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Victim is Hospitalized for Thirteen Days

On 12 August 2003, a Staten Island woman, who was insured by a certain insurance company, was involved in a motor vehicle accident. She was driving her van when she made a left turn directly into the path of a motorcycle operated by a certain man. The impact caused the operator of the motorcycle (the victim) to be ejected and landed about nineteen feet away. Thereafter, the Manhattan police and paramedics arrived and the victim was taken to the hospital, and it was determined that he sustained serious injuries. The victim stayed in the hospital for thirteen days, and was later transferred to a nursing home.

After the said incident had occurred, the aforesaid woman immediately reported the car accident to her insurance company. In response, the insurance company assigned someone to handle the claim (the agent), who spoke generally about the accident with the said woman (the insured woman); ascertained that neither the insured nor her daughter, who was in the van with the woman at the time of the accident, was injured; advised her that she had $10,000 coverage limits, that is, $10,000 in property damage coverage and $10,000 in bodily injury coverage; and concluded that the insured was probably at fault in causing the accident. After that, the agent assigned attempted to call the victim, who was still in the hospital, but was unable to reach him. The agent then ordered an appraisal of the victim’s motorcycle and assigned that portion of the damage claim to the insurance company’s claim service center in Virginia.

On 18 August 2003, the insurance agent received a call from an attorney (lawyer-one), who indicated that he was representing the victim. However, ten days later, lawyer-one notified the agent that he was no longer representing the victim and provided him with a notice of his attorney’s lien.

On 20 August 2003, the agent obtained the car accident report. The report stated that the woman turned directly in front of the victim who was ejected nineteen feet, and thereby suffered an incapacitating injury. On 26 August 2003, the appraisal of the motorcycle revealed that it was a total loss. Thus, the agent authorized payment of the full $10,000 property damage policy limits. On 29 August 2003, the agent sent the insured woman a certified letter advising her that, because the property damage would exceed her insurance coverage, she was personally exposed to an excess judgment for both property damage and bodily injuries; acknowledged that it was reported to them that the claimant sustained serious bodily injuries, and cautioned that the insurance company will make every effort to resolve the claims within the insurance coverage, but that, due to the serious nature of the accident, it may not be possible; and that under no circumstances will the Claims Service or the insurance company assume responsibility for any claims or judgments in excess of the insurance coverage.

On 9 September 2003, the victim’s new attorney, lawyer-two, sent a letter to the agent asking for the policy information within thirty days, but the insurance company did not provide that information until sixty days later. On 9 October 2003, the agent spoke with the lawyer-two’s paralegal and was informed that the victim sustained a significant spinal cord injury, with several broken bone injuries, among others, and that he might be paralyzed. After this conversation, the agent set the reserves for the bodily injury claim to the full $10,000 policy limit and sent a letter to lawyer-two’s law firm asking for the victim’s medical records and bills stating that they would like to settle the bodily injury claim as soon as possible; informed them of lawyer-one’s lien; and indicated that the said lawyer’s name needed to be on the settlement check. On 19 December 2003, the new lawyer sent medical authorization forms signed by the victim to the agent, but the agent did not order such records, and requested only the hospital records on 13 January 2004, or almost five months after the accident. On 30 January 2004, the agent received the said hospital records. On 4 February 2004, the agent sent a letter to lawyer-two acknowledging the serious injuries the victim suffered and offered to settle the claim contingent upon placing lawyer-one’s name on the settlement check or obtaining an agreement regarding the lien; and that he would be contacting lawyer-one to ascertain whether such lawyer intended to pursue his lien, however, the record does not reflect that the agent ever contacted the first lawyer.

On 5 February 2004, the agent sent a status report to the insured woman informing her that the victim had an extended hospital and nursing home stay due to his serious injuries, which included a spinal cord injury, several broken bone injuries, particularly, vertebrae fractures, rib fractures, along with a punctured lung, and a scalp laceration. The agent advised her that he offered to pay the bodily injury liability limit of $10,000 but cautioned that because of the serious injuries it might be impossible to settle within the policy limits.

On 11 February 2004, the agent sent another letter to lawyer-two identical to the February 4 letter. On 17 February 2004, lawyer-two responded and advised that if and when the policy limits are tendered, he will discuss it with the victim; and that he would be responsible for any alleged lien on the part of lawyer-one. On 2 March 2004, in response to lawyer-two’s February 17 letter, the agent expressed uncertainty as to the word “tender.” He thought he had already tendered the policy limits, even though no check had been enclosed, and he again wanted assurance that lawyer-two would be responsible for the payment of any potential attorney’s lien. On 8 March 2004, lawyer-two explained that there had not been a tender of policy limits and that, if the agent was unsure of that term, he needed to check it with his legal department; that, due to the catastrophic nature of the victim’s injuries, there should have been a tendering of policy limits; and, yet again, advised the agent that the victim would be responsible for any potential attorney’s lien. On 24 March 2004, the agent faxed a copy of lawyer-one’s 28 August 2003 attorney’s lien to lawyer-two, and on the cover sheet, he again expressed confusion over the term “tender of policy limits”. On 25 March 2004, he also sent a letter indicating that the insurance company’s offer to settle the victim’s claim is tender of the limits; and that if lawyer-two wanted the settlement check, he would need to put in writing that he would settle the attorney’s lien from the proceeds of the check. Lawyer-two responded by insisting that his demand for a tender of policy limits was clear and reiterated that, if the agent needed clarification, he needed to check with his legal department; questioned the potential insignificance of the attorney’s lien stating that the value of lawyer-one’s lien is unimaginable considering the period that lawyer-one’s services was engaged, noting that the accident occurred on 12 August 2003 and the letter advising them of the lien is only dated 28 August 2003.

On 1 April 2004, after an almost eight months from the date of the accident, the insurance company formally tendered the policy limits of $10,000. However, by reason of the insurance company’s delay, he already filed suit against the insured woman, as directed by the victim. Lawyer-two was so surprised at how long it took the insurance company to tender the limits especially due to the catastrophic nature of the injuries, noting that the victim would have settled the claim at any point through February.

The victim and his wife filed suit against the insured woman, while the insured woman filed a bad faith claim against the insurance company. Thereafter, a stipulated judgment in excess of the policy limits was entered by agreement among the victim, the victim’s wife, the insured woman, and the insurance company, but it expressly left open the issue of whether the insurance company had acted in bad faith in failing to settle the victim’s claim.

In the bad faith action, the insurance company filed a motion for summary judgment. The insurance company alleged that, as a matter of law, it did not act in bad faith; that it had orally offered to settle for its policy limits within a day of receiving the medical records; thus, final judgment should be entered in its favor. In opposition, the insured woman filed two affidavits, one by a claims-handling expert and the other from an attorney. In the affidavits, it was stated that, based on the low limits of the insured’s policy and the potentially catastrophic injuries to the victim, the insurance company should have tendered its policy limits not later than October 2003; that the method of claims handling followed by the insurance company was not appropriate under the circumstances; that the insurance company failed to conduct a thorough and prompt investigation using all sources available to all parties; that the insurance company demonstrated a lack of urgency and lack of concern to its insured; that the insurance company violated its fiduciary duty to its insured by failing to understand the duty to make a tender of policy limits as soon as the adjuster determined it was likely that the value of the claim would exceed the policy limits; that the insurance company breached its duty by refusing to protect the insured until it received medical records documenting the nature and extent of the injuries and requiring written confirmation of those injuries when it already knew of the severity of the injuries; and that the purported attorney’s lien should not have been a factor in the settlement considerations. The trial court granted summary judgment in favor of the insurance company. Hence, an appeal followed.

The ultimate issue in this case concerns whether the insurance company acted in bad faith in failing to settle a claim against its insured. On the standard of review in appeals of this case, the trial court’s ruling on a motion for summary judgment is a question of law and is subject to the de novo standard of review. Summary judgment should be granted only when there is a complete absence of genuine issues of material fact. Where material issues of fact which would support a jury finding of bad faith remain in dispute, summary judgment is improper.
Well settled is the rule that an insurance company has an obligation to properly defend its insured from claims that are covered within the policy of insurance and that it must exercise good faith in satisfying that obligation. When defending its insured against a claim, the insurer has a duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business. The insurer must investigate the facts, give fair consideration to a settlement offer that is not unreasonable, and settle the claim, if possible, where a reasonably prudent person, faced with the prospect of paying the total recovery, would do so. The question of whether an insurer has acted in bad faith in handling claims against the insured is determined under the totality of the circumstances standard where each case is determined on its own facts, and, ordinarily, the question of failure to act in good faith with due regard for the interests of the insured is for the jury.

Here, it must be noted that the insurance company knew, within days of the accident, that the insured was entirely at fault; that, because the accident involved a motorcycle, the insured would be responsible for all of the personal injury damages that exceeded her $10,000 policy, without regard to the issue of whether the victim suffered a permanent injury; and, that the victim suffered catastrophic injuries to which he was hospitalized for thirteen days and later transferred to a nursing home, and sustained a spinal cord injury, including several broken bone injuries, particularly, vertebrae fractures, rib fractures, a punctured lung, and a scalp laceration. Thus, the court finds that it cannot conclude, as a matter of law, that the insurance company satisfied its duty of good faith.

Moreover, an insurance company has the fiduciary duty to timely, and to properly, investigate claims against its insured. This duty is not relieved simply because the company is waiting for some information from the victim’s attorney. It is evident on the record that the insurance company knew that the victim’s injuries would exceed the policy limits of $10,000. Thus, the company’s failure to tender the policy limits created a genuine issue of material fact regarding whether it breached its duty of good faith.

Lastly, on the argument that summary judgment was appropriate because there was never a formal offer to settle the case, a lack of a formal offer to settle is a factor to be considered in determining whether the insurance company acted in bad faith.

In all, the question of whether it was reasonable for the insurance company to insist on additional medical information beyond what it already knew and insist on further verification of the attorney’s lien issue, and whether the insurance company reasonably handled the purported “tender” are indeed factual disputes that must be determined by the finder of fact. It is without a doubt that the record contains genuine issues of material fact to be resolved by the fact-finder as to whether the insurance company acted fairly and with due regard for the insured’s interest; whether the insurance company’s actions were reasonably diligent and exercised with reasonable care. Accordingly, the court finds that the summary judgment appealed from must be reversed.

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