In the numerous depositions of claims handlers our firm has conducted, adjusters frequently testify that they have been trained that the duty of good faith and fair dealing requires them to make prompt payment of the “undisputed portion” of covered insurance claims. Even if the insurer and the insured disagree on the total amount of a particular claim, the insurer is supposed to promptly pay what it believes it owes on covered claims to its insureds.
But when the insurer is making this undisputed claim payment, can they condition it on making the insured sign a release that would eliminate the insured’s right to claim more is due? We have always believed the answer to this is obviously “no”, because that would mean the insurance company could essentially force the insured to give up important legal rights in exchange for receiving at least some payment from their policy.
The Indiana Court of Appeals, in an opinion handed down on July 12, 2022, found that when Erie Insurance Exchange (“Erie”) refused to pay the undisputed portion of a claim for uninsured/underinsured motorist benefits under an automobile insurance policy, Erie may have acted in bad faith. Erie Insurance Exchange v. Olivia Craighead, 21A-CT-2871, July 12, 2022. This holding necessarily means that the Court of Appeals believed Erie’s actions in refusing to pay the undisputed portion of the claim without a release from the insured demonstrated the requisite “state of mind reflecting dishonest purpose, moral obliquity, furtive design, or ill will.”
Policyholders who have suffered losses should be mindful of the insurance company’s duty to treat them fairly, to handle claims promptly, and to pay what is owed under the policy without imposing conditions on the payments.