VIRGINIA CLIENT ADVISORY: UM/UIM Bad Faith Comes to Virginia

Over the past several years, the Virginia General Assembly has enacted a series of changes to the uninsured/underinsured motorist statute. In 2010, the General Assembly passed a bill that would allow liability carriers to shift the cost of defense onto the underinsured motorist carrier 60 days after delivering an irrevocable offer of the liability policy limits. See 2010 Session: HB 93. This amendment was largely toothless, as underinsured motorist carriers would refuse to waive subrogation against the tortfeasor if the liability carrier attempted to shift the costs of defense. The General Assembly acted again in 2015, passing a bill that allowed liability carriers to tender their limits in exchange for a release for the liability carrier and its insured. The bill also provided a conditional waiver of the underinsured motorist carrier’s right of subrogation if the tortfeasor continued to participate in litigation and cooperated with the underinsured motorist carrier’s counsel. See 2015 Session: SB 1190.

In 2022, The General Assembly changed the definition of “underinsured.” Prior to the 2022 amendments, the term “underinsured” compared policy limits: a driver was underinsured if his/her liability policy limits were less than the limits of the underinsured motorist carrier’s policy. The amount by which the tortfeasor was underinsured – and the underinsured motorist carrier’s exposure – was the delta between the limits of the two policies. Thus, the underinsured motorist carrier would receive an “offset” or “credit” in the amount of the liability coverage. The 2022 definition of “underinsured” compares the amount of liability coverage to the claimant’s damages. A driver is now underinsured if he/she causes more damages that he/she has in insurance. Based on the new definition, underinsured motorist carriers no longer receive an offset or credit for the liability carrier’s limits, and their exposure is the lesser of their own policy limits or the value of the claim.

Between 2018 and 2022, four bills were introduced to create a cause of action for bad faith against underinsured motorist carriers. See 2018 Session: HB 1304, SB 17; 2020 Session: SB 27; 2021 Session: SB 1202. None of these four bills passed. Uninsured and underinsured motorist bad faith was again introduced in the 2024 session. This time the bill passed and has been signed by the governor. For all personal injury and wrongful death claims arising out of a motor vehicle collision that occurs on or after July 1, 2024, Virginia will recognize a cause of action for bad faith claims handling against underinsured motorist carriers.

Under the new statutory scheme, the General Assembly has stated that the following actions may support a cause of action for bad faith against an uninsured or underinsured motorist carrier:

1. denying, refusing, failing to pay, or failing to make a timely and reasonable settlement offer to its insured after the insured has become legally entitled to recover; or

2. rejecting a reasonable settlement demand made by the insured within the uninsured/underinsured motorist policy limits, provided that all applicable liability policy limits and underlying uninsured and underinsured motorists benefits have been tendered or paid; or

3. failing to respond to a reasonable settlement demand made by the insured within the uninsured/underinsured motorist policy limits within a reasonable time after being presented with such demand, provided that all applicable liability policy limits and underlying uninsured and underinsured motorists benefits have been tendered or paid.

Such a bad faith claim may be made either in a separate action or as a post-trial motion in the underlying personal injury or wrongful death action. If the court finds the underinsured motorist carrier acted in bad faith, the court may award up to the lesser of double the amount of the personal injury or wrongful death judgment or $500,000.00, plus attorney’s fees, costs, and interest beginning 30 days after the bad faith denial or refusal.

The new law does afford a few protections to the underinsured motorist carrier. If the bad faith claim is prosecuted in a separate action and the underlying judgment is appealed, the bad faith litigation is stayed. Additionally, claimants must provide notice of their intent to make a demand and sufficient information to evaluate liability and damages at least 45 days prior to making a demand. Finally, there can be no action for bad faith if the uninsured motorist carrier either pays its applicable policy limits or the amount demanded within the 45-day window specified.

TT&H Attorney Patrick O’Grady lobbied against the bill on behalf of the Virginia Association of Defense Attorneys. He and his colleagues lobbying on behalf of the insurance industry were able to secure several significant amendments to the original text.

Questions about the future of UM/UIM bad faith claims in Virginia can be directed to Patrick at (804) 566-3570 or pogrady@tthlaw.com.