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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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.

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.

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