I recall when college basketball star Hank Gathers died suddenly on the court during a game. After his untimely death, I learned that college athletes could purchase an insurance policy to protect against the loss of a career that had not yet begun.[1] I later learned that professional athletes were purchasing similar policies to protect themselves against injuries, thereby providing leverage in contract negotiations.
The universe of potential insurable losses is astounding, as a simple Internet search will reveal. Recently, when Googling “strange insurance policies,” I have even found policies insuring against such extraordinary events as alien abduction and kidnapping as well as providing specific coverage for damage to prized individual body parts, such as legs, lips, or even a moustache. While it seems clear that insurers will eagerly accept premiums to protect against the loss of just about anything, the bigger question is how they will respond when those unusual losses ultimately occur. While one would expect that they would act fairly and in good faith to all insureds, in practice, it seems that Indiana insurers would prefer to avoid such responsibility.
Schmidt v. Allstate Revisits the Reasonable Expectations of Indemnity
Ever since the Indiana Supreme Court recognized a cause of action against an insurer for tortious breach of the duty to exercise good faith and fair dealing in Erie Ins. Co. v. Hickman, 622 N.E.2d 515 (Ind. 1993), insurers have sought to narrow the scope of the same. For the most part, Indiana litigants and appellate courts have obliged the insurers to the extent that the independent tort of bad faith seems to have lost its teeth as a means of redressing egregious insurance claims practices.
Recently, however, the Indiana Court of Appeals in Schmidt v. Allstate brought the duty of good faith toward insureds back to the forefront by returning to the Indiana Supreme Court’s reasoning in Erie and its Webb v. Jarvisorigins. 141 N.E.3d 1251 (2020), trans. pending. In Schmidt, Monica Schmidt was injured in an accident while riding in a friend’s car that was insured by Allstate. When Allstate refused to tender the limit for uninsured motorist coverage, Schmidt filed suit against Allstate, claiming it had violated its duty of good faith and fair dealing. The trial court had granted the insurer’s motion for summary judgment on a claim for bad faith, relying on Cain v. Griffin, 849 N.E.2d 507 (Ind. 2006). Schmidt, 141 N.E.3d at 1252. The Court of Appeals reversed, distinguishing Cain and concluding that an insurer owes a duty of good faith and fair dealing even to an insured who is not a policyholder. Id. at 1256, 1258. Ultimately, the Court of Appeals held that evaluation of the three-factor test in Webb v. Jarvis determines whether an insurer owed a duty of good faith—even to a non-payor also insured under the policy. Id. at 1258.
In response to Schmidt’s contentions on appeal, Allstate has argued that the insurer’s duty of good faith should extend only to policyholders and named insureds. Further, the Insurance Institute of Indiana as amici has sought to narrowly limit the insurer’s duty to just policyholders in privity of contract with an insurer. If the Indiana Supreme Court were to accept either rule, it would drive a stake in the heart of Indiana’s bad faith law by allowing insurers to creatively draft their policies to avoid such duty in most coverage scenarios. Given that insurance is purchased specifically to provide financial protection when the need is heightened by the occurrence of a named loss, we should reasonably expect all intended indemnitees to be treated in good faith when a covered loss occurs instead of being at the mercy of the insurer handling the claims.
The Many Varieties of Insurance Coverage
Understanding the peril of narrowly limiting an insurer’s duty of good faith requires first understanding the vastness of even common types of insurance. Insurance comes in many forms:
- motor vehicle coverage (liability, collision, medical payments, uninsured/underinsured motorist, umbrella);
- homeowners insurance (liability, structure, contents, additional living expenses, medical payments);
- business owners coverage (liability, structure, contents, loss of income, completed products, errors and omissions); and
- individual or group health, individual or group life, individual or group disability, mortgage insurance, flood insurance, and title insurance, to name a few.[2]
Given the considerable differences between the types of policies and the parties purchasing and benefitting from them, “insurance” would seem difficult to narrowly define. However, Indiana Code § 27-1-2-3(a) defines “insurance” generally as follows:
“Insurance” means a contract of insurance or an agreement by which one (1) party, for a consideration, promises to pay money or its equivalent or to do an act valuable to the insured upon the destruction, loss or injury of something in which the other party has a pecuniary interest, or in consideration of a price paid, adequate to the risk, becomes security to the other against loss by certain specified risks; to grant indemnity or security against loss for a consideration.
(Emphasis added). Black’s Law Dictionary defines insurance as a “contract by which one party (the insurer) undertakes to indemnify another party (the insured) against risk of loss, damage or liability arising from the occurrence some specified contingency.” (11th ed. 2019) (emphasis added). The authoritative law dictionary then includes more than 150 types of insurance within its definitions (although it somehow omitted alien abduction insurance).
What is common to nearly every insurance policy is that a payor pays premiums in advance to an insurer to indemnify one or more individuals or entities against a future loss. In fact, the Indiana Supreme Court has long held that the basic purpose of insurance is indemnity. See Eli Lilly & Co. v. Home Ins. Co., 482 N.E.2d 467, 470 (Ind. 1985). While the receipt of premiums may be of the utmost importance to the insurer from a business perspective, it is the need for indemnification in the event of loss that drives a consumer’s decision to purchase coverage.
Beyond the insurer, each insurance policy includes, in some form or fashion, one or more of the following:
- a payor, who pays the premiums;
- a policyholder, who holds or owns the policy;
- an insured, who defines the covered risk; and
- a beneficiary, or indemnitee, who is indemnified by the loss of the covered risk.
In some very limited circumstances, such as an individual disability insurance policy, the same person may occupy all four roles. For a private auto insurance policy, the policyholder and the payor are usually one and the same, while the insureds (whether named or unnamed) are also the beneficiaries to the extent of their insurable interest in a particular loss. In other cases, such as life insurance policies, a different person may occupy each such role.[3] In fact, an insured will rarely be the beneficiary as it is typically the insured’s death that is the triggering event that creates the loss for which the beneficiary is indemnified. The various roles in group insurance plans are even more complicated.
To understand the illogic of the rules sought by Allstate and the Insurance Institute of Indiana in Schmidt, one need only examine one’s own insurance policies and apply the proposed rules. For my personal policy for homeowners and motor vehicle coverage, I am the payor and the policyholder. My wife and I are the only named insureds, while my mother and adult son are listed as drivers but not as named insureds. There are other potential unnamed insureds including but not limited to permissive drivers and passengers. While I purchased the coverage for my family, the insurer determined the details of how the coverage would be provided.
Under the rule proposed by the Insurance Institute of Indiana, my insurer would owe a duty of good faith to me if a loss occurred but would not owe a similar duty to my wife, family, or anyone else covered under my policy. Meanwhile, under Allstate’s proposed limiting rule, my insurer would only owe a duty of good faith to me and my wife if a loss occurred but not to my mother, son, or the rest of my family. Under my prior bundled home and auto policy, which afforded similar coverage, I was the only named insured on the policy. As such, under either of the rules proposed by Allstate and its amicus curiae, our previous insurer would have owed a duty of good faith to me but not to my wife or the rest of my family. It makes no sense to allow insurers to treat one class of indemnities differently from another class when the intent of the policy is to provide coverage to all who may fall under the definition of “insured.” Whether or not an insured pays the premiums should not determine the insurer’s duty.
I also maintain numerous life insurance policies for the protection of my family in the event of my death. On each of these policies, I am the payor, the policyholder, and the insured, and my family members are the beneficiaries. The clear intent of these policies is to indemnify my family upon my death. Under either proposed rule, our insurer would owe no one a duty of good faith upon the occurrence of the triggering loss, which would be my death. Considering that I spend more than $50,000.00 per year on various forms of insurance coverage to protect my family, I certainly expect our insurers to treat them fairly when they are most vulnerable, at a time of profound loss. With the vast assortment of types of insurance and roles played by those with rights under the contract, how does it serve public policy to disregard the primary purpose of insurance—indemnity—when determining an insurer’s duty of good faith? Rather than limiting an insurer’s duty of good faith to only payors or those listed on the policy as named insureds, the Court of Appeals correctly found that applying the Webb v. Jarvis analysis leads to the insurer’s duty of good faith being extended to those intended to be indemnified by the policy. As such, the Indiana Supreme Court should deny transfer in Schmidt v. Allstate.
The Nature of Insurance Contracts
While the purchase of insurance is often described as an arm’s length transaction, most insurance policies are not the result of typical arm’s length transactions between two sophisticated parties with equal bargaining power. In many circumstances, the purchase of the insurance policy may be mandated by law or by contract. For instance, the individual mandate of the Affordable Care Act required the purchase of health insurance. State financial responsibility laws mandate the purchase of auto insurance. A typical mortgage mandates the purchase of homeowner’s insurance to protect the mortgagee. And a lease may require the renter to purchase property damage and liability coverage to protect the lessor. There are numerous other circumstances in which the purchase of insurance coverage is not an option but a mandate, often for the express protection of others.
Furthermore, historically, a typical insurance policy has been purchased from an insurer through an agent. While the agent may explain the types of coverages available for purchase or otherwise assist in satisfying the purchaser’s individual insurance needs, the agent is often employed and/or compensated directly by the insurer.
Additionally, the typical insurance purchaser often will only receive the actual policy after purchasing it—if at all. Even if one is provided a copy of the policy prior to purchase, the policy’s terms, conditions, amendments, and endorsements are often so complex that even seasoned attorneys have difficulty interpreting them. It is fair to ask: How many supposedly arm’s length contracts include a declarations page that summarizes the coverages purchased, only to be modified by a standard policy form that is, at the same time, amended through a myriad of amendments and endorsements? In the end, the average insurance purchaser is more likely to simply rely upon and accept the advice and direction of her agent than to carefully review what is often hundreds of pages of policy documents in order to independently reconcile the coverage he or she was promised.
The Indiana Supreme Court has recognized the imbalance of power inherent in insurance contracts:
An insurance policy is a contract prepared by the insurers with its provisions standardized and formulated for the insurer’s benefit and to comport with the insurer’s premium rate and actuarial base. The terms of the policy are not generally open to negotiation and because of this the policies are known as “adhesion contracts.” Given the complexity of these policies, an insured relies heavily upon his agent and expects that the policy issued to him will conform to his stated desires.
Huff v. Travelers Indemnity Co., 363 N.E.2d 985, 993 (Ind. 1977)(emphasis added).
The rules of construction for insurance contracts further demonstrate the significant imbalance of power and vulnerability of those relying on their benefits. While an insurance contract is generally construed as any other contract, “special rules of construction of insurance contracts have been developed due to the disparity in bargaining powerbetween insurers and insureds[.]” Wagner v. Yates, 912 N.E.2d 805, 810 (Ind. 2009) (emphasis added). For example, where there is ambiguity in policy terms, they are strictly construed against the insurer and in favor of the insured. Id. at 811. This strict construction against the insurer “is driven by the fact that the insurer drafts the policy and foists its terms upon the customer.” Am. States Ins. Co. v. Kiger, 662 N.E.2d 945, 947 (Ind. 1996). As one Indiana appellate court acknowledged: “The insurance companies write the policies; we buy their forms or we do not buy insurance.” American Economy Ins. Co. v. Liggett, 426 N.E.2d 136, 142 (Ind. Ct. App. 1981).
Considering the complexity of the relationship, the control the insurer has in crafting the policy language, and the opaqueness of the terms and conditions of the policy contract, it is essential that coverage should, at minimum, meet the reasonable expectations of indemnity for those obtaining the coverage. When I seek and purchase an insurance policy for protection and indemnification of my family, is it unreasonable for me to expect the insurer to act fairly and to protect my family, in good faith, after a loss occurs? It is hard to imagine that an ordinary insured, let alone one who is a seasoned attorney, would comprehend that, because my spouse was not with me when I purchased my policy, she would somehow receive less protection than I would. Or that my adult son and mother could be treated as a “second-class” indemnitee by the insurer simply because they were listed as drivers and insureds on my policy but were not named as insureds on the declarations page. To avoid this distinction without a difference, the duty of good faith and fair dealing should be extended to protect those reasonable expectations of indemnity.
Defining an Insurer’s Duty of Good Faith
Twenty-seven years after its issuance, Erie Ins. Co. v. Hickman remains a seminal and highly influential Indiana precedent concerning the duty of good faith in first-party insurance claim handling. There, the Indiana Supreme Court reaffirmed that an insurer owes a duty to deal in good faith with its insured while also recognizing a separate cause of action in tort for a breach of that duty. 622 N.E.2d at 519. While the Erie court stopped short of determining the precise extent of that duty, it did make several general observations that should continue to be applied to insurance bad faith claims to this day.
The Erie court recognized that obligations arising under an insurance contract are complicated and may, at times, involve an arm’s length transaction, a fiduciary relationship, and even an adversarial relationship. Unfortunately, many courts have dealt with the relationship as if it is exactly the same in all instances, such as using language in Cain v. Griffin, 849 N.E.2d 507 (Ind. 2006), pertaining to an adversarial third party, as grounds for holding that a life insurance beneficiary could not pursue a claim for bad faith against the insurer in Cashner v. Western-Southern Life Assur. Co., 14 N.E.3d 137 (Ind. Ct. App. 2014) (unpublished, no transfer sought). However, when it comes to the object of an insurer’s duty of good faith and fair dealing, “an insured is an insured is an insured is an insured.” Schmidt, 141 N.E.3d at 1258 fn.9. Thus, in the context of an automobile insurance policy, the Schmidt court correctly observed that insureds who are entitled to indemnity under the policy should have equal standing. Simply put, there is no principled justification for disparate treatment among insureds based upon whether or not the insurer chose to list them by name on a declarations page.
The question in Schmidt v. Allstate is not whether those with claims against an insurance policy may have a right to seek indemnification but whether they have a right to be treated fairly and in good faith by the insurer when they do. Erie does not suggest that insurers can avoid treating those intended to be indemnified under an insurance policy fairly or that indemnitees have no right to demand fair treatment (good faith) by the insurer. Rather, in establishing the independent tort of bad faith, the Erie court reasoned: “[e]asily foreseeable is the harm that proximately results to an insured, who has a valid claim and is in need of insurance proceeds after a loss, if good faith is not exercised in determining whether to honor that claim.” Erie, 622 N.E. 2d 515, 518 (Ind. 1993). The Erie court was primarily concerned with safeguarding the basic purpose of any insurance policy: indemnity.
While Erie did not determine the precise scope of an insurer’s duty of good faith, nor was it asked to define“insured,” the Indiana Supreme Court’s reasoning certainly suggests a similar understanding as found in Black’s Law Dictionary. Black’s defines an insured as “[s]omeone who is covered or protected by an insurance policy. –Also termed assured.” “Assured” is further defined as “[s]omeone who is indemnified against loss; insured.” Under the Black’s definition, the beneficiary of a life insurance policy would be considered an insured as one who is indemnified or protected by the policy. Ultimately, it is those intended to be indemnified by a loss that warrant protection from unscrupulous insurers, as they are the ones foreseeably harmed when “good faith is not exercised in determining whether to honor that [valid] claim.” See Erie, 622 N.E. 2d at 518.
Schmidt v. Allstate: A Chance to Hold Insurers Appropriately Accountable to All Intended Indemnitees
In Schmidt v. Allstate, the Indiana Court of Appeals was confronted with the issue of whether an insurer owed a duty of good faith and fair dealing to an unnamed insured who brought a first-party claim for uninsured motorist coverage. Schmidt, a passenger injured while riding with the insured, sued Allstate, the driver’s insurer, alleging bad faith for refusing to tender the limit for uninsured motorist coverage. The trial court granted the insurer’s summary judgment motion on the bad faith claim. The Court of Appeals reversed, distinguishing Cain, which had held that an insurer did not owe a duty of good faith to an adversarial third party, and concluding that an insurer owes a duty of good faith and fair dealing even to an insured who is not a policyholder. Id. at 1256, 1258.
The Schmidt court correctly recognized that, regardless of how one labeled the unnamed insured, the insurer had specifically agreed to provide such coverage to the additional insured, and both the policyholder and the insurer would have anticipated and considered such claims when the policy was issued (i.e., the unnamed insured was an intended indemnitee of the policy). That is, the label given by the insurer to the unnamed insured was not dispositive to the question of whether that insured is nonetheless owed duties of good faith and fair dealing. The Court also looked to the language of the Unfair Claims Settlement Practices Act, Indiana Code § 27-4-1-4.5, to show that public policy supports protecting all insureds, not just policyholders, from unscrupulous insurers.[4]
Finally, the court recognized perhaps the most important feature of insurance, the reasonable expectations of indemnity at the time a policy is purchased:
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. As Schmidt persuasively observes,
The policyholder purchases insurance for peace of mind. Surely policyholders entering into the insurance contract expect that their family and friends (who are also being provided coverage by the policyholder [as either permissive drivers or permissive passengers]) will be treated fairly by their insurance company. Otherwise, their relationships and friendships may be ruined and the financial lives of their loved ones devastated because the insurance company does not want to treat such [additional] insureds fairly.
Id. at 1258 (quoting Appellant’s Br. at 32) (emphasis and alterations in original).
In Cain, the Indiana Supreme Court was confronted with a case wherein a third party making a claim for liability against an insured for a slip-and-fall also sought to make a punitive damages claim for bad faith against the liability insurer for delaying payment under medical payments coverage. In that case, the medical payments beneficiary was not only a complete stranger to the insurance relationship but was an adversary to the insured in the third-party liability claim. A standard CGL policy is intended to indemnify an insured from such third-party liability claims. Medical payments coverage furthers that purpose by providing for the payment of medical treatment without fault or the necessity of a liability claim or lawsuit. Allowing a third-party tort victim to make punitive damages claim against the liability insurer at the same time as making a personal injury claim against the insured would in no way serve the reasonable expectations in purchasing the CGL coverage, nor would it serve public policy. Accordingly, the facts and circumstances in Cain do not support a duty in tort under Webb. See Webb, 575 N.E.2d at 995.
Unfortunately, federal courts have relied on unpublished cases in which transfer was not sought to read Cain in a way that strays from the reasoning of Erie, gutting the basic duty of good faith and fair dealing. See Martinez v. State Farm Mut. Auto. Ins. Co., No. 2:15 CV 137, 2016 U.S. Dist. LEXIS 42956 (N.D. Ind. March 31, 2016). But nothing in Cain suggests any intent to overrule or substantially modify Erie or Webb. In effect, Allstate and the Insurance Institute of Indiana ask the court to modify or overrule parts of Erie and Webb and, instead, follow state and federal court attempts to reconcile Cain based upon distinct facts and circumstances.
The Case for Extending a Duty of Good Faith to All Anticipated Indemnitees
What is not directly addressed in the Indiana Court of Appeals’ Schmidt opinion, but should be covered under similar analysis, is whether the duty of good faith should also flow to an intended indemnitee (beneficiary) of an insurance policy who is neither a policyholder nor defined as an “insured” in the policy. To meet the reasonable expectations of the purchaser of an insurance policy, insurers should owe a duty of good faith to all intended indemnitees.
In many instances, the purchaser not only intended to indemnify a policy’s beneficiaries, but that was the entire motivation for the purchase of the policy in the first place, such as with a life insurance policy. The damages from violation of the duty of good faith to an intended indemnitee/beneficiary are easily foreseeable. See Webb, 575 N.E.2d at 995 (finding that reasonable foreseeability of harm to the person injured is one factor in determination of whether courts should impose a duty at common law). Public policy further supports extending the duty of good faith to all intended indemnitees whether the insurer labels them as insureds (named or unnamed), beneficiaries, or otherwise. For example, the types of victims contemplated by Indiana’s Unfair Claims Settlement Practices Act are not limited to policyholders or named insureds, clearly applying to other indemnitees as well. Considering the basic purpose of purchasing insurance—to provide indemnity in times of financial and perhaps emotional insecurity and vulnerability—it makes no sense to limit the insurer’s duty of good faith and fair dealing to exclude from protection intended indemnitees who are not explicitly identified by the insurer as a payor, policyholder, or insured.
If the duty of good faith and fair dealing were to extend only to payor-policyholders and named insureds, insurers would then have an incentive to simply rewrite and issue policies with definitions or wording that avoid a duty of good faith and fair dealing to other indemnitees. For example, my previous home/auto policy insurer would have effectively eliminated any duty of good faith to my family by its creative drafting of the policy. However, limiting the insurer’s duty of good faith and fair dealing to only me—whether due to my status as payor, policyholder, or the sole named insured—defeats my reasonable expectations in purchasing coverage. For example, if my wife or adult son caused an automobile accident and were liable for significant injuries, our insurer would have no good faith duty to defend and potentially settle within policy limits, thus exposing our family to a potential excess verdict without recourse against or consequences for the insurer. Similarly, if our family sustained severe injuries due to the fault of an uninsured motorist, our insurer would only owe a duty of good faith to me and not to my other family members based solely upon how the insurer chose to define its policy.
The concept of limiting the duty of good faith to payors, policyholders, or named insureds becomes even more specious when one considers group life insurance policies. When an employer offers life insurance as an employee benefit, the employer would be the policyholder and named insured on a policy covering an employee’s life, while the employee’s spouse or children will often be the beneficiaries. Consequently, the employee may forgo purchasing private life insurance coverage, assuming that the group policy through his or her employment would meet the beneficiary’s needs upon the employee’s death. However, neither the employee nor its former employer would be in a position to protect any beneficiary’s interests after the employee’s death. In such a circumstance, both the employer-policyholder and the employee would have an expectation that the employee’s intended beneficiary or beneficiaries would be treated fairly upon the employee’s death. Otherwise, the entire point of purchasing such coverage is frustrated.
An Insurer’s Duty of Good Faith and Fair Dealing Should Be Based on the Reasonable Expectations of Indemnity at the Time of Contracting Coverage
The prevalence of insurance in our modern world cannot be overstated. It affects nearly every aspect of our lives. In fact, we would be hard-pressed to find an acquaintance who does not have some form of insurance coverage. I have represented both insurers and insureds in a myriad of first-party insurance cases. I have also brought my own insurance claims and, most recently, have become licensed to sell insurance. In the aggregate, I personally pay in excess of $50,000.00 per year in premiums for various forms of insurance for myself, my family, and my businesses. In my experience, which includes professional and personal insurance cases on both sides of the question, establishing a narrow rule that obliges insurers to deal fairly only with a payor, policyholder, or named insured ignores the reasonable expectations of the purchaser at the time of contracting and, therefore, denies the benefit of the bargain.
Considering the wailing and gnashing of teeth expressed by insurers over the tort of bad faith, one would expect compliance to be an arduous task. However, it merely requires an insurer to act fairly and in good faith in handling a claim, which includes, at a minimum, the obligation to refrain from the following:
(1) making an unfounded refusal to pay policy proceeds;
(2) causing an unfounded delay in making payment;
(3) deceiving the insured; and
(4) exercising any unfair advantage to pressure an insured into a settlement of his claim.
Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968, 976 (Ind. 2005) (quoting Erie, 622 N.E. 2d at 519). These should not be difficult objectives to achieve.
While most insurance attorneys will suggest that finding bad faith is the functional equivalent of finding a unicorn, I have personally seen it while working on both sides. Below are some examples:
- I was once hired to belatedly defend an insured from liability after the claims adjuster initially denied liability coverage because the third-party plaintiff’s attorney refused to provide a HIPPA authorization to the adjuster, resulting in a default judgment. In that case, the fear, and high likelihood, of consequences for the bad faith led to a fair resolution of the claim.
- I also represented a widower whose wife had died of cancer and her group life insurer had refused to pay the claim. After the wife’s terminal cancer diagnosis, she could no longer work and had the automatic right to convert her group life policy into a personal one. Rather than accepting the wife’s request for conversion, the insurer intentionally mishandled the application and misled the wife to prevent her from exercising her rights. My client was destitute and in no position to battle a big insurer over this $100,000.00 policy. However, with multiple letters from counsel citing clear bad faith violations and threatening litigation, the insurer ultimately acknowledged and paid the claim.
- On a regular basis, I see insurance adjusters misrepresenting terms and conditions of coverage, misrepresenting facts from investigations, deceiving their insureds, or delaying or refusing to pay clearly valid claims because of the imbalance of power, all to avoid fulfilling the primary function of insurance coverage: indemnity.
Absent a tell-all book, most would be unaware of how tragically common bad faith claims practices occur because the insurers can better afford to settle these egregious cases than the victim indemnitees can afford to fight them. Considering the imbalance of power and financial superiority of insurers, the most significant protection an indemnitee may have against abusive and unfair treatment by insurers is the independent tort of bad faith. One could imagine the result, especially in these troubling times, if there were no consequences for robbery (criminal or financial) other than being required to return the stolen goods if caught.
Ultimately, the duty of good faith and fair dealing should extend equally to all intended indemnitees regardless of whether they are payors, policyholders, named or unnamed insureds, or intended beneficiaries. A rule that allows insurers to intentionally mishandle claims of indemnitees without consequence allows insurers to elevate their own economic interests over the consumer’s reasonable expectations of coverage. I am hopeful that the Indiana Supreme Court will consider the Webb v. Jarvis origins of Erie’s duty of good faith and fair dealing when it hears oral argument in Schmidt v. Allstate and considers granting transfer. I also hope that counsel consider the rights of all indemnitees in making their oral arguments.
This article is scheduled to be published in the Indiana Trial Lawyers Association magazine Verdict later this month.
[1] Unfortunately for Gathers’ family, he had purchased a disability policy with no death benefit.
[2] These are merely a subset of the hundreds of forms of insurance that may be purchased or sold in the state of Indiana.
[3] The payor may not necessarily be a policyholder, insured, or beneficiary, such as when a grandparent purchases a whole life insurance policy for a grandchild.
[4] The provisions of Indiana’s Unfair Claims Settlement Practices Act are useful guidance as to insurance practices that may constitute bad faith, but the Act does not create private civil causes of action. See I.C. 27-4-1-18. As such, it is often effectively toothless as a real enforcement mechanism.