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By Patrick A. Calhoon

The uninsured motorist arbitrator awarded your client a decent amount of money. It wasn’t the policy limits that you demanded, but it was an okay amount. The frustrating thing is that it took years to get to the arbitration and make the insurance company pay. The insurer never made a reasonable offer to settle the case even though it had the police report stating that your client was not at fault in the accident and all of the medical bills detailing your client’s injuries since the very beginning of the case. Maybe there were some other things that just didn’t sit right with you regarding the insurance company’s handling of the claim. Your client is upset because the arbitration award was chipped away by your attorney’s fees, expert fees, and costs.  You wish you could do something. You want to nail the carrier for dragging you and your client through years of frustration and costing you both time and money. But the arbitrator awarded less than the policy limits you demanded. Evidently, you over-valued the case. The insurance company can claim there was a genuine dispute about the amount of the claim and that issue must be arbitrated. There’s no potential bad faith, right? Not so fast.

Last year brought us the case of Maslo v. Ameriprise Auto & Home Ins. (2014) 227 Cal. App. 4th 626, as modified (July 22, 2014), review denied (Sept. 24, 2014). Maslo did several things which should empower insureds to fight back against potential uninsured motorist bad faith. For one, according to the Association of Southern California Defense Counsel’s request for depublication submitted to the California Supreme Court, Maslo allowed a private cause of action for breach of section 790.03(h) of the Insurance Code for failing to make a reasonable settlement offer. That’s important because private causes of action under section 790.03(h) were previously banned under seminal cases like Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal. 3d 287 and Zephyr Park v. Superior Court (1990) 213 Cal. App. 3d 833, 835 (“We hold Moradi-Shalal determined that section 790.03(h) cannot be used as the basis for a private action, whether brought by ‘first parties’ or ‘third parties'”). Next, Maslo allows a bad faith claim even where the arbitration award is less than the amount demanded by the insured. That is huge! It is also contrary to an insurance company favorite, Rappaport-Scott v. Interinsurance Exchange of the Auto Club (2007) 146 Cal. App. 4th 831, 834 (no bad faith where insured demanded policy limit of $75,000 and the arbitrator only awarded $33,000). Maslo can also be interpreted to conclude that the “genuine dispute” defense is not available where the insurer fails to make a reasonable settlement offer in cases where liability is certain and the only dispute is the value of the claim. Maslo states “[e]ven where the amount of damages is lower than the policy limits, an insurer may act unreasonably by failing to pay damages that are certain and demanding arbitration on those damages”. (Id. at *639.) Lastly, Maslo held that causation for the insured’s damages (i.e. arbitration costs, attorney’s fees, economic damages.) may be found where the insurer’s conduct made arbitration inevitable and settlement impossible.

Factual Background of Maslo

Ted Maslo was rear-ended by an uninsured motorist causing his car to collide with a third vehicle. The Los Angeles Police Department investigated and prepared a traffic collision report concluding that the uninsured motorist was the sole cause of the accident. Maslo suffered a severe injury to his shoulder. He sought treatment with an orthopedic surgeon who ordered an MRI. The MRI revealed an “internal derangement of the left shoulder; a SLAP lesion of the left shoulders; a split tear of the superior rotator cuff; and downsloping of the acromion and impingement syndrome.” As a result, he underwent two surgeries to repair the shoulder.

Maslo reported the accident to his insurer, Ameriprise, on September 3, 2008 and provided Ameriprise with a statement about the accident the following day. Ameriprise received a copy of the police traffic collision report. Additionally, on August 13, 2009, Maslo provided Ameriprise with copies of all his medical records and billing statements regarding his treatment. At that time Maslo demanded the policy limit of $250,000 to settle the claim. However, Ameriprise did not respond to the settlement demand. Maslo followed up on his demand and requested a response on January 22, 2010. On February 2, 2010, Ameriprise asked for an extension of time to respond, which Maslo granted. Then, on February 26, Ameriprise retained counsel for an arbitration proceeding on the insured’s UM claim.

Between February 26, 2010 through the date of the arbitration, November 2, 2011, both parties engaged in discovery. Maslo’s discovery responses gave Ameriprise all the documents concerning liability and damages that Ameriprise needed to fully and fairly evaluate the case. At no time prior to the arbitration hearing did Ameriprise schedule the depositions of insured’s treating physicians nor did Ameriprise seek to interview the treating physicians. Ameriprise did not request a defense IME or a defense medical record review. Ameriprise failed and refused to make any offer of settlement.

During the arbitration the parties stipulated that the insured’s medical expenses totaled $64,120.91. At the conclusion of the arbitration proceeding, the arbitrator awarded the insured that amount in medical damages and $100,000 in general damages for a total award of $164,120.91. This was $85,000 less than the insured’s demand. Ameriprise paid the arbitration award in full.

Unhappy with the insurer’s conduct in handling the claim and during the arbitration, Maslo sued Ameriprise alleging that Ameriprise breached the implied covenant of good faith and fair dealing by forcing the insured to arbitrate the claim without fairly investigating, evaluating and attempting to resolve it. Maslo alleged that he suffered damages, consisting of the expenses of the arbitration, because Ameriprise did not investigate his claim and did not make a settlement offer. The trial court didn’t buy it and dismissed the complaint and Maslo appealed.

The Appeal and Decision

On appeal, Ameriprise advanced four arguments in support of why the insured had not and could not state a cause of action for bad faith under the facts. First, relying on out-of-state cases, Ameriprise argued that it did not have the same duty to act in good faith in the UM context as it did in other insurance contexts. Second, Ameriprise contended that it could not be liable for failing to attempt to settle the insured’s claim because the complaint demonstrated the existence of a “genuine dispute” over the amount of the claim. Third, Ameriprise contended that the insured could not show bad faith because the insured’s complaint failed to allege either that the insured’s pre-arbitration damages plainly exceeded the policy limits or that the amount of damages awarded by the arbitrator exceeded the settlement demand. Finally, Ameriprise argued that the insured could not show that Ameriprise caused Maslo to incur the costs of arbitration because he failed specifically to allege that he would have accepted an offer to settle for an amount less than $250,000. The California Court of Appeals rejected all four of these arguments

An Insurer Has the Same Duty of Good Faith and Fair Dealing in the UM Context as in Any Other Insurance Context

With respect to an insurer’s duties to it’s insured in the UM context, Ameriprise was unable to cite any California case authorities. Instead, citing Utah law, Ameriprise contended that its duties of good faith and fair dealing in “first-party” claim scenarios (such as claims for UM benefits) are more limited than in “third-party” claim scenarios (such as a liability claim under a general liability policy). The Court rejected that argument outright. Contrary to the teachings of Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal. 3d 287 and Zephyr Park v. Superior Court (1990) 213 Cal. App. 3d 833, 835 the Court directly relied on section § 790.03(h)(5) of the Insurance Code which defines as an unfair claims settlement practice an insurance company’s failure to “attempt[ ] in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.” The Court then found that section 790.01 of the Insurance Code applied to all persons engaged in the business of insurance and therefore an insurance company had the same duty to act in good faith in the UM context as it did in any other insurance context. (Id. at *635-36.)

The Genuine Dispute Defense is Not Available Where the Insurer Fails to Comply With Its Common Law and Statutory Obligations

Maslo found that the genuine dispute doctrine did not protect an insurance company from liability for failing to thoroughly and fairly investigate, process and evaluate the insured’s claim. Ameriprise’s “genuine dispute” defense was premised on the fact that Maslo demanded the policy limit of $250,000 but the arbitrator only awarded roughly $164,000. (Id. at *636.) According to Ameriprise there was a “genuine dispute” over the amount of damages that had to be arbitrated.  However, Maslo held that the “genuine dispute” defense is available only where the insurer’s position was maintained in good faith and on reasonable grounds. Ameriprise could not rely upon the genuine dispute doctrine because the complaint alleged that Ameriprise had failed to comply with its common-law and statutory obligations to thoroughly and fairly investigate, process, and evaluate the insured’s claim. Specifically, Maslo alleged that Ameriprise was promptly apprised of the claim, was provided with the police report showing the uninsured motorist was solely at fault for the accident and was provided with medical documentation of the insured’s injuries including the nature and cost of the medical treatment rendered because of the injuries. It was further alleged that Ameriprise never interviewed the insured’s treating physicians or conducted its own independent medical examination or review. Moreover, Amerprise never made an offer to settle. Because the Maslo alleged an inadequate investigation and a failure to attempt to settle the claim on the part of Ameriprise, the genuine dispute doctrine was not available as a defense to support the demurrer. (Id. at *636-637.)

An Insurer Can Still Be Liable For UM Bad Faith Even Where the Underlying Arbitration Award Is Less Than the Amount Demanded By The Insured

The Court examined Ameriprise’s argument that it could be liable only where the damage has plainly exceeded the policy limits and that it had a statutory right to force the insured to arbitrate the amount of damages. Ameriprise argued that when an insurer is faced with a claim for which liability is shown with reasonable certainty, it may nevertheless refuse to investigate, evaluate or even respond to its insured, force the insured to incur the costs of arbitration, and avoid liability for breaching its common law and statutory duties so long as the ultimate award was less than the insured’s initial demand. (Id. at * 637.) The Court found that Ameriprise’s position was contrary to California common law and the statutory requirements of the California Insurance Code.

Maslo relied upon the California Supreme Court decision of Hightower v. Farmers Ins. Exchange (1995) 38 Cal.App.4th 853 (Hightower) to reject Ameriprise’s arguments. Hightower held that the adoption of section 11580.2 of the Insurance Code did not abrogate the insurer’s duty of good faith in handling UM claims. Section 11580.2 granted insurance companies a statutory right to binding arbitration when the insurer and the insured disagreed over the existence or extent of coverage. The Court in Hightower noted that “[u]nder [the insurer’s] interpretation of the statute, an insurer could ‘stonewall’ uninsured motorist claimants in every case but avoid bad faith liability through the simple act of requesting arbitration and refusing to pay until ordered to do so by an arbitrator.” (Hightower, 38 Cal.App.4th at 863.)The Court in Maslo disagreed that was the intent of the California Legislature when it enacted § 11580.2. (Maslo, 227 Cal. App. 4th at 638.)

Maslo quoted Hightower which stated: “Where there is no issue reasonably to be resolved by arbitration, as in a case where the insured’s damages plainly exceed policy limits and the liability of the uninsured motorist is clear, the failure to attempt to effectuate a prompt and fair settlement violates the insurer’s statutory duties (i.e., Ins. Code § 790.03(h)) and gives rise to tort liability. Similarly, an insurer could not shield other dilatory conduct, such as failing to investigate a claim, by the mere act of requesting uninsured motorist arbitration.” (Maslo, 227 Cal.App.4th 626, 638, italics in original.)

Maslo found that an insurance company can be liable for bad faith in failing to attempt to effectuate a prompt and fair settlement (1) where it unreasonably demands arbitration, or (2) where it commits other wrongful conduct, such as failing to investigate a claim. (Id. at *638.) But then Maslo upped the ante, stating:

An insurer’s statutory duty to attempt to effectuate a prompt and fair settlement is not abrogated simply because the insured’s damages do not plainly exceed the policy limits. Nor is the insurer’s duty to investigate a claim excused by the arbitrator’s finding that the amount of damages was lower than the insured’s initial demand. Even where the amount of damages is lower than the policy limits, an insurer may act unreasonably by failing to pay damages that are certain and demanding arbitration on those damages. Here, the [complaint] adequately stated a bad faith insurance cause of action, as it alleged that the insurer breached its statutory and common law duties to its insured by failing to adequately investigate, evaluate, and process the insured’s claim, and by failing to attempt to settle the claim even after liability became reasonably clear.

(Id. at * 639, italics added.)

Causation Is Found Where The Insurer’s Conduct Made Arbitration Inevitable And Settlement Impossible

The Court then addressed Ameriprise’s final argument regarding causation. According to Ameriprise its failure to investigate, evaluate, process, or settle Maslo’s claim cannot, as a matter of law, be the legal cause of his damages (i.e., arbitration costs, attorney’s fees, etc.). Ameriprise contended that without an allegation that the insured would have settled for anything less than his initial demand, arbitration was inevitable. However, the Court disagreed. Maslo found that “[i]t was not [the insured’s] initial demand that made arbitration inevitable, but the insurer’s alleged refusal to investigate and process his claim. Even in the face of reasonably certain damages, Ameriprise offered nothing.” (Id. at *639, italics added.)  The Court then noted that, “the complaint did not allege the insured’s demand was non-negotiable; indeed, it alleged that [Maslo] had offered to mediate the claim, but the insurer refused”. (Id.) Therefore, it was not the insured’s conduct, but Ameriprise’s conduct that precluded any possible settlement and made arbitration inevitable. Thus, Maslo properly alleged Ameriprise’s conduct was the direct and proximate cause of Maslo’s damages, including unnecessary costs and fees incurred for the arbitration.


If you handle uninsured motorist cases do not discount the availability of a subsequent bad faith action against your client’s UM insurer even though the arbitration award was less than your demand. Under Maslo, UM insurers are exposed to bad faith claims even where the insured recovers at arbitration far less than the policy limits demand by the insured, and with no allegation whatsoever that the insured would have accepted less than the policy limits. In many cases the insurer will never make a reasonable settlement offer even though you have provided every piece of evidence the insurer needs to evaluate the claim. More likely, the insurer will require that you go through a hard fought and largely unnecessary arbitration just to get your client something, costing you and your client time and money. Carefully scrutinize any investigation conducted by the insurer. Examine what information the insurer had and when it got it.  Question why, if the insurer had all the information it needed to evaluate the claim and make an offer, did it not attempt to resolve the claim. If you have doubts about the value of the case, make sure your demand cannot be construed as a “take it or leave it” situation. As Maslo demonstrates, a UM insurer’s conduct is open to attack.