In a recent California decision, the court in Maslo v. Ameriprise Auto & Home Ins. (2014) 2014 Cal.App. LEXIS 564 held that an insured can pursue a bad faith claim against an insurer when the insurer failed to investigate and evaluate the insured’s uninsured motorist claim, and instead insisted that the insured arbitrate the claim.
In Maslo, the insured filed a claim for uninsured motorist benefits seeking the policy limits under his uninsured motorist coverage. In response, the insurer demanded arbitration. An arbitrator awarded the insured less than the policy limits and the insured thereafter filed a bad faith action against the insurer, arguing that the insurer breached the implied covenant of good faith and fair dealing by forcing the insured to arbitrate his claim without fairly investigating, evaluating and attempting to resolve it.
The insurer argued that its right to resolve a disputed claim through arbitration relieved it of its statutory and common law duties to fairly investigate, evaluate and process the claim. The insurer further argued that in the absence of a genuine dispute arising from an investigation and evaluation of the insured’s claim, the insurer may escape liability for bad faith simply because the amount ultimately awarded in arbitration was less than the policy limits or the insured’s initial demand.
The Court of Appeal rejected the insurer’s arguments and ultimately held that an insurer may be liable for bad faith in failing to attempt to effectuate a prompt and fair settlement (1) where it unreasonably demands arbitration, or (2) where it commits other wrongful conduct, such as failing to investigate a claim.
This decision favors policyholders as it holds insurers accountable to fairly investigate and evaluate claims even though arbitration might be a preferred method for resolving an insurance claim. Moreover, insurers will not be shielded from bad faith claims merely by invoking the right to arbitrate.