THE CHANGING LAW IN BAD FAITH CLAIMS AGAINST INSURANCE CARRIERS
A recent case in Norfolk Circuit Court is being litigated regarding a UIM carrier’s Bad Faith in pre-trial litigation. A recent opinion of the trial court indicates a potential shift in the trial court’s view of bad faith claims.
In the case, the liability carrier offered its policy limits of $100,000. Allstate as the UIM carrier had a $250,000 policy, which meant an exposure of $150,000. The plaintiff suffered a traumatic brain injury with medical bills and lost wages totaling around $60,000. Liability was admitted, and the plaintiff continued to suffer from gait and balance issues due to the accident. Allstate’s initial offer of $50,000 came only weeks before trial. On the day before trial, they offered $75,000. The case was tried in front of a jury and the verdict was $800,000.
Plaintiff is pursuing a bad faith claim against Allstate in the underlying case in front of the trial judge. Allstate tried to have the matter dismissed claiming it was not appropriate in the underlying case, and they are only responsible after a judgment is rendered.
Virginia Code §8.01-66.1 involves Pre-Trial Failure to Act in Good Faith. The parties in the trial court contested the availability of this Code Section to a UIM carrier.
The statute provides:
Whenever a court of proper jurisdiction find 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 the claim was submitted to the insurer or its authorized agent, together with reasonable attorney’s fees and expenses.
Va Code Section 8.01-66.1 (D)(1).
The Virginia Supreme Court has not addressed if this statute can be applied to a UIM Carrier. It has always been argued that the duty to a UIM carrier does not arise until there is a judgment against the underinsured motorist.
However, several Circuit Courts have ruled that §8.01-66.1(D) does provide a remedy for pre-trial bad faith behavior by insurance companies handling UIM claims. Copenhaver v. Davis, 31 Va. Cir. 227, 227 (Louisa 1993); Ballard v. State Farm Mut. Auto. Ins. Co., 1997 Va. Cir. 584 (Va. Beach 1997).
The Courts reason that there is nothing in the statute to suggest the statute does not apply to UIM carriers; rather the statute creates a duty on insurers to act in good faith. Therefore, trial courts are using §8.01-66.1 to give relief to the insured when they can prove bad faith on the part of the UIM carrier.
Not only does this open the UIM carrier to potential attorney fees and costs, but it permits an insured to obtain dicovery from the insurance carrier that may include claim logs or other information that is normally deemed not discoverable.
In Luthman v. GEICO, 40 Va. Cir. 404 (Fairfax 1996), the Circuit Court permitted discovery of an insurer’s file, holding that Plaintiff had made a showing of substantial need and that no substantial equivalent of the materials otherwise was availabe. Id. at 405. Work product privilege claims were rejected by the court, and the case even held that the insurer had waived its attorney-client privilege by asserting a defense that the claim was handled pursuant to the advice of counsel.
The current case in Norfolk Circuit Court is permitting discovery by Plaintiff of Allstate’s files and even depositions of adjusters. In the end, the trial judge will determine if plaintiff is entitled to bad faith damages against the UIM carrier. Such a decision may result in an appeal, and utlimately, the Virginia Supreme Court may render on opinion on this serious issue for insurance companies.