ONE BUSINESS DAY DELAY IN DELIVERING SETTLEMENT CHECK COSTS INSURER $1.1 MILLION
A South Carolina federal district court judge has ordered that Nationwide must pay an accident victim $1.1 million, in excess of the $50,000 Nationwide policy, as a result of Nationwide’s failure to timely respond to a time-limited settlement demand. Urena v. Nationwide Mut. Ins. Co., 2:13-CV-03544-DCN (D.S.C. Jul. 30, 2015). The time-limits demand, delivered on Thursday, Feb. 16, 2012, expired at the close of business on Friday, Feb. 17. The demanded settlement check was delivered on Tuesday, Feb. 21, 2012. Monday, Feb. 20 was a federal holiday.
The case arose out of a Jan. 22, 2012 motor vehicle accident. Nationwide insured, Gregory Bryant, struck a car driven by Emilio Urena, resulting in severe injuries to Urena. Nationwide’s policy provided coverage of $25,000/bodily injury and $25,000/property damage. The claim was initially assigned to Adjuster DG. DG’s notes reflected that Urena was hospitalized with severe injuries. DG received a letter of representation on January 27, 2012, and the claim was transferred to Adjuster TR, a member of Nationwide’s attorney negotiation team. TR reviewed the notes in the claim file and sent a letter to the insured that day, informing him there was potential personal exposure.
TR began investigating the claim. She made a note in her claim file Feb. 7, 2012, indicating that liability was clear, the insured was apparently speeding and under the influence, and the limits of the policy would be exhausted. At trial, TR indicated she knew liability was clear and the policy limits would be exhausted as of that day. Also, on Feb. 7, 2012, Adjuster TR’s supervisor sent her an email agreeing that this was a limits case that could be settled once the package was in.
A Feb. 15, 2012 claim note indicated TR was waiting for Urena’s counsel to email her photos. TR noted that claimant was significantly injured and had been hospitalized for several weeks, that this was a significant punitive claim, and that she would try to call the hospital and locate the bill, but if unsuccessful, would move forward with the evaluation and resolution of the claim. That same day, Urena’s counsel emailed her photos of Urena in the hospital and both vehicles involved in the accident. TR evaluated the claim at $109,000 with medical expenses of at least $59,000.
On Feb. 16, 2012, Urena’s counsel faxed a letter to Adjuster LE, who was handling Urena’s property damage claim. The letter contained the following time-limit demand: “[I]f we have not received the settlement checks by the close of business tomorrow, or the funds are not wired directly to my trust account, I will advise my client to reject any forthcoming receipt of the policy limits as being untimely.” LE forwarded the demand to Adjuster TR the same day at 3:00 PM. LE and TR discussed the letter, but not the time-limit demand.
Adjuster TR admitted that due to her own error she did not read the paragraph containing the time-limit demand. She testified that if she had, she would have complied with it. She admitted she previously sent a check via overnight mail and that she could have sent a check via overnight to Urena’s counsel. She testified Nationwide had agents in the Charleston area who could have delivered the check in order to comply with the demand, although she was not sure they were working on Feb.17, 2012.
Adjuster TR obtained approval to pay the bodily injury policy limits and issued a check on Feb. 17, 2012. She mailed it to the plaintiff’s counsel the same day. As Feb. 20, 2012 was a federal holiday, plaintiff’s counsel received it Feb. 21, 2012. He returned the check that day because it had not been received in a timely manner. Urena thereafter filed suit against Nationwide’s insured and obtained a verdict for $1,150,000. Nationwide’s insured assigned his claim against Nationwide to Urena. (The court noted that it left the record open to further submission from counsel on the issue of assignment. “Because the court has not received anything further, it assumes that the assignment to Urena was valid.”)
The court cited the familiar case of Tyger River Pine v. Maryland Casualty Co., in which the South Carolina Supreme Court held that, “an insurer against liability for accidents which assumes the duty of defending a claim owes the assured the duty of settling the claim if that is the reasonable thing to do.” 170 S.E. 346, 349 (S.C. 1933).
We think this question was decided by this court by the opinion on the appeal from the order overruling the demurrer. The opinion thus states the issue: “Does the complaint state a cause of action either in contract or in tort for breach of contract, or of bad faith or negligence [emphasis added] in the performance of contract?”
The following was quoted from the case of Attleboro Mfg. Co. v. Frankfort, etc. Co., (C.C. Mass.) 171 F. 495: “Where an insurer under an employers’ liability policy on being notified of an action for injuries to insured’s servant assumed the defense thereof, and was negligent in conducting the suit, to the loss of the employer, the latter was entitled to sue the insurance company for breach of its implied contract to exercise reasonable care in conducting the suit or in tort for negligence.”
We said in our opinion in connection with this question: “The same principle is announced in the rehearing of the same case reported in Attleboro Mfg. Co. v. Frankfort, etc. Co. (C.C.A.) 240 F. 573. And such we find to be the prevailing opinion.”
Id. at 348. The Urena v. Nationwide judge held that the unique circumstances of this case – the adjuster received a demand letter, but did not read the actual demand, and failed to send the checks to Plaintiff’s counsel in a timely manner, even though she could have and would have sent the checks as requested had she read the demand – constituted negligence in processing a claim. As a result, Nationwide was ordered to pay $1,100,000 to Plaintiff. The court found that the adjuster’s conduct did not rise to reckless or conscious disregard for its insured’s rights and held that punitive damages were, therefore, not appropriate.