UIM Insured Duties
Tuesday, September 24, 2019
by: Luke O’Bannan

Section: Fall 2019

Author Bio

Luke O’Bannan works as a civil litigation attorney for Kirkpatrick & Startzel, P.S. in Spokane.? After graduating from Gonzaga University School of Law summa cum laude, Luke clerked for two years at Division III of the?Washington State Court of Appeals before joining the team at K&S.? Raised in Spokane as the middle child in a family of nine, Luke enjoys spending time with his large extended family as well as his wife and children.
Washington’s ever-expanding tort of bad faith ensures insurers deal fairly with their insured.  See Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 386 (1986).  At first glance, the duty appears straightforward, but in application the duty to give “equal consideration in all matters to the insured's interests” is a complicated mire strewn with pitfalls.  Id.  This is especially true in the context of underinsured motorist (UIM) claims where the insurer is pitted against its insured, litigating “in the shoes” of the underinsured tortfeasor.  Ellwein v. Hartford Accident & Indem. Co., 142 Wn.2d 766, 780, 15 P.3d 640 (2001) (overruled on other grounds by Smith v. Safeco Ins. Co., 150 Wn.2d 478, 78 P.3d 1274 (2003)).  The most extreme example of the nearly undiscernible standard comes from a recent case out of Division I, Leahy v. State Farm Mut. Auto. Ins. Co., 3 Wa. App. 2d, 613, 418 P.3d 175 (2018), where the court reversed summary judgment dismissal of a bad faith claim against a UIM insurer who relied on a medical expert’s opinion in denying coverage for an unusual condition.  This is discussed in greater depth, after a quick review of the unenhanced obligation of good faith.   

 “… the UIM insurer is allowed to assert liability defenses available to the tortfeasor so that the insured is not placed in a better position as a result of being struck by an uninsured motorist as opposed to an insured motorist.”  Petersen-Gonzales v. Garcia, 120 Wn. App. 624, 633, 86 P.3d 210 (2004).  “[T]he relationship between a UIM insurer and its insured is adversarial.”  Id.  “UIM coverage requires that a UIM insurer be free to be adversarial within the confines of the normal rules of procedure and ethics.”  Id. (quoting Ellwein v. Hartford, 142 Wn.2d at 780).  “Because the provision of UIM coverage is by nature adversarial, an inevitable conflict exists between the UIM carrier and the UIM insured.”  Barry v. USAA, 98 Wn. App. 199, 205, 989 P.2d 1172, 1176 (1999) 

Despite the inevitable conflict that arises in the UIM context, an insurer must still be wary of its ongoing duties to its insured.  Although “Tank’s ‘enhanced obligation’ rule is simply unworkable in the UIM context,” the duty of good faith does not simply disappear after a UIM claim is made.  Ellwein, 142 Wa. 2d at 780.  “[T]he duty of good faith and fair dealing survives within the UIM relationship” and an insured has a “reasonable expectation that he will be dealt with fairly and in good faith by his insurer.”  Id.  This “friction” between the adversarial relationship and the traditional fiduciary relationship is “difficult to resolve.”  Barry, 98, Wn. App. at 205.   

In my recent experience, plaintiffs attempt to leverage the lingering good faith duty, equating it to the enhanced duty from Tank.  These efforts include allegations of bad faith by a UIM insurer because it intervenes in the action against the tortfeasor, requests examinations, submits discovery requests, or fails to pay the amount demanded by the UIM insured.  Washington case law does not generally support these threats.  The recent Leahy case, however, appears to give some lift to these arguments.   

The Leahy case was decided wrong and will likely plague insurers for years to come.  In that case, Leahy’s car was struck from behind, causing soft tissue injuries to her neck and back.  The at-fault driver’s $25,000 liability policy was split between three injure parties and Leahy received chiropractic, massage, and acupuncture services for her injuries.  More than a year after the accident, Leahy sought UIM benefits for additional injuries, specifically a recent diagnosis of dermatomyositis (DM) that the auto accident caused a “lighting up” of her previously dormant DM.  DM is an autoimmune disease that causes muscle inflammation, fatigue, and rashes.  Leahy sought $287,900, which exceeded her $25,000 personal injury protection (PIP) and $100,000 UIM coverage with her insurer.  Leahy’s insurer offered to waive $1,615 in PIP subrogation rights, asserting it did not have enough information to conclude the DM was caused by the accident. 

Leahy sent her insurer a report by a rheumatologist who had examined Leahy and concluded that the DM was caused by the accident.  The insurer responded by hiring an expert of its own to review the report.  The insurer’s expert concluded that the DM was not caused by the accident and that there is no medical support for a causal relationship between trauma from a car accident and DM.  The insurer made a new off of $11,116.11 waiver of PIP.  Leahy rejected the offer and sued. 

A jury found in favor of Leahy and awarded her $884,017.31 in damages.  Leahy then amended her complaint to add claims for bad faith, violation of the Consumer Protection Act (CPA), and violation of the Insurance Fair Conduct Act.  The trial court granted summary judgment dismissal of these new claims and Leahy appealed.  The Court of Appeals reversed. 

In its decision, the court reviewed the duty of good faith an insurer owes its insured, but quoted extensively from cases that did not involve UIM claims.  It reasoned that an “insured’s denial of coverage, without reasonable justification, constitutes bad faith.”  Leahy, at 631.  The court framed the issue of bad faith by asking “whether there is a genuine issue of material fact whether the insurer acted reasonably in relying solely on its expert on causation, while ignoring Leahy’s expert on causation.”  Id. at 633.  Under this statement of the law, an insurer must act reasonably not merely have a “reasonable justification” for its actions.  The two standards are entirely different.  It is clear that the insurer in Leahy had a reasonable justification to deny coverage because the denial was based on the opinion of a medical expert.  There was no factual dispute regarding whether the insurer had a reasonable justification for denying liability, reliance on an expert is reasonable.  Pruitt v. Alaska Pac. Assur. Co., 28 Wn. App. 802, 805, 626 P.2d 528 (1981) (“Alaska Pacific's total reliance on the single estimate of its experienced adjuster, Mr. Klinefelter, was reasonable and did not constitute bad faith.”).   

The court, however, found there was a question of fact as to whether the insurer acted reasonably because there “was a clear conflict between two experts on a central question: causation.”  Leahy, at 633.  Under Leahy, an insured has a prima facie claim for bad faith if the insurer refuses to pay a UIM insured the amount demanded, so long as the insured has some evidentiary support for its claim.  This is clearly an unworkable standard in total derogation of the adversarial underpinnings of UIM claims.   

The Leahy court concluded a question of fact regarding causation prevented summary judgment dismissal of Leahy’s bad faith claim.   

The Leahy court does not seem to have any sympathy for a UIM insurer who made offers in accordance with the testimony of its medical expert.   

Although the Leahy case appears to be the most extreme example, the duty of a UIM insurer is difficult for courts to apply and difficult to predict.  On the one hand, the relationship is adversarial and the insurer may assert claims and defenses, but on the other hand the failure to accept the insured’s offered evidence is prima facie evidence of bad faith.  This issue is far from resolved and is only likely to gain more attention as plaintiffs increasingly leverage these ambiguities.