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Bad Faith Suit against Allstate Reinstated

By Jack H. FarnbauchMarch 17, 2020

After being involved in a car accident in which she was a passenger, Monika Schmidt sued her friend, Deborah Fisher, who had been driving. She also sued the man whose vehicle crashed into them, asserting that both drivers were negligently operating their vehicles at the time of the incident.

However, Allstate Property and Casualty Insurance Company defended its policyholder, Fisher. Schmidt qualified as an insured under Fisher’s policy, which held on her vehicle $100,000 per person/$300,000 per accident liability coverage, as well as underinsured motorist coverage of $100,000.

Following unsuccessful settlement negotiations, Schmidt amended her complaint to include an underinsured motorist claim against Allstate and a bad-faith claim based on Allstate’s handling of that claim. Specifically, Schmidt alleged that the insurer breached its duty of good faith and fair dealing with respect to her as its insured by failing to promptly inform her of the existence of the underinsured motorist coverage under its policy, and by failing to promptly respond to her coverage claim, among other things.

Schmidt and Allstate ultimately settled the underinsured motorist claim, and Allstate later filed a motion for summary judgment, asserting that it did not act in bad faith in handling the claim. The Johnson Superior Court denied that motion, but partially granted Allstate’s second motion that asserted it did not owe Schmidt a duty of good faith because she “is not the named insured under the insurance policy, or even a party to the contract of insurance.”

Schmidt appealed, arguing that the trial court erred in granting summary judgment on the basis that Allstate does not owe her a duty of good faith and fair dealing as its insured. “At the outset, we observe that no published Indiana Supreme Court or Court of Appeals case has squarely held that an insurer does not owe a duty of good faith and fair dealing to an insured, named or unnamed, who is not the policyholder. To the extent that the cases mentioned in the trial court’s order may suggest that no such duty exists, we believe that such a proposition is untenable and unjust,” Judge Terry Crone wrote for the appellate court.

Additionally, it noted that there was “little difference between the nature of (Schmidt’s) contractual relationship with Allstate as an additional insured and the nature of Fisher’s so-called ‘special relationship’ with Allstate as a policyholder.”

You can read more here.