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.
Summary: It is a question of fact as to whether an insurer who has a duty to investigate is guilty of bad faith when it asks insured to tell it if facts change such that it is exposed.
Gordon Trucking operated a vehicle that was involved in a serious accident. Another vehicle crossed the center line hitting the Gordon vehicle and then the injured plaintiff’s vehicle. Gordon Trucking had the following coverages:
|CARRIER||AMOUNT OF COVERAGE|
|Great West Casualty||$5,000,000.00 After $500,000 Deductible|
|American International Specialty Lines Insurance Company (AISLIC)||$20,000,000|
Gordon Trucking notified all three carriers of the claim and both Great West and AISLIC had counsel who participated in the trial. Columbia was unaware of the trial. At the trial, the company that operated the truck that crossed the center line settled out and the case went to verdict against Gordon Trucking and its driver and the driver of the other truck. During jury deliberations, Gordon Trucking negotiated a $1,000,000 – $18,000,000 high/low agreement. (Apparently, the damning evidence in the case against Gordon Trucking was that its driver was on his cell phone at the time of the accident.) Gordon Trucking was found 35% at fault and the verdict was $49,000,000. Under California law the ultimate liability of Gordon Trucking “after credits and allocations” was $31,000,000 but was limited by the agreement to $18,000,000.
Summary: Carrier’s diligent attempts to settle after it received a time sensitive policy limit demand demonstrated that it was not acting in bad faith. Plaintiff’s counsel refused to discuss the settlement contained in an overly technical and conditional demand letter while the carrier promptly acted (but failed) to achieve a settlement protecting its insured and did not act solely based on its own best interest.
In Cardenas v. Geico Casualty Co., 2011 WL111588 (No. 8:09-CV-2357-T-23, January 13, 2011), the U.S. District Court for the Middle District of Florida held the carrier (Geico) did not act solely in its own interests in attempting to settle a negligence claim against its insured. The case is interesting because the carrier went to great lengths attempting to settle the claim within the policy limits, it failed to obtain a settlement on behalf of its insured. Moreover, there was evidence that the carrier did not meet certain technical conditions imposed by the plaintiff’s counsel in his the time sensitive policy limits demand letter. Because the suit did not settle, an excess judgment was entered against the insured in the amount of $970,019, nearly 100 times greater than the per person bodily injury policy limit ($10,000 per person/$20,000 per occurrence).
Summary: The Seventh Circuit held an insurer, who controlled the defense of a lawsuit, had a duty of good faith to notify its insured of the “non-trivial probability” of a judgment in excess of the policy limit.
Imagine this scenario. During his deposition plaintiff testifies extensively regarding a back injury which required a lumbar fusion as well as the substantial pain and suffering he has experienced for several years, and his inability to return to work as a construction worker. Shortly thereafter, plaintiff makes a written demand for $6,000,000. The policy limit is $1,000,000. The insurance company has hired defense counsel who has been defending the lawsuit for over two years at the time the demand is made. The insured does not have separate counsel. What should the carrier do once it is notified of the demand well in excess of the $1,000,000 policy limit?
According to the Seventh Circuit in R.G. Wegman Construction Company the Admiral Insurance Company, et al., No. 09-2022 (7th Cir. January 14, 2011) the carrier, pursuant to Illinois law, had a duty of good faith to inform the insured of a potential verdict in excess of the policy limit and advise there is a potential conflict of interest. Judge Posner declared the “the insurance company can satisfy its duty of good faith at the price of a phone call.”