An intermediate Alabama court of appeals recently held that an automobile insurer properly denied an underinsured motorist benefits where it had received only ten days' notice of potential settlement of the underlying litigation. Morgan v. Safeway Ins. Co. of Alabama, Inc., 2007 WL 1866768 (June 29, 2007).
In January 2006, the insured plaintiffs brought an action against their automobile insurer alleging as follows: (1) an underinsured motorist had negligently caused them injuries; (2) the insureds had previously notified the insurer of the pendency of an action against the underinsured motorist; (3) the insureds had later made a claim for underinsured motorist (“UIM”) benefits under the policy issued to them; and (4) the insurer had denied their UIM insurance claim. The insureds moved for partial summary judgment, the insurer cross-moved for summary judgment, and the trial court granted summary judgment in favor of the insurer on the basis that it was not given a reasonable time to investigate and act on the insureds’ UIM claim.
On appeal, the Alabama Court of Civil Appeals affirmed the trial court’s ruling. Although the insureds had forwarded to the insurer the pleadings in their action against the alleged tortfeasor approximately four months prior to their settlement, the court concluded that that the insureds had, at that time, indicated only the possibility of a UIM claim, and had not provided actual notice of the claim for UIM benefits. The court further concluded that (a) it is only notice of the proposed settlement that legally, and logically, requires action within a reasonable time by the UIM carrier; (b) ten days, which is all the time that elapsed between the insureds’ notification to the insurer of the imminence of the policy-limits settlement and the insureds’ release of the alleged tortfeasor, did not provide the requisite reasonable notice; and (c) because the insurer did not waive, and was not estopped from asserting, its authority to determine whether to consent to the proposed settlement, the failure of the insureds to obtain the insurer’s consent barred their claim for UIM benefits.