Insurance Companies Owe Duty of Good Faith and Fair Dealing to Additional Insureds

In a recent opinion, the Indiana Court of Appeals decisively ruled that insurers owe a duty of good faith and fair dealing to all insureds, even if an insured is not the policyholder.

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Many insurance policies extend coverage to individuals other than the person or persons specifically listed in the policy. For example, a driver’s automobile insurance policy may cover bodily injury to passengers in her vehicle, or a homeowner’s insurance policy may provide hazard coverage to the homeowner’s mortgage lender if the home suffers damage. In these instances, the individual or entity receiving coverage under another’s insurance policy is referred to as an “additional insured.”

In Schmidt v. Allstate Property and Casualty Insurance Company, Schmidt was injured while riding with a friend, who was insured by Allstate. She sued her friend and the driver of the other vehicle for negligence. Schmidt qualified as an insured under her friend’s Allstate policy, which defined “Insured Person(s)” as “any person while in, on, getting into or out of, or getting on or off of an insured auto with your permission[.]”

After Allstate refused to pay Schmidt the policy limits for underinsured motorist coverage, she amended her lawsuit to include a bad faith claim against Allstate. Allstate argued that it did not owe a duty of good faith and fair dealing to Schmidt since she was not named in the applicable insurance policy.

The Indiana Court of Appeals rejected Allstate’s argument. When a policyholder enters into an insurance contract, the court reasoned, they expect that their family and friends will be treated fairly by their insurance company. The court channeled Gertrude Stein to declare that “an insured is an insured is an insured is an insured” for purposes of an insurance company’s duty of good faith and fair dealing. The court therefore affirmed that additional insureds may be entitled to compensation if an insurance company fails to deal with them in good faith.

Indiana Court of Appeals Addresses Damages for Inherent Diminished Value of Personal Property

On February 19, 2020, the Indiana Court of Appeals issued an opinion that clarified whether plaintiffs can recover damages for the inherent diminished value of personal property caused by the negligence of a tortfeasor. In Shield Global Partners-G1, LLC v. Lindsay Forster, the defendant rear-ended a pickup truck and admitted the accident was her fault. The truck was repaired after the accident occurred and was appraised twice in order to determine its diminished value. The plaintiff then filed a negligence action against the defendant to recover damages for the inherent diminished value of the truck following repairs.

The trial court initially denied the plaintiff’s claim for damages for the diminished value of the truck by equating these damages to “stigma” damages, which are not recoverable unless the property is permanently damaged. However, the Indiana Court of Appeals interpreted the case relied on by the trial court, Wiese-GMC, Inc. v. Wells, to reach a different conclusion.

The Wells case established, among other things, that diminished value damages are recoverable when “repair will not restore the item of personal property to its fair market value before the causative event.” The Indiana Court of Appeals therefore read this case to mean that, “even if the repair restores the property to its previous condition, damages may still be recovered if there is a resulting loss of fair market value to the property as a result of it having been damaged and then repaired.”

The Court of Appeals went on to discuss how property that has been damaged is likely to have a lesser fair market value even if repaired. In other words, recovering the cost of repair is not always sufficient to make an injured party whole again. Even after repairs, an owner may not be able to sell the vehicle at its fair market value before the accident. The Indiana Court of Appeals therefore clarified that when the cost of repair will not restore personal property to its fair market value, the diminution in value may be recovered as well.