Court Holds Insurer’s Alleged Failure to Investigate UIM Claim Supported Insured’s Bad Faith Lawsuit

Publish Date:Aug 21, 2014
Summary:
In its July 22, 2014 decision in Maslo v. Ameriprise Auto & Home Insurance, the California Court of Appeal (Second Appellate District) held that the trial court should not have dismissed a bad faith lawsuit which alleged the insurer submitted an uninsured motorist (UIM) claim to arbitration without investigating the claim.

In its July 22, 2014 decision in Maslo v. Ameriprise Auto & Home Insurance, the California Court of Appeal (Second Appellate District) held that the trial court should not have dismissed a bad faith lawsuit which alleged the insurer submitted an uninsured motorist (UIM) claim to arbitration without investigating the claim.   

Ted Maslo was insured by an Ameriprise auto insurance policy which included UIM coverage with a $250,000 limit.  Maslo was injured by an uninsured driver. The insurer demanded arbitration. The arbitrator awarded Maslo approximately $164,000.

Maslo filed a lawsuit against Ameriprise, claiming the insurer breached the implied covenant of good faith and fair dealing (bad faith).  In his lawsuit, Maslo alleged 1) that he provided the insurer with a police report which concluded that the uninsured driver was solely at fault; 2) that he provided the insurer with his medical records and bills; 3) that he demanded payment of the $250,000 policy limit; 4) that the insurer rejected the demand without conducting an adequate investigation; 5) that the insurer made no settlement offer; 6) that the insurer agreed to pay the claim only after arbitration; and 7) that because of the insurer’s failure to investigate his claim, Maslo had to incur the costs of arbitration.  

The trial court dismissed Maslo’s lawsuit, ruling that the alleged facts did not state a claim for a bad faith cause of action. 

The Court of Appeal concluded that the trial court erred when it dismissed the lawsuit and reversed the trial court’s judgment.

Ameriprise made four arguments in support of its contention that Maslo had not stated an insurance bad faith cause of action. First, an insurer does not have the same duty to act in good faith in the UIM context as it does in other contexts. Second, the insurer cannot be liable for failing to settle Maslo’s claim because there was a “genuine dispute” over the amount of the claim. Third, Maslo cannot show bad faith because he failed to allege that the arbitration award exceeded his settlement demand. Fourth, Maslo cannot show that the insurer caused him to incur arbitration costs because he failed to allege that he would have accepted an offer to settle for an amount less than $250,000.

The Court of Appeal rejected each of the four arguments.

First, Ameriprise’s argument for a different duty applicable to UIM claims was based on out-of-state cases. The court pointed out that “in California, an insurer has the same duty to act in good faith in the uninsured motorist context as it does in any other insurance context.”

Second, an insurer cannot rely on the genuine dispute rule to dismiss a bad faith lawsuit when there is an allegation that the insurer failed to comply with its duty to investigate and evaluate the claim.

Third, the court explained that “the insurer’s duty to investigate a claim [is not] excused by the arbitrator’s finding that the amount of the 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 of those damages.” 

Fourth, the court concluded that it was not Maslo’s conduct that made arbitration inevitable, “but the insurer’s that precluded any possible settlement and made arbitration inevitable.”

 A copy of the court’s opinion is available at www.courts.ca.gov.

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