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.

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.

Tornado Damage Insurance Claims: The Twist May Be in the Policy Language

Indiana has just been clobbered – again – by fierce, widespread tornadoes. The website of the National Weather Service has excellent data you can review to track the history of the storms and the damage they caused in your area. For example, visit: http://www.weather.gov/ind/august242016severeWhen the time comes to finalize your claim with your commercial or homeowners insurance carrier for the damage caused to your property by these strong storms, there are some common pitfalls to be aware of about what is or may be covered.

For example, depending on the scope or extent of the damage to your property, there may be additional dollars over and above the limits of your property coverage available to pay for the cost of debris removal. Policies provide this coverage in different ways and it is important to read and understand how your policy works when you are negotiating with your insurer. Here is one example of how a property policy may provide debris removal coverage:

Language like this appears simple enough on first reading, but look again.  Let’s say you incurred expense removing debris following a storm, and assume the cost of removing the debris was actually more than the damage caused to your structure.  This policy appears to limit the available dollars for debris removal to 25% of the “amount we pay for the direct physical loss of or damage to Covered Property.”  The capital letters means “Covered Property” is defined somewhere else in the policy.  Defined as what?  The building?  The building and outbuildings?  It is important to know.  Also, when this policy provides 25% of the amount of direct loss or damage “plus” the “deductible in this policy applicable to that loss or damage” does that mean 25% of the deductible or 100% of the deductible?  Again — this is important to know when you are settling with your insurance company.

What if all you have is trees down, but (thankfully) they missed your house?  Homeowners policies often provide limited coverage for damage to trees and shrubs. The straight-line winds that accompanied recent storms brought down many, many trees – both living and dead – and the cleanup cost can be staggering. Yet, your homeowner’s policy from that “good neighbor” company that is “on your side” may only provide you with very limited policy proceeds for the cleanup of trees, and then only under very limited circumstances.

Here is some typical language from a standard homeowner’s policy:

We will also pay your reasonable expense, up to $1000, for the removal from the “residence premises” of:

1)  Your tree(s) felled by the peril of Windstorm or Hail or Weight of Ice, Snow or Sleet; or 


2)  A neighbor’s tree(s) felled by a Peril Insured Against under Coverage C; 
provided the tree(s):

3) Damage(s) a covered structure;

4) Does not damage a covered structure, but:  a) Block(s) a driveway on the “residence premises” which prevents a “motor vehicle”, that is registered for use on public roads or property, from entering or leaving the “residence premises”; or  b) Block(s) a ramp or other fixture designed to assist a handicapped person to enter or leave the dwelling building.

The $1000 limit is the most we will pay in any one loss regardless of the number of fallen trees. No more than $500 of this limit will be paid for the removal of any one tree.

Say that again?!

If you need assistance untangling the language of your policy and working to resolve your claim with your insurance company, the policyholder attorneys of Parr Richey are always ready to help. Call Mike Schultz or Jim Buddenbaum toll free at 888-337-7766.