In states that haven’t passed safe harbor legislation, multiple claimants and insufficient limit claims pose certain challenges to insurers in the claims handling stage. Numerous claimants competing for severely limited policy limits creates numerous conflicts and can present challenges to resolution.

But complex claims increase the need for professional claims handling to protect the insured. Simply putting the policy limits on the table and attempting to walk away is insufficient. Traditional claims handling principles should still be utilized to protect the insured as the Indiana Court of Appeals recently determined.

Baldwin v. Standard Fire Insurance Company,
2024 WL 3093500 (Ind. Ct. App. June 24, 2024)

Background

In June 2018, Tommi Hummel was traveling down a state highway with John Hopkins and Jill McCarty in the back seat as passengers. Hummel attempted to cross an intersection with an interstate. Unfortunately, Hummel crossed right into the path of Baldwin’s vehicle and a collision occurred.

Baldwin sustained serious injuries in the crash and was taken by ambulance to a local hospital. Hopkins was unconscious in the back seat of Hummel’s vehicle and was airlifted while McCarty fled the scene. Investigating officers observed drug paraphernalia and alcohol containers inside of Hummel’s vehicle.

At the time of the wreck, Hummel was insured by Standard Fire under a policy providing $50,000 per person and $100,000 per accident in bodily injury liability coverage. Standard Fire accepted coverage for the wreck and hired counsel to defend Hummel.

A few months after the wreck, Baldwin’s counsel offered to settle his claims against Hummel for the per person bodily injury limits. Baldwin’s offer included medical records and bills and tax returns to show a loss of income. Prior to or at the time of the demand, Standard Fire and Hummel’s counsel had concluded that Baldwin’s claim would exceed the per person limit of Hummel’s policy. Standard Fire had also determined that Hopkins claim would also warrant the policy limits even though he had not yet made a claim against Hummel. There is no indication that McCarty did or would ever make a claim against Hummel.

Despite Baldwin being the only individual to have made a claim and demand against Hummel, Standard Fire did not accept his demand. Instead, Standard Fire decided to proceed with an interpleader action to “protect the policy limit of $100,000.”

Liability Lawsuit Against Hummel

After Standard Fire rejected his demand, Baldwin filed suit against Hummel for his injuries from the car wreck. Standard Fire chose not to negotiate with Baldwin. Eventually Hummel and Baldwin resolved the liability lawsuit with Hummel consenting to a judgment being entered against her for $700,000 and assigning Baldwin her extra-contractual claims against Standard Fire.

Interpleader Action and Bad Faith Claims.

After rejecting Baldwin’s demand and before the resolution of the liability lawsuit against Hummel, Standard Fire filed an interpleader action and deposited the $100,000 policy limits into the court’s registry. Standard Fire named the three potential claimants, Baldwin, Hopkins and McCarty, as interpleader defendants and claimed it was uncertain as to which of the claimants were entitled to the funds. Additionally, Standard Fire asked the trial court to order that it had performed all of its duties and obligations under its policy with Hummel.

After a round of hearings, the trial court distributed $50,000 of the policy limits to Baldwin and $50,000 of the policy limits to Hopkins. McCarty received none of the funds and denied Standard Fire’s request for an order that it had performed all of its duties under its insurance policy with Hummel.

Before the interpleader action could be dismissed, Baldwin, as the assignee of Hummel, filed counter-claims against Standard Fire. Those claims sought extra-contractual damages against Standard Fire based on Standard Fire’s handling of Baldwin’s claims and its prior failures to settle Baldwin’s claims against Hummel.

Both Standard Fire and Baldwin moved for summary judgment on Baldwin’s claims. The trial court found for Standard Fire and determined that Standard Fire had fulfilled its duties to its insured by filing the interpleader action and was not liable for failing to settle Baldwin’s when it had the opportunity to do so.

Court of Appeals Decision

The Appellate Court viewed its task as determining whether the available evidence could establish that Standard Fire breached its obligation of good faith when it rejected Baldwin’s settlement offer and pursued an interpleader action. The Court answered that question in the affirmative and reversed the trial court’s summary judgment order.

In doing so, the Appellate Court applied general bad faith principles to evaluate Standard Fire’s conduct. Under these principles, Standard Fire was required to give the insured’s interests equal consideration when deciding whether to accept Baldwin’s settlement demand for the policy limits. Put another way, Standard Fire was required to accept Baldwin’s settlement demand if a reasonably prudent person would accept the demand after considering the person’s potential exposure to an excess judgment.

The Appellate Court determined that sufficient evidence existed for a jury to find that Standard Fire had breached these principles. At the time of Baldwin’s demand, Standard Fire knew Hummel were liable for the collision and both Standard Fire and Hummel’s counsel had concluded that Baldwin’s claim would exceed the policy limits. Therefore it was in Hummel’s best interest for Standard Fire to accept Baldwin’s settlement demand. However, Standard Fire allowed the demand to expire so that it could pursue an interpleader action, which the Appellate Court viewed as an action to protect Standard Fire’s interest in limiting its exposure to $100,000. Disregarding its insured’s interest while pursuing actions to protect its own interests, was viewed as sufficient for a jury to potentially find that Standard Fire had breached its duties and acted in bad faith.

The Appellate Court’s decision should not have come as a surprise to Standard Fire. Standard Fire ignored an opportunity to resolve a significant claim against its insured in order to pursue an interpleader action that would primarily, if not only, benefit its own interests. Further, Standard Fire’s decision to interplead became even more suspect considering a true multiple claimant situation never arose as McCarty never appeared to make a claim and was never awarded a penny of the policy limits.