In Hughes
v. Progressive Direct Insurance Company, Inc., the United States
District Court for the District of Maryland held that when an insurance carrier
offers the full extent of its policy limits before trial, there is no basis for
a claim of “bad faith” for failure to settle as a matter of law, and granted
Progressive Direct Insurance Company’s (“Progressive”) motion to dismiss for
failure to state a claim upon which relief can be granted.
The
underlying case involved an automobile accident where Jarrett Pratt broadsided
a vehicle driven by Joseph P. Hughes in Baltimore City. 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.
While the
lawsuit was pending, but before it proceeded to trial, Progressive offered the
full $100,000 policy limits to Hughes. Pratt’s
insurer, GEICO, was placed on notice of the offer. According to Hughes, GEICO
did not respond in writing within 60 days after receipt of notice, as is required
by Maryland law. See Md. Ins. Code
Ann. § 19-511. As a result, Hughes filed
a Motion to Enforce Settlement. In
response to that motion, GEICO claimed that an email its counsel sent to Hughes
qualified as notice. Progressive did not
join Hughes’ Motion to Enforce Settlement against GEICO. The court ultimately denied the motion,
finding that the email was proper notice under Section 19-511.
The lawsuit
proceeded to trial in the Circuit Court for Baltimore City. The jury returned a verdict of $725,000.93,
which was reduced upon consent motion to $720,000.03 to conform to the applicable
statutory cap on damages for pain and suffering. GEICO paid $500,000 of the verdict, thereby
satisfying its contractual obligation to its insured. This left the remaining $220,000.93 judgment
against Pratt unsatisfied.
Subsequently,
Hughes, as Pratt’s assignee, filed a complaint for “bad faith” against
Progressive in the Circuit Court for Baltimore City. The case was thereafter removed to the United
States District Court for the District of Maryland. In his complaint, Hughes alleged that
Progressive failed to use “good faith” in handling the claim pending against
Pratt. Specifically, Hughes alleged that
Progressive failed: 1) to join in Hughes’ Motion to Enforce Settlement against
GEICO; 2) to appeal the court’s ruling denying the motion; 3) to attend a
court-ordered mediation prior to trial; 4) to pressure or encourage GEICO to
resolve the claim within its policy limit; 5) to report to Pratt regarding the
consequences of the failure to settle within GEICO’s policy limits prior to the
verdict; 6) to depose any of Hughes’ treating physicians; 7) to set up an
independent medical examination with a physician other than one who only handles
insurance carrier medical exams; 8) to file
any post-trial motions requesting remittitur or a new trial, or to file an
appeal; 9) to negotiate with Hughes to satisfy the excess judgment against
Pratt at a reduced amount; 10) to communicate the status and seriousness of the
lawsuit to Pratt during the pendency of the lawsuit; and 11) to 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 for failure to state a claim upon which relief could
be granted, also known as a demurrer,
because Progressive had offered its policy limits in settlement prior to trial.
According to Progressive, although
Hughes’ allegations may have set forth a malpractice claim against the legal
counsel selected by Progressive, they did not constitute the basis for a claim
of “bad faith” for failure to settle.
The
District Court acknowledged 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 (1967);
Sweeten v. Nat'l. Mut. Ins. Co., 233
Md. 52 (1963). In Sweeten, the Maryland Court of Appeals held that the plaintiff had
set forth a cause of action sounding in tort given the insurer’s “exclusive
control ... of investigation, settlement and defense of any claim or suit
against the insured” and the existence of “a potential, if not actual, conflict
of interest giving rise to a fiduciary duty.” 233 Md. at 54–55. In White,
the Court of Appeals 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. In doing so, Maryland’s highest court laid out
several factors for determining whether a bad faith failure to settle exists,
namely: (1) the severity of the plaintiff’s injuries giving rise to the
likelihood of a verdict greatly in excess of the policy limits; (2) a lack of
proper and adequate investigation of the circumstances surrounding the
accident; (3) a lack of skillful evaluation of the plaintiff’s disability; (4) a
failure of the insurer to inform the insured of a compromise offer within or
near the policy limits; (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. Id., at 332.
In the
present case, the U.S. District Court determined that Progressive had offered
its policy limits in settlement of the underlying action prior to trial. The court held that even if Hughes’
allegations that Progressive’s late settlement offer constituted “unreasonable
delay,” Progressive ultimately did offer its policy limits before the start of trial.
The court found that no case had been
cited to the court in which a Maryland court 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, considering
all the facts alleged, the court found that Hughes failed to state a claim for
“bad faith” failure to settle as a matter of law. See Sobus v. Lumbermen’s 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). Following this line of cases, the court
granted Progressive’s motion, and dismissed Hughes’ case with prejudice.
