Bad Faith: Uninsured Motorist Arbitration

Maslo v. Ameriprise Auto & Home Insurance, (Second District, June 27, 2014) — Cal.Rptr.3d —-, 14 Cal. Daily Op. Serv. 7318, 2014 Daily Journal D.A.R. 8471, 2014 WL 2918866

A man who was injured in a car accident and received an uninsured motorist arbitration award for less than his policy limits, filed an action for bad faith against his insurance carrier. The plaintiff alleged that even though he provided the insurer with all documents concerning liability and damages to fully and fairly evaluate the case, at no time prior to the arbitration hearing did the insurer schedule depositions of treating physicians or interview them, or request a medical examination.  The plaintiff further alleged that the insurer failed to make any offer of settlement, contrary to Insurance Code section 790.03, subdivision (h)(5), which provides that it is an unfair claim settlement practice not to “ ‘attempt[ ] in good faith to effectuate a prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”

The trial court sustained the insurer’s demurrer without leave to amend, finding that the plaintiff could not allege causation, as the facts did not show that his damages plainly exceeded the uninsured motorist coverage policy limits.  However, the court of appeal reversed, rejecting the carrier’s argument that bad faith could not be shown unless either that the insured’s pre-arbitration damages plainly exceeded the policy limits or that the damages awarded by the arbitrator exceeded the settlement demand:

“We conclude that the complaint adequately stated a claim for bad faith when it alleged that the insurer, presented with evidence of a valid claim, failed to investigate or evaluate the claim, insisting instead that its insured proceed to arbitration. We reject the insurer’s argument that its right to resolve a disputed claim through arbitration relieves it of its statutory and common law duties to fairly investigate, evaluate and process the claim.

We further reject the suggestion that in the absence of a genuine dispute arising from an investigation and evaluation of the insured’s claim, the insurer may escape liability for bad faith simply because the amount ultimately awarded in arbitration was less than the policy limits or the insured’s initial demand. Finally, we conclude that the complaint adequately alleged causation where, as pled, the conduct of the insurer made arbitration inevitable and settlement impossible.

According to the insurer, it may be liable only where the damages plainly exceed the policy limits. In all other circumstances, the insurer contends, when faced with a claim for which liability is shown with reasonable certainty, it may 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 is less than the insured’s initial demand. This position is at odds with California common law and the statutory requirements of the Insurance Code.…

[A]n insurer may 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. 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.