Bad Faith In The Evaluation Of Uninsured And Underinsured Motorist Claims

Uninsured and underinsured motorist claims may often be considered “routine” to some auto liability insurers and most are resolved by claims handlers through “routine” negotiations. However, a couple of recent decisions from Northern Ohio Courts of Appeals illustrate the bad faith exposure insurers can face from these claims and provide some guidance on how to best try to minimize that exposure.

In Marshall v. Colonial Ins. Co. of California, 2016-Ohio-8155, an insured plaintiff was injured in a car accident, incurring over $26,000 in medical expenses which included the cost of back surgery. He had $100,000 in underinsured motorist coverage with Colonial. After receiving Colonial’s consent to accept the tortfeasor’s $15,000 limits, the insured plaintiff filed suit asserting an underinsured motorist claim against Colonial.

A Colonial nurse who reviewed the plaintiff’s claim questioned whether the claimed injuries were the sole result of the car accident or the result of an aggravation of a pre-existing injury. After that review, Colonial offered $15,000 (of the $85,000 remaining policy limits) and retained a medical expert who opined that the plaintiff’s injuries were limited to a cervical strain that resolved within 3 months.

The parties then arbitrated the value of the plaintiff’s injury claim. The insured plaintiff was awarded $65,000. Therefore, Colonial was obligated to pay $50,000 in underinsured motorist coverage ($65,000 less the tortfeasor’s $15,000 payment). The plaintiff then sued Colonial for bad faith based on both the delay in resolving his claim and the $15,000 offer that was made to do so. Colonial argued that the time it took to handle the claim was reasonably justified and that its offer was reasonably justified based on evidence of Plaintiff’s pre-existing condition.

The trial court granted Colonial summary judgment and the plaintiff appealed to the Seventh District Court of Appeals (Mahoning County/Youngstown). The Seventh District reversed, finding that there were “issues of fact” as to whether the timing of Colonial’s handling of the plaintiff’s claim or its evaluation of that claim lacked “reasonable justification.”

The facts and tortured history of this particular claim are, in some ways, unique. There are, however, several aspects of Marshall Court’s opinion that have some universal import in the handling of any uninsured or underinsured motorist claim and the defense of a bad faith claim based on the handling of such a claim. To that end, the Seventh District reaffirmed that Ohio recognizes “bad faith” claims based on both alleged “foot-dragging” and “an unreasonably low settlement offer.” Marshall, 2016-Ohio-8155 at ¶¶ 11-12. With respect to valuing a claim, the Court also noted that an “insurer cannot avoid a bad faith claim simply by establishing that its claims decision was based on the personal opinion of a seasoned adjuster. Rather, the purpose of a bad faith inquiry is to determine whether the adjuster lacked a reasonable justification for that ‘personal opinion.’” Id. at p. 12 (citing Toman v. State Farm, 2015-Ohio-3351 (Cuyahoga County)). In making a “bad faith” determination, the Court also noted that it had to view “the totality of the circumstances to ascertain if the insurer’s handling of this claim was reasonably justified…[ie] performed in good faith.” Id. at p. 17.

The Marshall Court’s reliance on the Eighth District’s (Cuyahoga County/Cleveland) 2015 opinion in Toman seems to suggest that the Seventh District now agrees with the Eighth District’s conclusion that: (1) A seasoned adjuster’s personal opinion of value does not, in and of itself, constitute “reasonable justification.” There must also be evidence demonstrating “the reasoning behind [the] valuation of [the injury] and its relationship to the facts…”. Toman, 2015-Ohio-3351; and (2) “[A]rbitrarily determining the value of an injury based solely on the Robinson v. Bates value of past medical expenses and a multiplier, without consideration of the underlying facts and circumstances, and then stating, without supporting evidence, that juries typically award a smaller number, is not evidence that [an] evaluation was reasonable as a matter of law.” Id. The Marshall and Toman decisions also appear to indicate that even if an adjuster is able to articulate how he or she evaluated a claim and accounted for all of the variables that could impact injury value, a court is still likely to hold that “reasonable justification” for that valuation is an “issue of fact.” Thus, when a bad faith claim is based on the amount offered to settle an uninsured or underinsured motorist claim, the grant of summary judgment in favor of an insurer is unlikely.

The Seventh District’s decision in Marshall also suggested that except to the extent that it would reveal attorney-client privileged communications or work product, a plaintiff asserting an uninsured or underinsured motorist claim should be entitled to broad discovery of the claims file and claims handling process (including adjuster depositions) even when a bad faith claim has not been asserted. Marshall, 2016-Ohio-8155 at ¶ 18. The court noted that this is true even if that discovery may be aimed at acquiring “information for the future bad faith claim by disguising it as discovery in preparation for [adjudication of the injury claim].” Id.

These recent decisions in Marshall and Toman serve as reminders that while the negotiation of uninsured and underinsured motorist claims may be “routine,” those negotiations can also create extra-contractual “bad faith” exposure. To minimize that exposure, an adjuster must consider and be able to articulate how he or she evaluated a claim and how they accounted for all of the variables that could impact jury value. Furthermore, great care needs to be used in negotiating. Unless authority is truly exhausted, any suggestion that “this is all there is” could also give rise to bad faith exposure. If an adjuster has not offered authority and wants to leave the door open for further discussion, he or she should say so.