Business & Insurance Litigation Newsletter for Indiana

Third-Party Beneficiary Exception Does Not Allow Bad Faith Claim Against Insurer

In Cain v. Griffin, 849 N.E.2d 507 (Ind. 2006), the Indiana Supreme Court addressed the issue of what claims a third-party may assert against a defendant's insurer. Plaintiff fell in a restaurant parking lot and filed an action against the restaurant's insurance carrier for bad faith. The Supreme Court first held that plaintiff was a third-party beneficiary to the insurance policy and could, therefore, sue the insurer directly to enforce the medical payment provision of defendant's liability policy. However, and most importantly, the Supreme Court held that as a third-party beneficiary, plaintiff could not sue the insurer for bad faith. In doing so, the Court emphasized that a bad faith claim must be based on a special, direct relationship between the parties and, accordingly, the lack of such a relationship prevents a third-party from asserting a bad faith claim. In rendering its decision, the Indiana Supreme Court overturned a prior decision by the Seventh Circuit on this issue. See Donald v. Liberty Mutual Insurance Co., 18 F.3d 474 (7th Cir. 1994).