In Aumen v. Nationwide Mutual Insurance Company, one of the insureds was driving a van owned by his employer when he was struck by another vehicle. At the time of the accident, the insureds were the beneficiaries of a motor vehicle insurance policy with the insurer, which provided benefits of up to $50,000 per person. The benefits were stacked for three vehicles, so the maximum coverage was actually $150,000 per person.
The driver of the other vehicle, the tortfeasor, had an insurance policy that provided liability coverage for up to $25,000, and the insureds settled their claim against him for that amount. They maintained, however, that their injuries exceeded $25,000, and they made a claim to the insurer for underinsurance motor (“UIM”) benefits to cover the balance.
Months after the insureds filed their claim, the insurer denied claims for both lost wages and UIM benefits. The insured was in his employer’s vehicle at the time of the accident, and the policy contained an exception for “use by an insured of any vehicle to carry persons or properties for a fee.” After the insureds demanded arbitration almost three years later, the insurer eventually accepted coverage of the UIM claim and agreed to settle the claim for $80,000 in exchange for a general release from the insureds.
The insureds filed suit shortly after the settlement proposal. They believed that the insurer acted in bad faith in 1) failing to conduct a reasonable coverage investigation, 2) unreasonably delaying acceptance of coverage, and 3) requesting that the insureds execute a general release (which the insureds argued was contrary to Pennsylvania law).
The court first noted that insurers have the same duty of care in UIM claims as they do in regular first party claims. Therefore, the same standard of insurer bad faith would apply: the insured must “present clear and convincing evidence that the insurer did not have a reasonable basis for denying benefits under the policy and that the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim.”
While the standard for bad faith was the same, the court sided with the insurer on all aspects of this dispute. Concerning the reasonableness of the insurer’s investigation and position, the court felt that it was reasonable for the insurer to initially deny coverage because it believed the insured was acting in the course of his employment when the accident occurred, and it simply applied the policy exception. Even if the insurer’s interpretation of the law was eventually incorrect, it certainly did not act unreasonably in denying benefits, according to the court.
Additionally, while the court recognized that a delay in evaluating and settling a claim “may be a relevant factor in deciding whether a insurer has acted in bad faith,” in this case the insurer did not unreasonably delay anything. The insureds never notified the insurer that they believed the processing of their claim was taking too long, and the insurer had a complex claim before it with multiple parties involved.
Finally, the insureds had asserted that the release executed in consideration of the UIM settlement was contrary to Pennsylvania law. The court dismissed this allegation as well, as it noted that the release was limited to the scope of the UIM claim, so it was not overbroad and was within the bounds of the law. Therefore, the magistrate recommended that the court grant the insurer’s motion for summary judgment, as nothing the insurer did was indicative of bad faith.
In a short opinion after the magistrate judge’s recommendation, the district judge adopted the recommendation in its entirety. Neither party objected to the recommendations, and the court agreed with the reasoning that led the magistrate judge to form his conclusions.
Date of Recommendation: March 8, 2011
Aumen v. Nationwide Mut. Ins. Co., No. 1:10-CV-597, United States District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 31166, (Mar. 24, 2011) (Jones, III, J.)
Date of Adoption of Recommendation: March 24, 2011
The opinion adopting the magistrate’s recommendation can be found at: Aumen v. Nationwide Mut. Ins. Co.
, No. 1:10-CV-597, United States District Court for the Middle District of Pennsylvania, 2011 U.S. Dist. LEXIS 31360, (Mar. 8, 2011) (Prince, U.S.M.J.)