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 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.

It Still Doesn’t Pay to Lie: Personal Umbrella Policy Voided by Material Misrepresentations on Insurance Application

Summary:  Whether the insured, a mother of a 17 year old boy, intentionally failed to tell her umbrella insurer that her son was now a driver, or the insured failed to sign the application, there was no coverage under the personal umbrella policy and no reason to assess “bad faith” penalties.

RLI Insurance Company v. Santos, 746 F.Supp.2d 255 (D.Mass., 2010)

RLI Insurance Company issued a personal umbrella insurance policy to Beli R. Lima.  Ms. Lima’s first language was not English. Her 17 year old son, Henrique Santos was involved in an automobile collision with Maria Lopez.  Lopez sued Santos for her bodily injuries and shortly thereafter RLI filed a declaratory judgment action seeking a court declaration that the policy provided no coverage for the Lopez/Santos accident.  Both Lopez and Santos counterclaimed against RLI.  The case came before the court on cross motions for summary judgment.  The court granted RLI’s motion for summary judgment while denying that of Lopez and Sanchez.

Louisiana Insurers Who Are Wrong, but Reasonably Wrong, Can Avoid Statutory Penalties, Attorney’s Fees, and Costs

Summary:  Lafayette Insurance Company underpaid Ullah’s looting loss claim by over $400,000, but its $40,000 payment of the undisputed amount due was timely and made with good reason.  Accordingly, the trial court’s failure to assess statutory penalties, attorney’s fees, and costs was deemed proper.

Ullah, Inc. v. Lafayette Insurance Company, 54 So.3d 1193, 2009-1566 (La.App. 4 Cir. 12/17/10)

Ullah, Inc. was a Louisiana business which owned and operated multiple enterprises.  Its insurance program included coverage by Lafayette Insurance.  Like many other businesses and properties in southern Louisiana in 2005, it suffered losses due to Hurricane Katrina.  The business location involved in this case, A.K. Food Store, had an inventory value estimated at more that 1.25 million dollars.  That store had a gas station and regular convenience store items, plus some unusual items, as well as inventory warehoused for other locations.  Financial statements and tax records showed that the value of this inventory in prior years had fluctuated between $900,000 and $1.2 million.

You Ain’t Got No Class: Seventh Circuit De-Certifies Class of Insureds Seeking Injunctive Relief

Summary:  Seventh Circuit de-certifies class of homeowner insureds seeking the injunctive relief of a uniform standard for inspecting roof damage cause by massive hailstorm.  Also, The Seventh Circuit also agrees with District Court’s decision not to certify class for bad faith claims due to individualized nature of evidence to prove claim.

Kartman et al. v. State Farm Mutual Automobile Insurance Company et al. 634 F.3d 883 (7th Cir. 2011)

After a severe hail storm struck central Indiana in April 2006, thousands of homeowners filed claims with State Farm for hail damage to the roofs of their homes.  State Farm paid more than $236 million in property damage claims resulting from the hail storm.  However, not all the policy holders were satisfied with their payments.  Therefore, a suit was brought as a class action on behalf of approximately 7,000 policy holders and alleged that State Farm engaged in pervasive under-compensation of roof damage claims stemming from the hail storm.  As part of their theory that State Farm breached its contract and committed bad faith, the plaintiffs alleged that State Farm failed to implement a uniform “reasonable, objective” standard for assessing hail damaged roofs.  The lawsuit sought damages and an injunction requiring State Farm to re-inspect all class members’ roofs pursuant to a “uniform, reasonable, and objective” standard for evaluating hail damage.  State Farm removed the case to federal court.

Insurer’s Good Faith Policy Defense Defeats Insured’s Statutory Penalty Claim (Even When Insurer’s Policy Limitation Violates Louisiana Public Policy)

Summary:  The Louisiana Appellate Court affirmed the trial court’s dismissal of plaintiff’s claim for future medical expenses and future loss of income precluding the assessment of statutory penalties even though its policy restrictions violated Louisiana’s “Economic Only Uninsured Motorist” (EOUM) coverage statute.

Hoagboon v. Cannon, 54 So. 3d 802, 2010-0909 (La. App. 1 Cir. 12/29/10)

Bridgette Hoagboon had an auto accident with Brandy Cannon on the Causeway Bridge in Jefferson Parish Louisiana on October 30, 2006.  Thereafter Hoagboon filed a Petition against Cannon, Gieco (Cannon’s insurance carrier) and Automobile Club Inter-Insurance Exchange (AAA), Hoagboon’s EOUM insurer.  After Hoagboon settled her claims against Cannon and Cannon’s insurance company, Hoagboon pursued claims for future lost wages and future medical expenses against her EOUM insurer.  Instead of having a formal trial, the parties submitted documentary evidence and legal memoranda to the trial judge who ruled in favor of Hoagboon’s carrier.  The trial judge denied her claims for future wages and medical expenses, denied her request for penalties and attorney’s fees, and taxed three fourths of the costs against her insurer and one fourth to Ms. Hoagboon.

Good Efforts by Insurer Lead to Win

Summary:  Allstate, by making consistent efforts to settle a serious injury case, convinced a jury that it was acting in good faith even though Allstate could have determined earlier that it owed the limits of its policy.

Allstate Ins. Co. v. Herron. 09-35203 9th Cir. 3/10/11

Plaintiff Herrin was involved in a single car accident in which his passenger Trailov was severely injured.  Herrin was insured by Allstate.  Allstate learned of Herrin’s accident 2 days after it happened and so advised Herrin’s parents who in turn, advised their attorney along with Trailov’s attorney.  When Allstate learned of Trailov’s attorney, it requested from her a complete description of Trailov’s injuries, information about her doctors and ongoing treatment, and access to her medical records and bills.  Five months after the accident, Trailov’s attorney demanded policy limits of $100,000.  There was no deadline for Allstate’s response but later in April, Trailov’s lawyer said the offer would be revoked on May 16, 2003.  Allstate paid Trailov $25,000 to cover a portion of the medical expenses, but on the due date, Allstate faxed a letter to the lawyer indicating it needed two more weeks to finish its investigation.  Two weeks later, Allstate faxed an offer of settlement for the policy limit in addition to $12,500 in attorney’s fees.

Adjustment of Claims Did Not Cause Mental Anguish: Fifth Circuit Affirms District Court in Hurricane Katrina Claim

Summary:  Fifth Circuit finds there was no evidence to support insureds’ claim for extra-contractual statutory penalties based on mental anguish and lost wages.  Also, Fifth Circuit finds insurer acted in good faith and timely in adjusting insureds’ contents damage claim.

French v. Allstate Indemnity,  Co.2011WL1228281

Homeowner insureds French and Sutter sued Allstate to recover additional insurance payments for damages to their home resulting from Hurricane Katrina.  The insureds also sought statutory penalties and costs under Louisiana law.  After a bench trial, the District Court awarded the insureds additional insurance payments as well as statutory penalties.  This blog entry will only discuss the extra contractual damages awarded to the insureds.

The insured’s sought statutory damages for mental anguish and lost wages.  However, the District Court concluded the insureds had not presented sufficient evidence to recover such damages.  Under the Louisiana statute, insurers have a duty of good faith and fair dealing which includes an obligation to adjust claims fairly and promptly.  While general damages for mental anguish may be awarded under the Louisiana statute, a plaintiff is not entitled to such damages absent showing sufficient proof of mental anguish.  While the insureds testified they experienced emotional and physical stress since Hurricane Katrina, they presented little evidence that Allstate’s adjustment of their claim was the cause of their stress.  Likewise, one of the insureds testified he had been unemployed since Hurricane Katrina, but stated his job loss was directly attributable to Hurricane Katrina’s physical destruction in New Orleans.  Therefore, the Fifth Circuit concluded that the District Court did not err in denying statutory damages for lost wages and mental anguish.

To Repair or Not Repair – That Is the Question

SUMMARY: California appeals court finds insurer breached its duty of good faith and fair dealing when it pursued a subrogation action against a tortfeasor to recover the cost of repairs after the insured had not authorized repairs or pursuit of the subrogation action.

Hibbs v. Allstate Insurance Company. 2011 WL 1485623 (Cal.App. 2 Dist.))

The Hibbs’ vehicle, which was insured by Allstate, was damaged when it was struck by Brooks.  Hibbs towed the vehicle to a body shop and contacted Allstate.  The Hibbs informed Allstate’s claims adjuster that they believed the vehicle was a total loss.  The Hibbs also told the adjuster that if the vehicle was repaired they would refuse to pick it up from the body shop.  When the adjuster contacted the body shop, she was informed by the body shop that Ms. Hibbs had previously authorized the repairs, which were now substantially complete.  The total for the repairs was $6,200.  Allstate paid $5,700 directly to the body shop, which took into account the $500 deductible, Allstate then eventually recovered $6,200 from Brook’s insurer in a subrogation action.  Allstate sent a $500 check to the Hibbs for the deductible, which they never cashed.

The Hibbs filed a lawsuit against Allstate alleging breach of contract and breach of covenant of good faith and fair dealing.  Allstate moved for summary judgment, which was granted.

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