Bad Faith Claim for Failing to Tender Policy Limits

I have a theory. My theory is that under Maryland law, insurance companies have an obligation to their insureds to tender the policy limits in a case as soon as a reasonable, prudent insurance company would realize that they must do so to protect the interests of their client.

My logic is so compelling that I’m ready to bump it up from theory to hypothesis. I’m this close.

There is one flaw in my theory: I can’t get anyone else who is not a biased plaintiffs’ lawyer to agree with me.  [2020 Update: read this.] The latest blow is painful because it comes from an opinion from U.S. District Court Judge Paul W. Grimm, who I still think is one of the best judges in the country despite this infraction.

Facts of the Case

Here are the facts of Cook v. Nationwide. The at-fault driver is drunk and driving on a suspended license and causes a collision with the Plaintiff.

Like most drunks driving on a suspended license, the bad guy has a small insurance policy: $50,000 per person with Nationwide.

The Settlement Talks and the Verdict that Pops the Policy

Now follow this part because it is both crazy and fascinating. At trial, the plaintiff demands the policy plus $21,000 in litigation costs for $71,000. Can you imagine $21,000 in costs in a $50,000 case? Keep this in mind. We will come back to it in a second.

Nationwide’s “agent” says, at least according to the Plaintiff’s attorney, he will recommend the deal. But the insurer counters at a policy offer with $4,000 in trial expenses. I assumed when I read it, it meant the adjuster. But it is Jeff DeCaro from DeCaro, Doran, Siciliano, Gallagher & DeBlasis, LLP, an insurance defense firm that works for Nationwide. How did he get involved? This might just be the goofiest case ever.

Incredibly, this quarrel never gets resolved. Plaintiff refuses the settle and they get an $892,050 verdict.

Plaintiff sues Nationwide for bad faith, presumably using the original defendant as a use plaintiff. Nationwide removes to federal court, although Nationwide’s in-house attorneys were named as defendants. Long story short: it stays in federal court despite the in-state defendants (and it is the right call).

Failure to Tender Policy Limits

The real crux of the plaintiff”s argument has nothing to do with this lousy $11,000 difference in “cost” in the settlement offer. They got a great verdict and they want to collect it.

Judge Grimm stops that in his tracks clearly. “Neither party has pointed this Court to any case in which an insurance company was held liable for bad faith after offering to settle at, much less above, its policy limits.”

That does not mean it does not exist. I’m convinced that it does. Readers of this blog do not pay me enough to research it without a case in front of me. But there has to be a judge that agrees with this hornbook rule of law:

In order to make a bad faith claim, a plaintiff must allege that the insurance company refused to settle a case for the policy limits in a time frame that a reasonable ordinary prudent insurance company would. If the insurance company jerks around the plaintiff when it knows or has reason to know that the claim should settle for the policy limits, said Evil Empire is obligated to make payment in the entire amount of the verdict should the insurance company later tender the limits. The rationale for this rule is that if the rule were otherwise and the insurance company could just keep playing reindeer games up to the point of trial, it gives these evil villains a chance to use its power and resources to frustrate plaintiff and put their own insured at risk.

This is a direct quote from a new book: If Ron Was King (publication pending).

But isn’t the logic sound? If the insurance company is doing everything that it can to protect its insured, doesn’t it offer the policy when it makes sense to do so? If the insurance company later refuses to tender the policy – maybe because it has run up $21,000 in costs making a judgment meaningless to the Plaintiff – shouldn’t the insurance company pay the price for exposing its insured to an excess verdict? I’m right about this. I just need to find a judge to agree with me.

Instead of doing the humane thing and just granting Nationwide’s motion to dismiss, Judge Grimm drags it out a little more. He buys into Plaintiff’s argument – defined as thinking it maybe, maybe, sort of possible -Plaintiff’s claim that the additional $21,000 constituted legitimate trial costs.

Why This Law is Wrong and Should Be Changed

It is possible, though, to spend $21,000 on a $50,000 case and it underscores my point. If Plaintiff has to incur so much cost to get the case ready for trial, doesn’t it give the insurance company a ridiculous amount of leverage to offer less than what the case is worth because it knows it can always stick the offer on the table at the last minute?

Play this out a little. They can make us spend thousands of dollars just for sport while we prepare like crazy for trial, maybe just out of spite or as a part of the “long con” in the holy war against plaintiffs if they can just put up the policy at the last minute.

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