Indiana has long recognized an insurer owes a duty to deal in good faith with its insured policyholder. The Indiana Court of Appeals recently held for the first time that an insurer also owes a duty of good faith and fair dealing to an insured who is not a policyholder.
In Monika Schmidt v. Allstate Property and Casualty, 2020 Ind. App. LEXIS 44, 2020 WL 701176 (Ind. Ct. App. 2020), the Plaintiff was injured while a passenger in a car driven by a friend. That friend was an insured of Allstate. Plaintiff sued the underinsured driver of the other vehicle for negligence, her friend, and Allstate. Pursuant to the Allstate policy, Plaintiff qualified as an insured under that policy—“any person while in, on, getting into or out of, or going on or off of an insured auto with your permission”.
Plaintiff had demanded the underinsured motorist coverage limits from Allstate which they refused. Plaintiff argued that Allstate owed her a duty of good faith and fair dealing as its insured and that it breached that duty with respect to the underinsured claim (i.e. bad faith). The trial court dismissed her claims as she was not a policyholder with the insurer. On appeal, however, the Indiana Court of Appeals reversed, finding in favor of Plaintiff.
The Indiana Court of Appeals unequivocally found that “an insurer owes a duty of good faith and fair dealing to an insured who is not the policyholder.” (emphasis added). The Court could “think of no principled reason for not requiring insurers to deal in good faith with all insureds.” (emphasis added). Despite this being the first case to squarely address this issue, none of the parties requested the case be reheard or reviewed. Accordingly, the Schmidt decision is now the law of the land. In practice, this requires insurers and claim handlers to ensure that all persons who are “insureds”—whether the insured is a policyholder or not—be dealt with in good faith.
If you would like a full copy of the opinion or if you have any other questions related to claims handling, including allegations of bad faith, feel free to call upon one of our Insurance Coverage and Bad Faith Practice Group Attorneys.
This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.
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