- When the insurance company intermingles a first-party underinsured motorist claim with a third-party liability claim and fails to meet policy limits demands to settle both, a bad faith claim can be asserted based upon the handling of only the underinsured motorist claim.
- July 17, 2018
Plaintiff was injured in a motor vehicle accident. The tortfeasor was insured by State Farm, which was also the plaintiff’s underinsured motorist carrier. State Farm assigned the same claim representative to handle both aspects. Plaintiff demanded the limits of both policies. State Farm denied the claims under both policies. Plaintiff then reduced his demands. State Farm responded with an offer of an amount less than the aliability limits of the tortfeasor’s policy, but it offered nothing under plaintiff’s underinsured motorist policy.
Plaintiff sued for underinsured motorist benefits, and for bad faith, alleging, inter alia, that State Farm acted improperly by assigning the same claim representative to the third-party liability claim and the first-party underinsured motorist claim. State Farm filed a motion to dismiss, which the Court granted in part and denied in part.
The Court dismissed the portions of the complaint asserting bad faith regarding the handling of the liability claim. In doing so, the Court applied a traditional standing analysis, reasoning that a plaintiff cannot maintain a claim of bad faith against a tortfeasor’s insurer. The Court did not dismiss the claim for bad faith regarding the handling of the underinsured motorist claim and, to the extent that that particular claim involved alleged improprieties in the commingling of the two matters, the plaintiff would be allowed to proceed.
It is important to note that the Court did not hold that State Farm acted in bad faith per se by commingling the claims. Rather, it simply held that the allegations of commingling the claims were part of the background for the first-party bad faith claim and that that part of the complaint was sufficient to survive a motion to dismiss.
Insurers that have both liability and underinsured motorist exposures arising from the same accident must exercise great care to treat the cases separately and to refrain from using one claim—the liability claim, for example—as a bargaining chip for the other.
Questions about this case can be directed to Louis Long, at (412) 926-1424 or [email protected]