Law Updates

Maryland District Court Holds That Attempt to Settle Insurance Claim Before Trial Sufficiently Negates “Bad Faith” Claim Against Insurer

Hughes v. Progressive Direct Insurance Company, Inc., United States District Court for the District of Maryland, No. CCB-12-1555 | View pdf

(September 5, 2012) Jhanelle Graham, Law Clerk.

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In Hughes v. Progressive Direct Insurance Company, Inc. , Plaintiff, Joseph P. Hughes, Sr. (“Hughes”), brought an action against Defendant, Progressive Direct Insurance Company (“Progressive”), as assignee of Jarrett Pratt (“Pratt”). Hughes alleged that Progressive acted in “bad faith” in handling an insurance claim pending against Pratt. The United States District Court for the District of Maryland acknowledged that no Maryland case had been cited to the court in which the Court of Appeals of Maryland held that an insurer that offered its policy limits in settlement of a claim prior to trial could be held liable in tort for bad faith. Thus, the district court granted Progressive’s Motion to Dismiss, finding that Hughes had not sufficiently stated a claim for “bad faith” failure to settle as a matter of law.

On July 10, 2006, Jarrett Pratt broadsided a vehicle driven by Joseph P. Hughes, Sr. in Baltimore City, Maryland. Hughes’s vehicle rolled over and he was severely injured in the accident. On or about January 23, 2009, Hughes filed suit in the Circuit Court for Baltimore City against Pratt for his injuries and against his insurer, GEICO Insurance (“GEICO”), for uninsured motorist coverage benefits. Pratt was insured by Progressive, a Wisconsin corporation with its principal place of business in Ohio. Pratt’s insurance policy with Progressive provided coverage up to $100,000 per accident. At some point while the lawsuit was pending, but before it proceeded to trial, Progressive offered its $100,000 policy to Hughes, and GEICO was placed on notice of the offer. According to Hughes, GEICO did not respond in writing within sixty (60) days after receipt of notice pursuant to Maryland law. See Md. Code Ann., Ins., § 19-511. Consequently, Hughes filed a Motion to Enforce Settlement, against which GEICO contested that an email its counsel sent to Hughes qualified as notice under Section 19-511. Progressive did not join Hughes’s Motion to Enforce Settlement against GEICO. The circuit court ultimately denied the motion, finding that an email amounted to proper notice as a matter of law under Section 19-511.

In March 2010, Hughes’s lawsuit proceeded to trial in Baltimore City Circuit Court. The jury returned a verdict of $725,000.93, which was reduced upon consent motion to $720,000.03 to conform to the statutory cap on pain and suffering. GEICO paid $500,000 of the verdict, thereby satisfying the contract claim against it, but the $220,000.93 judgment against Pratt remained unsatisfied and had been collecting interest since May 5, 2010.

On or about April 11, 2012, Hughes, as Pratt’s assignee, filed a complaint for “bad faith” against Progressive in Baltimore City Circuit Court. The case was removed to the United States District Court for the District of Maryland on May 24, 2012, where Hughes alleged that Progressive failed to use good faith in handling the claim pending against Pratt by, among other things, failing to: (1) join in Hughes’s Motion to Enforce Settlement against GEICO; (2) appeal the court’s ruling denying the motion; (3) attend a court-ordered mediation prior to trial; (4) pressure or encourage GEICO to resolve the claim within its policy limit; (5) report to Pratt regarding the consequences of the failure to settle within GEICO’s policy limit prior to the verdict; (6) depose any of Hughes’s treating physicians; (7) set up an independent medical exam with a physician other than one who only performs insurance company medical exams; (8) file any post-trial motions requesting remittur or a new trial, or file an appeal; (9) negotiate with Hughes to satisfy the excess judgment against Pratt at a reduced amount; (10) communicate the status and seriousness of the lawsuit to Pratt during the pendency of the lawsuit; and (11) obtain Pratt’s consent to concede liability. Hughes also alleged that Progressive and GEICO conspired to keep Pratt as a party in an attempt to mitigate the amount of the verdict.

Progressive filed a motion to dismiss, alleging that Hughes’s complaint failed to state a claim under which relief could be granted because Progressive offered its policy limits in settlement prior to trial. According to Progressive, although Hughes’s allegations may set forth a malpractice claim against legal counsel selected by Progressive, they do not constitute the basis for a claim of “bad faith” failure to settle. The Maryland district court concurred.

The district court began its analysis by recognizing that, in Maryland, a third-party insurer may be liable for “bad faith” in the insurer’s dealings with its insured when the insurer refuses an opportunity to settle a claim against the insured within policy limits. State Farm Mut. Auto Ins. Co. v. White , 248 Md. 324, 330-331, 333, 236 A.2d 269 (1967); Sweeten v. Nat’l Mut. Ins. Co. , 233 Md. 52, 54-55, 194 A.2d 817 (1963)). In White , the Court of Appeals of Maryland held that an insurer faced with an opportunity to settle a claim within the limits of an insured’s liability policy owed the insured a duty of good faith. 248 Md. at 332-33. There, the court set forth several factors for determining whether a bad faith failure to settle exists, including: (1) the severity of the plaintiff’s injuries giving rise to the likelihood of a verdict greatly in excess of the policy limits; (2) lack of proper and adequate investigation of the circumstances surrounding the accident; (3) lack of skillful evaluation of plaintiff’s disability; (4) failure of the insurer to inform the insured of a compromise offer within or near the policy limits; and (5) pressure by the insurer on the insured to make a contribution towards a compromise settlement within the policy limits, as an inducement to settlement by the insurer; and (6) actions which demonstrate a greater concern for the insurer’s monetary interests than the financial risk attendant to the insured’s predicament.

Here, the district court reflected on White , finding it undisputed that Progressive offered its policy limits in settlement of the underlying action prior to trial. Thus, even if Hughes’s allegation were true that Progressive’s failure to make the offer until 2010 constituted “unreasonable delay,” the district court concluded that Progressive did ultimately offer its policy limits before trial, which negates a claim for “bad faith” failure to settle as a matter of law. See Sobus v. Lumbermens Mut. Cas. Co. , 393 F. Supp. 661, 673 (D. Md. 1975), aff’d sub nom . Sobus v. Lumbermen’s Mut. Cas. Co. , 532 F.2d 751 (4th Cir. 1976) (finding no basis for liability even where the insurer offered its policy limits in settlement on the day of trial). Accordingly, the district court dismissed the case with prejudice.