Blog Archives

Eleventh Circuit Reaffirms There Is No Bad Faith Unless the Settlement Offer Fully Protects the Insured

Recently, the Eleventh Circuit, applying Georgia law, reaffirmed that an insurer cannot be liable for negligently failing to settle a case unless the settlement demand provides protection to the insured against all potential claims, even those which have not been asserted. Linthicum v. Mendakota Insurance Company, No. 16-16593 (11th Cir. May 3, 2017) arises from truly tragic circumstances.  While driving intoxicated, Bobby James Hopkins, II, struck and killed the Linthicums’ 11 year old son.  Hopkins fled the scene, and attempted to have his car repaired.  The child lived a short time before dying.  When the claim was reported, Mendakota Insurance Company (Insurer) noted that there was a “probable recovery” and set the reserves for the $25,000 policy limit of Hopkins’

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Fifth Circuit Provides Road Map for Review and Trial of Bad Faith Claims in Mississippi

Mississippi essentially has three levels of claim when insurance is at issue: (1) mere breach of contract, allowing recovery of contract damages; (2) breach of contract + no arguable basis for breach, which entitles recovery of consequential damages; and (3) breach of contract + no arguable basis for breach + malice/gross disregard for the rights of the insured, which entitles the recovery of punitive damages.  In Briggs v. State Farm Fire & Cas. Co., 2016 WL 7232136 (5th Cir. Dec. 16, 2016), the Fifth Circuit Court of Appeals approved the bifurcation of the trial of an insurance dispute by the district court.  In so doing, the Fifth Circuit provided a road map for how such claims should be handled for

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First Circuit Provides Guidance as to When a Notice of Claim Triggers Policy Obligations

When does receipt of a pre-suit claim notice letter trigger an insurance carrier’s obligation to provide a defense and/or indemnity? In Sanders v. Phoenix Insurance Co., the First Circuit provided some guidance to this question, holding that a pre-suit notice letter would not trigger a carrier’s obligations unless a non-response would impact the policyholder’s ability to contest liability during a following proceeding. The Underlying Dispute Sanders arises from a “tragic tale of unrequited love.” Ms. Anderson hired an attorney to represent her in a divorce proceeding from Mr. Sanders, her husband. During the course of that representation, Ms. Anderson and her attorney began an affair. Ms. Anderson suffered from depression and anxiety. When the affair cooled, Ms. Anderson wrote a

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Texas Supreme Court to Decide Whether a Policyholder Can Recover Damages When The Carrier Does Not Breach the Policy

According to both the appellant and the appellee, the Texas Supreme Court already decided this issue. Each, of course, finds a different answer. Cause No., 14-0721, USAA Texas Lloyds Co. v. Gail Menchaca, in the Texas Supreme Court, arises from an unusual fact pattern and some unusual jury findings. Trial plaintiff Gail Menchaca suffered damage to her home as a result of Hurricane Ike. USAA investigated the loss and found some covered damage, but concluded that the repair costs fell below the applicable deductible and therefore issued no payment. Menchaca then sued USAA, asserting claims for breach of contract and several extra-contractual claims, including a failure to adequately investigate her loss. However, Menchaca alleged no damage from those extra-contractual claims,

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Don’t Mess with the Texas Prompt Payment of Claims Act: One Court’s Appraisal Result

Virtually all property insurance policies contain an appraisal clause, which outlines the appraisal procedure in broad terms. Those broad terms sometimes do not provide much guidance about the process, or about the effect which an appraisal award may have. A case in point is Graber v. State Farm Lloyds, 2015 WL 11120532 (N.D. Tex. 8/6/15). In Graber, plaintiff purchased a homeowner’s policy from State Farm Lloyds. Plaintiff claimed that the home suffered covered damage as a result of a hailstorm. State Farm Lloyds inspected the home and concluded covered hail damage was present in certain areas of the home. On this basis, State Farm Lloyds issued a payment to plaintiff for damage to those itemized areas. Plaintiff was unsatisfied with

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When is Rescission Based Upon Material Misrepresentations The Proper Course of Action?

Carriers rely on application representations regarding the existence of potential claims.  Sometimes, the carrier learns after the fact that an applicant may not have reported all known potential claims.  What can/should the carrier do?  A recent example is found in Continental Casualty v. Gargoyles, a case involving allegations of securities fraud.  Continental extended a defense under a reservation of rights, which it later sought to withdraw when the president of Gargoyles confessed to criminal wrong-doing as part of a plea agreement.  In this case, the facts confessed in the plea agreement contradicted the reported claims in the insured’s policy application.  Once the plea agreement was confirmed, Continental moved to rescind the policy and recoup its defense costs.  The court held

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Avoid Inconsistent Communications By “Revolving Door” Adjusters

In CE and CLE courses, we hear all the time that the most often cited reason for a grievance or complaint is lack of communication.  This truism provides a useful rule of thumb to avoid bad faith claims.  Remember, for most claimants, the event giving rise to an insurance claim often is the most significant event which will happen to the claimant this year.  Events such as a car wreck, an injury claim, a home fire, a product disruption can wreak havoc on the insured.   And, many insureds have little idea as to how to cope with these disruptions.  At these times, when tension runs high and patience runs low, the carrier which responds promptly to communications from the claimant

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Reservation of Rights Letters Help Avoid Prejudice in the Third Party Context

When discussing bad faith in the third party context, most of the discussion properly centers on the duty to settle a claim.  However, other actions taken by a policyholder and carrier can have an impact.  The recent case of State Farm v. El-Moslimany provides a good example.  In El-Moslimany, State Farm found itself defending its policyholder from a defamation claim.  After defending for two years, State Farm filed a declaratory action, contending that the defamation claim at issue was not covered by its policy.  A year after filing the declaratory judgment action, State Farm filed a motion for summary judgment.  The policyholder responded, in part, claiming that State Farm’s attempt to withdraw from its defense obligation was “bad faith.”  The

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Texas Supreme Court Declines Opportunity to Review Appellate Decision Clarifying Insurer’s Settlement Obligations In Multi-Plaintiff/Multi-Insured Context

Last year in Patterson, et al. v. Home State County Mut. Ins. Co., 2014 Tex. App. LEXIS 4460, 2014 WL 1676931 (Tex.App., Apr. 24, 2014), the Texas First Court of Appeals (Houston) held that an insurer was not obligated to accept a settlement demand unless that offer encompassed all claimants and released all insureds from liability.  On September 11th, the state’s highest court surprised many by denying the policyholders’ Petition for Writ of Error, and it thereby left the appellate panel’s ruling in place. The Underlying Case Diane Patterson died in a trucking accident when a truck driven by Charles Hitchens (Driver) rear-ended her car while stopped.  Allegedly, Driver tested positive for cocaine metabolites.  Patterson’s family, including her estate, husband,

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Sixth Circuit Refuses to Create a Cause of Action for Reverse Bad Faith

In an opinion handed down last week, the Sixth Circuit Court of Appeals refused to adopt a new cause of action under Kentucky law for a reverse bad faith claim by an insurer against its insured where the Kentucky Supreme Court had not previously done so in State Auto Prop. & Cas. Ins. Co. v. Hargis, — F.3d –, 2015 WL 2081922, 2015 U.S. App. LEXIS 7475 (6th Cir., May 6, 2015).  The Sixth Circuit further refused to certify the question to the Kentucky Supreme Court for review.  Slip Op. at *4-5. At issue in this case was a fire loss sustained to the insured’s, Lori Hargis, residential home.  State Auto Property and Casualty Insurance Company (“Insurer”) insured the home. 

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Avoiding Insurance Bad Faith
Cozen O’Connor represents insurance clients in jurisdictions throughout the U.S. against statutory and common law first- and third-party extracontractual claims for actual and consequential damages, penalties, punitive and exemplary damages, attorneys’ fees and costs, and coverage payments. Whether bad faith claims are addenda to a broader coverage matter or are central to the complaint, Cozen O’Connor attorneys know how to efficiently respond to extracontractual causes of action. More
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