SEPTEMBER 2012 BAD FAITH CASES: COURT CONSTRUES AMBIGUOUS CHOICE OF UIM BENEFITS IN FAVOR OF INSURED, BUT RULES THAT CARRIER’S TENDER OF LOWER AMOUNT WAS NOT IN BAD FAITH BECAUSE OF THE INSURED’S UNCLEAR RESPONSE ON POLICY SELECTION FORM (Philadelphia Federal)

In Olender v. Nat’l Cas. Co., the court heard cross-motions for summary judgment stemming from the carrier’s denial of benefits under the insured’s under insured motorist (“UIM”) policy. The insured was the owner of an automotive garage and purchased a UIM policy through his company. However, when originally selecting his desired UIM coverage on the policy selection form, he initialed in two places, appearing to choose both $100,000 and $35,000 liability limits.
In 2008, the insured’s wife was driving an automobile owned by her husband’s company and was struck by a negligent driver. The driver was only insured for $15,000, an amount insufficient to cover the injuries she sustained. As such, she filed a UIM claim with the carrier. In mid-2009, the carrier tendered to the insureds a check in the amount of $35,000. The check was accompanied by a general release discharging the carrier from any further liability. The insureds refused to sign the release and returned the check, reasoning that they were entitled to the full $100,000 in coverage. The insureds later sent a demand letter to the carrier demanding that they be awarded the undisputed $35,000 amount, but the carrier refused.
Prior to the date of the demand letter, the insureds had filed an action for declaratory judgment, breach of contract and bad faith against the carrier, seeking a judgment that they were entitled to the full $100,000. The carrier removed the case to federal court and the parties filed cross-motions for summary judgment.
The insureds contended that they did not reduce their UIM policy limits to $35,000 and that the carrier’s refusal to tender the full $100,000 was a breach of their contract. The carrier claimed that the insureds had chosen the $35,000 limits because they signed next to that option on the policy selection form. The court agreed with the insureds that an examination of the policy selection form as a whole manifests a desire to obtain coverage for $100,000. A reading of the policy shows that the insured properly signed and initialed next to that amount.
The court reasoned that the carrier ignored the fact that the insured selected both options – he sought $100,000 in UIM limits, an amount equal to his bodily injury coverage. However, he also appeared to choose $35,000 in UIM limits. Under basic contract principles, the policy should be construed in favor of the insured. The court therefore ruled that the carrier was required to tender the $100,000 in UIM coverage.
As for the bad faith claim, the insured contended that the carrier’s refusal to initially tender the $35,000 sum without signing a general release constituted bad faith. However, the court reasoned that, due to the ambiguities contained in the insured’s selection form, the carrier’s decision was made in good faith on the basis of the designations of the selection form. The court did not address the issue of whether requesting the release of any bad faith claim was in itself bad faith.
The court therefore granted the insured’s motion on the breach of contract claim, but found for the carrier on the bad faith count.
Date of Decision: August 21, 2012
Olender v. Nat’l Cas. Co., 11-4098, 2012 U.S. Dist. LEXIS 117731, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Aug. 21, 2012) (Tucker, J.)