arbitration proceeding, the arbitrator awarded the insured that amount in medical damages and $100,000 in general damages for a total award of $164,120.91. The accident in question involved the insured being rear-ended by an uninsured motorist which forced the insured’s vehicle to collide with a third vehicle. The accident was investigated by the Los Angeles Police Department which prepared a traffic collision report concluding that the uninsured motorist was the sole cause of the accident. As a result of the accident, the insured suffered a severe injury to his shoulder. The insured sought treatment with an orthopedic surgeon who ordered an MRI. The MRI revealed an “internal derangement of the left shoulder; a SLAP lesion of the left shoulders; a split tear of the superior rotator cuff; and downsloping of the acromion and impingement syndrome.” As a result, the insured underwent two surgeries to repair the shoulder.
The facts revealed that the insured reported the accident to Ameriprise on September 3, 2008 and provided Ameriprise with a statement about the accident the following day. The record revealed that Ameriprise received a copy of the police traffic collision report. Additionally, on August 13, 2009, the insured supplied Ameriprise with copies of all his medical records and billing statements regarding his treatment. At that time the insured sought settlement of the UM claim in the amount of the policy limit of $250,000. However, Ameriprise did not respond to the settlement demand. The insured followed up on his demand and requested a response on January 22, 2010. On February 2, 2010, Ameriprise asked for an extension of time to respond, which the insured granted. Then, on February 26, Ameriprise retained counsel for an arbitration proceeding on the insured’s UM claim.
Between February 26, 2010 through the date of the arbitration, November 2, 2011, both parties engaged in discovery. It was alleged that the discovery responses provided by the insured gave Ameriprise all the documents concerning liability and damages that Ameriprise needed to fully and fairly evaluate the case. The record also demonstrated that at no time prior to the arbitration hearing did Ameriprise schedule the depositions of insured’s treating physicians nor did Ameriprise seek to interview the treating physicians. Ameriprise did not request a defense IME or a defense medical record review. Ameriprise failed and refused to make any offer of settlement.
On appeal, the Court in Maslo found that the insured’s claim should not have been dismissed. The Court noted generally that when an insurance company unreasonably and in bad faith withholds payment of an insured claim it is subject to liability in tort. The Court further noted that although insurance companies have no obligation under the implied covenant of good faith and fair dealing to pay every claim its insured makes, insurance companies cannot deny claims without fully investigating the grounds for its denials. Applying those general principles, the Court concluded that the insured’s complaint adequately stated a claim for insurance bad faith and should not have been dismissed.
Ameriprise advanced four arguments in support of why the insured had not and could not state a cause of action for bad faith under the facts. First, it was argued by Ameriprise that it did not have the same duty to act in good fact in the UM context as it did in other insurance contexts. Second, Ameriprise contended that it could not be liable for failing to attempt to settle the insured’s claim because the complaint demonstrated the existence of a “genuine dispute” over the amount of the claim. Third, Ameriprise contended that the insured could not show bad faith because the insured’s complaint failed to allege either that the insured’s pre-arbitration damages plainly exceeded the policy limits or that the amount of damages awarded by the arbitrator exceeded the settlement demand. Finally, Ameriprise argued that the insured could not show that Ameriprise caused him to incur the costs of arbitration because he failed specifically to allege that he would have accepted an offer to settle for an amount less than $250,000. The California Court of Appeals rejected all four arguments made by Ameriprise.
Regarding Ameriprise’s duty to its insured in the UM context, Ameriprise relied on case law from other jurisdictions but did not cite any California case authorities. The Court rejected Ameriprise’s argument by citing to California’s Insurance Code § 790.03(h)(5) which defines as an unfair claims settlement practice an insurance company’s failure to “attempt[ ] in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.” The Court found that § 790.01 applied to all persons engaged in the business of insurance and therefore an insurance company had the same duty to act in good faith in the UM context as it did in any other insurance context. Id. at 635-36.
Addressing Ameriprise’s “genuine dispute” argument, the Court found that the genuine dispute doctrine did not relieve an insurance company from its obligation to thoroughly and fairly investigate, process and evaluate the insured’s claim. Under California law, a genuine dispute exists only where the insurer’s position was maintained in good faith and on reasonable grounds. The facts before the Court demonstrated that Ameriprise could not rely upon the genuine dispute doctrine to sustain the dismissal because the underlying complaint alleged that Ameriprise had failed to comply with its common-law and statutory obligations to thoroughly and fairly investigate, process, and evaluate the insured’s claim. Specifically, the insured alleged that Ameriprise was promptly apprised of the claim, was provided with the police report showing the uninsured motorist was solely at fault for the accident and was provided with medical documentation of the insured’s injuries including the nature and cost of the medical treatment rendered because of the injuries. It was further alleged that Ameriprise neither interviewed the insured’s treating physicians nor conducted its own independent medical examination or review. Because the insured alleged an inadequate investigation and dilatory claim handling procedures on the part of Ameriprise, the genuine dispute doctrine provided no basis for sustaining the dismissal.
The Court then turned to Ameriprise’s argument that it could be liable only where the damage has plainly exceeded the policy limits. Ameriprise contended that when an insurer is faced with a claim for which liability is shown with reasonable certainty, it may nevertheless refuse to investigate, evaluate or even respond to its insured, force the insured to incur the costs of arbitration, and avoid liability for breaching its common law and statutory duties so long as the ultimate award was less than the insured’s initial demand. The Court found that Ameriprise’s position was at odds with California common law and the statutory requirements of the California Insurance Code.
The Court in Maslo relied upon the California Supreme Court decision of Hightower v. Farmers Ins. Exchange, 38 Cal.App.4th 853, 45 Cal.Rptr.2d 348 (1995) for support of its rejection of Ameriprise’s arguments regarding bad faith. In Hightower the Court expressly rejected the same argument that was being advanced by Ameriprise. In Hightower the Court held that the adoption of CAL. INS. CODE § 11580.2 did not abrogate the insurer’s duty of good faith in handling UM claims. Citing Hightower, 38 Cal.App.4th at 862-63. Section 11580.2 granted insurance companies a statutory right to binding arbitration when the insurer and the insured disagreed over the existence or extent of coverage. The Court in Hightower noted that “[u]nder [the insurer’s] interpretation of the statute, an insurer could ‘stonewall’ uninsured motorist claimants in every case but avoid bad faith liability through the simple act of requesting arbitration and refusing to pay until ordered to do so by an arbitrator.” The Court in Hightower could not ascribe that intent to the California Legislature when it enacted § 11580.2. Citing Hightower, 38 Cal.App.4th at 863.
Additionally, the Hightower Court stated: “Where there is no issue reasonably to be resolved by arbitration, as in a case where the insured’s damages plainly exceed policy limits and the liability of the uninsured motorist is clear, the failure to attempt to effectuate a prompt and fair settlement violates the insurer’s statutory duties (citation omitted) and gives rise to tort liability. Similarly, an insurer could not shield other dilatory conduct, such as failing to investigate a claim, by the mere act of requesting uninsured motorist arbitration.” Citing Hightower, 38 Cal.App.4th 863.
The Court in Maslo found that an insurance company can be liable for bad faith in failing to attempt to effectuate a prompt and fair settlement (1) where it unreasonably demands arbitration, or (2) where it commits other wrongful conduct, such as failing to investigate a claim. The Court in Maslo stated:
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. Here, the [Second Amended Complaint] adequately stated a bad faith insurance cause of action, as it alleged that the insurer breached its statutory and common law duties to its insured by failing to adequately investigate, evaluate, and process the insured’s claim, and by failing to attempt to settle the claim even after liability became reasonably clear.
The Court then addressed Ameriprise’s final argument regarding causation. Ameriprise contended that in the absence of an allegation that the insured would have settled for anything less than his initial demand, arbitration was inevitable. However, the Court in Maslo disagreed. The Court found that “[i]t was not [the insured’s] initial demand that made arbitration inevitable, but the insurer’s alleged refusal to investigate and process his claim.” In fact, in the face of reasonably certain damages, Ameriprise offered nothing. Contrary to Ameriprise’s suggestion, the Second Amended Complaint did not allege the insured’s demand was non-negotiable. In fact, it alleged that the insured had offered to mediate the claim, but Ameriprise had refused. Therefore, it was not the insured’s conduct, but Ameriprise’s conduct that precluded any possible settlement and made arbitration inevitable.
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