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Dunlap v. State Farm Fire and Casualty Co.7/5/2005
o the Dunlaps' proposal. Citing the Dunlaps' obligation to exhaust all applicable tortfeasor policies before pursuing a UIM claim, State Farm responded that it was "not aware any authority in this state for the proposition that you've asked State Farm to accept."
The Dunlaps proceeded to trial against DART, Wood, and Cardillo. The jury found Cardillo solely liable and exonerated DART and Wood. Shortly thereafter, State Farm paid the Dunlaps the $1 million UIM coverage limit. The Dunlaps then filed suit against State Farm, asserting that State Farm had breached its policy in "bad faith" when it refused to consent to their request to settle with DART for less than the DART policy limits. The Dunlaps alleged that State Farm's refusal forced them to trial against DART despite improbable liability and despite overwhelming damages unquestionably resulting from the accident. As a result, the Dunlaps lost the $175,000 DART had been willing to pay to avoid trial, and were forced to incur attorneys' fees and other trial-related expenses.
State Farm moved to dismiss the complaint for failure to state a claim. The trial judge granted its motion, holding:
It was not [State Farm's] responsibility to sanction the negotiations, nor was it a requirement that it administer advice or exercise influence with regard to [ the Dunlaps'] decision to accept the settlement or to litigate. [The Dunlaps] have attempted to shift the onus of an unsuccessfully construed course of action, and/or trial strategy, onto [State Farm], whose statutory obligation had not yet been triggered at the time of settlement negotiations.
The trial judge reasoned that the statutory exhaustion requirement, as well as the identical policy terms, provided a reasonable justification for State Farm's conduct and that State Farm had neither unreasonably delayed nor refused payment of its UIM coverage limits. Therefore, the Dunlaps had not alleged a "bad faith" claim in their complaint. This is the Dunlaps' appeal.
Discussion
The Court reviews judgments on a motion to dismiss de novo. In this context, we determine whether the trial judge erred as a matter of law in formulating or applying legal precepts. Dismissal is warranted only if "it appears with reasonable certainty" that the claims asserted would not entitle plaintiff to relief under any provable set of facts. But we need not "blindly accept as true all allegations, nor must draw all inferences from them in [plaintiff's] favor unless they are reasonable inferences."
Before we consider the implied covenant of good faith and fair dealing, we address the two issues that controlled the trial court's decision -- the meaning of the statutory exhaustion requirement, and the elements of a so-called bad faith insurance claim.
A. The Exhaustion Requirement
This Court has considered the correct construction and application of Delaware's uninsured/underinsured motorist (UIM) statute, 18 Del. C. ยง3902, many times. The statute provides, in relevant part:
(b) Every insurer shall offer to the insured the option to purchase additional coverage for personal injury or death up to a limit of $100,000 per person and $300,000 per accident .... Such additional insurance shall include underinsured bodily injury liability coverage.
(1) Acceptance of such additional coverage shall operate to amend the policy's uninsured coverage to pay for bodily injury damage that the insured ... legally entitled to recover from the driver of an underinsured motor vehicle.
(2) An underinsured motor vehicle is one for which there may be bodily injury liability coverage in effect, but the l
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