Uncovering the Truth: The Price of an Insurer’s Bad Faith Actions
America ı By Samuel Lopez
6 Comments
(USA Herald) - When a policyholder suffers a loss and makes a claim on their insurance policy, they expect their insurer to act in good faith and fairly evaluate and pay the claim. However, not all insurers live up to their obligations. In some cases, insurers may engage in bad faith conduct by denying valid claims or delaying payments without a valid reason. The recent case of Erie Insurance Exchange v. Olivia Craighead, in the Court of Appeals of Indiana, highlights the consequences of such bad faith conduct by an insurer.
In this case, Olivia Craighead, a crash victim, was injured in a car accident in 2018. She was a passenger in a car driven by Morgan Miller, who was insured by United Farm Family Mutual Insurance Co. Miller's policy paid its liability limit of $50,000 and its medical payments coverage of $5,000 to Craighead. Craighead was also insured under her father's auto policy with Erie Insurance that provided $100,000 in underinsured motorist (UIM) coverage and $5,000 in medical payments coverage.
While the parties agreed that Craighead's UIM coverage would be reduced to $50,000 by United Farm's liability payment, Erie contended that its UIM obligation was further reduced to $40,000 because of the insurers' combined $10,000 in medical payments. In an amended complaint filed in June 2020, Craighead alleged that Erie breached the insurance contract and also acted in bad faith by requiring her to sign a release of the disputed $10,000 before issuing a payment for UIM coverage.
The trial court in November 2021 granted partial summary judgment to Craighead on her claim for breach of contract, finding that the policy's setoff clause was unenforceable and holding that an issue of fact existed on the bad faith claim. A three-judge panel affirmed the lower court's ruling in July, concluding that the application ofthe setoff clause to further reduce Erie's obligation violated the state's UIM statutes. The panel also correctly held that an issue of fact existed on Craighead's bad faith claim.
In its August petition to transfer, Erie argued that courts have found setoffs to be enforceable if they don't reduce the insured's recovery from the tortfeasor and the UIM insurer below the statutory minimum of $50,000. However, the Indiana Supreme Court denied Erie's petition to transfer, refusing to take up the coverage dispute and allowing Craighead to proceed with her bad faith claim against the insurer.
This case highlights the consequences of bad faith conduct by an insurer. The failure of an insurer to properly investigate and evaluate a claim can lead to severe consequences for both the policyholder and the insurer. Policyholders may be left to bear the financial burden of their loss, while insurers may face bad faith claims and penalties.
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