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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Scottsdale Insurance Has No Coverage or Bad Faith Exposure for Painless Steel’s Painful Body Piercing Activity

Summary: A Painless Steel customer was injured due to a body piercing. The co-owners of Painless Steel had foregone the expense of insuring it so the commercial liability insurer for one of the individual owners had no duty to defend or indemnify the LLC and had no bad faith exposure.

Burns v. Scottsdale Insurance Company, No. C08-1136RSL (W.D. Wa. 7/23/2010) aff’d, slip op. no. 10-35702 (9th Cir. 5/26/2011)

Lacey Filosa went to Painless Steel and had her tongue pierced. Unfortunately, an infection developed involving a “flesh eating” bacteria. Filosa recovered from the infection, but suffered significant scarring. She filed suit in state court against Painless Steel and its two owners, Mr. and Mrs. Burns, and then settled. After the underlying suit settled, a coverage action was filed in which the underlying plaintiff and the named insured sought coverage declarations, as well as bad faith recoveries.

Scottsdale Insurance insured Mr. Burns as an individual on a policy which provided commercial general liability and commercial property coverage for his property rental business. The policy’s description of “Who Is An Insured” did not seem to provide coverage for Painless Steel-Everett LLC and contained a professional service exclusion, as well as an exclusion “related to fungi or bacteria.”

Failing to Pay as Required by Statute Leads to Jury Trial for Plaintiff

Summary: Insurer failed to timely pay on Med Pay coverage as required by statute. Plaintiff entitled to jury trial on her claim for emotional distress and costs of bringing suit against insurer.

Marie Chery v Metropolitan Property and Casualty Insurance Company, 2011 WL 2348275 (Mass.App.Ct.)

The plaintiff was injured in an auto accident and incurred medical expenses. She sought a medical expense payment from the insurer of the vehicle in which she was a passenger. After the insurer failed to pay the bills within the time prescribed by the statute, plaintiff brought suit alleging that the insurer, Metropolitan, had committed unfair insurance settlement practices in violation of a Massachusetts statute. Six months after suit was filed, Metropolitan paid the outstanding medical bills, moved for summary judgment and summary judgment was granted. The appellate division affirmed. This appeal followed.

Insured Cannot Circumvent Unfair Insurance Practices Act in California

Summary: The District Court dismissed Plaintiffs’ claims for negligence, negligent infliction of emotional distress and unfair business practice in violation of the California Unfair Competition Law statute. The District Court held that the Unfair Competition Law (“UCL”) claim was legally barred because it attempted to enforce a provision of the Unfair Insurance Practices Act (“UIPA”) that does not give rise to a private cause of action. The District Court also held that California law does not allow negligence claims to be asserted against insurers relating claims handling.

Bates v. Hartford Life and Accident Insurance Company, 765 F.Supp.2d 1218 (C.D. Ca. 2011)

Roberta Bates, the mother of the Plaintiffs, purchased an individual accidental death and dismemberment (AD&D) insurance policy from Hartford. The Plaintiffs were designated as beneficiaries on the AD&D policy. Bates tripped and injured herself which ultimately let to her death.

Following their mother’s death, Plaintiffs submitted a claim to Hartford and were notified that Hartford had denied their claim for benefits under the policy. The court did not explain the reasons for the denial. Plaintiffs then filed suit alleging: (1) bad faith and breach of the implied covenant of good faith and fair dealing; (2) breach of contract; (3) negligence; (4) negligent infliction of emotional distress; and (5) violation of California’s UCL. Hartford moved to dismiss Plaintiff’s negligence, negligent infliction of emotional distress, and UCL claims.

Arizona Requires Defense of Insured While Coverage Action Is Pending

Summary:  Insureds receive a jury trial about bad faith of insurers in not defending them while coverage action was pending and then decided against insurers.

Lennar Corp. v Transamerica Ins. Co., 251 P.3d 421 (Ct. of Ap. AZ 2011)

The plaintiff insureds in the underlying case were a group of related companies that developed and built 105 homes in a suburb of Phoenix. Several homeowners filed suit and Lennar, the developer/builder, tendered the claims to multiple insurers. The insurers denied coverage. The insurers then filed a declaratory judgment action on the coverage issue and the insureds countersued for breach of the duty of good faith and fair dealing (i.e., bad faith) against the insurers.

The trial court granted summary judgment in favor of the insurers on the basis that the defects in the homes were not “occurrences” within the meaning of the policy. The Court of Appeals reversed that determination holding that the homeowners allegations of damage resulted from defective construction constituted an “occurrence.” After going back to the trial court, the insurers again moved for summary judgment on the basis that as a matter of law they had a reasonable basis for denying coverage since the trial court had initially ruled in their favor. The trial court agreed and again entered summary judgment.

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.

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