Suing your own carrier

An injured driver can sue her own auto insurance company for dragging its feet before trial on resolving an underinsured motorist claim, a Norfolk circuit judge has ruled.

Insurance companies contend Virginia law imposes no duty whatsoever for handling a UIM claim until the injured accident victim obtains a judgment against a negligent driver.

But Norfolk Circuit Judge Mary Jane Hall, in Chevalier-Seawell v. Mangum (VLW 015-8-092), has added her voice to several other circuit court decisions that start the good faith duty much sooner for UIM carriers.

The legal controversy arises when the driver accused of causing an accident does not have enough insurance to pay for the fair damages. An injured driver can look to their own insurance coverage to make up the difference or at least fill some of the gap.

A Virginia law penalizes insurance companies if they balk at paying the claim of an insured without a good faith reason. The statute is Va. Code § 8.01-66.1(D). Another statute, however, requires a UIM carrier to pay only what an insured “is legally entitled to recover as damages.”

Insurance companies point to the second statute, saying there is no legal duty governing UIM claim handling until a judge or jury decides what the injured person is legally entitled to recover.

“I do not understand how the UIM carrier can be held to have acted in bad faith under Va. Code § 8.01-66.1(D) for failure to pay the insured an obligation it was not yet contractually obligated to pay,” said William M. Moffet of Abingdon, a lawyer with long experience representing insurance companies.

Lawyers for accident victims counter that their claims too often are ignored by UIM carriers, with costly results.

“It’s because of cases like this that the new Virginia statute takes effect for policies written next year,” said Alexandria trial attorney Gerald A. Schwartz. He referred to changes in the Virginia law that shift the defense risks to the UIM company when the defendant’s insurer pays its limits.

Red-light runner

In the Norfolk case, a primary care physician was injured in a 2012 auto crash, according to court records. The other driver was convicted of disregarding a red light and admitted liability in the civil action.

The doctor claimed a mild traumatic brain injury with resulting cognitive problems, memory loss, headaches, balance issues and personality changes. A treating physician said the injuries were permanent, a defense physician opined the injuries lasted only one year, according to Hall’s opinion.

The negligent driver’s insurance company offered its full coverage of $100,000, putting the focus on Allstate, the victim’s own insurance company. Allstate had a policy limit of $250,000, so an additional $150,000 was available under the UIM coverage.

The injured doctor’s undisputed special damages exceeded $63,000. Three weeks before trial, Allstate had not offered anything on the claim. The plaintiff’s attorney took the deposition of the defense doctor and made arrangements for the treating doctor to come to trial.

The victim’s lawyer, Oscar L. Gilbert of Norfolk, filed a motion for damages under the state “bad faith” statute. The law provides for double-rate interest from the date of claim plus attorney’s fees and expenses.

Five days before trial, after deposition of a defense physician, Allstate offered $50,000, then $55,000. On the day before trial, the offer climbed to $75,000.

With that offer, the total recovery would have been $175,000.

The jury returned an $800,000 verdict.

Hall ruled that a Virginia statute gives the court authority to examine Allstate’s good faith in its delayed settlement attempts before trial. The issue, the judge said, “remains somewhat of a novel one in Virginia.”

“The Virginia Supreme Court has not considered whether a UIM carrier may be liable under the statute for pre-trial bad faith,” Hall wrote.

The judge cited three circuit court opinions ruling that Va. Code § 8.01-66.1(D) does provide a remedy for pre-trial bad faith in UIM claims handling.

Hall said the plaintiff would not be required to file a separate pleading on the bad faith issue, even though Allstate was not a party to the pending action.

“The statute does not require an aggrieved insured to file a separate civil action against the insurer for relief; to the contrary, it allows relief ‘whenever a court of proper jurisdiction’ finds that the insurer has refused to pay in bad faith,” Hall said.

Hall then considered how much access to Allstate’s claim file should be allowed.

The judge found only one Virginia circuit court case on the subject, in which a judge rejected the insurer’s claimed work product privilege, since the opinions of the company’s agents and attorneys were directly at issue.

Citing three opinions from other states allowing access to the entire claims file, Hall ruled that Allstate’s entire file was subject to discovery except materials that might be protected by attorney-client privilege.

From a privilege log prepared by Allstate, Hall allowed discovery of a number of items with no direct attorney involvement. The judge determined to view other documents privately to limit protection to only those records “made for the primary purpose of securing or providing legal advice.”

Allstate’s motion for summary judgment is set for a Sept. 21 hearing.

‘Good faith’ test

Gilbert declined to comment on the record about the case. Allstate’s attorney Stephen A. Horvath of Fairfax, said Allstate as a general rule does not comment on pending litigation.

The need for a “good faith” test is stronger with UIM coverage, plaintiffs’ lawyers said. That’s because the injured person is dealing with their own insurance company, for coverage they paid for.

“That’s why a person buys underinsured motorist coverage and pays premiums for it,” said Schwartz.

“Why should you have to go to court, pay to bring your doctors to court, when you have a case that’s worth more than all the policies combined?” Schwartz said.

Richmond attorney Roger T. Creager agreed.

One purpose of the good faith duty is to avoid the “trial, trouble and expense” of litigation, he said.

“If [the statute] applies only when a carrier fails to pay a judgment, it seems to me the statute is not serving at least one of its purposes,” Creager said.

The bad faith context is “uniquely appropriate” for Hall’s rulings on attorney-client privilege and the work product doctrine, said Richmond trial lawyer W. Coleman Allen Jr.

“The plaintiff needs the information to make a case, and there is no substitute,” Allen said. In camera review of the claim file “seems to me to be a perfect solution,” he added.