In first party lawsuits brought by policyholders against their insurance carriers, allegations of bad faith are often included in the complaint. These allegations are often included in an effort to recover extra-contractual damages such as attorney's fees and other expenses of litigation. The ability of a policyholder plaintiff to recover these extracontractual damages is governed by Georgia statute, which authorizes the award of attorney's fees "[i]n the event of a loss which is covered by a policy of insurance and the refusal of the insurer to pay the same within 60 days after demand has been made" and when "a finding has been made that such refusal was in bad faith."1
The insured bears the onus of proving that an insurer's refusal to pay or resist payment was in bad faith.2 Under Georgia law, the test for bad faith is "whether the insurer had reasonable and probable cause for defending against the claim."3 Georgia courts have held that insurers are entitled to summary judgment on bad faith claims "where the insurance company has any reasonable ground to contest the claim."4
This "reasonable grounds" test was recently considered, and affirmed, in the 2017 Portis v. State Farm Fire and Cas. Co. decision. 5 Portis involved a homeowner's claim for coverage from insurer State Farm for complained-of hail damage to the roof of a commercial property. After inspecting the property on multiple occasions, State Farm did not provide coverage for the alleged hail damage because its representatives could not locate such damage. Portis, its contractor and roofing consultant, disagreed with State Farm's determination and filed suit alleging breach of contract and bad faith damages under O.C.G.A. § 33-4-6. On State Farm's motion, the Northern District of Georgia granted summary judgment in favor of the insurer. Specifically, the court found that Portis "produced no evidence in support of his claim for bad faith."6 Indeed, because State Farm's representatives inspected the property on multiple occasions and had the agreement of experts that the roof did not suffer hail damage, State Farm's refusal to pay was not based upon "frivolous" or "unfounded" reasons. Absent any identifiable evidence of bad faith, summary judgment was appropriate.
Other states agree with Georgia courts that barebones allegations of bad faith are not sufficient to survive summary judgment in first party actions. In 2017, Colorado courts evaluated a laundry list of bad faith allegations brought against a first party property insurer.7 In that case, the plaintiff policyholders alleged the insurer "knowingly misrepresented" facts and policy language, failed to promptly acknowledge claim communication, failed to attempt claim resolution in good faith where liability was reasonably clear and refused to pay claims without conducting a reasonable investigation. The court found that such "conclusory statements" contained in the complaint could not constitute summary judgment evidence. Because the policyholder's response to the insurer's motion for summary judgment did not provide specific facts supporting its bad faith claim, the court found that the insurer was entitled to summary judgment as a matter of law as to the bad faith breach of contract claim and statutory bad faith claim.
These recent rulings encourage policyholders to only bring bad faith allegations if identifiable evidence supporting these allegations exists at the time the complaint is filed or is likely to be uncovered during discovery. If such evidence does not exist and is not uncovered, insurers should move for summary dismissal of these claims.
1. O.C.G.A. § 33-4-6(a).
2. See Interstate Life & Accident Insurance Co. v. Williamson, 220 Ga. 323, 138 S.E.2d 668 (1964).
3. Winningham v. Centennial Ins. Co., 708 F.2d 658, 659 (11th Cir. 1983).
4. Moon v. Mercury Ins. Co. of Ga., 253 Ga. App. 506, 559 S.E.2d 532 (2002).
5. See Portis v. State Farm Fire and Cas. Co., 2017 WL 3499873 (N.D. Ga. April 11, 2017).
6. Id. at *10.
7. See 5555 Boatworks Drive LLC v. Owners Ins. Co., No. 16-cv-027949, 2017 WL 6361398 (D. Colo., Dec. 13, 2017).
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