Dimitroff v. State Farm Mutual Automobile Insurance Co.
647 N.E.2d 339, 1995 WL 68975, 1995 Ind. App. LEXIS 157 (1995)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An insurer's duty to deal in good faith with its insured applies only to first-party claims and does not extend to situations where the insurer is acting in a third-party capacity, defending another insured against a claim brought by the first insured.
Facts:
- Michael and Joann Dimitroff held an automobile insurance policy with State Farm Mutual Automobile Insurance Company.
- Melissa Lain was also insured by State Farm under a separate policy.
- Dimitroff and Lain were involved in an automobile accident with each other.
- Pursuant to the Dimitroffs' policy, State Farm paid for medical expenses the Dimitroffs incurred from the accident.
- The Dimitroffs' policy included a reimbursement clause, entitling State Farm to be paid back for medical expenses out of any subsequent recovery the Dimitroffs received from a liable party.
- The Dimitroffs brought a personal injury claim against Lain.
- State Farm, acting as the insurer for Lain, made a settlement offer to the Dimitroffs.
- This settlement offer was reduced by the amount State Farm had already paid for the Dimitroffs' medical expenses, in accordance with the reimbursement clause.
Procedural Posture:
- Dimitroff brought a personal injury action against Lain.
- After Dimitroff declined a settlement offer from State Farm (on behalf of Lain), Dimitroff filed a separate suit against State Farm in a trial court, alleging bad faith.
- State Farm filed a motion for summary judgment.
- The trial court granted State Farm's motion for summary judgment, dismissing Dimitroff's complaint.
- Dimitroff filed a motion to correct errors, which the trial court denied.
- Dimitroff (appellant) appealed the summary judgment to the Court of Appeals of Indiana, with State Farm as the appellee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does an insurer breach its duty of good faith to its insured when, while representing another insured in a third-party claim, it offers a settlement that deducts medical payments previously made to the first insured, pursuant to a reimbursement provision in the first insured's policy?
Opinions:
Majority - Staton, J.
No. An insurer does not breach its duty of good faith to an insured when acting in a third-party capacity on behalf of another insured. The court reasoned that the duty of good faith and fair dealing, as established in Erie Ins. Co. v. Hickman, applies to first-party claims where an insurer is handling its own insured's claim under their policy. This case, however, presents a third-party claim, where State Farm's contractual obligation was to defend its other insured, Lain. The court, citing Winchell v. Aetna Life & Casualty Ins. Co., affirmed that no fiduciary relationship exists between a tortfeasor's insurer and a claimant, even when the claimant is also insured by the same company. State Farm was not improperly injecting first-party issues; it was merely enforcing an express reimbursement provision in the Dimitroffs' own policy, which is a permissible limitation to prevent double recovery.
Analysis:
This decision clarifies the scope of the tort of insurer bad faith, confining it strictly to the first-party context. It establishes that an insurer can act adversarially against one of its own policyholders when its duty is to defend another policyholder in a third-party liability claim. The ruling reinforces the distinction between an insurer's two primary roles: as a provider of benefits to its insured and as a defender of its insured against third-party claims. This prevents policyholders from using a 'bad faith' claim to challenge legitimate settlement negotiations in a third-party context where the insurer's loyalties are necessarily divided and its primary duty is to the insured it is defending.
