Fourth Circuit Finds No Bad Faith in Settlement Offer
In a July 2011 decision, Collins v. Auto Owners, the Fourth Circuit Court of Appeals affirmed the trial court's grant of summary judgment in favor of Auto-Owners and held the evidence did not support a finding that Auto-Owners acted in bad faith. The Plaintiff in the underlying case, Calvin Collins, was injured in an automobile accident with Mark Frasie (who had no insurance). Mr. Collins was insured by Auto-Owners under three uninsured motorist policies of $500,000 each. Auto-Owners, as the uninsured motorist carrier, was essentially defending the claim on behalf of Mr. Frasier. During settlement negotiations, Mr. Collins consistently demanded $1 million or more to settle the claims. The most that Auto-Owners offered to settle was $100,000 because Auto-Owners felt that Frasier had legitimate defenses to both liability and damages. When the underlying case went to trial, the jury returned a defense verdict for Mr. Frasier and found that he was not liable to Mr. Collins for the damages because Mr. Frasier had suffered a sudden and unforeseeable incapacity. Mr. Collins brought this claim in federal court for bad faith refusal to settle the case within policy limits.
The Court held Auto-Owners did not act in bad faith because Auto-Owners had legitimate reservations about the validity of Mr. Collins' claims, as evidenced by letters and memos to Collins' attorney from Auto-Owners outlining the meritorious defenses. Specifically, the court noted that "the fact that the parties had different estimations of the value of the claim is not, under South Carolina law, evidence of bad faith on the party offering the lower amount." The Court further clarified that if there is a "reasonable ground for contesting a claim, there is no bad faith, even where the insurer makes no offer to settle."