UIM Bad Faith Consequences are About to Get Steep
On July 1, 2024, Va. SB 256 takes effect. The Act amends Va. Code § 8.01-66.1 (“Remedy for arbitrary refusal of motor vehicle insurance claim”), as well as Va. Code. § 38.2-2206 (“Uninsured motorist insurance coverage”). Among other changes, the Act brings UIM coverage under the arbitrary refusal of claims statute, which could entitle a claimant to additional damages if the conditions of the statute are not complied with. As a result, carriers will need to exercise additional care in the resolution of UIM claims to prevent significantly increased exposure.
Under the new provisions, an insured plaintiff can seek adjudication of a UIM bad faith claim either as a posttrial motion in the court that adjudicated the personal injury action or as a separate cause of action against the carrier. There are three circumstances in which a bad faith UIM denial can be subject to this increased exposure, if the court finds that the carrier’s actions were not performed in good faith:
- If the carrier denies or fails to offer UIM benefits after the insured has become legally entitled to recover – defined as when liability to the insured has become reasonably foreseeable without the necessity of a judgment against an uninsured motorist.
- If the carrier rejects a reasonable settlement demand made by the insured, within policy limits, if all applicable liability and underlying UIM benefits have been tendered or paid.
- If the carrier fails to respond within a reasonable time to a reasonable settlement demand after the insured has been become legally entitled to recover.
In the event a court finds that the carrier acted in bad faith with regard to the UIM payment or settlement, the carrier is liable to the insured for double the amount of the judgment against the uninsured motorist (not to exceed $500,000), plus attorneys’ fees and interest.
In order to avoid these penalties, UIM carriers would be wise to involve legal counsel early in claims when it appears that there may be UIM exposure. Once the demand is made by the insured, the time to obtain counsel, investigate damages, and timely respond under the new Act is limited. The attorneys at Midkiff, Muncie & Ross, P.C. are experienced at investigating cases while navigating the obstacles of bad faith claims.