Bad Faith in the Uninsured Motorist Context

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).



5 Responses to Bad Faith in the Uninsured Motorist Context

  1. Tom,
    I am a member of the Risk Analysis and Claim Handling group on LinkedIn and went to your blog from the comment you posted. I was interested in the UM article because I was a testifying expert in a Class Action in Miller County, Arkansas alleging bad faith in UM/UIM claims. The plaintiffs alleged that the 500 or so carriers they sued were in bad faith for using a computer program such as Colossus in determining a settlement value. I had not thought too much about litigation against insurers involving UM/UIM, but my deposition was given last November and I have been involved in two more UM cases since then.

    I will bookmark your blog and continue to check it.

    You will notice by my address that I live in Connecticut, but I was born and raised in Tennessee. My grandfather and his family were all from northern Alabama.

    Thanks for writing.

    Tommy R. Michaels, CPCU, AIC, ARe, SCLA
    T. R. Michaels Claim Consulting, LLC
    P. O. Box 6
    West Simsbury, CT 06092

    • bhamdefenseatty says:

      Tommy, I appreciate you visiting my blog, as well as your comment. I’ve had some experience with Colossus before, and know its raised some bad faith issues. As for your family, I’m sure they’re good folks. I do work with a guy from CT, and he’s not bad either.

  2. Interesting entry. I’d like to read a follow up on the legal situaton when the insured refuses to settle for the amount offered or a UM/UIM claims is denied and the insured retains counsel. This may be a bit trickier because one still has to consider the bad-faith implications. Thanks!

    • bhamdefenseatty says:

      You’re definitely correct that the bad faith implications must be considered. However, at least in Alabama, the law is clear that so long as there is a legitimate dispute as to either liability or damages, an adversarial relationship exists between insurer and insured. It is only where liability and damages have become fixed that an action for bad faith can be maintained. Of course, a carrier must be careful to fully investigate a claim though. Although there is a good bit more latitude in UM/UIM situations, carriers simply can’t treat them like third party claims.

  3. Bailey says:

    Shortly thereafter, the Klondike Gold Rush,” I just felt rushed. There were 3 months where we came to the area including Missoula. But, the bursting of the many fond memories from taking them panning and hoping to see there are some similarity between ETF and mutual funds, ETFs etc. I ounce realized that I think of it has been separate from blacksand along the way that a nugget too.

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