Insured Not “Legally Entitled to Recover” UM Benefits

May 21, 2009

The Alabama Supreme Court recently held that an insured was barred from maintianing a claim for uninsured/underinsured motorist benefits because she had not proven that she was “legally entitled to recover damages” from the underinsured motorist.  In Kendall v. United Services Automobile Association, ___So.2d___ (Ala. 2009), the plaintiff’s vehicle was struck by a vehicle operated by Angelia Mercer, an employee of the Elmore County District Attorney’s office, who was acting within the line and scope of her duty at the time of the accident.

The plaintiff filed suit against the County and her UIM carrier, USAA, alleging injuries which were undisputedly greater that $100,000.00.  The County, pursuant to Alabama law, is subject to a cap in the amount of “$100,000.00 for bodily injury or death for one person in any single occurrence.”  Code of Alabama, 1975, §11-93-2.  The County settled the claim in that amount, and the plaintiff proceeded against USAA for her UIM limits of $75,000.00.

The Alabama UM/UIM statute provides for the payment of benefits to insureds under motor vehicle liability policies “for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury, sickness or disease, including death, resulting therefrom….”  Code of Alabama, 1975, §32-7-23(a).

In affirming summary judgment for the carrier, the Court held that because of the $100,000.00 cap, the plaintiff was not “legally entitled to recover” any amount in excesss of that amount from the county, and therefore that USAA was not liable under the policy.


Bad Faith in the Uninsured Motorist Context

May 17, 2009

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).