Wednesday, May 28th, 2008...8:54 am
DAlaska: Insurer’s Refusal to Arbitrate; Expert Witness on Insurance Practices
Where an UIM policy provides that disputes may be resolved by either arbitration or trial, but also provides that both parties must agree to arbitration, may the insurer ever be liable for breach of the covenant of good faith and fair dealing when it rejects arbitration and insists on litigation? In a case involving Safeco, Judge John Sedwick has held, Yes.
Suppose that in a similar dispute between Acme Insurance and Joe Insured, Acme’s adjuster decided not to arbitrate the amount of damages to be paid to Joe for the purpose of forcing Joe to accept an offer made by the adjuster in order to avoid hiring an attorney and enduring the expensive and lengthy trial process. In the hypothetical, there can be no doubt that Acme’s action was unreasonable. Indeed, in the hypothetical, Acme’s action was also taken in bad faith. Consider a second hypothetical in which Acme’s adjuster simply tosses a coin to decide whether to arbitrate. That decision would be unreasonable, but less clearly an action taken in bad faith. The fact that there could be an unreasonable basis for deciding not to arbitrate eviscerates the argument that because a mutual consent arbitration provision is enforceable in the abstract, it is enforceable in every case regardless of the underlying facts.
Given that a refusal to arbitrate could be unreasonable, and that [plaintiff insured] Montagne does not concede it was reasonable here, to secure a ruling that as a matter of law the decision not to arbitrate was reasonable, Safeco must demonstrate that the undisputed facts show this to be so. Yet, there is no indication in the record before the court why Safeco chose not to arbitrate. Indeed, it is not even clear who made the decision. Hillerbrand’s deposition indicates that it would have been an individual adjuster. If it was adjuster Kim Smith who made the decision, it is curious that her affidavit does not address the point. If another adjuster made the decision, his or her affidavit has not been provided. Under these circumstances, Safeco is not entitled to a ruling that its decision not to arbitrate was reasonable as a matter of law.
Sedwick also held that the insured could present expert testimony from a former Alaska Division of Insurance employee, Stan Garlington, and that Garlington could describe his experience with the Division. Sedwick permitted Garlington to testify on ”factors that ought to be considered when deciding whether a decision not to arbitrate a disputed insurance payment is reasonable,” and on whether “Safeco acted inconsistently with industry standards from which the finder of fact could infer that Safeco acted unreasonably, in bad faith, or both.”
Sedwick also held:
Garlington may identify regulations which in his opinion relate to reasonableness of bad faith. He may also provide opinions respecting whether or not Safeco’s conduct deviated from practices followed by the industry with respect to such regulations. However, he may not offer an opinion as to the meaning of the regulation or whether Safeco’s deviation was necessarily unreasonable or amounted to bad faith. In addition, it must be noted that [Garlington] may not opine as to the public policy issues the regulator intended to address when adopting any regulations, but he may offer an opinion identifying prior industry practices to which the regulations might apply. . . . Garlington is not qualified to ascribe intent to Safeco in drafting [provisions in the Safeco policy], but he is qualified to offer opinion testimony as to whether or not actions taken in conformity with the provisions would deviate from industry standards. As with the regulations, however, Garlington may not offer an opinion that any Safeco policy provision is necessarily unreasonable or constitutes bad faith.
Montagne v. Safeco Ins. Co. of Illinois, 2008 WL 2225770 (D.Alaska May 27th Order and Opinion)
Jeffrey Barber and Stephen Sims of Anchorage represent the plaintiff insured. Timothy Lynch of Anchorage represents defendant Safeco.
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