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UIM/UM Carriers: No Duty to Settle Prior to Judgment

October 1, 2017 By David D. Das

It has been well settled in Virginia that the obligation of an underinsured/uninsured motorist insurer arises only if and after it is determined that their insured is “legally entitled to recover damages from the owner or operator of an uninsured motor vehicle.  Midwest Mut. Ins. Co. v. Aetna Casualty & Surety Co., 216 Va. 926, 929, 223 S.E.2d 901, 904 (1976).  “Judgment is the event which determines legal entitlement to recovery.”  Id.  Thus, the rule is that the obligation of an uninsured/underinsured does not “kick in” until the insured obtains a favorable judgment.

Despite the long standing rule, problems arose when UIM/UM insurers were not active in settlement negotiations which prompted plaintiff’s to make claims of bad faith pursuant to Virginia Code section 8.01-66(D)which has been held to apply to UM carriers and their pretrial behavior.2

The Virginia Supreme Court seems to put to  rest to this dilemma in Manu v. GEICO Cas. Co., 798 S.E.2d 598 (2017). In Manu, the plaintiff sued Mr. Boateng and John Doe for personal injuries received in a multi-vehicle accident.  Boateng tendered his policy limits of 25k and plaintiff pursued GEICO’s uninsured provision seeking additional recovery due to John Doe’s negligence.  GEICO refused to participate in settlement negotiations and defended John Doe.  The jury returned a verdict in favor of plaintiff for $68k and GEICO paid its UM exposure.

Subsequently, plaintiff sued GEICO alleging bad faith pursuant to 8.01-66.1(D) and sought to recover the amount above UM coverage in addition to attorney’s fees.  GEICO filed a demurrer which was sustained by the trial court and plaintiff’s case was dismissed with prejudice.

The Supreme Court reaffirmed its holding in Midwest Mutual and began by reasserting the principal that “an insured must be legally entitled to recover the damages he is seeking before a UM carrier’s obligation to pay arises.”  Manu, 798 S.E.2d at 598.  That “legal entitlement” comes into existence only after the insured obtains a judgment.  Id.

Thus, the Court agreed that section 8.01-66(D)(1) does provide a bad faith cause for insureds, but it does not “impose any additional conditions upon insurers; it provides a remedy to insureds against insurers who arbitrarily refuse to pay claims they owe under the terms of the insurance contract”. Manu at 606.  In effect, the holding reaffirms that position that the statute does not create a duty for UM carriers to settle a case prior to trial and this is why Manu’s complaint was dismissed with prejudice.  Id. at 609. 

Whenever a court of proper jurisdiction finds that an insurance company licensed in this Commonwealth to write insurance as defined in § 38.2-124 denies, refuses or fails to pay to its insured a claim of more than $3,500 in excess of the deductible, if any, under the provisions of a policy of motor vehicle insurance issued by such company to the insured and it is subsequently found by the judge of a court of proper jurisdiction that such denial, refusal or failure to pay was not made in good faith, the company shall be liable to the insured in the amount otherwise due and payable under the provisions of the insured’s policy of motor vehicle insurance, plus interest on the amount due at double the rate provided in § 6.2-301 from the date that the claim was submitted to the insurer or its authorized agent, together with reasonable attorney’s fees and expenses.
Copenhaver v. Davis, 31 Va. Cir. 227 (1993, Louisa Cir. Ct.) was probably the first Court to rule this way, basing its decision in part on the idea that Va. Code § 8.01- 66.1 (D) “intended to provide and does provide a remedy for pre-trial bad faith behavior by insurance companies.”  Copenhaver, 31 Va. Cir. at 227.