Schmidt was a passenger in Fisher’s car when it was struck by Bromley’s vehicle. Schmidt was injured in the accident. Fisher’s underinsured motorist coverage was higher than Bromley’s policy limits, and Schmidt qualified as an “insured” under Fisher’s policy. Therefore, Schmidt sought uninsured motorist benefits under Fisher’s policy with Allstate. Settlement negotiations were unsuccessful, and Schmidt brought a bad-faith claim against Allstate based on its handling of the claim.
Allstate moved for summary judgment on Schmidt’s bad faith claim, arguing that it did not owe Schmidt a duty of good faith because she was neither a named insured in Fisher’s policy nor a party to that policy. The trial court granted Allstate’s motion and Schmidt appealed.
On appeal, the Court found that the issue of whether an insurer owed a duty of good faith to an insured that is not the policyholder had not previously been squarely addressed by Indiana’s appellate courts. And it found that the law was “decisively” on the side of Schmidt.
First, the Court found that there was “little difference” between insureds who are not policyholders and those who are. The relationship of insurer and insured is the same, and the contractual duties owed in the event of a loss are the same.
Second, the Court found that the harm to an insured is easily foreseeable if an insurer does not act in good faith.
Finally, the Court found that public policy supported this result.
With respect to public policy concerns, Schmidt contends that “it is in society’s best interest that there be fair play between insurer and insured. Indiana Courts have long recognized this need, and the legislature has recognized it as well by implementing the unfair claims practices act.”
Indeed, our legislature has seen fit to treat all insureds equally when it comes to protecting them against unscrupulous behavior by insurers. … In light of this government-mandated and -regulated insurance market, with an emphasis on providing coverage for innocent insureds who are injured by uninsured or underinsured motorists, we can think of no principled reason for not requiring insurers to deal in good faith with all insureds.
The Court summed up its opinion on the matter as follows: “With apologies to Gertrude Stein, an insured is an insured is an insured is an insured for purposes of an insurer’s duty of good faith and fair dealing.”
1. Insurers owe a duty of good faith and fair dealing to all insureds, regardless of whether they are the policyholder.
2. “An insured is an insured is an insured is an insured for purposes of an insurer’s duty of good faith and fair dealing.”