It’s crucial that both practitioners and claims professionals understand the inherent pitfalls associated with uninsured motorist claims, and particularly the duty that a carrier owes to its insured. In my experience, UM claims are often treated by claims professionals in the same manner as liability claims. This is a perilous practice, and can transform a simple claim into one with punitive exposure. Simply stated, a carrier has a duty of good faith to its insured that is not present in dealings with third party claimants.
In LeFevere v. Westbury, 590 So.2d 154 (Ala. 1991), the Supreme Court clearly stated that an uninsured motorist situation is a hybrid in that it blends the futures of both a first party claim and a third party claim. The Supreme Court also stated that in an uninsured motorist situation there is an adversarial relationship between the insured and the insurer. To assist claims adjusters and attorneys alike, the Supreme Court in LeFevere applied a balancing test, and set out a procedure or general rules which should apply in the handling of an uninsured motorist claim. The general rules are as follows:
1. When a claim is filed by an insured, the uninsured carrier has an obligation to diligently investigate the facts, fairly evaluate the claim, and act promptly and reasonably.
2. The uninsured motorist carrier should conclude its investigation within a reasonable time and should notify its insured of the action it proposes with regard to the claim for uninsured motorist benefits.
3. Mere delay does not constitute vexatious or unreasonable delay in the investigation of a claim if there is a bona fide dispute on the issue of liability.
4. Likewise, mere delay in the payment does not rise to the level of bad faith if there is bona fide dispute on the issues of damages.
5. If the uninsured motorist carrier refuses to settle with its insured, its refusal to settle must be reasonable.
These general rules were set out by the Supreme Court so that an insured will receive the benefits of the bargain. At the same time, the insurer’s right to refuse a claim will be protected. The bottom line is that adjusters should always diligently and fairly investigate all facts available to them and fully diligently and fairly investigate all those facts with regard to whether or not there is a debatable issue on either liability or damages.
If the claim is being denied not on a issue of liability or damages, but rather on a policy provision, the same general rules should apply in making that determination. Lastly, the Supreme Court has held that advice of counsel is clear evidence of a good faith effort on the part of the insurer. Davis v. Cotton States, 604 So.2d 354 (Ala. 1992).