Bad faith litigation is premised on an insurance company’s obligations to its insureds and/or third party to claimants. The duties that an insurance company has to insureds and claimants can arise from the common law duty of good faith and fair dealing, statutes, administrative policies or regulations and legal precedent. The nature of the relationship between the insurance company and the claimant is an important factor that is considered when evaluating the duties that a carrier has to a particular claimant. This week’s post will address the following issue: although an insured who files an uninsured/underinsured motorist claim against its own carrier an insurance company might stand in the shoes of a third party with regard to some aspects of the evaluation of the claim, the carrier nevertheless owes its insured a heightened duty of good faith, as if it were a first party claim.

In Bonenberger v. Nationwide Mutual Insurance Company, 791 A.2d 378 (2002), the insured suffered physical injury in an automobile accident. When the other driver’s carrier paid the $15,000 policy limits, Mr. Bonenberger turned to his own automobile insurance company, Nationwide Mutual Insurance Company, in an effort to collect underinsured motorist benefits (UIM). Mr. Bonenberger provided Nationwide with all of the relevant medical records, bills, documents to support his wage loss and a report from his hand surgeon. Mr. Bonenberger made a settlement demand in the amount of $52,968.00. Although Nationwide requested that Mr. Bonenberger submit to an independent medical examination and Mr. Bonenberger agreed, the examination was never scheduled. Nationwide then made a settlement offer in the amount of $7,390.36. Over the course of several months, Mr. Bonenberger also provided a sworn statement, gave Nationwide authorization to obtain his workers’ compensation file, and his hand surgeon provided deposition testimony. Nationwide’s final settlement offer was for $14,700.00. After the matter was submitted to a board of arbitrators, a $77,000.00 award was entered in Mr. Bonenberger’s favor and Mrs. Bonenberger was awarded $2,500.00 for loss of consortium.

Mr. Bonenberger filed a bad faith lawsuit against Nationwide, alleging that it improperly handed his claim and failed to adequately evaluate his injuries. The ruling from the bench was:

Nationwide’s representatives had no reasonable basis for their valuation of the claim and were not properly informed on the extent of Bonenberger’s injuries. The court noted that Nationwide failed to conduct an independent medical exam and that its representatives were guided by the terms of its Pennsylvania Best Claims Practices Manual which contains the company’s overall philosophy. The court characterized this philosophy as “encourage[ing] unethical and unprofessional practices.” In conclusion, the trial court ruled that Nationwide had not attempted in good faith to effectuate a prompt, fair and equitable settlement of Bonenberger’s claim despite its clear liability under the policy and this compelled Bonenberger to institute litigation to recover the amount due under his policy.

The court awarded Mr. Bonenberger $275,000.00 for punitive damages, $89,160.00 for attorneys’ fees and $14,736.25 in costs. Nationwide appealed.

The Superior Court of Pennsylvania evaluated several issues in connection with Nationwide’s appeal. Nationwide argued that the trial court’s finding of bad faith was premised upon an erroneous view of the duties that it owes an insured who files a UIM claim and upon an erroneous view of Nationwide’s Pennsylvania Best Claims Practices Manual. Mr. Bonenberger reminded the Court of the heightened duty of good faith that an insurance company owes to its insured in a first party claim. The Superior Court of Pennsylvania explained as follows:

The court remarked that the duty of good faith in a first party claim arises out of the contractual nature of the parties’ relationship. Nationwide submits that a UIM claim has first party components, in that the insured claimant is often making a direct claim against its own insurer, but these claims are also like third party claims because the parties may each have their own positions on the value of the claim. Nationwide is correct in recognizing this. An individual making a UIM claim is making a first party claim, however, the valuation of that claim may follow traditional third parry claimant concepts. This said, we perceive of no error in the trial court’s analysis. An insurance company does owe its insured a duty of good faith and fair dealing, and whether a UIM is handled much like a third party claim for valuation purposes, the insurer remains committed to engage in good faith with its insured.

The Superior Court of Pennsylvania noted the following regarding Nationwide’s conduct toward Mr. Bonenberger:

The court comprehensively reviewed the history of this matter and detailed an exhaustive list of reasons to support its decision…Nationwide claims handlers “disregarded Plaintiff’s medical records, conducted no independent medical examination, and made no reasonable evaluation based on Plaintiff’s presentment."

The Court affirmed the lower court’s finding of bad faith against Nationwide.

Please consider that the ruling evaluated above is specific to the Superior Court of Pennsylvania, and other courts’ holdings on the same issue may differ. Please tune in next week for another analysis of bad faith issues.

  • clay muller

    I was hit head on by a woman whos insurance company tendered 30k policy limits, my med bills are 53k and need 130k surgery and have not been able to work for 18 months. I filed a uim claim with nationwide for policy limits, 250k. The adjuster has no authority and is draging his feet i thought i could settle this without a lawyer but it looks like they are not on my side at all