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Bad Faith Claims Against UM Carriers

August 5, 2020

The question before the court was when an insured can maintain a bad faith claim against a motor vehicle insurance carrier for refusing to settle an uninsured motorist (UM) claim.

The Virginia Supreme Court recently held that the injured insured must first obtain a judgment against the negligent uninsured driver before a UM carrier can be liable for bad faith.

In Manu v. GEICO the plaintiff, Ebenezer Manu, was a passenger in a vehicle. Operated by Benjamin Boateng, which was involved in a multi-vehicle accident.  Boateng had an auto insurance policy that provided $25,000 in liability coverage, while Manu had $25,000 in UM coverage under a policy issued by GEICO.

As a result of the injuries sustained in the accident, Manu incurred over $27,000 in medical bills and over $6,000 in lost wages.  Manu subsequently sued Boateng and John Doe, and discovery established that the John Doe driver was the cause of the accident.  Manu thereafter placed GEICO on notice of his intent to seek $25,000 in UM coverage due to the negligence of John Doe.

Prior to trial, Boateng settled with Manu for his $25,000 policy limits.  Manu offered to settle with GEICO for $12,500, but GEICO would only offer $5,000, which offer was rejected.  The matter proceeded to trial solely against John Doe.  At the trial, the court found that John Doe was negligent as a matter of law, and GEICO did not dispute plaintiff’s injuries and medical bills.  The jury thereafter returned a verdict in favor of Manu in the amount of $68,528.24.  GEICO then paid Manu its $25,000 UM limits.

Manu thereafter filed an action against GEICO alleging that GEICO’s failure to settle his UM claim before trial, within its $25,000 policy limits, constituted bad faith under Virginia Code § 8.01-66.1.  He sought judgment for $18,528.24 (representing the unpaid portion of the jury’s award) plus attorney’s fees in the amount of $30,000, as well as other damages.

The trial court ruled that Manu could not maintain a bad faith claim against GEICO and Manu appealed.

On appeal, the Virginia Supreme Court affirmed.  In interpreting the Virginia Uninsured Motorist Coverage statute, Virginia Code 38.2: 2206(A), it found that GEICO had no duty to pay Manu until Manu obtained a judgment against John Doe.  While Virginia’s bad faith statute, at Code § 8.01-66.1(D), creates a cause of action against insurers who arbitrarily refuse to pay claims, the Supreme Court found that the statute is intended to address an insurer’s refusal to pay a claim once the insurer has a present obligation to pay.  Since a UM carrier has no duty to pay until a judgment has been entered against the negligent driver, there can be no bad faith claim against a UM carrier unless it arbitrarily refuses to pay a judgment that has been obtained.  Since GEICO promptly paid Manu its $25,000 UM limits after the judgment was obtained against John Doe, there could be no bad faith claim against it.

The Manu case significantly limits the liability of a UM carrier for bad faith claims.  Nevertheless, the UM carrier will still have an incentive to settle UM claims where the liability of the uninsured driver is clear and damages are established in order to avoid the expense of litigating claims that it will ultimately be required to pay.