Insurance – Auto – UM – Contract – Unfair Trade Practices – Arbitration

Chew v. Progressive Universal Insurance Co. (Lawyers Weekly No. 10-02-1083, 18 pp.) (Louise W. Flanagan, Ch.J.) E.D.N.C.

Holding: Since plaintiff never sued the uninsured motorist who caused his accident, plaintiff has no breach of contract claim against the insurer because plaintiff never established the amount the uninsured motorist was legally required to pay him.

Summary judgment for the insurer.

Background

After the last in a series of back surgeries to address a work-related injury, plaintiff was sitting in the passenger seat of his car, and his wife was driving him home. They were waiting at a traffic light in the hospital parking lot when a stolen SUV sideswiped them.

An ambulance returned plaintiff to the hospital. His surgeon found no change from plaintiff’s post-operative condition and released him with instructions to follow normal post-op procedure.

Plaintiff sought uninsured motorist (UM) coverage from the defendant-insurer. Although the insurer agreed that the SUV driver was uninsured, the parties could not agree on the amount required to settle plaintiff’s claim.

The parties went to arbitration, and plaintiff was awarded $38,347. The insurer’s last settlement offer had been $4,750.

Breach of Contract

Because plaintiff’s damages are the measure of the uninsured motorist’s liability, the insurer was not liable under the parties’ contract to pay plaintiff’s claim until the extent of the uninsured motorist’s liability for the alleged aggravation of plaintiff’s back condition was established.

N.C. courts have consistently rejected the view that an insured may sue an insurance company for breach of contract for failure to pay UM benefits, instead holding that such actions take the form of a tort against the uninsured motorist, which the insurance company may defend.

Even if the breach of contract rubric applied, there is no merit in plaintiff’s allegations that the insurer breached the terms of the policy by “requir[ing] plaintiff to hire a lawyer and arbitrate his claim.”

First, plaintiff hired an attorney even before notifying the insurer of the accident.

Second, the policy explicitly provides that an insured party may request arbitration in the event of a disagreement as to the amount of damages owed, which is precisely what happened here.

The arbitration provision appears to allow plaintiff to choose arbitration as a less costly alternative to a tort suit against the uninsured motorist. If plaintiff wanted to recover costs and attorney’s fees related to this arbitration, which is the relief requested here, it was incumbent on him to make that request in the context of the arbitration proceedings, not in a separate lawsuit for breach of contract.

Unfair Trade Practices

The insurer immediately began its investigation into plaintiff’s claim upon learning of the accident from plaintiff. The insurer quickly established that the uninsured driver of the SUV was completely at fault in the accident and sought a recorded statement and medical documentation from plaintiff and his wife. However, plaintiff was slow to get this information to the insurer.

Eventually, based on the records provided, the insurer concluded that there was no objective evidence to support a new or enduring injury sustained by plaintiff in the accident, so the insurer offered to settle the claim for the value of the costs directly associated with the accident.

The insurer thoroughly investigated this matter and promptly offered a settlement once it had determined both the nature and the scope of liability. Based on the medical records provided by plaintiff’s physicians, the insurer asserted that plaintiff had suffered no new injury nor permanently aggravated his existing back condition, and plaintiff has forecast no evidence that the offer to settle the claim for the medical costs directly associated with the accident was unreasonable in this light.

The insurer’s position on causation and damages was made clear to plaintiff in the settlement process, and plaintiff was not restricted in providing any additional evidence that would support his own theory of causation. Finally, plaintiff’s argument that an insurance company must immediately pay its own settlement offer as the “undisputed” portion of the claim, even if settlement is rejected by the insured, is without merit.

Although plaintiff did institute an action in the form of the arbitration proceeding to obtain the amount due on the claim, and though each of the insurer’s settlement offers was substantially less than the $38,347 ultimately awarded by the arbitrators, it was not the insurer who compelled plaintiff to institute litigation. Rather, it was N.C. law, in which the amount due under a UM policy is conclusively determined in litigation against the uninsured motorist, that compelled this result.

Punitive Damages

Plaintiff has failed to set forth a claim for punitive damages for an alleged bad faith refusal to settle.

First, the insurer did not refuse to pay after the recognition of a valid claim. N.C. law establishes the amount of the claim as that which could be recovered from the uninsured motorist in tort, and this had not been established at the time of the insurer’s settlement offers. Once the validity of the claim was recognized by the arbitration panel, the insurer immediately paid the claim.

Second, the insurer did not act in bad faith. The undisputed facts establish an honest disagreement as to the amount of the claim, and the policy specifically allows for such disagreements to be settled by arbitration.

Finally, plaintiff has put forward absolutely no credible allegations of fraud, malice, gross negligence, insult, rudeness, oppression, or wanton and reckless disregard of plaintiff’s rights. The undisputed facts do not support a finding of aggravated conduct by the insurer.

Summary judgment for the insurer.