Payment of the Undisputed Amount in Uninsured Motorist Claims: What Insurance Companies and Attorneys Should Know
By David Bernstein

“An insurer owes to its insured an implied-in-law duty of good faith and fair dealing that it will do nothing to deprive the insured of the benefits of the policy. … The violation of that duty sounds in tort notwithstanding that it may also constitute a breach of contract. …We think that, similarly, the implied-in-law duty of good faith and fair dealing imposes upon a disability insurer a duty not to threaten to withhold or actually withhold payments, maliciously and without probable cause, for the purpose of injuring its insured by depriving him of the benefits of the policy.” (Emphasis added).

“…To some extent this special relationship and these special duties take cognizance of the great disparity in the economic situations and bargaining abilities of the insurer and the insured. … To some extent the special relationship and duties of the insurer exist in recognition of the fact that the insured does not contract ‘. . . to obtain a commercial advantage but to protect [himself] against the risks of accidental losses, including the mental distress which might follow from the losses. Among the considerations in purchasing … insurance, as insurers are well aware, is the peace of mind and security it will provide in the event of an accidental loss…’ These considerations are particularly cogent in disability insurance. The very risks insured against presuppose that if and when a claim is made, the insured will be disabled and in strait financial circumstances and, therefore, particularly vulnerable to oppressive tactics on the part of an economically powerful entity.”(Emphasis added).

The Oklahoma Supreme Court went on to state in Christian:

¶20 Our Insurance Code requires insurance companies to make immediate payment of claims. Title 36 O.S. 1971 § 4405 A 8, requires the following provision to be included as a standard clause in all individual accident and health policies:

      “TIME OF PAYMENT OF CLAIMS: Indemnities payable under this policy for any loss … will be paid immediately upon receipt of due written proof of such loss.” (Emphasis added).

¶21 This statutory duty imposed upon insurance companies to pay claims immediately, recognizes that a substantial part of the right purchased by an insured is the right to receive the policy benefits promptly. Unwarranted delay precipitates the precise economic hardship the insured sought to avoid by purchase of the policy. (Emphasis added).

¶22 While this provision would not deter an insurance company from refusing payment on a claim that it had reasonable cause to believe was factually or legally insufficient, it does express the intent of our legislature to impose upon insurance companies an obligation to pay a valid claim on a policy promptly. (Emphasis added).

¶23 The obligation of an insurance company, such as appellee, on a disability policy is not for the payment of money only, it is the obligation to pay the policy amount immediately upon receipt of proper proof of loss... (Emphasis added).

¶25 We approve and adopt the rule that an insurer has an implied duty to deal fairly and act in good faith with its insured and that the violation of this duty gives rise to an action in tort for which consequential and, in a proper case, punitive, damages may be sought. We do not hold that an insurer who resists and litigates a claim made by its insured does so at its peril that if it loses the suit or suffers a judgment against it for a larger amount than it had offered in payment, it will be held to have breached its duty to act fairly and in good faith and thus be liable in tort.

¶26 We recognize that there can be disagreements between insurer and insured on a variety of matters such as insurable interest, extent of coverage, cause of loss, amount of loss, or breach of policy conditions. Resort to a judicial forum is not per se bad faith or unfair dealing on the part of the insurer regardless of the outcome of the suit. Rather, tort liability may be imposed only where there is a clear showing that the insurer unreasonably, and in bad faith, withholds payment of the claim of its insured. (Emphasis added).

In Barnes v. Oklahoma Farm Bureau, 2000 OK 55, 11 P.3d 162, the Oklahoma Supreme Court advised in paragraph 11 of its opinion that “failure to pay undisputed amounts” is an example of an insurer breaching its duty of good faith and fair dealing.

The Oklahoma Supreme Court recently ruled in Garnett v. Government Employees Insurance Company3 that if an insurance company disputes the value of a UIM claim (where the medicals bills and loss of income are covered under the liability portion of the claim), then the insurance company does not have to pay its initial offer on the UIM claim since the value of the UIM claim is in dispute. 

In Garnett, Garnett was a passenger Hargrove’s pickup, which was rear-ended by Fain. Both vehicles were insured by Government Employees Insurance Company (GEICO). Garnett sustained $6,510.50 in medical expenses and $716.16 in lost wages. GEICO initially offered to settle the liability claim for $8,700. The UIM carrier (GEICO) initially valued the total claim at $11,000 to $13,000, and by subtracting the liability limits of $10,000, valued the claim at $1,000 to $3,000. The UIM carrier initially offered Garnett $1,000 to settle the UIM claim. Eventually, GEICO settled the liability claim for the liability policy limits of $10,000. Thereafter, GEICO eventually offered the top end of its evaluation of $3,000.00 to settle the UIM claim. Garnett demanded that GEICO pay the $3,000 to Garnett as the “undisputed amount” without settlement of the UIM claim. GEICO refused, and suit was brought for bad faith and breach of contract for GEICO refusing to pay the “undisputed amount.” The trial court granted GEICO summary judgment, the Court of Appeals affirmed, the Oklahoma Supreme Court accepted certiorari, and ruled:

¶23 Here, the passenger (Garnett) established that he had sustained $7,226.66 in damages for medical expenses and lost wages. He also alleged that he sustained damages for pain and suffering and mental anguish. The insurer valued his UIM claim somewhere between $1,000 and $3,000. The passenger argued that the claim should have been valued somewhere between $13,000 and $15,000. Ultimately, the jury awarded the passenger (Garnett) $5,000, a number greater than the insurer’s (GEICO’s) estimate, but closer to the insurer’s range than to the passenger’s. Clearly, the UIM claim was legitimately disputed, as evidenced by the jury’s award. Because a legitimate dispute existed between the parties as to the value of the UIM claim, the trial court did not err by granting summary judgment to the insurer on the issue of whether the insurer’s failure to tender the “undisputed amount” constituted bad faith.

In Hatfield v. Liberty Mutual Insurance Co.,4 the insurer and insured agreed that the insured’s medical bills exceeded $90,000, and the tortfeasor at fault had only $25,000 of liability coverage. The insured owned two vehicles covered by $25,000 of uninsured motorist/underinsured motorist (UM/UIM) coverage. The insurer maintained that stacking was not available under the policy, and offered to pay the $25,000 UIM policy limits in the event that the insured signed an “underinsured release,” which would waive his right to any amount in excess of $25,000. The insured refused to sign the release and brought suit against the insurer, alleging that the insurer acted in bad faith by refusing to pay the “undisputed” $25,000 UIM payment. At the conclusion of the evidence, the insurer moved for judgment as a matter of law. The district court denied the motion, and the 10th Circuit affirmed, finding that a reasonable jury could find that the insurer’s actions constituted bad faith. The court determined that where there is a legitimate dispute as to one component of a claim, a jury may reasonably conclude that it is not reasonable to hold payment of the undisputed amount hostage to relinquishment of a legitimately disputed component of the claim. There was no dispute that the insurer owed at least the $25,000 policy limits of one UIM policy and that money should have been paid promptly.  

In circumstances where an insurance company believes certain elements of damages are undisputed, can the insurer take the position that it will not pay certain elements of damages that are undisputed without requiring the insured to sign a release giving up his/her claim regarding the disputed elements of damages?  Can the insurer successfully make the public policy argument that complete settlements are preferred over piecemeal settlements, which overrides the insured’s desire to have certain element(s) of a UM/UIM claim be paid promptly which are not disputed? If an insurer delays paying an insured certain elements of a claim which are admittedly owed and undisputed, has the insurer let its interest override the insured’s interest?  If it makes sense under a certain set of facts and there is no reason other than the insurer’s desire to not settle cases piecemeal, must the insurer pay the undisputed portion of the UM/UIM claim?

Most insurance companies will agree that each UM/UIM claim must be handled on its own merits, and the insurance company should give the insured’s interest in having the undisputed portion of his/her UM/UIM claim paid promptly equal weight to the insurer’s desire to not settle claims piecemeal.  The insurance company must look at the facts of each case to make a proper decision.

Insurance companies pay claims piecemeal where there is no dispute in every other type of first-party coverage. For example, on medical payments coverage, the insurance company will promptly pay each medical bill as it is submitted without requiring a release from its insured (assuming the insured purchased said coverage) once each bill is determined to be reasonable, necessary and related to the accident. The insurer does not make the insured wait until any disputed medical bills are resolved before it promptly pays the undisputed medical bills under the medical payment coverage. If the insured is in an accident, damages his/her car and makes a claim under his/her collision coverage, the insurer will pay for the amount it determines to be necessary to repair the car. If the body shop later finds hidden damage due to the accident, the insurance company will make a supplemental payment to cover the hidden damages on this first-party claim without requiring a release.

Payment of an undisputed element of an uninsured motorist claim

Let’s change the facts from Garnett. An insured is in an accident caused by a driver with no insurance where liability is clear, fractures a bone as a result of the accident, incurs medical bills of $5,000 which the insurer agrees are reasonable, necessary and related to the accident, goes through pain and suffering as a result of the accident and has UM coverage of $25,000 which the insurer agrees is in force and applies to the facts of the accident. A settlement package is sent requesting the UM policy limits of $25,000. The insurer evaluates the claim at $15,000 to $20,000, and makes an initial offer of $16,000. The insured requests that the insurer go ahead and pay the $5,000 for the medical bills, which the insurer admits are reasonable, necessary and related to the accident without settlement of the uninsured motorist claim. In other words, the medical bills on the insured’s UM claim are “undisputed.” There is no liability coverage to cover the medical bills incurred. The insurance company refuses to pay the “undisputed amount” of the UM claim without a release because it disputes the whole value of the UM claim. Has the insurer exposed itself to a bad faith claim?

These latter facts are distinguishable from Garnett since in Garnett, the insurance company disputed the value of the UIM claim and there was liability coverage to pay the medical bills, lost wages and over $2,700 of pain and suffering. It was certainly possible that a jury could award less than $2,700 for pain and suffering and never expose the UIM coverage of GEICO. In the present example, there is no doubt that the insurance company will have to pay at least the medical bills of $5,000, since the insurance company does not dispute them as being reasonable, necessary and related to the accident. In other words, the insurance company is going to have to pay at least $5,000 on the UM claim since it is undisputed.

There is no policy provision which prohibits payment of the undisputed portion of the UM claim. There is no statute which prohibits payment of the undisputed portion of the UM claim. There is no public policy consideration which prohibits payment of the undisputed portion of the UM claim. The only possible reason an insurance company can argue that it will not pay the undisputed portion of the UM claim is that UM coverage is not a periodic payments coverage, and that the insurance company will settle the UM claim only when all elements of the UM claim can be settled together — not piecemeal.

The author is aware of no insurance policy that states that the insurance company can delay paying the undisputed portion of an uninsured motorist claim until all elements of the UM claim are resolved. An insurer that refuses to pay undisputed elements of an uninsured motorist claim appears to contradict everything that Christian stands for.

In this example, an insured has outstanding medical bills, and the insurance company states the insured is not entitled to payment of the medical bills under the UM coverage even though the medical bills are undisputed. Taking this position, the insurance company will allow medical providers to hassle the insured and possibly have the insured’s credit hurt until all of the elements of the UM claim are resolved. In effect, the insurance company is holding its insured who paid premiums for UM coverage hostage and won’t pay the undisputed portion of the UM claim until the insured settles all elements of the UM claim. Does this position by an insurance company make sense, especially when the jurors will think this same thing could happen to them or their family or friends?

As a practical matter, it is unclear why an insurance company would not issue a check to its insured for the “undisputed” portion of an uninsured motorist claim, since the insurer could advise the jury it paid what was undisputed and the lawsuit is over the disputed portion of the UM claim. The jury would probably look positively at the insurer for trying to do what was right. Instead, when an insurer refuses to pay the undisputed portion of an uninsured motorist claim without a release when money for undisputed medical bills is owed, a jury will usually look negatively at the insurer, and substantial verdicts can arise.

1. 1977 OK 141, 577 P.2d 899.
2. 10 Cal. App.3d 376, 89 Cal. Rptr. 78, 47 A.L.R.3d 286 (1970).
3. 2008 OK 43, ___ P.3d ___.
4. 98 Fed. Appx. 789 (10th Cir. (Okla.) 2004).

About The Author

David Bernstein is a sole practitioner in Norman, where he has practiced for the past 25 years. He earned a J.D. from OU in 1983 and he is a member of the OBA, Oklahoma Association for Justice Cleveland County Bar Association, American Association for Justice, Litigation Counsel of America and Million Dollar Advocates Forum.

Payment of the Undisputed Amount in Uninsured Motorist Claims: What Insurance Companies and Attorneys Should Know
Published 79 OBJ 1767 (August 9, 2008)