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When an UM claim fails because of the insured: the claim, the lawsuit, and the jury's verdict.

The key to every claim is a thorough investigation of the facts of the case. A claim denied before completing a thorough investigation can be evidence of the tort of bad faith.

Uninsured Motorist (UM) and underinsured motorist (UIM) coverages place the insurer in the place of a third party that was uninsured, underinsured, or unknown who allegedly caused injury to the insured. If the investigation shows the insured was liable for the accident--rather than the uninsured or underinsured motorist--then the insured cannot recover under a UM or UIM policy.

Juries, on occasion, will grant damages to an insured on a UM or UIM policy because of the seriousness of the injuries rather than on evidence of negligence. The insurer, faced with such a judgment, which is based more on feelings than the law, is not without a remedy. It can ask the court to grant a judgment notwithstanding the verdict because the judge agrees that the decision of the jury does not fit the fact proved at trial.

In James Bannister v. State Farm Mutual Automobile Insurance Company, No. 11-6174, (10th Cir. 09/05/2012) Plaintiff James Bannister obtained a judgment against State Farm only to have it taken away by the trial court. He appealed to the Tenth Circuit Court of Appeal. According to Bannister, he was forced to lay down and slide his motorcycle at a high speed when a car in front of him braked suddenly, that car having been cut off by another car. Bannister slammed into the wall of the freeway and suffered substantial injuries. He did not collide with any other vehicle; neither of the aforementioned cars remained at the scene of the accident; and no witnesses besides Bannister ever gave an account of the crash.

Bannister filed an insurance claim with his insurer, State Farm Automobile Insurance Company. Then State Farm denied Bannister's claim, finding him to be majority at fault in the accident, which precluded recovery under his insurance policy. Bannister subsequently filed suit in Oklahoma state court, and State Farm removed the case to the Western District of Oklahoma. By the time the case went to trial, Bannister sought relief solely on a tort theory: that State Farm violated its duty of good faith and fair dealing in denying his claim.


The Jury's Verdict

In this instance, the jury found in favor of Bannister. The district court granted State Farm's motion for judgment as a matter of law (JMOL), ruling essentially that the evidence showed that State Farm's denial of Bannister's claim was based on a reasonable dispute regarding whether Bannister was majority at fault, and that no evidence suggested that further investigation would have undermined the reasonableness of that dispute.

The Insurance Claim

The day after the crash, January 23, 2009, Bannister's wife reported the accident to State Farm. At trial, the adjuster testified she believed that based on the facts related to her, Bannister would be at fault. She reasoned that because the car in front of Bannister was able to stop without collision, Bannister, who was driving behind that car, likewise should have been able to stop safely, had he been following at a reasonable distance per his duty as a motorist.

Later, State Farm obtained a copy of the police report. The entries in State Farm's logs indicated that the accident was a single-vehicle wreck; that Bannister had been driving under the influence of alcohol; and that no second vehicle was involved in any collision. Further, they concluded that Bannister was 100-percent at fault and thus was not entitled to UM coverage, to which an insured is ineligible if the insured is more than 50-percent at fault. State Farm communicated to Bannister that his UM claim would be denied. Later, Dani Conover, a State Farm UM claims representative, sent a letter to Bannister's attorney stating:
  At this time, we have no eviaence Mr. Bannister is legally entitled
  to collect from an uninsured motorist. The police report we have
  indicates [Bannister's] vehicle left the roadway for an unknown
  reason, and notes an improper start from alcohol-DUI/DWI.
  If you are aware of any information that does support [that
  Bannister] is legally entitled to collect [on his UM policy],
  please let me know, and we will be happy to review it.

Since no response to the letter was received, on July 7, 2009--after Bannister had filed his complaint in this lawsuit--Conover sent another letter to Bannister's attorney to the same effect.

The Lawsuit and Trial

A three-day trial occurred at the end of March 2011. Bannister's attorney called seven witnesses to testify: Bannister's wife; four State Farm claims representatives from various departments who in some way dealt with Bannister's claim; a corporate representative from State Farm; and Bannister himself. State Farm cross-examined each witness but did not call any witnesses of its own. At that point, State Farm moved for JMOL, arguing the evidence presented at trial did not provide a sufficient factual basis upon which the jury could find in favor of Bannister. The court took the motion under advisement and allowed the case to proceed.

The jury returned an award of $125,000 in compensatory damages for Bannister. Additionally, the jury also found that State Farm had acted recklessly. That finding of recklessness triggered consideration of punitive damages, in line with Oklahoma's system of bifurcated consideration of compensatory and punitive damages. The jury therefore then heard brief testimony relevant to punitive damages.

The jury was subsequently instructed on punitive damages, with the court explaining the bases on which they could award punitive damages. While the jury was considering punitive damages, State Farm renewed its motion.

The court found the evidence showed State Farm's denial was based on facts that reasonably supported a legitimate dispute as to whether Bannister was majority at fault in his accident; and that no evidence suggested further investigation would've undermined State Farm's legitimate basis for disputing the claim.

The Analysis

In determining whether the insurer had a good faith belief in a justifiable reason to deny payment when it made its decision on the insurance claim, the jury was instructed to only consider evidence the insurer had when it denied the claim.

An insurer's refusal to pay a claim is not bad faith when there is a legitimate dispute concerning coverage; however, merely because there is a reasonable basis that an insurer could invoke to deny a claim does not necessarily immunize the insurer from a bad faith claim if, in fact, it did not actually rely on that asserted reasonable basis and instead took action in bad faith. The insurer is not required to show that its good faith belief was correct. The jury may decide the issue is if there is evidence that the insurer failed to adequately investigate the claim.

After reviewing the evidence the Tenth Circuit held that a reasonable jury could not find, based on the evidence produced in the case that State Farm did not actually rely on a legitimate reason in disputing Bannister's insurance claim. Furthermore, the court could discern no evidence showing State Farm failed to adequately evaluate or investigate the claim such that additional investigation would have materially altered the legitimate factual basis on which State Farm disputed Bannister's claim.

On the date of denial, the facts known to State Farm included that Bannister was in a single-vehicle accident in which he was unable safely to stop when the car in front of his braked suddenly; that the police report showed that Bannister had been driving under the influence of alcohol; and that there were no identified witnesses. These facts make State Farm's dispute of Bannister's eligibility for recovery reasonable. The police report also indicated that Bannister had been driving under the influence of alcohol. While that did not dispositively preclude coverage under the policy, it certainly added to the reasonableness of finding him negligent.

Bannister put forth no evidence that State Farm arbitrarily prejudged his claim or was otherwise engaged in systematic bad-faith denials of claims. To prove inadequate investigation, Bannister should have shown that material facts were overlooked, or that a more thorough investigation would've produced relevant information showing him not to be at fault.

Taking into account everything Bannister said at trial, State Farm still would have had the material facts of a single-vehicle accident with no identified witnesses, where the claimant had not left sufficient space to avoid crashing, and where the claimant was driving after consuming alcohol. Bannister's testimony did not contradict any material facts upon which State Farm based its legitimate dispute regarding his negligence. On the contrary, further investigation would show Bannister to be more negligent, as he was speeding. If State Farm had obtained hospital records, then it would've discovered Bannister's blood-alcohol level was 0.09. So Bannister's inadequate-investigation theory of bad faith is without merit, and JMOL in favor of State Farm was appropriate. In my opinion, State Farm was lucky. Although it did not conduct a thorough investigation before denying a claim, the insurer collected sufficient evidence to establish that Bannister was more than 50-percent responsible for the accident and probably 100-percent responsible. A thorough investigation is best; however, an adequate investigation was, in this case, sufficient.

Barry Zalma, Esq., CFE, specializes in insurance coverage, insurance claims handling, and fraud. He founded Zalma Insurance Consultants in 2001 and may be reached at
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Copyright 2012 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Feature Story
Author:Zalma, Barry
Date:Oct 1, 2012
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