Court finds the UIM carrier cannot wait for the underlying case to resolve before commencing an investigation. Failure to justify and post adequate reserves even while the underlying tort action is proceeding, are further evidence of Bad Faith

 

There are many things to talk about here as to what not to do in a UIM case in Pennsylvania. However, I want to focus on two issues in particular. First was the court’s interest in the failure of the adjusters to justify and make adjustments to the reserve. Second, the court viewed delays as a failure of the UIM carrier’s duty to investigate even while the claim against the Tarquinio was unresolved.

In December 2006, Brandon Grossi was severely injured when the vehicle he was a passenger in lost control and hit a guardrail. Liability was clear. The vehicle was owned by Tarquinio Brothers Bakery and operated by Michael Tarquinio. The Tarquinio vehicle had $3,000,000 of available coverage and Grossi had $300,000 of available UIM coverage through his parent’s policy with Travelers. Travelers paid about $500,000 in first party medical coverage and the full $25,000 limit of available coverage for wages.

In April 2008, Grossi’s attorney demanded the full limits of the UIM policy. The Travelers adjuster prepared an evaluation worksheet. However,

the worksheet was not done in compliance with the claims manual as it was not based on an independent analysis of the claim for future loss of income. The worksheet placed the full value of Grossi’s injuries at $4.8MIL. With the $3MIL offset for Tarquinio’s coverage, there would be $1.8MIL of exposure against the $300,000 UIM coverage. The UIM reserve was $1,000 and was not adjusted even after the worksheet was completed and remained at $1,000 through the entire case. This is a fact which did not escape the review of the trial and appellate courts.

Throughout this time, the case against Tarquinio was ongoing. In fact, that case did not settle until March of 2009, when the carrier for Tarquinio paid $950,000, less than a third of the available coverage.

The case was then transferred to the Major Case Unit. The new adjuster expressed the view to Grossi’s attorney that the claim for loss of earnings was “highly speculative” and he intended to secure an IME, a vocational expert and an economist. The reserve was still not adjusted and remained at $1,000.

In May of 2008 arbitration was demanded. But it was not until May of 2009 when Travelers finally obtained an IME. This delay also did not escape the review of the courts. Travelers also obtained a vocation report, but the report never became part of the claim file nor was it reviewed by the adjuster prior to the arbitration hearing. It was not even mentioned in the file notes.

The arbitration hearing was held in August 2006. The award for the plaintiff was $4,000,000. Travelers promptly tendered the available $300,000 in UIM coverage without interest. The Bad Faith action soon followed. In a non-jury trial, the court found Travelers did act in Bad Faith and awarded the plaintiff $1,480,815, which included $1,252,325 in Punitive damages. The case was appealed and cross appealed to the Superior Court which on Nov. 1, 2013 rendered its opinion.

The Superior Court wrote:

“Central to the trial court’s conclusion that Travelers acted in bad faith in its treatment of Grossi’s UIM claim was its finding that Travelers established and maintained only a $1,000.00 reserve throughout the life of the claim, without sufficient justification.”[1]

As with most Bad Faith actions, the claims manual was called into evidence. The manual defined the worksheet as a tool for “evaluating and reserving”. In the footnotes of the opinion, the court used the definition of reserve from Black’s Law Dictionary as an “insurer’s estimate of future payments on a loss claim.”[2] In light of Grossi’s seven surgeries, continuing disability three years post-accident, uncontested liability, and projected lost earnings (one vocational report placed future loss of earnings as high as $8,000,000), the court found that maintaining an estimate of future payments on a loss claim of only $1,000 was unreasonable and reckless.

The court also spent considerable time on the rejection of the wage loss claim as “highly speculative” without an independent evaluation was unreasonable. The court characterized this as “blindly” rejecting the future loss earnings claim. The Superior Court held,

              “To accept Travelers’ position would justify rejection of any UIM claim simply on the basis of an inherent uncertainty when estimating damages, without engaging in any particularized analysis or investigation of the individual claim. Such a practice cannot fulfill an insurer’s duty of good faith and fair dealing.”[3]

The second point is that the court focused on the delay in investigating a UIM claim where the underlying limits are perceived as adequate to handle the loss. Remember, the case against Tarquinio did not resolve until March 2009. Counsel for Travelers’ requested and obtained discovery in the underlying Tarquinio case, but did not receive the vocational report obtained by the defense.

It was only after the Tarquinio case resolved that Travelers obtained an IME. The trial court found that by waiting a year to obtain an IME, Travelers breached its duty to investigate the UIM claim, a conclusion which was supported by the majority of the Superior Court.

This imposes a new duty on most carriers. Traditionally, no carrier expends an adjuster’s time and company money to obtain costly IME’s, vocational and economic report when the underlying tort feasor has millions of dollars in available coverage and while the underlying case is ongoing. I believe the key for the court was the April 2008 demand for UIM benefits. A formal demand for UIM benefits should be sufficient to trigger a carrier’s duty to investigate. The court’s focus on the delay between the demand for benefits and securing the IME is telling.

There were other problems for Travelers in the case. But the departure into new Bad Faith territory was the recognition of the court of the duty to investigate, regardless of the status of the underlying action and the focus on the justification and adequacy of the reserve.

If you would like more information, please feel free to email me at: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 

[1] Grossi v. Travelers Personal Insurance Company, 2013 Pa. Super. 284, No. 769 WDA 2012 (Pa. Super. Nov. 1, 2013

[2] Grossi v. Travelers Personal Insurance Company, 2013 Pa. Super. 284, No. 769 WDA 2012 (Pa. Super. Nov. 1, 2013; footnote 2, p. 3

[3] Grossi v. Travelers Personal Insurance Company, 2013 Pa. Super. 284, No. 769 WDA 2012 (Pa. Super. Nov. 1, 2013 p. 17