In Shaffer v. State Farm Mutual Automobile Insurance Company, the UIM insureds was injured, settled with the other driver and made a UIM claim against its carrier. The insureds alleged they were cooperative, provided all pertinent medical information promptly, and submitted to an examination under oath. The carrier’s investigation was ongoing and there had been no settlement or denial of the claim at the time of filing, though the parties had negotiated and could not come to an agreement.
The court stated that bad faith could arise from the total denial of a benefit, but could also arise from claims handling, in failing to conduct a reasonable investigation or in undue delays, even where a claim is eventually paid. The plaintiff’s burden of proof is high, and the insurance company need not show that the process used to reach its conclusion was flawless or that its investigatory methods eliminated possibilities at odds with its conclusions. Rather, an insurance company simply must show that it conducted a review or investigation sufficiently thorough to yield a reasonable foundation for its action. Further, the length of a time by itself cannot establish bad faith; rather, a court should look to the degree to which a defendant insurer knew that it had no reason to deny the claim, and if the delay is attributable to the need to investigate further or even simple negligence, no bad faith has occurred.
Based on the allegations in the complaint taken in the light most favorable to plaintiffs, the court denied the carrier’s motion to dismiss the bad faith case as premature. The plaintiffs asserted enough facts to show a delay and to leave open the possibility that the delay was improper. The court was mindful of the fact that the carrier may be conducting a comprehensive investigation into the claim thereby providing what may be a reasonable basis for any delay during that period; however, for purposes of a motion to dismiss, the alleged facts may also indicate questionable investigation and communication practices, especially considering that the underlying automobile accident involved a clear liability, head-on collision. The court concluded that this case called for discovery regarding the claim handling, and therefore, dismissal was not proper at this stage of the proceedings.
Date of Decision: October 15, 2013