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Carriers have no pre-trial duty to settle

CarCrash - MAINThe Supreme Court of Virginia has resolved a long-simmering split among circuit courts on whether auto accident victims can insist on a good faith settlement offer from their own insurance companies when a wrongdoer cannot cover the damages.

Insurance companies handling uninsured or underinsured claims from their own policy holders do not owe a good faith duty to settle before the victim gets a judgment against a wrongdoer, the court said last month.

“The statutory framework and legislative history confirm that UM carriers have no duty to settle prior to trial,” wrote Justice S. Bernard Goodwyn for a unanimous court. A separate, unpublished decision confirms the same ruling for UIM carriers.

Virginia trial lawyers say the decisions may provide an opportunity for the General Assembly to make a legislative change.

The court’s April 27 opinion came in the case of Manu v. GEICO Casualty Co. (VLW 017-6-032). An unpublished order disposed of a companion case on the corresponding UIM issue: Conner v. Glasgow.

‘John Doe’ driver blamed

Ebenezer Manu was injured in a 2010 four-car wreck on the Capital Beltway in Northern Virginia. Drivers contended the wreck was caused, at least in part, by an unknown driver who left the scene.

Manu sued both the driver of the car he was in as well as “John Doe,” the missing driver. His suit was filed in Fairfax Circuit Court.

Manu had $27,189.12 in medical bills and $6,375 in lost wages. He hoped to get both the $25,000 limits from the auto liability coverage on his car’s driver and $25,000 from the UM coverage available from GEICO, his own insurance company, for the John Doe claim.

Manu offered to settle against GEICO for $12,500 shortly before trial, but GEICO offered only $5,000.

The other carrier paid its $25,000 limits a week before trial, and Manu proceeded to trial solely against the John Doe driver.

The trial judge ruled that Doe was negligent as a matter of law, leaving the jury to consider only damages. The verdict was for $68,528.24.

GEICO promptly paid the $25,000 limit of its UM policy, but Manu sued GEICO for the $18,528 difference between the jury verdict and his recovery from the two insurers. Manu said GEICO owed the additional damages because it failed to make a good faith offer.

GEICO claimed it had no duty to make a good faith offer until Manu’s claim was reduced to a judgment. Judge Daniel E. Ortiz sustained GEICO’s demurrer, setting the stage for the appeal to the Supreme Court.

Two statutes

The Virginia Trial Lawyers Association filed a friend-of-the-court brief to highlight its longstanding complaint about dealing with UIM carriers.

The insurance companies argue they are entitled to “force their insureds with meritorious claims to suffer needless delay, frustration, and unnecessary expense, and engage in whatever degree or extent of bad faith conduct they choose, so long as it occurs prior to the entry of final judgment,” the VTLA lawyers wrote.

Regardless, the high court held the UM good-faith duty is triggered only by a judgment.

The court said the case turned on the interplay between two statutes, one which determines when an insured may recover for a UM claim and the other which creates a right to sue for insurance bad faith.

The UM statute, Va. Code § 38.2-2206, states that UM carriers must pay when an insured is “legally entitled to recover damages.”

That phrase “imposes as a condition precedent to a UM carrier’s obligation to pay its insured, that the insured obtain a judgment against the uninsured tortfeasor whose actions come within the purview of the UM policy,” Goodwyn wrote for the unanimous court.

The other statute, § 8.01-66.1, does not include UM claims within the scope of potential good faith actions, the court said.

A UM claim is “unique because, pursuant to the terms of UM policies, as required by Code § 38.2-2206, an insured is required to obtain a judgment against the uninsured tortfeasor before the UM carrier is obligated to the pay the insured on any such policy,” Goodwyn wrote.

“Therefore, because there is no valid UM claim until judgment is obtained, there is also no duty for a UM carrier to pay or settle a demand for payment under the policy until judgment is obtained,” the court said.

“It would be illogical for Code § 8.01-66.1(D)(1) to create a duty in UM carriers to settle at a stage in the proceeding where Code § 38.2-2206 imposes no duty to participate,” the opinion continued.

The same reasoning applied for UIM (underinsurance) carriers, the court said in the three-paragraph order in Conner.

Plaintiffs’ bar disappointed

Manu clarified an area of law that has been unsettled for some 25 years, said Norman A. Thomas of Richmond, who represented the plaintiff in the Conner appeal.

“Rather than interpret [8.01-66.1] broadly, to effectuate its remedial purpose, the court interpreted the statute very narrowly,” said Jeremy Flachs of Alexandria, who represented Manu.

“The effect is to force insureds to bear the delay and expense of litigation against the tortfeasor or, perhaps, accept a pennies-on-the-dollar settlement offer from the insured’s UM/UIM carrier,” Thomas said.

As an example, he said the UIM carrier in Conner offered only $5,000 on the day before trial, even though Conner had some $37,000 in special damages. A jury returned a $200,000 verdict, Thomas said.

Flachs agreed the practice is common.

“My clients have in the past and continue in the present to be victimized by UM and UIM insurers who low-ball claims,” Flachs said.

Reform did not address UM claims

The General Assembly sought a measure of peace in the claims valley when it passed changes to § 38.2-2206 in 2015. The reforms allow a tortfeasor’s liability carrier to pay its limit and wash its hands of involvement in a case with UIM exposure. The duty to defend the wrongdoer then would shift to the UIM carrier.

The changes addressed only UIM claims, not pure UM claims, which involve an absent tortfeasor or one with no coverage at all, noted Alan B. Rashkind of Virginia Beach, who represented GEICO in Manu.

The aim was prevention, not cure, said Elliot M. Buckner of Richmond, who helped negotiate the 2015 reforms on behalf of the VTLA.

“The thought was that this was a more proactive approach, to have UIM carriers have some ‘skin in the game’ on the front end, rather than approaching it from the bad faith side, which provides a remedy after the harm in done,” Buckner said.

Attorneys in the field said they have heard no reports of the use of the new statutory language.

John J. Rasmussen of Richmond, one of the VTLA brief authors, said he made inquiries after the Manu case was released, but found no stories about how the changes are working.

Legislation likely

While the 2015 reform helps, the situation “needs a legislative fix,” said Gerald A. Schwartz of Alexandria, another VTLA brief author.

  1. Coleman Allen of Richmond, another VTLA co-author, said he has suggested to VTLA legislative leaders that they advance legislation at the next Assembly session.

“A case like this really gives you a road map for potential litigation,” he said. “Now we have it in black and white. If we look at the statute and the decision of the Supreme Court, we know what the law is without any question or doubt,” he added.

“An adverse decision by the Supreme Court of Virginia has set the table for a legislative fix,” Allen said.