Extracontractual and Bad Faith Claims Litigation Committee Article ArchiveArchived Presentations & Papers: Posted 12/19/2022 Kentucky Supreme Court Affirms Reversal Of $4.5M Bad Faith Verdict Against Insurer A split Kentucky Supreme Court affirmed the dismissal of a $4.5 million bad faith jury verdict against Cincinnati Insurance Co. finding that CIC had a reasonable basis in law and fact for disputing the policy's coverage of Belt's claims. Read more. Oral argument: Haley Belt v. Cincinnati Insurance Company | Kentucky Supreme Court Coverage (ket.org).
New California Statute Puts Limits On Time-Limited Demands Within Liability Policy Limits
When the Insurer’s and the Insured’s Interests Diverge on Whether to Settle an Underlying Claim This article explores the disagreements over whether to settle that may arise between the insurer and insured. The two sides may disagree on the value of the claim. The insurer may be asked to settle a case despite having questioned or disputed coverage as outlined in a reservation of rights letter. Consequently, the insurer may ask the insured to contribute to a settlement while coverage issues remain in dispute. If both the insurer and insured agree to make a joint offer to the underlying claimant, they may value the claim differently. Can the insurer place a limit on its contribution based on how it values the claim, requesting that the insured contribute its own funds if it wants to increase the amount of an offer? Would the insurer act in bad faith by seeking a contribution from its insured? Read more. Posted 12/12/2022 Texas Jury Finds Primary Insurer Violated the Stowers Doctrine The jury verdict, finding that the primary insurer failed to accept within limits settlement demand, absolves the excess insurer from covering a loss above the primary insurer’s limits. Read more.
Consent Judgments with Covenants not to Sue/Enforce
Western District of Texas Grants Insurer's Motion for Partial Summary Judgment on Bad Faith, DTPA, and Chapter 541 Claims
Nebraska Supreme Court Holds Insured Can't Bring Bad Faith Claims The Nebraska Supreme Court affirmed the dismissal of bad-faith claims from a roofing and gutter company, finding that a policyholder can't assign such claims to a non-policyholder. Read more.
Illinois Court of Appeals Holds No Liability to Insurer for Failure to Settle Plaintiff did not state a claim that the defendant insurer had a duty to settle the underlying action where he did not allege facts establishing that an excess judgment was reasonably probable. (2) Plaintiff did not allege facts establishing a conflict of interest between the insurer and its insureds. (3) Plaintiff was not entitled to damages under section 155 of the Insurance Code for insurer's allegedly “vexatious and unreasonable” actions. Read more.
Seventh Circuit Holds that Self Insured does not Owe Duty to Insurer to Settle within SIR Excess liability insurer that provided coverage with liability limits from $3 million to $25 million brought action against insured owner and operator of home improvement stores, alleging breach of contract and breach of duty to settle for not settling within its self-insurance limit of $2 million and excess coverage of $1 million. Seventh Circuit held that the $2 million of personal injury liability coverage the insured carried as “self-insured retention” did not make it an “insurer” subject to additional responsibilities to its excess insurer when it rejected the settlement of underlying action, and insured did not violate any express or implied duties it owed to its primary or excess insurers under primary liability policy by rejecting the settlement. Read more.
11th Circ. Reverses Geico's Early Win In $18M Golf Cart Case: Revives Bad Faith Claim The Eleventh Circuit ruled Thursday that a golf cart is covered by a Geico auto insurance policy issued to the cart driver's parents, reversing a Florida district court's decision that the insurer doesn't have to cover an $18 million collision between the golf vehicle and a car. This ruling will require the district court to adjudicate the plaintiff’s bad faith claims, which were not addressed in the initial summary judgment. Read more.
N.D. Texas Holds that Bona Fide Coverage Dispute Precludes Bad Faith Claims
Texas Court of Appeals Affirms Judgment in Favor of Insurer on Statutory Bad Faith Claims At most, the record shows an initial dispute between Jefferson and Geico regarding her level of liability for the collision. A dispute on liability, without more, does not constitute evidence the insurer violated the insurance code or otherwise engaged in unfair settlement practices
Is New Jersey’s Unfair Claim Settlement Practices Act Obsolete?
Texas Federal Judge Strikes Plaintiff’s Bad Faith Experts: Finds that Opinions Amount to Legal Conclusions Once the expert was struck, the court granted the insurer’s motion for summary judgment. Read More.
Court Strikes Claims Handling Expert And Resolves Cross Motions for Summary Judgment in Insurer's Favor
California Court of Appeals Finds No Bad Faith and No Duty to Pay a $3 million Extracontractual Judgment Holding: "If anyone acted in bad faith, it was plaintiffs and [their law] firm." The Second Appellate District affirmed the insurer's summary judgment, holding that Mercury Insurance Co. did not act in bad faith because plaintiffs did not offer to settle their wrongful death claims stemming from their son. "Because Mercury's undisputed evidence shows plaintiffs did not offer to settle their wrongful death claims, they cannot state a cause of action for bad faith refusal to settle those claims." Mercury tendered $15,000 to the estate and subsequently paid $1,070 to cover the loss of the claimant’s moped. The estate subsequently rejected the settlement because it demanded payment of all available policy limits, including the property damage limits, and accused the insurer of bad faith. Mercury argued that it timely tendered the bodily injury limits but was not obliged to tender the property damage limits because the claim for Palma's moped did not meet or exceed the limits. Read more.
Duty of Good Faith, Self-Insured Retention Coverage Update Self-Insured Retention – Seventh Circuit (Illinois Law)
Rockhill Insurance Co. isn't entitled to a new trial after it was found to have acted in bad faith and was ordered to pay a fishery $2.6 million, a Colorado federal judge said, rejecting the insurer's contention that it was prejudiced by the exclusion of certain evidence. In an order, U.S. District Judge Raymond P. Moore said that the court didn't err by excluding from trial evidence of certain "litigation conduct" from Rockhill's yearslong legal battle with CFI-Global Fisheries Management. Nor was the jury given improper instructions about the insurer's payment and settlement obligations toward CFI under a professional liability policy, the judge said.
Insurer Says Ga. Law Doesn't Apply In Bad Faith Suit Travelers noted that Tiber has its headquarters in D.C. The company also admitted in its amended complaint that it renovates single-family homes throughout the United States and is seeking coverage from Travelers for some properties that weren't in Georgia, Travelers said. Tiber also can't sue Travelers for bad-faith damages under D.C. law, the insurer said, arguing that D.C. doesn't allow policyholders to bring bad-faith claims against insurers based solely on the decision to deny coverage.
Insurer Dodges Extra Liability In Shooting Coverage Suit The insurer for an event center that was sued over an on-premises shooting did not handle the center's claim in bad faith when it did not tender the center's policy limits earlier in the underlying dispute, because the center's liability was unclear, a Florida federal judge said Thursday. Read More
The Eleventh Circuit on Monday affirmed a Progressive unit's win in a coverage dispute over its handling of a personal injury claim brought against a policyholder, concluding no reasonable jury could have found the insurer acted in bad faith when attempting to settle the claim. "Under Florida law, disagreement over the valuation of a claim resulting in an insurance company's refusal to pay the demanded amount does not equate to per se bad faith," the judges added. They concurred with the lower court's finding that the facts of the case reflect that the insurer simply disagreed about the value of Deary's claim, and that the original offer was based on the medical documentation provided by Deary. Moreover, the insurer's delay in tendering the full policy limits until June 2018 is not evidence of bad faith, the panel said, noting that Deary expressly disclaimed any willingness to settle months before.
11th Circuit Holds that a Consensual Settlement in Excess of the Policy Limits Does Not Kill Bad Faith Insurance Claims Here the claimant is alleging that the insurer acted in bad faith in its handling of a car wreck case, which led the policyholder to accept a settlement that exceeded his policy limits. The trial court, however, dismissed the case finding that a final judgment enforcing a consensual settlement is not an "excess judgment," and that an excess judgment is required before a bad faith claim can move forward. The Eleventh Circuit reversed holding that "a final judgment that exceeds all available insurance coverage" constitutes an "'excess judgment' that can satisfy the causation element of an insurer-bad-faith claim under Florida law," no matter if it comes from a consensual settlement or a jury verdict. Posted 7/1/2022 New Jersey Appellate Division Rules that Injured Plaintiff May Sue His Insurance Carrier for Bad Faith Damages Due to Delay in Approving Medical Test and Surgery Posted 6/29/2022 A Split 11th Circuit Revives a Bad Faith Claim on a $12 Million Judgment The Eleventh Circuit held that a Florida federal court erred in a motorcycle crash victim's bad-faith suit seeking to collect a $12.6 million judgment from the at-fault driver's insurer when it failed to instruct the jury that an insurer not only has a duty to settle claims for its insured, but also to properly advise their insureds. The dissenting opinion noted that the overwhelming evidence "indicates that the claimant’s counsel tried to "lure Direct General into making mistakes that [the claimant] could later use to generate a bad-faith claim.” Posted 6/10/2022 Fifth Circuit Affirms Denial of Bad Faith Claim for Lack of Expert Testimony: Applying Louisiana law, the Fifth Circuit held that the expert needed to show how his experience or expertise led to his conclusions, especially about causation, noting that “causation should come first and cost second, not the other way around.” The court continued that the passage of time, lack of accounting for post strike repairs, reliance on the insured’s representations alone, and drastic difference in repair estimates all cast doubt on the reliability of the expert’s underlying principles and methods. Accordingly, the Fifth Circuit affirmed the denial of the insured’s bad faith claim. https://www.ca5.uscourts.gov/opinions/unpub/21/21-30318.0.pdf
The Texas Supreme Court reversed an intermediate appellate court's ruling that an insurer owed a duty to its insured to issue a safety warning about taking photos at the scene of a car accident, saying the policyholder's negligence claims fail without an applicable legal duty. The state justices reinstated a trial court's summary judgment ruling in favor of Elephant Insurance Co., which found the insurer had no duty to ensure the safety of policyholder Lorraine Kenyon or her husband while guiding her through the post-accident claims process.
Fourth Circuit Reverses District Court and Awards Treble Damages Against Insurer The Fourth Circuit reversed a lower court's decision limiting an apartment complex owner's damages for a walkway collapse, saying that the owner's contract damages should be trebled because of the insurer's violation of North Carolina's Unfair and Deceptive Trade Practices Act. The appellate court affirmed the district judge's summary judgment decision in favor of the insured in a published opinion, ruling that the insurer improperly denied coverage of the apartment owner's claim, however it ruled that the district court erred in not trebling the damages. Here, the district court determined that the insurer violated a North Carolina bad faith statute by first granting coverage and then denying it in a confusing letter, however, the district court refused to treble DENC’s contract damages under the UDTPA because the insurer’s deceptive practice didn’t proximately cause those damages. A panel of the Fourth Circuit disagreed and awarded the insured treble damages as a matter of law. Read more.
The Misinterpretation of Pennsylvania Bad Faith Claims Handling Rule Some courts applying Pennsylvania law in insurance coverage disputes have reflexively posited that no claim for bad faith claims handling will lie where an insurer establishes that the subject claim is not covered by the insurer's policy. According to Reed Smith lawyers, particularly as it relates to first-party coverage claims, that is a misleading and inaccurate statement of Pennsylvania law.
11th Circ. Says Settlement Can Be Basis For Bad-Faith Claim A consent judgment memorializing a private settlement agreement qualifies as an "excess judgment" that a policyholder can cite under Florida law to bring a bad-faith claim against their insurer, the Eleventh Circuit ruled Tuesday, overturning its unpublished ruling that held the opposite. Read more
Colorado: No bad faith claim against claims adjuster On March 14, 2022, the Colorado Supreme Court held that a bad faith cause of action does not accrue against an insurance company’s adjuster employee. The practical reality is that this decision will stop the practice of joining a resident adjuster to destroy diversity jurisdiction and make it easier for insurers to remove cases to federal court in Colorado.
Del. Supreme Court: Opt-Out Action “Related” to Securities Class Action, Precluding Coverage In an interesting decision that explores the standard to be used in determining whether an earlier claim and a later claim are interrelated, the Delaware Supreme Court has affirmed a lower court ruling that a later filed opt-out action is related to a securities lawsuit earlier filed and therefore that the opt-out action is not covered under the D&O insurance program in place at the time the opt-out action was filed.
TEXAS TWO-STEP: TEXAS SUPREME COURT ISSUES TWO BLOCKBUSTER DUTY TO DEFEND OPINIONS
Court Announces New Rule on Considering Extrinsic Evidence; but holds that it does not Apply in the Two Cases
Read More Fifth Circuit Bars a Bad Faith Lawsuit Filed After the Settlement of the Coverage Action Based on Res Jucicata Applying Louisiana Law, the Fifth Circuit held that the initial coverage case, seeking higher UM/UIM limits due to an ineffective UM/UIM waiver, and the subsequently filed bad faith case were “’intertwined and center around the same set of operative facts,’ namely, [the insured’s] damages from the accident, the coverage he was entitled to under [the insurance] policy, and [the insurer’s] response to [the] claim for coverage.” Noting that the insured “did not specifically reserve” the right to bring this second suit as part of his settlement agreement, the court opined that the bad faith action “arises out of the same nucleus of facts” as the initial suit, and thus, the issue of the insurer’s alleged bad faith in misrepresenting its UM coverage “could have been raised” in that initial suit. Accordingly, the subsequent bad faith case was barred by res judicata. Read More.
2021 Key D&O Insurance Coverage Decisions
Colorado Supreme Court Hears Oral Argument On Whether Adjusters Can Be Sued Individually For Improper Denial Of Claims On January 11, 2022, the Colorado Supreme Court heard oral arguments in Skillett v. Allstate. For more information on the case, see To listen or watch the oral argument, see https://cojudicial.ompnetwork.org/embed/sessions/235399/21sa187
New Jersey Enacts a Bad Faith Statute for UM/UIM Claims New Jersey has enacted an insurance bad faith statute that will penalize insurers for certain types of conduct in handling claims for uninsured and underinsured motorist coverage as the result of auto accidents. The new law allows prevailing insureds to recover extra-contractual damages, up to three times the policy limit, as well as attorney’s fees. Read more.
Florida Court of Appeals (2-1) Reverses Bad Faith Summary Judgement for Insurer in a Hurricane Claim On a set of undisputed facts, including the insurer immediately paying an appraisal award less than the amount the insured was claiming in coverage, the majority held that: "[t]ypically, the question of whether an insurer acted in good faith toward its insured in resolving a claim is an issue of fact for the jury … . Given the different inferences that each party argues must be drawn from the facts at hand, this case is no exception." Read More.
Applying South Carolina law in a construction defect coverage case, the Fourth Circuit characterized the insured’s alleged damages alleged as a loss without injury because the insured would never be liable for the damages since its dissolution, and as such, the summary judgment to the insurer was proper. Read More
The district court concluded that the insurer’s action did not equate to bad faith because the claimant’s offer deadline precluded a full investigation of the multiple claims against its insured. Therefore, the court held that the insurer’s actions were not tortious under Oklahoma law in that the insurer conducted a diligent investigation, earnest negotiation and competent defense of its insured in an attempt to avoid excess liability. Read More Posted 1/3/2022 Here, the Austin Court of Appeals, relying on the original Arnold case, held that Allstate was not immune from a bad faith case even though it paid out its limits immediately after losing the UIM case. Also, the court ruled that the insured's mental anguish can constitute an independent injury. The opinion, however, specifically recognizes an insurer's bona fide dispute defense. Allstate has filed a motion for rehearing. This is a case to watch because the result creates a conflict amongst different Texas Court of Appeals, which makes it more likely that the Texas Supreme Court will involve itself with the case. Posted 12/28/21 Posted 12/22/21 Posted 12/1/21 Posted 11/30/21 Posted 11/16/21 Posted 11/10/21 Posted 10/27/21 Posted 10/18/21 Posted 10/4/21 Posted 9/16/21 Posted 9/16/21 Posted 7/28/21 Posted 7/22/2021 Posted 6/23/2021 Posted 6/14/2021 Posted 6/3/2021 Posted 4/27/2021 Posted 4/22/2021 Posted 4/20/2021 Posted 4/13/2021 Posted 3/15/2021 Posted 3/10/2021 Posted 3/9/2021 Posted 2/26/2021 Posted 2/16/2021 Posted 2/6/2021 Posted 1/7/2021 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 Insurer Estopped from Denying Coverage for Legal Malpractice Action But Not Subsequent Disgorgement Action 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 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. 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. 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. Bad Faith Personal Liability of Claims Adjusters Arising Out of Claims-Handling Conduct, Bryan M. Weiss State Farm Mutual Auto Assc. v. Cook |
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