Source: http://www.butler.legal/duty-of-insurers-to-advise-insureds-of-policy-benefits
Timestamp: 2019-04-20 09:17:29+00:00

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This article considers whether an insurer has a duty to advise an insured of policy benefits not claimed. Some courts require insurers to protect an insured's interests affirmatively by informing the insured of available benefits.(1) Other courts have refused to impose this duty upon insurers.(2) Recent cases suggest a trend toward imposing this duty.
In Ramirez v. USAA Cas. Ins. Co.,(3) a California court held that an insurer who failed to inform its insured about potential first-party benefits breached the duty of good faith and fair dealing.
On November 16, 1985, Jesus Ramirez received serious injuries while a passenger on a motorcycle driven by Todd Rentsch. Rentsch carried $100,000 of uninsured motorist (UM)coverage on the motorcycle through USAA. In response to Ramirez's counsel's request for coverage information, USAA told counsel that Rentsch's policy did not provide UM coverage. However, on July 17, 1987, USAA informed Ramirez about Rentsch's UM policy and Ramirez filed a claim for UM benefits.
In Dercoli, David Dercoli died and Dorothea Dercoli received severe injuries in a car accident. Dorothea filed a claim for benefits with the two companies that insured the Dercolis' car, Pennsylvania National Mutual (Penn National) and Grange Mutual Casualty Company (Grange). Both insurers paid and continued to pay on the claim until approximately April, 1984.
While Dorothea received benefits, the insurers' agents advised her that she did not need independent counsel because each would see to it that she received all available benefits. Dorothea relied upon these representations and believed that she was receiving all benefits to which she was entitled. She later learned that the Pennsylvania had abolished interspousal tort immunity in Hack v. Hack,(14) making her potentially eligible for liability benefits. Dorothea did not learn of this change in the law until 1985.
Three years later in Petersen, the Supreme Court of Pennsylvania retreated from the duty it imposed on insurers in Dercoli. Petersen held that an insurers' duty of good faith did not require a comprehensive explanation of benefits to the insured.
Deborah Petersen suffered injuries in an automobile accident. Petersen carried $20,000first-party auto insurance with USAA and health insurance with Blue Shield. The BlueShield policy excluded coverage for temporo mandibular joint syndrome (TMJ) from which Petersen suffered after the accident. Petersen exhausted her $20,000 auto policy benefits and applied for benefits under the Blue Shield policy. Blue Shield denied Petersen's request pursuant to a TMJ exclusion.
In 1994, the Supreme Court of Pennsylvania further limited Dercoli's scope in Miller v.Keystone Ins. Co.(19) Miller held that an insured was not entitled, as a matter of right, to be advised about potential benefits available in the future.
On November 28, 1988, Richard Weber, his wife, Mary Weber, and their three minor children were involved an auto accident in which Richard, Mary, and one of their children were killed. The children's grandmother, Edith Kelly, was appointed guardian and conservator of the two surviving children.
In April, 1989, Edith Kelly hired attorney Daniel Cahill to "find money in the form of insurance benefits for the two Weber children."(28) Cahill then requested a copy of the Weber policy from Logan. Logan wrote to Cahill enclosing an identical sample, but not the actual policy. Logan's supervisor then reviewed Logan's letter and advised Logan to send another letter to Cahill disclosing "all coverage under the policy."(29) Logan sent the recommended letter to both Cahill and Todd on May 5, 1989. Logan then sent another letter, this time to Cahill only, advising that UM coverage applied. Cahill then sued State Farm for UM benefits. That suit settled for $185,000. The Webers then sued State Farm for first-party bad faith.
The MFA court focused on three factors. First, there was never a question that the uninsured motorist was fully at fault for the accident. Second, MFA knew that its insured were entitled to UM benefits. Third, MFA's adjuster knew the insureds were unaware of their entitlement to such benefits. Based upon these particular circumstances, the court upheld the lower court's finding of bad faith.
In Wedzeb Enterprises, Inc. v. Aetna Life & Cas. Co.,(39) the court ruled that an insurer has no good faith duty to determine that an insured is aware of all policy terms and conditions which may provide coverage before submitting a release to the insured.
Wedzeb distributed heating and air conditioning parts. Wedzeb stored the parts in a warehouse insured by Aetna. A fire destroyed the warehouse and the stored parts. During the fire, the parts released toxic polychlorinated biphenyls into the surrounding environment, which required cleanup and removal. Wedzeb subsequently filed a claim in federal court for benefits from Aetna.
Aetna and Wedzeb disagreed about whether the policy covered the cleanup cost. Wedzeb then sued Aetna to determine if the policy covered the cleanup. While that case proceeded, the Indiana Environmental Management Board (EMB) sued Wedzeb in state court seeking an injunction and civil penalties pursuant to the cleanup and removal of the toxic waste. This suit was resolved by consent decree requiring Wedzeb to pay for cleanup and debris disposal.
The federal court subsequently entered judgment for Wedzeb in its suit against Aetna, holding that the policy covered the cost of cleanup and disposal.(40) Aetna then paid Wedzeb $474,326 on the claim and obtained a release from Wedzeb forever discharging Aetna from liability related to the fire cleanup and toxic debris removal.
Wedzeb cited MFA Mut. Ins. Co. v. Flint(45) to support its contention that Aetna's duty of good faith included a duty to advise it of policy coverages. The court distinguished Flint on the basis that 1) the insured in that case was unrepresented; 2) the insurer knew the extent of the insured's injuries; and 3) the insurer knew the insured's injuries were covered under the policy.
In Schoonover v. Am. Family Ins. Co.,(46) the court held that an insurer's duty of good faith did not require that the insurer furnish an insured with a copy of the policy without a request for the policy. Schoonover does not squarely address whether an insurer's duty of good faith and fair dealing requires an insurer to advise an insured of a policy's contents. However, in finding that the insurer had no duty to spontaneously furnish an insured a copy of the policy, Schoonover supports the proposition that insurers are not obligated to advise insureds of available policy benefits.
John Schoonover purchased a homeowner's policy from American Family, effective November 16, 1987. Fire destroyed the insured house on November 20, 1987. However, Schoonover did not file his claim until March 10, 1988. American Family denied the claim on May 9, 1988. Schoonover then sued American Family to recover the value of the lost house and his attorney's fees.
In Dercoli v. Pennsylvania Nat'l Mut. Ins. Co.,(53) the court held that the insurer's representations to the insured that she did not need to hire independent counsel to protect her interests supported a finding of bad faith. Later, in Miller v. Keystone Ins. Co.,(54) the court found an insurer's misrepresentations about the need to hire counsel "critical to this Court's determination that the insurers were bound to disclose all of the benefits to which the claimant was entitled."(55) This suggests that insurers who make such representations may find a concomitant good faith duty to advise their insured of all available coverage.
Courts have demonstrated distaste for insurers that fail to fully advise an insured where the insurer knows the insured is relying upon its employees or agents for advice. As the Miller court reiterated, this conduct will lead to a finding of bad faith.
Whether an insurer will be found to have a duty to advise its insured about the scope of available coverage depends upon several factors. Some courts impose this duty when the insurer undertakes to advise or otherwise control information available to the insured, even when the insured is represented by counsel. Other courts limit this duty, even when the insureds is not represented by counsel. Recent cases suggest a trend toward imposing this duty.
1. See Ramirez v. USAA Cas. Ins. Co., 234 Cal. App. 3d 391 (Cal. Ct. App. 1991);Dercoli v. Pennsylvania Nat'l Mut. Ins. Co., 554 A.2d 906 (Pa. 1988); Weber v.State Farm Mut. Auto. Ins. Co., 873 F. Supp. 201 (S.D. Iowa 1994); MFA Mut.Ins. Co. v. Flint, 574 S.W.2d 718 (Tenn. 1978).
2. Wedzeb Enterprises, Inc. v. Aetna Life & Cas. Co., 570 N.E. 2d 60 (Ind. Ct. App.1991); Schoonover v. Am. Family Ins. Co., 572 N.E.2d 1258 (Ill. App. Ct.1991).
3. 234 Cal. App. 3d 391 (Cal. Ct. App. 1991).
6. 600 P.2d 1060 (Cal. 1979).
8. 234 Cal. App. 3d at 400.
11. 554 A.2d 906 (Pa. 1988).
12. 595 A.2d 623 (Pa. 1991).
13. 636 A.2d 1109 (Pa. 1994).
14. 433 A.2d 859 (Pa. 1981).
16. 554 A.2d at 909.
18. 595 A.2d at 625.
19. 636 A.2d 1109 (Pa. 1994).
25. 873 F. Supp. 201 (S.D. Iowa 1994).
34. 574 S.W.2d 718 (Tenn. 1978).
38. Id. (internal quotation marks omitted).
39. 570 N.E.2d 60 (Ind. Ct. App. 1991).
45. 574 S.W.2d 718 (Tenn. 1978).
46. 572 N.E.2d 1258 (Ill. App. Ct. 1991) (overruled sub silentio on other grounds in Faier v. Ambrose & Cushing, P.C., 609 N.E.2d 315 (Ill. 1993)).
50. Id. at 1266; citing Advanced Methods, Inc. v. Grain Dealers Mut. Ins. Co., 274F.2d 634 (7th Cir. 1960), where the U.S. Court of Appeals for the Seventh Circuit found that Grain Dealers [insurer] did not owe Advanced Methods [insured] a duty to furnish a copy of the policy's forfeiture conditions where Advanced Methods hired attorneys who threatened suit.
51. See, e.g., Advanced Methods, Inc. v. Grain Dealers Mut. Ins. Co., 274 F.2d 634(7th Cir. 1960).
52. Ramirez, infra at note 1.
53. 554 A.2d 906 (Pa. 1989).
54. 636 A.2d 1109 (Pa. 1994).
56. See also MFA Mut. Ins. Co. v. Flint, 574 S.W.2d 718 (Tenn. 1978).
57. Gatlin plead uninsured motorist coverage in the separate suit later consolidated into the circuit court but, according the opinion, only trial the issues of coverage and notice were decided during the trial.

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