We have previously discussed whether or not your insurance company is required to treat you fairly when dealing with you after making a claim. The short answer is yes according to Indiana law. But what about your passengers? Does that car insurance company also owe them that same duty of “good faith and fair dealings” that they owe you? A new case was just decided in February 2020 which says that yes, they do indeed owe your passengers the same duty as they owe you, their named insured.
The case of Schmidt v. Allstate Prop. & Cas. Ins. Co., No. 19A-CT-1489, 2020 WL 701176 (Ind. Ct. App. Feb. 12, 2020) just came out and clarified the previously murky issue of the duty an insurance company owes to passengers in an insured vehicle. In Schmidt Plaintiff Schmidt was injured in a crash while riding with a friend, who was insured by Allstate Insurance Company. In a nutshell, Schmidt believed she was owed a duty of good faith and fair dealing by Allstate Insurance even though the auto policy was not hers (remember she was just a passenger). She further alleged that Allstate breached that duty in handling her claim (i.e. they didn’t deal with her fairly). Allstate claimed that since she was not an insured named on their auto policy there was no “special relationship” between them and they did not have to deal with her in good faith. After a long fight, the Indiana Court of Appeals sided with Plaintiff Schmidt.
Prior to Schmidt there was contradictory law in place which the Court addressed at length. In the end, the Court noted the well-reasoned argument put forth by Schmidt: “The policyholder purchases insurance for peace of mind. Surely policyholders entering into the insurance contract expect that their family and friends (who are also being provided coverage by the policyholder [as either permissive drivers or permissive passengers]) will be treated fairly by their insurance company. Otherwise, their relationships and friendships may be ruined and the financial lives of their loved ones devastated because the insurance company does not want to treat such [additional] insureds fairly.” Schmidt v. Allstate Prop. & Cas. Ins. Co., No. 19A-CT-1489, 2020 WL 701176, at *5–6 (Ind. Ct. App. Feb. 12, 2020).
In summary, just like with the person named on the insurance policy, an insurance company can play hard ball with your passengers but it cant get out of hand. This essentially means they have to treat your passengers [somewhat] fairly in their dealings with them. That duty includes the obligation to refrain from: (1) making an unfounded refusal to pay policy proceeds; (2) causing an unfounded delay in making payment; (3) deceiving the insured; and (4) exercising any unfair advantage to pressure an insured into a settlement of his claim. Some additional responsibilities are also laid out in Indiana’s Unfair Claim Practices Act (IC 27-4-1-4.5), the statute gives examples of what an “unfair claim settlement practice.” If they break the rules your passenger can sue them for not dealing good faith under Indiana law.