The United States Federal District Court for the Central District of California recently held that there was no bad faith where the insurer had a reasonable basis upon which to genuinely dispute the insured’s claim. Maynard v. State Farm Mutual Automobile Insurance Company, No. 06-7869 (July 30, 2007).
In the case, the insured was rear-ended in a parking garage. After exhausting the policy limits of the tortfeasor’s automobile liability policy, the insured then made a claim for underinsured motorist benefits from his own insurer. The insured sought $85,000. The insurer offered $5,000 in addition to the amount it had already paid in medical expenses. The insured rejected the insurer’s offer and the claim went to arbitration.
During arbitration, the insured sought more than $500,000 in alleged damages. The arbitrator found that the insured’s damages totaled $86,000. After an offset for the amount previously recovered by the insured from the tortfeasor, the net award was $63,005. The insured then brought a bad faith action against his insurer.
In awarding summary judgment in favor of the insurer, the court noted as follows: (a) the relevant inquiry for a bad faith analysis is the relationship between the amount sought by the insured and the amount recovered, not the amount offered by the insurer and the amount awarded to the insured; and (b) hindsight is inappropriate in a bad faith analysis and the appropriate issue is whether, based on what the insurer knew at the time it rejected the insured’s settlement demand, there was a genuine dispute over the value of the claim.
Applying these principles, the court found the discrepancy between the insurer’s offer ($5,000) and the insured’s recovery ($63,005) irrelevant, but the discrepancy between the insured’s claimed damages ($500,000) and his recovery ($63,005) highly relevant to whether the parties had a genuine dispute over the value of the claim. The court further found that other undisputed facts indicated that a genuine dispute had existed between the parties as to the claim’s value. As a result, the court found no genuine issue of material fact as to whether the insurer had acted in bad faith.
