Is passenger an insured?
In October 2012, Monika Schmidt was a passenger in a vehicle driven by her friend, Deborah Fisher, when it was struck by a vehicle driven by Robert Bromley. Bromley had a Progressive insurance policy with $50,000/$100,000 liability coverage. Fisher had an Allstate policy with $100,000/$300,000 liability coverage as well as underinsured motorist coverage of $100,000.
Schmidt qualified as an insured under Fisher’s policy, which defined “Insured Person(s)” as “any person while in, on, getting into or out of, or getting on or off of an insured auto with your permission.”
In August 2014, Schmidt filed a complaint against Bromley and Fisher, alleging that both negligently operated their vehicles. Allstate defended Fisher. Schmidt demanded Fisher’s policy limits for underinsured motorist coverage from Allstate. After unsuccessful settlement negotiations, Schmidt amended her complaint to include an underinsured motorist claim against Allstate and a bad faith claim based on Allstate’s handling of that claim.
Schmidt alleged that Allstate breached its duty of good faith and fair dealing with respect to her as its insured by, among other things, failing to promptly inform her of the existence of the underinsured motorist coverage under its policy, failing to promptly respond to her claim, failing to make a reasonable settlement offer, failing to promptly assign an adjuster to her claim, falsely asserting that she had to file suit against Allstate before her claim would be considered, and demanding that Fisher be dismissed from the lawsuit before it would consider Schmidt’s claim. Allstate and Schmidt ultimately settled the underinsured motorist claim.
In February 2016, Bromley was dismissed from the case.
In April 2017, Allstate filed a motion for summary judgment, asserting that it did not act in bad faith in handling Schmidt’s underinsured motorist claim. Schmidt filed a response and designated evidence regarding Allstate’s handling of that claim.
In September 2017, the trial court issued an order denying Allstate’s motion, concluding that a genuine issue of material fact existed regarding whether Allstate had acted in bad faith.
In October 2017, Allstate filed a second motion for summary judgment, asserting for the first time that it did not owe Schmidt a duty of good faith because she “is not the named insured under the insurance policy, or even a party to the contract of insurance[.]” Schmidt filed a response and designated evidence in opposition to Allstate’s motion. She also filed a motion for sanctions and contempt, which was not included in the record before the appellate court.
In June 2019, the court issued an order approving the stipulated dismissal of Fisher from the case and directing entry of final judgment for Allstate. Schmidt appealed.
On appeal, Schmidt noted that the relationship between her and Allstate was “that of insured and insurer” and that she had “duties and obligations under the cont[r]act of insurance.” More specifically, Schmidt observed that she “was in a relationship with Allstate that was both fiduciary in nature[,] requiring her to give statements, make honest representations, submit to medical examination[,] and provide private health information at the request [of] Allstate, and adversarial in the context of her first-party [underinsured motorist] claim.”
Aside from the fact that Schmidt did not sign the insurance contract and pay premiums on the policy, the appellate court said, it could see little difference between the nature of her contractual relationship with Allstate as an additional insured and the nature of Fisher’s so-called “special relationship” with Allstate as a policyholder. Moreover, the court said, the Indiana uninsured/underinsured motorist statute “does not differentiate between policyholders and additional insureds.”
Indiana law has long recognized that a legal duty is implied in all insurance contracts that the insurer deal in good faith with its insured (the so-called Webb analysis). Whether breach of this duty constitutes a tort involves a judicial balancing of three factors: (1) the relationship between the parties, (2) the reasonable foreseeability of harm to the person injured, and (3) public policy concerns.
A balancing of the three Webb factors “weighs conclusively in favor of concluding that an insurer owes a duty of good faith and fair dealing to an insured who is not the policyholder.” The court reversed the trial court’s entry of summary judgment for Allstate and remanded the case for further proceedings on Schmidt’s bad faith claim, including her motion for sanctions and contempt.
Schmidt v. Allstate Property & Casualty insurance Company—Court of Appeals of Indiana—February 12, 2020—No. 19A-CT-1489.