November 24, 2010
Yesterday, the Seventh Circuit, in a diversity case applying Indiana law, held that a life insurance company owes no duty to an applicant to process an insurance application in a timely manner in
Kimmel v. Western Reserve Life Assurance Co. of Ohio, 627 F.3d 607 (7th Cir. 2010), Case No. 10-1336. It, therefore, held that the trial court properly granted summary judgment to the insurer on the plaintiff's bad faith claims.
less..
On November 13, 2006, Mr. Kimmel applied for a $500,000 life insurance policy from Western Reserve and paid an initial premium. In return for his application and payment, he received a conditional receipt. Both his application and the conditional receipt contained a clause that expressly terminated after 60 days any life insurance coverage provided by the company pending its review of the application. Sixty days then passed without Western Reserve either accepting or rejecting the application. On February 26, 2007, Mr. Kimmel was killed in an automobile accident. His widow sought benefits under the terms of the conditional receipt. When Western Reserve denied her claim, she brought suit. The district court granted Western Reserve's motion for summary judgment, finding that the conditional receipt expired on its own terms and that Western Reserve had not acted in bad faith under Indiana law. The widow appealed.
On appeal, the Court held that the language terminating the policy after 60 days if the company's review of the policy was still pending was clear and enforceable and, therefore, there was no coverage under the policy. The Court then turned to discussing whether Western Reserve had acted in bad faith by not timely processing the insurance application. The Court held that an insurance company owed no fiduciary duty to an applicant under Indiana law. While the Court recognized that an insurance company owes a fiduciary duty towards its insureds and that other states had imposed a duty under common law on insurers to accept or deny an insurance application within a reasonable time, "we have not detected any signs that Indiana is likely to extend its reasoning to an applicant for insurance."
The relationship between an insured and an insurer is different enough from the relationship between an applicant and a prospective insurer that we cannot predict with any confidence that the Indiana Supreme Court would extend Hickman to the latter.
Although Western Reserve deserves criticism for its handling of Richard's application for life insurance, its behavior is not actionable under Indiana tort law.
Until an Indiana appellate court says differently, don't expect to see many successful insurer bad faith claims brought by insurance applicants.
Lessons:
- Indiana does not recognize that an insurer owes a duty to act in good faith towards an insurance applicant.
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