Extracontractual and Bad Faith Claims Litigation Committee

Mission Statement
The mission of the Extracontractual and Bad Faith Claims Litigation Committee is to provide the highest level of continuing education specific to the practice area, and promote professionalism and fellowship among both policyholder and insurer attorneys. 

2021-2022 Co-Chairs
Robert Allen

Selected Presentations & Papers:

Posted 9/16/21 
The Texas Supreme Court Hears Oral Argument on Two 8-Corner/Extrinsic Evidence Cases

On September 14, 2021, the Texas Supreme Court heard arguments in Texas Political Subdivisions Prop./Cas. Self-Insurance Fund v. Pharr-San Juan-Alamo ISD, 2019 WL 4678433 (Tex. App.—Corpus Christi-Edinburgh 2019, pet. granted) and Bitco Gen. Ins. Co. v. Monroe Guar. Ins. Co., 846 Fed. Appx. 248 (5th Cir 2021, certified questions accepted) in which the Texas Supreme Court is being asked to permit the use of extrinsic evidence to defeat a duty to defend.

They are the first two arguments on the Texas Supreme Court’s YouTube page for September 14, 2021. The . Pharr-San Juan-Alamo ISD oral argument is from 05:00 – 050:00 and the Bitco oral argument is from 1:02:00 to 1:44:00. The Texas Supreme Court’s YouTube page for September 14, 2021 can be accessed here:

Supreme Court of Texas - Oral Arguments 09.14.21 - YouTube

Posted 9/16/21
What 5th Circuit Ruling Means for Insurer’s Post-Appraisal Award Liability

The Fifth Circuit's recent decision in Randel v. Travelers, holding that an insurer's timely reappraisal payment did not extinguish its liability to its insured, highlights the importance of thoroughness and accuracy in initial loss inspections, says ​​​​​​​Karl Schulz at Cozen O'Connor.

Posted 7/28/21
New Missouri Law Safeguards Insurers from Excessive Arbitration Awards and Findings

Legislation provides clarity on the rights of claimants, tortfeasors and tortfeasor’s insurers. 

Reprinted with permission from the July 22, 2021, online edition of PropertyCasualty360.com © 2021 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or [email protected].

Posted 7/22/2021
New York Federal Court Holds No Bad-Faith for Denial of Coverage to a Manager in a D&O Case

Although the court found that the Manager was an insured under the D&O policy, the court ruled that the standard for a finding of bad faith under New York law was far higher than a simple breach of contract. The court also found that the Manager failed to show that the insurer exhibited "a gross disregard" for its policy obligations by initially denying him coverage. The court held that an insurer's refusal to defend must be based on more than a difference of opinion for a bad faith finding. 

Nationwide Unit Beats Bad-Faith Claim In D&O Coverage Fight - Law360

Posted 6/23/2021
No Bad Faith By Insurer In Crash Dispute, 4th Circuit Rules

The Fourth Circuit, applying North Carolina law, held that an insurer did not act in bad faith when it twice rejected settlement demands from two North Carolina residents seriously injured in an auto collision because insurer ultimately paid the policy limit.

The panel said the insurer was within its rights when it rejected the first settlement offer for imposing an unreasonable deadline and when it rejected the second offer for its requirement that it enter into litigation over bad-faith allegations.

Read more at No Bad Faith By Insurer In Crash Dispute, 4th Circ. Rules - Law360.

Posted 6/14/2021
Attorney Client Privilege in First Party Litigation  
By William T. Barker

Excerpted from William T. Barker & Ronald D. Kent, New Appleman Insurance Law Bad Faith Litigation, Second Edition, ch. 16, with permission. Copyright 2021. Matthew Bender & Company, Inc., a LexisNexis company. All rights reserved.

Posted 6/3/2021
11th Circ. Hands Progressive A Win In Fla. Bad-Faith Dispute
The Eleventh Circuit held that Progressive did not act in bad faith when it failed to settle a claim with a driver who was injured in a deadly collision in Florida. Here, the Eleventh Circuit panel found that the insurer took care to meet the demands of the driver's settlement offer.

Read more at: 11th Circ. Hands Progressive A Win In Fla. Bad-Faith Dispute - Law360

Posted 5/14/2021 
NY Bad Faith Bill Would Tip The Scales Against Insurers
By ACCC Fellow Dan Kohane, Lee Siegel and Diane Bucci: 
NY Bad Faith Bill Would Tip The Scales Against Insurers - Law360

Posted 4/27/2021
7th Circ. Reverses Insurer's $2.8M Loss For Declining TM Defense
The Seventh Circuit reversed a lower court's $2.8 million award to a marker company after a judge determined that its insurer acted vexatiously in declining to cover its defense in a trademark dispute, with the panel finding that the marker company can't pursue damages beyond its insurance contract holding that Section 155 of the Illinois Insurance Code does not apply. (Section 155 allows an insured to pursue its insurer for extracontractual damages if there's an open question about an insurer's liability, the amount owed under a policy or whether a claim settlement had been unreasonably delayed.) Read more at: https://www.law360.com/insurance/articles/1378955/7th-circ-nixes-insurer-s-2-8m-loss-for-declining-tm-defense?copied=1

Posted 4/22/2021
Recent Bad Faith Cases Regarding Reasonableness of Medical Treatment
In two recent cases, the courts showed substantial deference to patients’ treating physicians in determining the reasonableness of medical treatment. This deference appears to reflect a reluctance of courts to decide what healthcare is appropriate for a patient.

Posted 4/20/2021
Georgia Supreme Court Upholds $2.7 Million Award Against Insurer for Failure to Settle: Ga. Justices Say Geico Liable For $2.7M For Failure To Settle - Law360

Posted 4/13/2021
Insurer Hit with $1.9 Million (including $1 Million Punitive Damages) for Failure to Settle
On a $1 million policy, the case against the insured went to trial and resulted in damages of $765,000 in actual damages and $765,000 in excluded punitive damages. When the insurer refused to pay any of the punitive damages, the insured sued for bad faith. As noted on February 22, 2021, the court ruled that the punitive damages were not covered, however, the court allowed the insured’s bad faith failure to settle case to proceed. The jury in the bad faith case, found bad faith on the insurer. Jury Awards $1.9M In Construction Insurance Coverage Suit - Law360

Posted 4/13/2021
Insurer Seeks Interlocutory Appeal to the 7th Circ. To Review Punitive Damages Recovery in Bad Faith Case over the Defense of the Insured
Days after an Illinois federal judge held that United Fire & Casualty Insurance Co. must go to trial over claims it defended a builder in bad faith, the insurer asked the Seventh Circuit to weigh in on whether punitive damages in an underlying suit can be recovered in a breach of fiduciary duty suit against it. https://www.law360.com/appellate/articles/1357029

Posted 3/15/2021
Use and Abuse of Claims Experts in Bad Faith Litigation
ACCC Fellow and Board Officer Mike Huddleston’s recent article in ABA TIPS “The Brief” Winter 2021

Posted 3/10/2021
11th Circ. Won't Revive Rental Co.'s $5M Failure-To-Settle Suit
The Eleventh Circuit refused to resurrect a defunct party rental company's negligence suit against Atlantic Specialty Insurance Co. for not settling a man's suit over brain injuries from playing "bubble soccer" at a Georgia high school within the policy limits before a $5 million verdict was reached. https://www.law360.com/appellate/articles/1362905

Posted 3/10/2021
Farmers Insurance Beats $9.9M Bad Faith Verdict On Appeal
A California appeals court in a published decision Monday overturned a $9.9 million bad faith verdict against Farmers Insurance Exchange over the insurer's failure to settle a car crash claim, ruling that bad faith claims need to demonstrate a finding that an insurer acted unreasonably. https://www.law360.com/appellate/articles/1362768

Posted 3/9/2021
Fifth Circuit Revises Stowers Opinion; but the Result Stays the Same
On December 21, 2020, the Fifth Circuit issued its long-awaited opinion in American Guarantee & Liability Co. v ACE American Ins. Co. in which it analyzed whether three separate settlement demands, made shortly before and during a trial, satisfied the Texas Stowers doctrine. On March 4, 2021, the Fifth Circuit withdrew its initial December 21, 2020 opinion and issued a new opinion, which reached the same result, but clarified its reasoning in connection with one of the arguments made by the primary insurer.

Posted 2/26/2021
Upcoming Oral Argument of Note: Texas Supreme Court to Rule on whether a Claims Handler can be Deposed in an Uninsured/Underinsured Motorist Coverage Cases prior to the Legal Determination of the Tortfeasor’s Liability
On March 24, 2021, the Texas Supreme Court will hear oral arguments in the fourth UM/UIM case of the term (the first three have been argued; but not yet decided) in In Re USAA General Indemnity Co.

The principal issues are: (1) whether the trial court abused its discretion by compelling deposition of USAA corporate representatives before the injured driver got a judicial determination of preconditions establishing the insurer’s liability and, if not, (2) whether the requested deposition topics are overly broad.

Court of appeals opinion

The oral argument will be simulcasted on the Texas Supreme Court’s Youtube page: Supreme Court of Texas - YouTube.

Posted 2/23/2021 
Insurer Sued for Fraud for Repeatedly Using the Same Allegedly Unqualified Experts Seeks Dismissal
Allstate Fire and Casualty Insurance Co. says a Texas personal injury law firm has no evidence to back up its proposed fraud and conspiracy class action that claims Allstate "knowingly" made false representations about three allegedly unqualified expert witnesses the insurer routinely uses. https://www.law360.com/insurance/articles/1357415

Posted 2/19/2021
Upon Certified Question, Arizona Supreme Court Holds that Insurer’s Alleged Unreasonably Withheld Consent for a Settlement Must be Analyzed from Insurer's Perspective
Arizona's high court gave the Ninth Circuit a roadmap Wednesday to decide whether an AIG insurer was justified in refusing to fund the University of Phoenix's settlement for over $13 million in a proposed securities class action, saying the appeals court must evaluate whether the refusal was reasonable from the insurer's perspective. https://www.law360.com/appellate/articles/1356007

Posted 2/19/2021
No Coverage; but Insurer Must Defend Bad Faith Claims over Defense At Trial

An Illinois federal judge has partly cleared United Fire & Casualty Insurance Co. from covering $1.7 million in trial losses a construction company incurred over a drainage project, but said it must go to trial to contest claims it defended the builder in bad faith. https://www.law360.com/appellate/articles/1355453

Posted 2/17/2021
Kroger Insurer's Trial Gamble Blamed For 'Runaway' Verdict

An insurance company forced to settle a personal injury suit against The Kroger Co. after a $61.4 million verdict has sued an excess insurance carrier in Georgia state court, seeking a declaration that it negligently failed to settle the case within its policy limits and instead gambled on a trial that led to a "runaway jury verdict." https://www.law360.com/foodbeverage/articles/1355409

Posted 2/16/2021

11th Circ. Doubts Fla. Law Firm's Right To $1M Damages
From Law360: Eleventh Circuit judges cast doubt Friday on the ability of a Florida law firm and two of its shareholders to recover more than $1 million in extra-contractual damages from their insurer over its refusal to defend them in a $14 million suit regarding a loan transaction.

Posted 2/6/2021
A Question of Timing: Policy-Limit Demands and Insurer Bad Faith in Florida
February 5, 2021 From The Segal McCambridge Insurance Coverage and Bad Faith Practice Group, co-chaired by Douglas McIntosh.

Posted 1/7/2021
Texas Supreme Court to Decide Whether a Declaratory Judgment Action is the Proper Way to Assert an Underinsured Motorist Claim
Bob Allen, The Allen Law Group, [email protected]

Also see Law360 Article: Allstate Asks Texas Justices To Ax Fee Award In Crash Suit

Ever since the landmark Texas Supreme Court decision in Brainard v. Trinity Universal Ins. Co., 216 S.W. 3d 309 (Tex. 2006), Texas courts and practitioners have struggled with the proper way for insureds to assert a claim for underinsured motorist coverage. In current practice, claims for breach of contract and insurance code violations in connection with underinsurance motorist claims are commonly dismissed or abated. In the past few years, Texas courts started to entertain claims for underinsured motorist coverage against insurers as declaratory judgment actions.

Earlier this morning, the Texas Supreme Court heard oral arguments in Allstate v. Ins. Co. v. Irwin, 606 S.W. 3d 774 (Tex. App.—San Antonio 2019, pet. granted), in which Allstate takes the position that while policyholders can bring an action against their underinsurance insurers to determine the negligence of an alleged tortfeasor and the insured’s damages, it should not be under the rubric of a Declaratory Judgment action. The link to the Texas Supreme Court’s Youtube recording of the argument is https://www.youtube.com/watch?v=XjN52ef0f_g.

Although the argument was fascinating in its exploration of esoteric concepts of subject matter jurisdiction, case and controversy and standing, the bottom line is that policyholders desire to use, and Allstate opposes the use of, a declaratory judgment action to resolve underinsurance motorist cases because of the discretion bestowed on judges to award attorneys fees under Tex. Civ. Prac. & Rem. Code §37.009.

Interestingly, Allstate did not take the position that insureds cannot sue to seek underinsurance motorist coverage benefits. Rather, Allstate argued that the cause of action is pursuant to the contract; but it is not a breach of contract action or declaratory judgment action (either of which allows for the awarding of attorneys fees to the insured).

The take-away from the oral argument is that the Texas Supreme Court will announce the procedure on how insureds access their underinsured motorist coverage after they settle with the tortfeasor. There does not seem to be any dispute that insureds have the right to pursue such coverage in a lawsuit. Instead, the dispute is over whether the appropriate cause of action to access underinsured motorist coverage will support an award of attorneys fees to the insured. 

From Law360: Theater Chain Sues Insurer $400 Million for Systematically and “Suggestively Steering” Claims to Lower Limit Coverages 12/23/2020

Missouri Insurance Bad Faith Claim Overrides New York Choice of Law Provision 12/21/2020

American Guarantee and Liability Ins. Co. v. ACE American Ins. Co., Cause No. 19-20779 on file in the Fifth Circuit Court of Appeals 12/21/2020  -  Casenote by Bob Allen 12/22/2020

Insurer Liable for Bad Faith—For Filing a Declaratory Judgment Action
By Randy Maniloff, White & Williams, LLP

Insurer Estopped from Denying Coverage for Legal Malpractice Action But Not Subsequent Disgorgement Action
Wiley Executive Summary Blog(Nov 11 2020)Errors & Omissions 
The U.S. District Court for the Eastern District of Pennsylvania, applying Pennsylvania law, has held that an insurer is estopped from denying coverage for a legal malpractice action after defending the action for over a year without a reservation of rights, despite knowledge of the facts upon which it ultimately relied to deny coverage.

11th Circuit's significant decision - Court certified bad faith issues to the Georgia Supreme Court 
Law 360 Article

No Coverage for TPA in Claim Arising from Extracontractual Exposure to Insurer
Wiley Executive Summary Blog Article

After Refusing $30K Settlement Offer, Bad Faith Suit May Cost GEICO $2.7M

Texas Supreme Court and the Fifth Circuit to Rule on the Texas Stowers Doctrine 
As the iconic Texas Stowers Doctrine (holding liability insurers liable for negligently failing to settle cases within their policy limits) approaches its 100th anniversary, the rumor is that Vince Morgan is planning a party at the Stowers Furniture warehouse with fireworks and a parade. Meanwhile, new situations arise that continue to test the boundaries of the established criteria for invoking the doctrine. Over the past two months, two cases—one federal and one state—have winnowed their way up the appellate ladder and were argued to their respective courts.

In this regard, here is the audio link to the 5th Circuit oral argument in American Guarantee v ACE American, an excess-primary Stowers case, which among other issues focuses on whether an in-trial settlement demand met the elements of the Stowers doctrine: http://www.ca5.uscourts.gov/OralArgRecordings/19/19-20779_8-10-2020.mp3.

Next is the link to the Texas Supreme Court’s zoom oral argument in In Re Farmers Texas, which analyzes whether the Stowers Doctrine is invoked in the context of an over-the-limits settlement, partially funded by the insured, which was allegedly required because the insurer’s allegedly negligently failed to accept an earlier demand within the policy limits. http://www.texasbarcle.com/CLE/SCPlayer5.asp?sCaseNo=19-0701&bLive=&k=&T=.

These cases were well argued and the panels were active. They are each about 45 minutes a piece, so they are perfect listening for a 20-minute commute (listen to half on the way there and the other half on the way back). The Texan Fellows are watching these cases closely. After a relative yawn on the 8-corner/extrinsic evidence duty to defend cases in last year’s Texas Supreme Court term, it will be very interesting to see how these decisions go. Stay tuned.

ACCC 2020 Annual Meeting Panel Paper: Duty to Defend Bad Faith Issues

August 2020 IADC newsletter article "Preparing for Possible Bad Faith Claims in COVID-19 Related First Party Property Lawsuits" by Karen K. Karabinos and Eric R. Mull

May 2020 IADC newsletter Alexander G. Henlin

COVID-19 DJ Alleges Bad Faith For Failure To Investigate Claim. Randy Maniloff

Right To Jury Trial re Reasonableness of Settlement. William T. Barker

Overview of Texas Bad Faith Law. Bob Allen

A Liability Insurer's Breach of the Duty to Defend and the often erroneous consequence of Extracontractual Liability. Douglas R. Richmond

Newly admitted fellow Terence Ridley recently secured a trial court ruling for the insurer, on remand from the Colorado Supreme Court, finding and concluding that a policyholder-appointed appraiser was improperly biased. The trial court vacated in toto a ~$3 million property-damage appraisal award, arising from a hail claim,  in favor of a Homeowner’s Association. After a two-day trial to the court, the judge ruled that the appraiser’s actions favored the policyholder and that the appraiser influenced the appraisal for the policyholder’s benefit.  Owners Ins. v. Dakota Station II Condo Ass’n, Inc. (Jefferson Cty. Dist. Ct. Colo. 2020).

Attached are the Colorado Supreme Court opinion and the Findings of Fact and Conclusions of Law on remand.

Excess vs. Primary Stowers Doctrine Bench Trial Reveals Inciteful Findings of Facts and Conclusions of Law

The Texas Stowers doctrine, which has been shaped in large part by ACCC Texas Fellows, gives rise to some of the more exciting insurance bad faith litigation in Texas. The prospect of opening up the policy limits for an insurer’s failure to accept a within limits settlement demand of a covered claim that an ordinarily prudent insurer would accept, considering the likelihood and degree of the insured’s potential exposure to an excess judgment, in many situations is the ultimate hammer in settlement negotiations.

The Stowers doctrine is particularly effective when dealing with one injury and one insured for a covered claim. Another recurring aspect of Stowers litigation is that it often arises in the context of an excess insurer suing a primary insurer. Both of these factors were involved in American Guarantee & Liability Ins. Co. v. Ace American Ins. Co., 2019 WL 4316531 (S.D. Tex. 2019).

The underlying tort litigation was a wrongful case brought by the mother, wife and two minor children of a man killed in a bike accident involving a truck owned by a large landscaping company.  The Plaintiffs were represented by a highly regarded and very successful Joe Jamail mentee; although defense counsel was very bullish about the insured’s lack of liability. The primary limits were $2 million. The excess insurer monitored the underlying tort litigation.

After a $39 million verdict against the insured, which was subsequently settled for $9.975 million with the excess carrier funding the amount over the $2 million primary limits, an excess vs primary insurer Stowers lawsuit was litigated in a Houston federal court.

What is very different than normal about American Guarantee v. Ace American, is that Houston Federal Judge Keith P. Ellison, after presiding over a week-long bench trial, issued 68 Paragraphs of Findings of Fact and 17 Paragraphs of Conclusions of Law in the attached Memorandum Order issued last month. He discussed the evidence involving whether the primary insurer was negligent in not accepting one of three settlement demands within the $2 million policy limits.

Significant to insurers facing demands under the Stowers doctrine is that Judge Ellison ruled that, even in the face of a hammer letter by the excess insurer, the primary insurer did not violate the Stowers doctrine for failing to accept the first policy limits demand made after a second failed mediation eleven days before the start of trial. Judge Ellison ruled that in light of the perceived liability defenses, an ordinarily prudent insurer could believe that the settlement value of the case was less than the $2 million policy limits, relying on what he found to be a reasonable report assessing a reasonable settlement range between $1.25 and $2 million.

However, there were adverse evidentiary rulings against the insured landscape company during trial, which changed Judge Ellison’s mind about two within policy limits demands made during trial, the last one expiring when the jury returned its verdict. As it relates to those demands, Judge Ellison ruled that the primary insurer violated the Stowers doctrine by not accepting either one of those demands, which will leave it responsible for the settlement payment made by the excess insurer.  

In many cases, the Stowers issue is decided by as few as one jury question. In American Guarantee & Liability Ins. Co. v. Ace American Ins. Co., however, Stowers liability was established by a very thorough analysis of the facts and then a highly detailed application of the law. Accordingly, unless it gets reversed or altered on appeal, this uncommon Memorandum Opinion will be helpful for those evaluating Stowers claims in the future.

Bad Faith Personal Liability of Claims Adjusters Arising Out of Claims-Handling Conduct, Bryan M. Weiss

State Farm Mutual Auto Assc. v. Cook
On September 18, 2019, the San Antonio Court of Appeals handed down an opinion that may open up the avenue for filing bad faith claims on uninsured/underinsured motorist claims in Texas. Here, the policyholder sought the entire UM limits of $100,000, while State Farm offered about $15,000. The UM case proceeded to trial and the insured obtained a verdict of over $100,000. State Farm quickly paid the $100,000 limits and then sought summary judgment on the plaintiffs bad faith claims. The trial court denied State Farm’s MSJ, however the court of appeals agreed to consider the trial court’s ruling in an interlocutory appeal. The San Antonio Court of Appeals affirmed the trial court’s denial of State Farm’s MSJ, holding that an UM carrier’s immediate payment of a adverse UM judgment does not insulate the carrier from bad faith lawsuits for the carrier’s handling of the bad faith claim.

Past Co-Chairs

Robert Allen
Heather Sanderson

David Anderson
Robert Allen

David Anderson
Joyce Wang

Jason Mazer
Joyce Wang

Jason Mazer
Joyce Wang

Jason Mazer
Diane Polscer

Jason Mazer
Diane Polscer