Insurer's Participation In Settlements
Trinity Outdoor, LLC v. Central Mut. Ins. Co., 285 Ga. 583 (2009).
In Trinity Outdoor, on a certified question of law from the Northern District of Georgia, the Georgia Supreme Court found that, prior to bringing a claim against the insurer for negligent or bad faith failure to settle a case, a judgment must be entered against the insured in excess of the policy limits. Central Mutual Insurance Company insured Trinity Outdoor, LLC, and provided Trinity with a defense in a suit brought against Trinity when Trinity's billboard fell and killed two men. The decedents' family sued Trinity, and offered to settle for policy limits. During the court-ordered mediation, Trinity settled for Central's agreed-upon contribution, and Trinity also agreed to provide an additional amount without Central's permission. The insuring agreement provided that the insurer would only pay sums the insurer was legally obligated to pay, which did not include Trinity's voluntary payments. The Georgia Supreme Court found that Trinity could not bring an action for bad faith against Central for failure to settle in the absence of an excess verdict or an agreed-upon settlement.
Allstate Ins. Co. v. Miller, 212 P.3d 318 (Nev. 2009).
Miller, the insured, sued Allstate under three theories of bad faith liability: (1) failing to file an interpleader complaint; (2) refusing to agree to a stipulated judgment in excess of the policy limits; and (3) failing to adequately inform Miller of a settlement offer. Allstate argued that it could not be liable for bad faith because it offered to pay the policy limits within 13 days of the insured's accident, and issued a check with the claimant and lienholders' names. The court agreed with the insurer on the first two issues, holding that an insurer does not have a duty to file an interpleader for its insured or to agree to a stipulated judgment that is beyond the policy's limits. However, it held for the insured regarding the third issue, finding that submission of the bad faith claim to the jury was not in error because bad faith can result from more than just an insurer's denial or delay in paying a claim, and can include the failure to adequately inform an insured of a settlement offer. Because Allstate could be liable for bad faith for its failure to adequately inform its insured of the settlement offer, the case was remanded for a new trial.
Presumption Of Death Relevant In Bad Faith Decisions
Malone v. Reliastar Life Ins. Co., 558 F.3d 683 (7th Cir. 2009)
Indiana law provides that a person is presumed dead after missing for seven years. In Malone, the insurer declined to pay benefits, because the insurer argued that the insured could not be "presumed dead" for a variety of reasons. The United States Court of Appeals for the Seventh Circuit, finding for the insurer, held that the life insurer's refusal to pay policy benefits to beneficiary more than seven years after insured went missing did not demonstrate bad faith because parties had good faith dispute over whether insured was legally or actually dead.
Irby v. Fairbanks Gold Min., Inc., 203 P.3d 1138 (Alaska 2009)
In 1997, Irby, an employee, disappeared in an industrial accident. Despite Irby's employer's efforts, they could not locate his body. The Alaska Workers' Compensation Board denied Irby's wife's claims for benefits because she lacked proof her husband was dead. Irby's employer filed two controversions with the Board. Irby's wife filed a presumptive death petition in state district court. In 2003, the Bureau of Vital Statistics issued a presumptive death certificate. Thereafter, the Board awarded Irby's wife benefits, but denied her bad faith claim. The Supreme Court of Alaska held that Irby's employer had not acted in bad faith because it "raised colorable legal arguments" as to Irby's existence. Further, Irby's employer based its 2004 controversion on the statute of limitations, which the court held served as a good faith basis for a controversion.
No Bad Faith If No Coverage
Ganim v. Columbia Casualty Co., No. 08-3945 (6th Cir. July 23, 2009).
The plaintiff (Ganim, who was an employee of Legacy Financial Services) claimed that the insurer (Columbia Casualty Co.) committed bad faith by failing to defend him in an arbitration proceeding before the National Association of Securities Dealers ("NASD") brought by Vincent Santalucia alleging wrongdoing related to Ganim's personal financial services business. Columbia, Legacy's insurer, denied coverage, because the allegations did not involve Legacy's professional services, but rather Ganim's personal financial services, thus falling outside the scope of the Legacy policy's coverage. Ganim sued Columbia on multiple bad faith theories related to Columbia's denial of a defense before the NASD.
The District Court found that Columbia did not have a duty to defend Ganim because the allegations against Ganim did not fall within the scope of the policy's coverage related to Legacy's professional services. The Sixth Circuit agreed, noting that the claim before the NASD did not contain allegations which "potentially" or "arguably" brought the claim within the policy's coverage. The court further found that Columbia did not act in bad faith, e.g. denial of policy benefits without a reasonable justification, because the claims before the NASD did not involve Legacy's professional services and thus were not potentially covered claims for which a defense was owed under the policy.
Chappell v. Kuhlman Electric Corp., 2009 Ky. LEXIS 252 (Ky. Oct. 29, 2009).
Kuhlman Electric Corporation ("Kuhlman") obtained workers' compensation insurance from Amerisure, but later became self-insured. When an injured employee brought a workers' compensation claim for an injury during an Amerisure policy period, Amerisure hired Landrum & Shouse ("Landrum"), to represent Kuhlman. During the course of the litigation, Landrum, on behalf of Kuhlman, as insured by Amerisure, filed a motion to join Kuhlman in its capacity as a selfinsurer. When Kuhlman as self-insured was required to pay worker's compensation payments to Burgess, Kuhlman filed suit against Landrum for claims related to professional negligence and against Amerisure for bad faith.
The Kentucky Supreme Court found that there was a potential conflict of interest between Kuhlman as an insurer and Amerisure. However, even if Landrum had withdrawn, alternative counsel would have achieved the same result. Thus, Kuhlman could not demonstrate damages as a result of Landrum's actions, an essential element of its legal malpractice claims. Because Kuhlman could not maintain its malpractice action against Landrum, it also could not demonstrate that Amerisure acted in bad faith. The Kentucky Supreme Court found that summary judgment was properly granted for both Landrum and Amerisure.
MarkWest Hydrocarbon, Inc. v. Liberty Mut. Ins. Co., 558 F.3d 1184 (10th Cir. 2009)
After an explosion of a natural liquid gas pipeline, the operator was ordered to conduct a series of tests on its pipeline and to repair its integrity. The operator filed a claim with its insurance carriers seeking to recoup certain losses it incurred as a result of the explosion and the government's mandated tests and repairs. The insurers denied coverage and the operator filed suit alleging bad faith denial of coverage. The Tenth Circuit Court of Appeals held that the insurance companies' denial of coverage was proper as a matter of law; therefore, the court held "we must also affirm the district court's grant of summary judgment in [insurer's] favor on... bad faith claim," because it is settled law in Colorado that a bad faith claim must fail if, "coverage was properly denied and the plaintiff's only claimed damages flowed from the denial of coverage."
No Bad Faith Unless Decision Not To Pay Is "Arbitrary And Capricious"
Dickerson v. Lexington Ins. Co., 556 F.3d 290 (5th Cir. 2009)
Dickerson's home was damaged by Hurricane Katrina in 2005. The damage involved serious flooding, including "extensive" evidence of damage from wind and rain, such as a hole in the roof. Dickerson submitted a claim to its insured for wind damage (the policy did not cover flood damage). Dickerson had reported the damage to the insured property in mid-September of 2005, and the insurer had sent an adjuster to inspect the damage on October 1, a month after Katrina. The insurer denied the claim.
Dickerson brought a diversity action against the insurer, alleging statutory bad faith for failure to timely pay for hurricane-caused wind and rain damage to the home. Under § 22:1220, an insurer owes its policyholder a duty of good faith in settling claims. Among the enumerated breaches of § 22:1220's duty of good faith is failure to pay a claim within 60 days following receipt of satisfactory proof of loss if that failure is "arbitrary, capricious, or without probable cause." Although the insured has the burden of proof under §§ 22:1220 and 22:658, once he has made his case, the burden of persuasion shifts to the insurer to rebut the insured's showing.
In this case, the Fifth Circuit Court of Appeals upheld the lower court's determination that there was "insufficient evidence presented at trial to support the finding that wind, rather than flooding, caused most of the damage to Dickerson's home." The court further held that since Dickerson failed to prove that the insurer's determination was an arbitrary and capricious withholding of payments, there was no bad faith.
Bad Faith Cause Of Action Limited To Denial Of Benefits Under The Policy
Rakes v. Life Investors Ins. Co. of America, 582 F.3d 886 (8th Cir. 2009)
After the insurer raised premiums rates, insureds filed a class action complaint alleging that the insurer used inflated lapse rates to purposefully underprice its long term care (LTC) insurance products and gain market share. The LTC policies were guaranteed renewable for life and included the option for increase of premiums based on premium class. The right to change premiums was stated on the first page of the policies, in boldface, capital letters. The United States District Court for the Northern District of Iowa granted summary judgment in favor of the insurer on claims of fraud and bad faith. The Court of Appeals affirmed. With respect to the appellants' claim for bad faith, the Eighth Circuit Court of Appeals held that "the tort of bad faith arises in situations where the insurer has denied benefits or has refused to settle a third-party claim against the insured within policy limits" and in this particular case, "plaintiffs have not made a claim for benefits under their policies."
No Attorneys' Fees For Bad Faith
Jacobsen v. Allstate Ins. Co., 215 P.3d 649 (Mont. 2009).
Robert Jacobsen ("Jacobsen") sustained injuries in a car accident caused by Allstate's insured. Based upon Allstate's settlement conduct, Jacobsen filed suit against Allstate seeking compensatory damages for multiple claims, including common law bad faith. Jacobsen prevailed at trial, where the damages awarded included attorneys' fees for the underlying claim, but did not include any potential damages based upon emotional distress.
The Montana Supreme Court held that attorneys fees are not a recoverable element of damages in a claim for insurance bad faith, whether brought under the Montana Unfair Trade Practices Act or the common law, absent an exception to the American Rule. Because no exceptions applied, and the court was unwilling to extend the exceptions to allow attorneys' fees as an element of damages in the context of a third-party insurance bad faith claim, the court reversed the damages awarded by the lower court. The Supreme Court additionally found that a plaintiff is not required to make a threshold demonstration of serious or severe emotional distress before a claim for emotional distress damages is allowed to go to the jury. The court remanded for a new trial in which the jury would consider emotional distress as an element of damages.
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