An insured could maintain a bad faith lawsuit against an insurer who allegedly forced the insured to arbitrate his uninsured motorist claim without ever fairly investigating, evaluating and attempting to resolve the insured’s claim. ( Maslo v. Ameriprise Auto & Home Insurance (2014) WL 2918866)
Facts
In September 2008, a vehicle driven by an uninsured motorist rear-ended a vehicle driven by Ted Maslo, resulting in injuries to Maslo. The police investigated and determined that the uninsured motorist was solely at fault. Maslo subsequently underwent two surgeries for his injuries.
At the time of the accident, Maslo was the insured on an automobile insurance policy issued by Ameriprise Auto and Home Insurance. The policy included uninsured motorist (UM) coverage with bodily injury limits of $250,000. In August 2009, Maslo provided all his medical records and bills to Ameriprise and demanded that Ameriprise pay the UM policy limit of $250,000 in settlement. In response, Ameriprise allegedly refused to investigate, evaluate or attempt settlement of Maslo’s UM claim. Rather, in February 2010, Ameriprise allegedly demanded that Maslo arbitrate his UM claim against Ameriprise.
Between February 2010 and November 2011, the parties engaged in discovery for the arbitration proceeding. During that time frame, Maslo allegedly provided Ameriprise with all documents that Ameriprise needed to fully and fairly evaluate the case, but Ameriprise made no offer to Maslo. In addition, Ameriprise allegedly never took the depositions of Maslo’s doctors, and never had Maslo examined by a defense doctor.
In November 2011, the UM claim was arbitrated. At the conclusion of the arbitration, the arbitrator awarded Maslo medical expenses of $64,120 and general damages of $100,000 for a total award of $164,120. Ameriprise paid the arbitration award to Maslo.
Subsequently, Maslo filed a bad faith action against Ameriprise. In his complaint, Maslo alleged that Ameriprise had breached duties to Maslo by forcing him to arbitrate his UM claim without ever fairly investigating, evaluating and attempting to resolve the claim. The trial court sustained Ameriprise’s demurrer and dismissed Maslo’s complaint. Maslo appealed.
Holding
The Court of Appeal reversed, and held that Maslo had adequately stated a claim for bad faith against Ameriprise. The appellate court noted that when an insurer unreasonably withholds payment from an insured, the insurer is subject to liability in tort. Here, Maslo alleged that although he had presented Ameriprise with evidence of a valid UM claim, Ameriprise failed to investigate, evaluate and attempt settlement of the claim, and instead insisted that Maslo proceed to arbitration. That was sufficient to state a claim for bad faith.
The appellate court rejected Ameriprise’s argument that the “genuine dispute” rule necessarily relieved Ameriprise of any bad faith liability to Maslo. According to the appellate court, the “genuine dispute” rule does not apply when the insurer has failed to fairly investigate, process and evaluate an insured’s claim. Thus, the genuine dispute rule did not prevent Maslo from stating a claim for bad faith against Ameriprise in this case.
The appellate court also rejected Ameriprise’s argument that Ameriprise could not be held liable for bad faith because the amount the arbitrator awarded (i.e., $164,120) was less than Maslo’s initial policy limits demand (i.e., $250,000). The appellate court stated that “[e]ven 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.”
Last, the appellate court rejected Ameriprise’s argument that because Maslo did not allege he would have accepted less than his initial demand, he had not alleged Ameriprise’s conduct “caused” harm to him. According to the court, the problem was not Maslo’s initial demand, but rather Ameriprise’s alleged refusal to investigate and process Maslo’s claim. Thus, Maslo adequately alleged that Ameriprise’s conduct caused Maslo harm.
Comment
In the UM context, when the insurer and insured disagree whether the insured is entitled to recover damages or the amount of such damages, the insurer has a statutory right to demand arbitration of those issues. (Ins. Code § 11580(f).) However, the insurer’s right to demand arbitration does not abrogate the insurer’s duty to fairly investigate, process and evaluate an insured’s claim. As this case suggests, where there is no real issue to be resolved by arbitration, the insurer’s insistence on arbitration can violate the insurer’s duties and give rise to tort liability.