For the second time in as many days, the courts have considered the question of an insurer's legal responsibility to act in "good faith" toward its insureds. "Good faith" is defined as an informed judgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time the insurer made a decision on the claim.
In Maryland, a third-party insurer may be liable for "bad faith" dealings with its insured when the insurer wrongfully refuses to settle a claim against the insured within policy limits. It's not a new concept. The Maryland Court of Appeals first recognized a tort action based upon an insurer's wrongful failure to settle a claim against its insured within policy limits in a 1963 case. The court held that the plaintiff had set forth a viable cause of action in light of the insurer's exclusive control of investigation, settlement and defense of the claim against the insured.
Recently, in Joseph P. Hughes, Sr. as assignee of Jarrett Pratt v. Progressive Direct Insurance Company, Inc., the United States District Court for the District of Maryland dismissed a lawsuit against Progressive Direct Insurance Company, Inc. alleging that it acted in bad faith in handling an insurance claim resulting from an auto accident.
Jarrett Pratt broadsided a vehicle driven by Joseph P. Hughes, Sr. in Baltimore City in July 2006. Hughes was severely injured. He filed a lawsuit in January 2009 in the Circuit Court for Baltimore City against Pratt for his injuries and against his insurer, GEICO Insurance, for uninsured motorist coverage benefits.
Pratt was insured by Progressive. Pratt's insurance policy with Progressive provided coverage up to $100,000 per accident.
While the lawsuit was pending, but before it went to trial, Progressive offered its $100,000 policy limits to Hughes. Hughes alleged that Pratt's attorney told Progressive the case was worth policy limits in July 2009, but that Progressive did not offer its $100,000 policy limit to Hughes until 2010. According to Hughes, GEICO did not respond in writing within 60 days as required by Maryland law. As a result, Hughes sought to enforce settlement with a "Motion to Enforce Settlement." Progressive did not participate in the motion. In response to the motion, GEICO claimed that an email its counsel sent to Hughes qualified as notice under Maryland law. Hughes disagreed, arguing that the email did not constitute notice under the statute. The court ultimately decided that the email amounted to proper notice.
The jury returned a verdict for $725,000, which was reduced to $720,000 because of the cap on non-economic damages. GEICO paid $500,000 of the verdict, satisfying the contract claim against it.
In April 2012, Hughes, as Pratt's assignee, filed a complaint for "bad faith" against Progressive in Baltimore City Circuit Court. The case was removed to federal court. Hughes claimed, among other things, that the insurer failed to join Hughes in his motion to enforce settlement against GEICO, failed to appeal the court's ruling denying the motion, failed to attend a court-ordered mediation before trial, failed to pressure or encourage GEICO to resolve the claim within policy limits, etc.
Progressive filed a motion to dismiss, arguing that Hughes's complaint failed to state a claim upon which relief could be granted because Progressive offered its policy limits in settlement before the trial. The federal trial court agreed with Progressive.
No Maryland case has been cited in which the Court of Appeals held that an insurer that offered its policy limits in settlement of a claim prior to trial could be held liable for bad faith, the court said. In this instance, the court said, it was undisputed that Progressive offered its policy limits to settle the case prior to trial. Hughes said Progressive's failure to make the offer in 2010 constituted unreasonable delay. "While this may be true," the court said, "because Progressive ultimately did offer its policy limits before trial, and considering all the facts alleged in the amended complaint, the court finds that Hughes has not stated a claim for "bad faith" failure to settle as a matter of law."
As a result, the federal trial court dismissed the case with prejudice.
Joseph P. Hughes, Sr. as assignee of Jarrett Pratt v. Progressive Direct Insurance Company, Inc. was released on September 27, 2012.
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