The nation’s premier blog focused exclusively on claims of bad faith and extra contractual damages, the Bad Faith Blog discusses current issues and highlights best practices in an increasingly complex area of law.

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Insurer Has Right to Make Mistake: Court Finds No Bad Faith but “Fairly Debatable” Is Not End of Analysis

Summary: Insured motorist injured in an accident filed suit against his underinsured motorist (UIM) insurer for bad faith refusal to pay remaining UIM policy limits until after claim was resolved in arbitration. The Appellate Court held that insurer’s delay paying remaining policy limits did not constitute bad faith and insurer’s claims handling practices did not constitute bad faith. However, the insurers defense of “fairly debatable” coverage was not sufficient without more, to defeat insured’s bad faith claim. The Appellate Court affirmed summary judgment in favor of the insurer.

Sanderson v. American Family Mutual Insurance Company, 251 P.3d 1213 (Co. App. 2010)

The insured, Leonard Sanderson, was injured in an automobile accident with an underinsured driver. Insured had a UIM policy with American Family, which had a $100,000 policy limit. The insured sued the underinsured driver and after approximately one year of litigation, settled with the underinsured driver for her $25,000 policy limit. The settlement amount counted towards the insured’s UIM coverage limit, thus leaving a UIM limit of $75,000. As a result of the settlement, neither liability nor the relative fault of the parties was determined.

Following settlement, the insured exercised his contractual right with American Family to demand arbitration to resolve the disagreement regarding damages and liability of the underinsured driver in the accident. Days after the insured demanded arbitration, American Family had information regarding the insured’s medical history and claimed damages, as well as copies of various pleadings, disclosures, and depositions from the insured’s lawsuit against the underinsured driver. The insured and American Family undertook additional discovery and the insured provided further information to substantiate the damages claim.

Federal Court Rules Against Bad Faith “Set Up”

Summary: Applying Florida law, the Federal District Court found the insurer did not act in bad faith or delay tender of the policy limits when it conducted a reasonable investigation into plaintiff’s injuries. Instead, the District Court found it was plaintiff who caused the delay by failing to comply with the insurer’s reasonable requests for medical records.

Noonan v. Vermont Mutual Insurance Company, 761 F.Supp.2d. 1330 (M.D. FL. 2010)

This bad faith case arose from an accident in which the plaintiff was injured when his motorcycle collided with the side of an automobile operated by the insured. The insured’s primary policy had a liability limit of $100,000. The insured also had an excess policy issued by defendant Vermont Mutual Insurance Company (“Vermont Mutual”), which also had a policy limit of $100,000.

Approximately two weeks after the accident, Vermont Mutual learned that its insured had received a citation for failing to yield and that the plaintiff had been in a coma since the accident. Therefore, Vermont Mutual increased its reserve to $100,000 “due to the severity of the [plaintiff] injury.” Vermont Mutual also requested the primary insurer’s full investigative file.

Detailed Record Supports Win for Insurer

Summary: Once again a detailed record of contacts with opposing counsel leads to win for insurers on bad faith claim.

Jackson v Allstate Insurance Company. 2011 Westlaw 321709 (Southern Dist. IN)

Allstate issued a policy of auto insurance to Jackson. The policy contained both medical payments and uninsured motorist coverage. Jackson had an auto accident with a vehicle driven by Martin who was insured by Illinois Farmers. The Allstate policy included underinsurance coverage. Jackson recovered the policy limits on the claim against Martin and then made a specific claim against Allstate under the underinsured motorist coverage. Jackson filed suit aginst Allstate when it did not pay. Included in the suit against Allstate was a bad faith claim.

A Timely Notice of Claim Missing Key Facts Is Held to Be Sufficient

Summary: The Clinic properly reported a potential claim to insurer providing claims made coverage such that the policy covered the claim against a clinic employee. Because Medical Protective did not pay its policy limits within 30 days as required by Minnesota Statute §60 A.0811, Subd. 2(a) the insured was entitled to recover 10% per annum on the unpaid amount.

Owatonna Clinic – Mayo Health System v The Medical Protective Company of Fort Wayne, Indiana. U.S. Court of Appeals (Eighth Circuit) No. 10-2076

Facts: Owatonna Clinic – Mayo Health System (“Clinic”) sued its insurer Medical Protective for its failure to indemnify Clinic in a medical malpractice case that resulted in a judgment. Medical Protective had denied coverage on the basis of failure of the insured to give proper notice of a potential claim against it. The district court held that the notice provided by the clinic was sufficient as a matter of law on all issues except the question of whether the Clinic actually believed that it was at risk when it reported the claim. A trial was held on that question and the jury returned a verdict for the Clinic which was not appealed. Medical Protective appealed the ruling that the Clinic’s notice conformed to the policy requirements and the Clinic’s belief that it was at risk was objectively reasonable.

Treat ‘Em Right to Win the Fight

Summary:  Safeco had reviewed the facts, carefully evaluated the value of the Plaintiff’s uninsured motorist case, round tabled the case when challenged that its offers were too low, and documented well its offers and the reasons for those offers.  Although the Court did not rule on the breach of contract claims filed against Safeco, the Court found both that Safeco’s conduct was not in bad faith and was not in violation of the New Mexico statutes.  Accordingly, the bad faith and extra-contractual damage claims against the adjuster and Safeco were dismissed and summary judgment was entered against Plaintiff on those claims.  The insured’s positions were not helped by his attorney’s failure to abide by the local court rules.

Hauff v. Petterson, F.Supp.2d, 2010 W.L. 2978060 (D.N.M. 2010)

David Hauff, a Safeco Insurance Company (Safeco) insured, was injured in June 2005 when hit by an uninsured driver.  Thereafter he filed a claim for damages with his uninsured carrier, Safeco, and attempted to negotiate a settlement.  Hauff apparently fully recovered in three months.  Hauff’s attorney demanded settlement for the $75,000 policy limits to compensate Hauff for his medical bills, lost wages, and general damages.  Less than 60 days after the initial demand, Safeco offered to settle for nearly $19,000 while indicating that the offer was “negotiable.”  When deciding how much to offer, Safeco made a reduction for the medpay benefits paid.  Over the next two and a half months, the parties made multiple offers and demands, but remained over $35,000 apart.  During those negotiations the Safeco adjuster emphasized how quickly Mr. Hauff had recovered.

When the parties were unable to bridge the gap between their respective positions, Safeco’s adjuster suggested mediation.  Although the parties agreed to mediate, Hauff and his attorney wanted Safeco to bear all of the charges of mediation, which it agreed to do, but only if the mediation was successful.  Mr. Hauff’s attorney would not agree to that condition and also refused non-binding arbitration.  Although Mr. Hauff’s attorney was willing to enter binding arbitration, Safeco was not.   After it became apparent that the claim could not be resolved short of litigation, Mr. Hauff filed suit in September 2006.  In addition to his claim for compensatory damages, he alleged that Safeco had acted in bad faith and violated its statutory duties by refusing to settle for the amount Plaintiff demanded.  Two and a half years later, he also moved to certify a multi-state class of uninsured or underinsured motorists who had filed lost wage claims against Safeco.  Thereafter, the case was removed to federal court, and the federal court denied the Motion to Remand.  Nearly three years after having filed suit, Mr. Hauff moved for class certification, a motion denied three months later.  At that point, the Defendants, Safeco and its adjuster, filed summary judgment motions on Mr. Hauff’s individual claim.

Admitting and Correcting Errors Saves Insurer

Summary: The United States District Court in Arizona held that an insurer, which admitted and rectified errors in calculation of the actual cash value of a homeowner’s property damage claim after the error was brought to its attention by the insured, did not commit bad faith.

Echanove v. Allstate Ins. Co. 752 F.Supp.2d 1105

The plaintiff-insured filed a homeowner’s insurance claim with its insurer, Allstate.  The insured experienced property damage to his property caused by a wind storm.  An independent adjuster inspected the insured’s property and based on his inspection, Allstate made a payment to the insured for property damage in the amount of $15,723.65.  Two additional upward adjustments were requested by the insured and they were paid by Allstate, bringing the total payment to $16,792.12.  The insured was paid less than 30 days after the damage was reported.

Later, the insured hired a public insurance adjuster who asserted that errors were made in the depreciation calculation in determining actual cash value of the claim and advised the insured to file a civil action against Allstate, which the insured did.  Upon notice of the lawsuit, Allstate learned for the first time of the asserted depreciation mistake.  Allstate sought review by the manager of an independent adjusting company, who prepared a revised depreciation resulting in an amount due to the insured of an additional $2,579.72.  This amount was tendered to and accepted by the insured.

California Courts Require Airlines to Strictly Comply with Pilot Warranty or Lose Coverage and the Right to Seek a Bad Faith Recovery

Summary: The insured’s failure to strictly comply with the aviation insurance pilot warranty negated coverage and defeated the insured’s bad faith claims.

Trishan Air, Inc. v. Federal Insurance Company, 635 F.3d 422 (9th Cir. 2011)

Federal Insurance issued an aviation insurance policy to Trishan Air (“Trishan”). A Trishan corporate jet was involved in an accident. Trishan’s chief pilot was in command and the co-pilot had 45 years and 15,000 hours of flight experience, including 13,000 hours in jet aircraft. The Federal policy of insurance included a “pilot warranty” in both the binder and issued policy. Those pilot warranty provisions required the pilots to have “successfully completed a ground and flight recurrent/initial training course for the make and model operated within the past 18 months.” Although the co-pilot had a lot of experience, he had not performed the required simulator training. The issued policy “excluded coverage consistent with the pilot warranty provisions.” Id. at 425. Accordingly, Federal “denied coverage for the accident because [the co-pilot] ‘never attended any formal course relative to any Falcon aircraft’ in violation of the pilot warranty and Exclusion F.” Id. at 426. The District Court granted summary judgment in Federal’s favor and Trishan appealed.

Insurer Wins! Supreme Court of Louisiana Rules that Hurricane Katrina Property Damage Claimants, Can’t Get No Class Action Satisfaction (For Statutory Bad Faith or on Other Claims)

Summary:  The fact intensive nature of bad faith/extra-contractual damages claims make them unsuitable for class action treatment.

Dupree v. Lafayette Insurance Co. 51 So.3d 673, 2009-2602 (La. 11/30/10)

Natural disasters spawn death and destruction along with pain and agony as demonstrated by the recent Japanese and New Zealand earthquakes and tsunamis.  Hurricane Katrina was no different.  Another commonly accepted fact (at least in this country) is that whereever there are deep pockets, including insurance companies, litigation will follow.  Hurricane Katrina was no exception there either.  It has spawned numerous cases, including a fair number of class action cases, against property and casualty insurance companies.

Louisiana Court Tells Insurers to Err on the Side of Depositing Policy Limit into Court Registry to Avoid Statutory Penalties

Summary:  An uninsured motorist insurer’s failure to deposit the undisputed part of the policy limits into the court registry was found to be arbitrary and capricious thereby entitling the insured to statutory penalties and attorney’s fees.

Jones v. Johnson, 56 So.3d 1016 (La. App. 2010)

The insureds, Thomas Jones and his wife Mary, were involved in an auto accident which resulted in Mary’s death.  The uninsured driver who hit the Jones’ motorcycle was solely at fault for the accident.  The Jones filed suit against their uninsured motorist (UM) insurer, Markel American Insurance Company.  Before filing suit, the insureds notified the UM insurer that the value of the insureds’ damages would exceed all available policy limits.  The insurer and insureds initially disagreed over the amount of the policy limits with the insurer claiming the policy was limited to $200,000, whereas the insureds asserted that $300,000 was available.

After suit was filed, the insureds received notice of liens from various healthcare providers, which asserted the right to recover unpaid medical expenses from the insurance proceeds ahead of the insureds.  The amounts claimed by the various healthcare providers kept changing over the course of time.

Court Finds Insurer’s Denial of Coverage Was Without Just Cause or Excuse – Insurer Awarded Over $2.5 Million

SUMMARY:  Missouri Court of Appeals, applying Kansas law, found the “care, custody, control” exclusion in CGL policy ambiguous and therefore, found coverage for a third-party property damage claim.  Also, the Appeals Court affirmed the statutory award of attorney’s fees to insured because the insurer’s denial of claim based on the ambiguous exclusion was without just cause or excuse.

Dodson International Parts, Inc. v. National Union Fire Insurance
Company of Pittsburg, Pennsylvania

Dodson, the insured, is in the aircraft salvage business.  National Union, the insurer, issued a CGL aviation liability policy to Dodson.  The declarations page indicated the only coverage purchased by Dodson was for “Products/Completed Operations” with an aggregate limit of $5 million.

Dodson was hired by Ameristar Jet Charter (“Ameristar”) to recover an aircraft that made an emergency landing near the Kansas City airport.  Dodson retrieved the aircraft and transported it to a hangar at the airport.

Later, Dodson was advised that there was damage to the aircraft unrelated to the aircraft’s emergency landing.  Ameristar claimed Dodson caused the damage while disassembling and transporting the aircraft.  Dodson claimed the damage occurred after the aircraft was delivered to the hangar.

Dodson was sued by Ameristar for the damage to the aircraft and submitted a claim to National Union.  The claims manager reviewed the lawsuit and obtained a statement from the President of Dodson.  The President agreed that Ameristar was “trying to claim” that the damage to the aircraft occurred while it was in Dodson’s care, custody and control.  After taking a recorded statement, the claims manager conducted no further investigation and recommended the claim’s denial.

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