Why it matters: A federal court in California recently held that bad faith claims Uber Technologies and its wholly owned subsidiary Raiser, LLC, brought against their excess carrier can move forward, denying the insurer's motion to dismiss the allegations. Two drivers for the ride-sharing app got into accidents and their victims filed suit against Uber and Raiser. The two entities tendered the defense of the suits to their insurers. While the primary carrier agreed to provide coverage, the excess carrier, Evanston Insurance Company, filed a declaratory judgment action seeking an order that it owed no defense. Uber and Raiser filed bad faith counterclaims, which Evanston moved to dismiss. The court denied Evanston's motion to dismiss, holding that the policyholders' accusations were sufficient at the pleading stage to state a plausible claim that Evanston violated the implied covenant of good faith and fair dealing by unreasonably denying coverage.
Detailed discussion: Two different drivers using the Uber Technologies transportation app allegedly caused serious car accidents. In the first instance, an Uber driver hit three pedestrians in December 2013, killing one. In the second accident, another Uber driver struck a pedestrian in September 2013. Victims in both accidents filed state court lawsuits against Uber and Raiser, LLC, Uber's wholly owned subsidiary.
Uber had several layers of insurance in place. A primary layer contained two policies from National Union Fire Insurance Company: (1) a commercial general liability (CGL) policy (with a one million dollar per occurrence limit and two million dollar aggregate limit); and (2) a business auto policy (with a one million dollar total limit). Uber also purchased an excess policy from Evanston Insurance Company with a five million dollar total limit. The Evanston policy followed form to the National Union policies.
National Union accepted coverage for the accidents under its business auto policy, but Evanston denied coverage under the excess policy. Evanston filed a declaratory judgment action seeking an order that it had no duty to provide coverage in the underlying state actions. Uber and Raiser filed counterclaims alleging breach of contract and breach of the implied covenant of good faith and fair dealing.
Upon Evanston's motion to dismiss the bad faith counterclaims, the court set out the following standard for a bad faith claim: (1) the benefits due under the policy must be withheld; and (2) the reason for withholding the benefits must be unreasonable or without proper cause.
The insureds asserted that coverage under the policy for the state court lawsuits was clear, and that Evanston ignored allegations in the complaints regarding use of the Uber app. In addition, the insureds argued that Evanston's interpretation of its policy would render its auto coverage illusory.
The court ultimately denied Evanston's motion to dismiss the bad faith claims, stating the allegations were sufficient to state a plausible claim of bad faith against Evanston. In doing so, the court rejected both of Evanston's arguments: that the policy (1) precluded coverage as a matter of law and (2) two limitations in its policy precluded coverage for the car accidents. First, the designated premises limitation stated that the policy only applies to losses arising out of operations in 12 office building locations, while the auto liability limitation excludes coverage for any loss resulting from automobile use away from Uber's office buildings.
The insurer's reading of the limitations misinterpreted the structure of its excess coverage, the court said, as its policy sits above two separate National Union policies. While it might be reasonable to assume the designated premises and auto liability limitations apply to the CGL policy, it was not reasonable to apply them to the business auto policy.
"Under Evanston's interpretation, the business auto policy would only apply to car accidents occurring in the hallways of Uber office buildings," the court stated. "This would be absurd and inconsistent with the California Supreme Court's directive that 'contracts are to be interpreted in a manner that makes them reasonable and capable of being carried into effect, and that is consistent with the parties' intent.' "
To read the order in Evanston Insurance Company v. Uber Technologies, Inc., click here.