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When a seriously injured person is injured by a person with a policy that provides minimal limits, the plaintiff’s attorney will always try to set up the insurer for a bad faith case by making a claim for policy limits with a short time to respond. IN David Grant Orndorff v. Erie Insurance Exchange, No. 1318-2021, Court of Special Appeals of Maryland (Nov. 21, 2022) Mr. Orndorff had a leg amputated as a result of an accident and attempted to establish Erie Insurance, the other driver’s insurer.
David Grant Orndorff (“Mr. Orndorff”) was seriously injured when the motorcycle he was riding struck another vehicle attempting to make a left turn. The driver was insured by Erie Insurance Exchange (“Erie”) under a policy with a liability coverage limit of $30,000. Five months after the accident, Mr. Orndorff Erie’s offer of its insured’s policy limits to satisfy his claim against the insured. Two years later, when Mr. Orndorff sued Erie for bad faith by failing to settle earlier, the Circuit Court for Prince George’s County granted summary judgment to Erie.
Two days after the accident, on October 17, 2016, the driver of the other vehicle (Erie’s insured) reported the accident to Erie. Erie then appointed an adjuster who began a thorough investigation of the claim the next day.
A week into the investigation, on October 25, 2016, the adjuster received a message from Orndorff’s deputy counsel requesting that all correspondence go to her. On November 3, 2016, the claims adjuster reviewed the accident report. The report indicated that the Eries insured was cited for “failure to yield” and that Mr. Orndorff had “exceeded the speed limit” and thus contributed to the accident. The adjuster informed Orndorff’s counsel:
Erie has received a police report indicating that your client contributed to the accident by speeding. I would suggest he have his own insurance company hand if he hasn’t already. I am trying to reach the witness to confirm our final liability determination, but since MD is contributorily negligent, your client may be barred from recovering against our insured.
Maryland has not adopted comparative negligence. If an injured person contributes to the accident – for example by speeding – he or she cannot recover anything due to his or her contributory negligence.
On November 8, 2016, thirty-four days after the accident, Mr. Orndorff that Erie would settle its claim”. . . for the entire policy, or all policies covering your insured for this accident.” Mr. Orndorff (perhaps as part of a plan) did not provide any of the requested documents or the description of his injuries that Erie said were necessary to establish liability and settle the claim Mr. Orndorff indicated that he would release Erie’s insureds from liability if Erie delivered a check by 5:00 PM EST on December 8, 2016.
On November 21, 2016, Erie denied Orndorff’s claim because its investigation found that Orndorff was speeding and contributed to the accident.
Mr. Orndorff’s complaint about engine damage
On January 9, 2017, Mr. Orndorff Eries insured in the Circuit Court for Prince George’s County and later served Eries’ insured. On January 30, 2017, Mr. Orndorff’s counsel emailed the adjuster that all previous settlement offers were withdrawn and that its insureds had been served.
On March 17, 2017, Erie, through the attorney appointed to represent its insured in the motor claim lawsuit, offered to settle Mr. Orndorff’s claim for the full limit of the insured’s insurance. On April 26, 2017, after not hearing from Mr. Orndorff, Erie reiterated its offer of policy limits to Mr. Orndorff.
Mr. Orndorff’s motor vehicle tort suit had split between liability and tort, and a jury found Erie’s insured liable for Mr. Orndorff’s injuries. Specifically, the jury found that the Eries insured was negligent and that Mr. Orndorff was not contributorily negligent.
The finishing work with only responsibility
On October 27, 2017, Erie again offered its insured’s policy limits to settle Mr. Orndorff’s claim against Erie’s insured. Mr. Orndorff did not accept this offer.
Before the trial on damages, the plaintiff’s counsel informed the circuit court that they had decided Mr. Orndorff’s claim with the entry of consent judgment against the Eries insured for $2,870,000; an assignment of the insured’s claims against Erie (if any) to Mr. Orndorff; and mr. Orndorff’s promises (1) to refrain from collection efforts while the Assigned Claims against Erie were pending, and (2) to file an order of satisfaction when litigation of the Assigned Claims (including appeals) was over
On October 15, 2019, Mr. Orndorff sued Erie, alleging that Erie acted in bad faith when it denied Mr. Orndorff’s November 2016 demand.
On March 29, 2021, Erie filed a motion for summary judgment, arguing that it had acted in good faith (not bad faith) in attempting to negotiate a settlement for Mr. Orndorff’s claim within the insured’s insurance limits.
What the plaintiff asked the court to do is to allow the plaintiff to test bad faith in the sense that a plaintiff could go to the end with an insurance company. An insurance company could offer policy limits before trial and – – in cases where they offered it on the night of trial, the plaintiff could, under the circumstances, reject it and move on, get an excess judgment and then come back, presumably on behalf of the insured, and say , “hey, they didn’t offer the insurance limits before we got this judgment.”
The trial court did not find bad faith and concluded that there was no breach of contract by the insurance company to its insured. Erie offered its policy limits. It offered its policy limits long before any judgment was entered against Erie’s insured. It offered the limits long before any trial occurred. This claim could thus have been resolved on an earlier occasion by the plaintiff. Plaintiff chose not to accept the limit offer and chose to pursue its claim against Erie’s insured.
The Court of Appeal decided that the insurance company should not be at the mercy of what the Plaintiff wants to do.
Genuine disputes may arise from “predicate” facts or from the inferences reasonably to be drawn from those predicate facts. The motion court found that Mr. Orndorff demanded that Erie settle its insureds’ policy limits by the end of October or November 2016, a demand that Erie denied. This denial was not in bad faith because it was based on the information Erie had at the time. By March 17, 2017, Erie had gathered more information and “had reached” the determination that its insured was liable. Erie offered its insured’s policy limits in full settlement, but Mr. Orndorff refused the offer.
Once an insurer undertakes to defend its insured against a claim, the insurer’s wrongful failure to settle the claim is a tort claim, not a contract. The possibility of liability does not mean that an insurer must settle all claims against its insured.
An insurer does not have an absolute duty to settle a claim within the policy limits, although it may not refuse to do so in bad faith. An insurer’s decision to reject a settlement will be in “good faith” if the decision consists of an informed judgment based on honesty and diligence.
The Court of Appeal knew of no case, and Mr. Orndorff cited nothing to the court where a jury was allowed to determine an insurer’s good (or bad) faith in settling (or not settling) a claim where, as in this case, the insurer offered its insured’s policy limits in full settlement before its insured was at risk of receiving an excess judgment.
Although Erie could be said to have acted in bad faith in denying Mr. Orndorff’s November 2016 claim, Erie’s subsequent offer of policy limits before its insured was at risk of an excessive judgment meant that Erie did not act in bad faith in trying to settle with Mr. Orndorff’s claim against Erie’s insured.
Ultimately, the circuit court did not err in granting summary judgment in favor of Erie. Erie’s subsequent offer of its insured’s policy limits, an offer made well before its insured was at risk of receiving an excessive judgment, excluded all claims of Mr. Orndorff, the holder of the insured, that Erie had acted in bad faith.
Erie had good reason to deny the claim because Maryland still follows contributory negligence rather than what most states have adopted: comparative negligence. Regardless, upon further investigation, Erie offered its full policy limits several times only to have the plaintiff decline the offers and insist on going to trial on the tort claim. Eventually, the plaintiff struck a deal with Erie’s insured to agree to a $2,870,000 judgment that it promised not to collect from the tortfeasor but only from his insurer. Mr. Orndorff received the $30,000 cap and cost Erie dearly to defend two lawsuits that did not need to be filed or tried. The court should have considered sanctions against plaintiff’s counsel.
(c) 2022 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to serving as an insurance consultant specializing in insurance coverage, insurance claims management, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims attorney and more than 54 years in the insurance industry. He can be reached at http://www.zalma.com and firstname.lastname@example.org
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