Recently, in Ebenezer Manu v. GEICO Casualty Company, the Supreme Court of Virginia clarified the issue of when an insurance provider has a duty to offer a good faith settlement to its insured when the accident was the fault of an uninsured motorist (UM).
Manu was a passenger in a motor vehicle accident caused by a John Doe driver. As a result of the accident, he incurred $27,189.12 in medical damages and $6,375.00 in lost wages. Manu was insured by GEICO and had UM coverage with a $25,000.00 limit. Manu notified GEICO that he was seeking the $25,000.00 UM coverage. GEICO responded by defending John Doe. Ten days before trial, Manu offered to settle his claim against GEICO for $12,500.00 and GEICO responded with a counteroffer of $5,000.00 which Manu rejected. At trial, Manu obtained judgment in the amount of $68,528.24, plus costs and interest against John Doe.
A few months later, Manu filed a complaint against GEICO claiming that GEICO had breached its duty of good faith required by Virginia Code § 8.01-66.1 by failing to settle his claim within the $25,000.00 policy limit. He sought $18,528.00 against GEICO for the amount of unpaid compensatory damages (Manu had received $25,000.00 from the liability insurance provider of the driver of the vehicle in which he was a passenger). GEICO responded by filing a demurrer averring that Manu had failed to state a claim upon which relief could be granted which the trial court sustained. The Supreme Court of Virginia granted Manu an appeal on the issue of the trial court’s sustaining GEICO’s demurrer.
The Supreme Court affirmed the trial court’s ruling holding that “Virginia Code § 8.01-66.1(D)(1) does not create a duty for UM carriers to settle a case prior to trial, but rather creates a remedy for the conduct of UM carriers that refuse in bad faith to pay once the insured has obtained judgment.” The Supreme Court explained that Virginia Code § 38.3-2206 and the related case law are clear that before a motorist can have a “claim” against an insurance provider, the insured must be “legally entitled to recover” requiring the insured to have obtained a judgment against the uninsured driver (“In order for an insured to be eligible to recover from a UM carrier, he must first meet the threshold requirement of having a legally enforceable right to recover from an insured motorist.”). Further, the Court pointed out the distinction between a UM carrier and a general liability carrier, “This right to defend the uninsured motorist, untethered from any obligation to its insured or the motorist to participate in the liability trial, distinguishes UM carriers from liability carriers, because while a ‘liability carrier has the duty to defend the insured and to exercise good faith to settle meritorious claims within the policy limits,’ that undertaking ‘is not required of the uninsured motorist carrier.’” (quoting United States Auto Ass’n v. Nationwide Mut. Ins. Co., 218 Va. 861, 866, 241 S.E.2d 784, 787 (1978)).
Therefore, GEICO did not violate any duty under Virginia Code § 8.01-66.1(D)(1) as a UM carrier cannot act in bad faith until the insurer is liable to pay the insured. GEICO was not liable until Manu had obtained judgment against the uninsured motorist, “It follows that an uninsured does not have a UM ‘claim’ as that term in used in Code § 8.01-66.1(D), until he obtains judgment, and further that there cannot be a bad faith denial of payment under a UM policy before the demand ripens into a ‘claim.’”
If you are a UM carrier defending a claim, you now have guidance from Virginia’s highest court that will assist you in determining whether you have to pay a claim prior to the claimant/plaintiff obtaining a verdict against an uninsured driver. As with every situation of this type, there may be instances where legal counsel might be advisable. Please don’t hesitate to call me at 804-783-6788 with questions.