Indiana

Ind. Code § 27-4-1-4(1983/1987) and Common Law:

Indiana Statute provides that insurers shall not engage in unfair and deceptive acts and practices.[1] Insurers are in violation of the statute when they “commit or perform, with such frequency as to indicate a general practice, unfair claim settlement practices.”[2] Unfair claims settlement practices include “. . . (6) [n]ot attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.”[3]

An insured may directly assert a claim against an insurer for breach of duty of good faith.[4] “Indiana follows the Direct Action Rule, prohibiting a third party or judgment creditor from directly suing a judgment debtor’s insurance carrier to recover an excess judgment.”[5] However, insureds may voluntarily assign their claims to a third party.[6]

Indiana law imposes a duty on insurance companies to deal in good faith with their insureds.[7] The insurer’s duty of good faith and fair dealing “includes the duty to act in good faith when attempting to settle claims against an insured.[8] “To prove bad faith, the plaintiff must establish, with clear and convincing evidence that the insurer had knowledge that there was no legitimate basis for denying liability.”[9]

Indiana common law has adopted the “Judgment Rule” which states that “an insurer may be held liable for the entire excess judgment in instances of bad faith.”[10] The rationale behind allowing full recovery to an insured who has not paid the excess judgment is to prevent bad-faith practices in the insurance industry by eliminating the insurer’s ability to hide behind the financial status of its insured.[11] In Indiana, an insurer is liable to its insured for a judgment that exceeds policy limits when the insurer refuses, in bad faith, to settle within the policy limits.[12]

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[1] Ind. Code § 27-4-1-4.

[2] Ind. Code § 27-4-1-4(16).

[3] Ind. Code § 27-4-1-4.5.

[4] Erie Ins. Co. v. Smith ex. Rel. Hickman, 622 N.E.2d 515, 519 (Ind. 1993).

[5] City of South Bend v. Century Indem. Co., 821 N.E.2d 5,9-10 (Ind. Ct. App.2005).

[6] State Farm Mut. Auto. Ins. Co. v. Estep, 873 N.E.2d 1021, 1034 (Ind. 2007).

[7] Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 518 (Ind. 1993).

[8] Economy Fire & Casualty Co. v. Collins, 643 N.E.2d 382 (Ind. Ct. App. 1994).

[9] Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40 (Ind. 2002).

[10] Id.at 385.

[11] Id.

[12] Id.at 386.