The Indiana Supreme Court recently published its decision in the case of Bradley Baldwin, Individually and as Assignee of Tommi C. Hummel and Travor Hummel, et al. v. The Standard Fire Insurance Company, et al. This case, handled by Tressler attorneys Todd Schenk, William McVisk, and Carter Frambes, and argued in the Indiana Supreme Court by Mr. Schenk, arose out of an automobile accident with multiple injured parties and potentially insufficient policy limits. The policy at issue provided limits of $50,000 per person and $100,000 per accident.  Shortly after the accident, one of the injured parties, Baldwin filed suit against the insureds and made a time-limited policy limits demand to the insurer. Due to concerns about claims by two other parties involved in the accident, the insurer filed an interpleader action, and the settlement demand expired. The insurer named all potential claimants in the interpleader action and later deposited its limits with the court; the insurer also continued to provide a defense to its insureds in the tort suit by Baldwin.

On the eve of trial in Baldwin’s tort case, the insureds entered into a $700,000 consent judgment with Baldwin and assigned their rights against the insurer, in exchange for a covenant not to execute against them on the consent judgment. The insurer had not consented to the settlement or assignment.

Baldwin then filed counterclaims against the insurer in the interpleader action for breach of the duty of good faith and fair dealing and bad faith, based upon the insurer’s failure to accept the early $50,000 policy limits settlement demand and filing the interpleader. The trial court granted summary judgment to the insurer, finding it never breached its duty to defend and, thus, the insureds breached the insurance policy by settling with Baldwin without consent, and that the insurer did not breach any other duties owed to the insured or act in bad faith. The Indiana Court of Appeals affirmed in part and reversed in part, holding that a genuine issue of material fact existed regarding whether the insurer breached its duty of good faith and fair dealing or acted in bad faith when rejecting the settlement demand in favor of an interpleader.

Before the Indiana Supreme Court, on this issue of first impression, Tressler attorneys argued that Indiana should adopt Section 26 of the Second Restatement of Liability Insurance, which contains two parts. The first part provides:

• If multiple legal actions that would count toward a single policy limit are brought against an insured, the insurer has a duty to make a good-faith effort to settle the actions in a manner that minimizes the insured’s overall exposure.

Part two of the Restatement provides:

• The insurer may, but need not, satisfy this duty by interpleading the policy limits to the court, naming all known claimants, and, if the insurer has a duty to defend or a duty to pay defense costs on an ongoing basis, continuing to defend or pay the defense costs of its insured until:
• Settlement of the legal actions;
• Final adjudication of the actions; or
• Adjudication that the insurer does not have a duty to defend or to pay the defense costs of the actions.

The Indiana Supreme Court agreed. It stated that, where an insurer is confronted with multiple claimants and insufficient limits, it should endeavor to minimize the insured’s overall liability. However, as the Court recognized, “[n]o matter what path the insurer takes, ‘someone is going to be unhappy with the result and may sue the insurer for bad faith.’” (Citing 3 New Appleman on Ins. L. Lib. Ed § 23.02[9][a][i] (2024).) Thus, in light of this “dilemma”, it adopted Restatement Section 26 and found, because the insurer in this case complied with the “safe harbor” requirements of filing the interpleader against all known claimants, depositing its full policy limits, and providing a defense to its insureds against all claims, it had fulfilled its duty of good faith and fair dealing as a matter of law. As a result, the trial court had correctly granted the insurer summary judgment on the breach of the duty of good faith and fair dealing claim.

The Court then addressed the bad faith claim brought by Baldwin, noting a bad faith claim is derived from a breach of the duty of good faith. The Court held that, without a breach of the duty of good faith, there can be no bad faith. The trial court’s summary judgment on the bad faith claim was accordingly affirmed as well.

This decision provides greater clarity and predictability for insurers in Indiana when they face the dilemma of multiple claimants/insufficient limits. Prior to this decision, insurers were susceptible to “Monday-morning quarterbacking” of any settlement decision. Insurers will now have a “safe harbor” if they meet all the elements of Restatement Section 26. The full decision can be read here.

For more information about this matter, please contact Todd Schenk at tschenk@tresslerllp.com.