Reversal: COA reinstates woman’s bad-faith suit against Allstate

A woman’s bad-faith claim against her friend’s insurance company has been reinstated by the Indiana Court of Appeals, which determined that the trial court erred in concluding that an insurer does not owe a duty of good faith and fair dealing to an insured who is not the policyholder.

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. Agreeing with Schmidt, the Indiana Court of Appeals reversed in Monika Schmidt v. Allstate Property And Casualty, 19A-CT-01489.

“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.

The appellate court expressed it was unpersuaded with the trial court’s reliance on the cases of Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515, 518 (Ind. 1993), Cain v. Griffin, 849 N.E.2d 507, 511 (Ind. 2006), Martinez v. State Farm Mut. Auto. Ins. Co., No. 2:15 CV 137, 2016 U.S. Dist. LEXIS 42956, at *1-3 (N.D. Ind. Mar. 31, 2016).

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.”

“In sum, a balancing of the three (Webb v. Jarvis, [575 N.E.2d 992, 995 (Ind. 1991)) factors weighs decisively in favor of concluding that an insurer owes a duty of good faith and fair dealing to an insured who is not the policyholder. We therefore reverse the trial court’s entry of summary judgment for Allstate and remand for further proceedings on Schmidt’s bad-faith claim, including her motion for sanctions and contempt,” the appellate court wrote.

It further noted that the trial court “has already determined that a genuine issue of material fact exists regarding whether Allstate acted in bad faith.”