Alternative dispute resolution (ADR) in the forms of appraisal, arbitration, and mediation can be utilized to resolve insurance claims disputes. While these tools are designed to avoid contentious litigation, they can be used as a sword rather than a shield. However, an insurance company cannot avoid liability for bad faith practices simply by agreeing to have an insurance dispute referred to an ADR forum. The insurer has a duty to exercise good faith in investigating, adjusting, and paying a claim even when the matter is referred to arbitration or appraisal. If the insurer neglects to exercise good faith in investigating a claim, the insurer can still be subject to liability for bad faith.
A California appellate court in Maslo v. Ameriprise Auto & Home Life demonstrates how a court can prevent an insurer from using arbitration as an evasive maneuver to avoid bad faith liability. In Maslo, the insurer filed an insurance claim under his uninsured motorist (UM) coverage in connection with a collision involving an uninsured driver who was at-fault. The policyholder filed a UM claim supported by medical records and the law enforcement accident report. The policyholder submitted a demand for the policy limit of $250,000 based on the conclusion of the accident report that the other driver was 100 percent at-fault. The insured also agreed to refer the case to mediation, but the insurance carrier refused to participate.
The insurance carrier refused to respond to the request for policy limits. The insurer also did not investigate, evaluate or process the policyholder’s claim before demanding the matter proceed to arbitration. The arbitrator awarded Maslo $64,120.91 for medical bills and another $100,000 in general damages. Following the arbitration award, the insured initiated a lawsuit for insurance bad faith against the insurance company. The trial court sustained a series of demurrers by the insurance company that were overturned by the Court of Appeals. The Court of Appeals found that the rejected demand for policy limits without an investigation, failure to propose any settlement, knowledge that the other driver was at-fault and refusal to agree to mediation was sufficient to support a finding of bad faith.
The insurance company raised several arguments on appeal that were rejected. The insurer contended that the duty to act in good faith was not as applicable in UM cases. This argument was dismissed based on decisions by courts in other states.
The insurer also argued that it was shielded from liability for bad faith because a “genuine dispute” existed over the amount of the claim. The Court of Appeals dismissed this argument based on the “genuine dispute rule” because the insurer failed to thoroughly and fairly investigate the claim. Since the insurer refused to respond to the demand for policy limits and failed to properly investigate the claim, the insurer could not claim a genuine dispute existed.
The third contention by the insurance carrier was that the amount awarded in arbitration was less than the demand made by the insured. The insurer contended it did not act in bad faith because the arbitration award did not clearly exceed policy limits. The court rejected the premise that an insurer can evade its duty to investigate a claim by simply requesting arbitration. An insured cannot circumvent the duty to investigate and evaluate a claim or to respond to inquiries by policyholders by submitting the matter to arbitration according to the appellate court.
You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].