Strategies, Challenges, and Answers

A Reasonable Defense Trumps Bad Faith Even With Multiple Policy Limit Demands And An Excess Verdict

Four AcesJesse Kalberer and Eileen Mediola were in a car accident. Ms. Mediola’s attorney sent a policy limit demand to Jesse’s auto carrier, American Family. American Family rejected the demand claiming that the injuries were pre-existing and that the medical bills were overstated.

American Family warned Jesse of a possible excess verdict. Plaintiff even emailed American Family and asked the company to settle so as to not expose Jesse to an excess verdict.

At the same time, Jesse’s defense attorney was advising American Family that the verdict may come in at $20,000 or it might exceed the $100,000 policy limit by up to six times. Nevertheless, American Family’s attorney served an Offer of Judgment for $76,000 and proceeded to trial.

The jury returned a verdict of $338,477.03.

Before a judgment could be entered, American Family settled Ms. Mediola’s claim and later obtained a Stipulation to Dismiss any judgment, which the state court approved.

In Kalberer v. American Family, 2:13-CV-2278 JCM (NJK), Jesse filed suit against American Family alleging it had breached its contract with her and was guilty of bad faith and violations of the Unfair Claims Settlement Practices Act for refusing to settle the state court litigation within policy limits.

Because American Family had paid the excess verdict, Plaintiff dismissed the breach of contract action. Upon completion of discovery, the parties filed motions. In its Order dated August 18, 2014, the court acknowledged that even if all of the terms of the contract are satisfied, a party to the contract can still be in bad faith if that party contravenes the intentions of the contract. Morris v. Bank of Am. Nevada, 110 Nev. 1274, 1278, 886 P.2d 454, 457 (1994).

However, as has been pointed out HERE in the Nevada Coverage Law blog, the Court explained that in order to be in bad faith, an insurance company must not only unreasonably deny or delay payment, the company must also know that there is no reasonable basis for its action. As an example, the Court reminds us that a policy-limit settlement demand where Plaintiff has unilaterally set an arbitrary time limit does not necessarily constitute bad faith. See Hicks v. Dairyland Ins. Co., 2010 WL 2541175 (D. Nev. 2010). The court explained why in this case Amercian Family’s actions were not in bad faith. It said:

[e]ven though the jury returned a verdict against plaintiff in Mediola’s suit, this alone does not demonstrate that American Family acted in bad faith. American Family’s evidence shows that declining Mediola’s offer to settle within the policy limit was reasonable. Viewing the evidence available at the time American Family reasonably believed Mendiola’s injures were partially pre-existing and that her medical costs had been overstated.

Kalberer v. American Family Mut. Ins. Co., No. 2:12-CV-2278 JCM (NJK), slip op at 5-6 (D. Nev. filed Aug. 19, 2014).

The Court said that just because the verdict came in in favor of Plaintiff, American Family’s actions were not unreasonable at the time that the state court’s action was pending.

The Court’s analysis regarding the Unfair Claims Settlement Practices Act was similar. Plaintiff’s UCSPA allegations were based on American Family’s refusal to settle. But without evidence that American Family’s valuation was unreasonable (rather than incorrect) the allegations of Unfair Claims Settlement Practices violations also failed.

The take-away is that if an insurance company conducts a reasonable investigation and mounts a rational evidence-based defense, even if an excess verdict is the result, bad faith and Unfair Claims Settlement Practices violations are not a given.

If you have questions about how to mitigate your risks of bad faith and Unfair Claims Settlement Practices Act violations in the face of an excess verdict, contact Mike Mills at Mills & Associates for a consultation. Mike will talk to you at 702-240-6060.

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