SB 256 – What UM/UIM Carriers Need to Know

Written by Chris Flynn, Esq.

Edited by Gary Reinhardt, Esq.

A new bill in Virginia that is currently sitting on the Governor’s desk waiting to be signed has the potential to open UM/UIM carriers up to exposure for bad faith negotiations with their insured.

SB 256 seeks to amend and reenact §§8.01-66.1 and 38.2-2206 of the Code of Virginia, relating to remedies for bad faith refusal of uninsured/underinsured motor vehicle insurance claims.? Specifically, the Bill allows for the insured and/or the insured's counsel to seek adjudication of a claim that the UM/UIM insurance carrier did not act in good faith by making either a posttrial motion before the court in which the underlying personal injury or wrongful death judgment was obtained or filing a separate action against the carrier.

In order for the insured and/or their counsel to take such an action, the Bill sets forth certain conduct that must be alleged and that the Court must subsequently find.? The new law would require the following of the UM/UIM carrier:

• (i) denies, refuses, fails to pay, or fails to make a timely and reasonable settlement offer to its insured under the provisions of any uninsured or underinsured motorist benefits coverage in a policy of motor vehicle insurance applicable to the insured after the insured has become legally entitled to recover, or

(ii) after all applicable liability policy limits and underlying uninsured and underinsured motorists benefits have been tendered or paid, rejects a reasonable settlement demand made by the insured within the policy's coverage limits for uninsured or underinsured motorist benefits or fails to respond within a reasonable time after being presented with such demand after the insured has become legally entitled to recover…

The text of the Bill goes on to state that should the Court make such a finding related to the dealings between the UM/UIM carrier and their insured, the Court must subsequently find that such conduct/dealings were not made in good faith.

In the event that the Court finds that the UM/UIM carrier dealt in bad faith, in addition to the amount due and owing by the insurance company to its insured on the judgment against the tortfeasor, the insurance company shall also be liable to the insured in an amount double the amount of the judgment obtained against the underinsured motorist, uninsured motorist, immune motorist, unknown owner or operator, or released defendant in the underlying personal injury or wrongful death action, up to $500,000, together with reasonable attorney fees.

There are a number of concerns with this Bill that UM/UIM. First, the Bill codifies the term “legally entitled to recover” as the point in time when liability to the uninsured or underinsured motorist insurance company's insured has become reasonably foreseeable without necessity of a judgment by its insured against an uninsured or underinsured motorist, an unknown owner or operator, or an immune motorist.? Prior to this, Courts throughout the Commonwealth found that the language of?Va. Code § 38.2-2206 held that the UIM carrier had no duty to their insured before the insured recovered a judgment against the uninsured/underinsured motorist.? By codifying this term, the Bill shifts dramatically the point in time at which the insured is legally entitled to recover.? In doing so, the Bill allows for the Court to examine conduct by the UM/UIM carrier well before the point in time that judgment is granted.? Further, the Bill leaves open the question as to what constitutes reasonable foreseeability.

The second point of concern related to the language used in the Bill is what, in the eyes of the Court, would constitute a timely and reasonable settlement offer?? For example, if the plaintiff makes an initial demand to their UM/UIM carrier but the liability carrier has not yet tendered, is the UM/UIM carrier obligated to enter into good faith settlement negotiations?? Further, to what extent will a Virginia Court consider vast differences in value applied to a case by the opposing sides when considering if a settlement offer is reasonable?

Due to the vague language used by the authors of this Bill, Courts will be required to interpret the new law and rule on what is a timely and reasonable settlement offer as well as when it is reasonably foreseeable that a UM/UIM carrier is legally entitled to recover.

These changes in particular will require that UM/UIM carriers be diligent in their investigations into UM/UIM claims as well as their dealings with counsel representing their insured, especially as we wait for the Courts to rule on certain issues.? For these reasons it is important to engage with counsel to assist with the investigation into and potential resolution of UM/UIM claims in the early stages of these claims.