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Bad faith claim against insurer survives summary judgment in IN SD

This claim arises out of the somewhat famous “wave ahead” case of Key v. Hamilton, 963 NE 2d 573 (Ind. Ct. App. 2012). In that case, a driver of a stopped truck waved a motorcyclist ahead to pass him after checking for traffic, failing to see an oncoming vehicle, and the motorcycle collided with the oncoming vehicle.  The waving party was insured for $250,000 by American Family.

At trial, the injured party obtained a verdict for $990,00 against the waving party. American Family tendered its policy limits of $250,000 plus prejudgment interest. The driver subsequently filed for bankruptcy and the trustee filed suit for bad faith against American Family on behalf of the bankruptcy estate to recover for the excess judgment.

During the bad faith case, discovery showed that

American Family’s counsel evaluated the injured party’s claim at $110,000, but never offered the reserve amount of $100,000.00 during negotiations. Likewise, despite Mr. Hamilton’s demand that was equal to the policy limit, American Family still refused to pay this amount, even with knowing that Mr. Hamilton’s medical expenses alone were almost twice that amount. In addition, the Trustee presents evidence that American Family failed to fully investigate the claim or dispute Mr. Hamilton’s injuries.

Judge Tanya Walton Pratt, held that the evidence did justify summary judgment on the claim for punitive damages but that the evidence was not sufficient to grant summary judgment on the issue of bad faith. In so ruling, Judge Pratt cited that the duty of good faith forces the insurer to not only consider its monetary interests in deciding whether to settle, but also the risk that the insured will bear the risk of an excess verdict. Certain Underwriters of Lloyd’s v. GEN. ACC. INS., 909 F. 2d 228, 231-32 (7th Cir. 1990). Judge Pratt found that the question of whether the “gamble” is unreasonable under these circumstances is a question for the finder of fact.

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