Appellate Court Affirms Bad-Faith Claim When Erie Insurance Opportunistically Avoided Paying the Uninsured Motorist claim and Court Declared UM/UIM Coverage Limits Do Not Apply to the Breach of Policy Damages Claims
The Indiana Court of Appeals largely affirmed the jury’s finding that Erie Insurance acted in bad faith toward Christine and Roy Cosme after denying uninsured motorist coverage following a 2017 rear-end collision. The court detailed how Erie attempted to cancel the Cosmes’ automobile policy after mistakenly believing their son’s driver’s license had been suspended, even though the suspension resulted from an administrative error and the family had actively attempted to correct the issue before the purported cancellation became effective. After the accident, Erie denied coverage and maintained that the policy had been cancelled, despite conflicting internal documentation suggesting the policy remained active.
The appellate court rejected Erie’s arguments that the bad-faith claim should have been dismissed on summary judgment. The court found there were genuine issues of material fact regarding whether Erie properly cancelled the policy and whether its denial of coverage constituted an “unfounded refusal to pay policy proceeds” or deceptive conduct under Indiana bad-faith law. The opinion emphasized that Erie’s own records conflicted on whether the policy was actually cancelled and that evidence supported the claim that Erie opportunistically relied on the confusion surrounding the son’s license suspension to avoid paying the uninsured motorist claim.
The court also upheld the admission of expert testimony characterizing Erie’s conduct as “opportunistic fraud,” concluding that the testimony was not a surprise opinion because the insurer had long been aware the expert intended to testify that Erie failed to act forthrightly and attempted to justify improper claims-handling conduct after the fact. However, the appellate court determined the trial court improperly reduced portions of the jury’s damages award. Specifically, the court held that while uninsured motorist policy limits properly capped damages arising directly from the accident itself, those limits did not necessarily apply to damages caused by Erie’s separate breach of contract in failing to pay the claim. The matter was therefore remanded for further proceedings on damages.
For the claimants, the opinion is highly favorable and provides substantial leverage going forward. The appellate court validated the core theory that Erie’s handling of the cancellation and denial process could constitute actionable bad faith, preserved the punitive damages award, and reopened the possibility of reinstating significant breach-of-contract damages beyond the policy limits. Claimants should continue pressing the distinction between contractual uninsured motorist benefits and consequential damages flowing from Erie’s wrongful conduct, while emphasizing the appellate court’s repeated recognition that factual disputes existed concerning the legitimacy of the cancellation and the insurer’s claims-handling practices.
James A.L. Buddenbaum and Michael L. Schultz are partners in the Indiana law firm of Parr Richey Frandsen Patterson Kruse LLP and regularly litigate claims for insurance policy holders in state and federal courts. The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.