Insurer wrongly denied $10K to woman after crash, COA rules

An Indiana woman seriously injured in a car crash was wrongfully denied $10,000 in uninsured motorist coverage from her insurer, the Court of Appeals of Indiana affirmed Tuesday. The insurance company’s actions also led the appellate court to question whether it acted in good faith.

While Olivia Craighead was a passenger in Morgan Miller’s car in 2018, the two got into an accident that left Craighead seriously injured. At the time, Craighead was covered by an auto policy from Erie Insurance Exchange, which provided her with $100,000 in uninsured/underinsured motorist coverage and $5,000 in medical payments coverage.

Miller’s insurer, United Farm Family Mutual Insurance Company, tendered its liability limit of $50,000 and a $5,000 MPC payment, while Erie made a $5,000 MPC payment pursuant to Craighead’s own coverage.

Although the parties agreed that Erie’s UIM obligation to Craighead was properly reduced to $50,000 by United Farm’s liability payment of $50,000, Erie contended that the available limit of UIM coverage was $40,000 because its UIM obligation had been reduced by the collective $10,000 in MPC payments.

After Erie indicated it would pay Craighead the undisputed amount of $40,000 in UIM coverage only if she signed a release as to the disputed $10,000, Craighead sued for breach of contract and bad-faith denial of her claim.

Erie moved for summary judgment, arguing that a “Setoff Clause” in its policy allowed it to reduce its UIM obligation by the amount of the MPC payments and that no genuine issue of material fact existed regarding bad faith.

The Vigo Superior Court granted partial summary judgment in favor of Craighead on the breach of contract claim, concluding the setoff clause was unenforceable as written. It also found a genuine issue of material fact existed on the bad-faith claim.

Affirming the trial court, the Court of Appeals ruled that Erie wrongfully denied Craighead the $10,000 in UIM to which she was entitled.

Looking at the enforceability of the setoff clause, the COA agreed with Craighead and the Indiana Trial Lawyers Association, appearing as amicus curiae. Each argued that, while Indiana Code § 27-7-5-2 requires that at least $50,000 be offered, it is the whole of the amount that is actually purchased that cannot be set off.

“The $50,000.00 amount mentioned in Section 27-7-5-2(a) is simply the minimum UIM coverage that must be offered and nothing more,” Chief Judge Cale Bradford wrote for the COA.

Further, the appellate court declined to accept Erie’s reliance on Justice v. American Family Mutual Insurance Co., 4 N.E.3d 1171 (Ind. 2014), noting that case did not explicitly declare that only the first $50,000 of UIM coverage cannot be set off. It further found that Anderson v. Indiana Insurance Co., 8 N.E.3d 258 (Ind. Ct. App. 2014), also did not mention I.C. 27-7-5-5(c).

Turning to the MPC payments, the COA concluded that neither United Farm’s nor Erie’s MPC payments could be set off. Instead, it found the trial court properly entered summary judgment in favor of Craighead on the contract claim.

Finally, the panel noted that a genuine issue of fact was raised from Craighead’s designated evidence that Erie refused for a year to pay the undisputed portion of UIM without her release of any claim on the disputed portion.

“At the very least, we conclude that this designated evidence raises a genuine issue of material fact regarding whether Erie acted in good faith by conditioning the payment of undisputed funds on Craighead releasing all claims on the disputed funds,” Bradford wrote.

“Because we conclude that a genuine issue of material fact exists as to whether Erie acted in good faith at all times and in all respects, we affirm the trial court’s denial of Erie’s motion for partial summary judgment on this point,” he concluded.

The case is Erie Insurance Exchange v. Olivia Craighead, 21A-CT-2871.