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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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.

Aggressive Discovery Tactics Support Fraud Claim Against Property Insurer

Summary:  Insured owners of a shopping mall brought a fraud claim against CGL Insurer after the insurer denied coverage and filed a declaratory judgment suit in which they aggressively went after the insured.

General Ins. Co. of America v. Clark Mall Corp.,738 Fed. Supp.2d 864 (N.D. IL 2010)

General Ins. Co. of America (“GICA”) filed a declaratory judgment action against its insured Clark Mall Corporation (“Clark”).  Clark then brought a counterclaim for fraud against GICA alleging that GICA issued the property insurance policy but had no intention of honoring it.  GICA moved to dismiss the fraud claim alleging that under holding of the US Supreme Court case of Bell Atlantic Corp. v Twombley, 127 S.Ct. 1955 (2009), the claim did not contain sufficient factual matter to state a claim for relief.  The court denied the motion and pointed out that the complaint outlined a series of acts that were allegedly designed to effectuate an overarching scheme to collect premiums without having to pay claims.  The claimed acts included, multiple document requests that covered not only the mall where the fire occurred, but other business interests of the defendant, discovery directed at the defendant’s accountants, days of depositions of an officer of the insured, a failure of GICA to respond to inquiries about the progress of their claim, and the passing of a year and a half without any determination of the defendants claim.  The court described GICA’s claimed conduct as giving the insured the proverbial “run around.”   GICA also attacked the counterclaim as implausible because it did not allege a motive for GICA.  The court disagreed that a motive must be pleaded.  The court went on to say that in a case such as this the motive is obvious, i.e. profit.

Fire Insurer’s Full and Fair Investigation Defeats First Party Bad Faith Claim

Morse v. State Farm Fire & Cas. Co., 733 F.Supp.2d 1065 (S.D. Iowa 2010)

The fire department concluded that the fire’s cause was electrical.  State Farm’s fire investigator, backed up by an engineer and a forensic lab, concluded that the fire was intentionally set.  Before a jury ruled who was right, the Iowa federal judge ruled that State Farm’s claim denial was objectively and subjectively reasonable and granted partial summary judgment in favor of State Farm.

This win for the good guys is recorded in Morse v. State Farm Fire & Casualty Company, 733 F.Supp.2d 1065 (S.D. Iowa 2010).  The Morse single-family residence in Guthrie Center, Iowa was destroyed by an early morning fire.  The homeowners were not at home and, at first, it seemed that they had left early that morning for legitimate reasons.  However, a closer look at the facts by the adjuster raised multiple “red flags” which led to a Special Investigations Unit (SIU) referral.  After a cause and origin investigation showed that the fire had been intentionally set, the SIU-led background investigation showed that the insureds had both the opportunity and “a strong financial motive” to burn their house and collect the insurance proceeds.  After a thorough review, State Farm denied the claim.  Predictably, the insureds filed a complaint alleging both a breach of contract and a “bad faith denial of their coverage claim.”. State Farm responded with a motion for partial summary judgment on the bad faith denial of coverage claim.

Court Takes Insurer’s Side When Coverage Defense is Bona Fide

West Bend Mut. Ins. v. Norton, 940 N.E.2d 1176 (Ill. App. 3 Dist. 2010)

An Illinois Appellate Court recently upheld summary judgment in favor of an insurer on the insured’s vexatious refusal to settle claim.  The insured driver, Wanda Norton, was involved in a vehicle collision with Karyn Patterson.  Norton was insured by West Bend and Patterson was insured by American Family.  Norton hired counsel and filed suit against Patterson.  Norton’s counsel sent a demand letter to American Family to settle for approximately $18,000.  In response, American Family offered to settle Norton’s claim for $7,800.  Norton rejected the settlement offer and filed suit.

Norton’s counsel did not inform either American Family or West Bend of the filing of suit against Patterson.  Eventually, a default judgment was entered against Patterson, and counsel for Norton did not inform American Family of the default judgment until 90 days after it was entered.  As a result of the late notice, American Family denied coverage.  After American Family denied coverage, Norton’s counsel contacted West Bend asserting an uninsured motorist claim.  West Bend maintained the only reason Patterson was “uninsured” was because Norton had failed to notify American Family of the lawsuit and judgment.  Therefore, West Bend requested that Norton’s counsel take steps to vacate the default judgment so West Bend could pursue its subrogation rights under the policy against American Family.  Norton’s counsel refused to vacate the judgment against Patterson and, instead, filed suit against West Bend seeking payment pursuant to the uninsured motorist provision of the West Bend policy.  The Court ordered the suit to arbitration pursuant to an arbitration provision in the West Bend policy.

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