February 2007

By Ray Coates, Low, Ball & Lynch

A claim of bad faith in an uninsured motorist case is a threat constantly in the background of any arbitration. This case examines the factual context in which such claims can be made.

Laura Rappaport-Scott was insured by Interinsurance Exchange of the Automobile Club and carried uninsured and underinsured motorist coverage of $100,000. While driving in January of 1997, she was rear-ended by another vehicle that had been struck by a vehicle driven by an underinsured motorist. The underinsured motorist settled for $25,000, his limit of liability. Ms. Rappaport-Scott then submitted an underinsured motorist claim to Interinsurance.

She demanded arbitration. She claimed that the value of her case was $346,732.34, including $26,732.34 in medical expenses, $20,000 in future medical expenses, $150,000 in lost income and $150,000 in general damages. At the arbitration she requested $75,000, based on a claim worth more than her $100,000 limit, but reduced by the settlement of $25,000. She demanded that sum from Interinsurance prior to arbitration. Interinsurance offered $7,000 on the claim.

At the arbitration, Ms. Rappaport-Scott was found by the arbitrator to have suffered damages of $15,000 for medical expenses, $3,000 for loss of earnings, $45,000 for pain and suffering, for a total of $63,000. The arbitrator reduced the award by $25,000 and further reduced it for the payment of medical bills of $5,000 for a net award of $33,000.

Ms. Rappaport-Scott then sued Interinsurance for bad faith for failing to settle the claims in a reasonable time. The trial court sustained a demurrer to the complaint without leave to amend. Upon entry of judgment of dismissal, Ms. Rappaport-Scott appealed.

The Court of Appeal affirmed. It noted that the standard for evaluation of bad faith in a first-party underinsured motorist case is different from that involving third-party liability coverage. In the first-party context, the duty of the insurer is not to unreasonably withhold benefits due under the policy. That occurs when there is unreasonable delay or failure to pay benefits due under the policy. There is no unreasonable withholding of benefits if there is a genuine dispute between the insurer and the insured as to the amount of payments due.

The court stated the test of bad faith in a first-party context is not the failure to accept a reasonable settlement demand within policy limits. That rule only applies in the third-party context. The test in a first-party case is the unreasonable delay in the payment of benefits. In this case a genuine dispute doctrine existed as to the amount payable on the claim. Despite the fact $7,000 was offered by Interinsurance and $33,000 was awarded by the arbitrator, the vast difference between the amount demanded by Ms. Rappaport-Scott and her actual award demonstrated as a matter of law that a genuine dispute existed as to the amount payable on the claim. It was reasonable, as a matter of law, to proceed to arbitration to resolve this genuine dispute. Ms. Rappaport-Scott therefore had failed to allege a cause of action for breach of the implied covenant based upon unreasonable delay in the payment of policy benefits. The trial court properly sustained the demurrer without leave to amend.

The judgment was affirmed.

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COMMENT This case shows that where there are reasonable disputes between the parties as to the value of the case in an underinsured motorist claim, there is no bad faith in proceeding to arbitration. The arbitration procedure is designed to resolve this good faith dispute.

This and other WEEKLY LAW RESUMETM articles are available from Raymond Coates at (650) 366-4000, RCoates@lowball.com or at WWW.LOWBALL.COM.

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Nearly one out of every five customers considers switching insurance companies after experiencing the collision claim process, according to the J.D. Power and Associates 2006 Collision Repair Satisfaction Study.

"Filing an insurance claim is a critical moment of truth that shapes a customer's overall perception of their insurer," said Jeremy Bowler, senior director of the insurance practice. "Often, this is the first time they truly become familiar with their insurance policy. Misconceptions about what is covered by the auto policy, or what to expect during the claim and repair processes can lead to significantly lower customer satisfaction, which in turn increases the likelihood that the customer may consider switching carriers in the future."

The study finds that 7 percent of customers chose not to file a claim with their insurer after their most recent collision. Common reasons include: the insurance deductible was more than the cost of the repairs; concern that the carrier would increase the premium after the claim; or at the advice of their insurance agent.

"Before filing an insurance claim for minor damage, customers may want to first get an estimate for the cost of repairs," said Bowler. "If it's less than the deductible on the policy, the insurer will likely not cover any of the expense anyway."

Additionally, while more than 30 percent of auto insurance customers who chose not to file a claim after a collision feared their premium would increase, 62 percent of respondent who did file a claim more than six months prior to being surveyed indicate their premium has not been re-adjusted by their insurer.

According to the study, the factors that drive customer satisfaction with a repair include: claims/estimation (62%); body shop (36%); and rental car (2%).

With a score of 821 index points on a 1,000-point scale, Amica Mutual ranked highest in satisfying claimants with the collision repair process, receiving the highest ratings from customers in the claims/estimation factor. Erie Insurance and State Farm, respectively, follow Amica Mutual in the overall ranking. USAA, an insurance provider open only to the U.S. military community and their families and therefore not included in the rankings, also had a high level of customer satisfaction.

The study also found that claimants whose vehicles are totaled rather than repaired are significantly more satisfied if their insurer gives them a clear explanation of why the vehicle is totaled and how they calculated the settlement amount. Nearly 85 percent of total loss claimants receive an explanation of why their vehicle is being totaled and how their actual cash value settlement is derived.

"The difference in satisfaction is primarily driven by how well the insurer manages the claims process, which is significantly longer for claimants experiencing a total loss," said Bowler. "However, when the damage exceeds $5,000, total loss claimants tend to be significantly more satisfied with their collision experience, perhaps due to concerns surrounding repair quality and diminished value of the vehicle."

The 2006 Collision Repair Satisfaction Study is based on responses from 5,752 customers who have had collision damage repaired on their vehicle or have had a total loss within the past 12 months.

From J. D. Power and Associates.

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Three people received an unwelcome surprise when they purposefully rammed their car into an unsuspecting vehicle.

According to the California Department of Insurance, Liliana Mazariegos , Exau Gonzalez Yanez , and Alex Diaz were driving on a state highway when they targeted a newer-looking vehicle. With the help of two other cars that were being driven by accomplices, the three allegedly attempted to stage a collision in order to commit insurance fraud by filing false injury claims. What they didn’t know about their target was that the intended victims were detectives with the Los Angeles County Sheriff’s Department.

Since the detectives were familiar with how this type of scheme works, they immediately gave their statements to a reporting highway patrolman, who then called the L.A. County Auto Insurance Fraud Task Force to come to the scene. All three suspects were arrested and warrants issued for the two other accomplices. They face bail amounts of $200,000 and some could be deported for being undocumented immigrants.

Staged auto accidents, referred to as “swoop and squat” accidents, generally involve multiple victims who file whiplash and soft-tissue claims following an incident, injuries that are often difficult for doctors to substantiate. The Federal Bureau of Investigation estimates that this type of fraud costs insurance companies more than $20 billion a year.

Reprinted from Claims Magazine, copyright 2006

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