Iowa Supreme Court Rejects Restaurant’s Allegations of Bad Faith and Breach of Contract After Appraisal

The Iowa Supreme Court recently reversed the appellate court’s denial of an insurer’s motion for a directed verdict, finding that United Fire did not breach the insurance policy and did not commit bad faith during a property appraisal. Luigi’s, Inc. v. United Fire and Cas. Co., No. 19-1669, — N.W.2d —-, 2021 WL 1932711 (Iowa May 14, 2021).

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Lack of Notice No Excuse for Failure to Settle

An insurer can no longer claim its lack of notice of a lawsuit against its insured excuses it for failing to settle the suit after the Georgia Supreme Court’s recent decision in GEICO Indemnity Co. v. Whiteside, Case No. S21Q0227 (Ga. April 19, 2021). In Whiteside, the Georgia Supreme Court held that an insurer’s bad faith failure to settle a claim may result in liability for judgments in excess of the insured’s policy, even in cases where the insured also breaches its contractual duty to notify the insurer of a suit brought against it.

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Avoid Creating Coverage By Estoppel, Waiver & Forfeiture: California

Waiver, estoppel and forfeiture are doctrines on which insureds often rely to try to create coverage outside the terms of the insurance policy. Insureds will often assert that they are entitled to such extra-contractual coverage based entirely on how the insurer handled the claim.  But under California law, these doctrines often do not apply, and an insurer can avoid a potential waiver, estoppel or forfeiture by communicating with the insured.

Although the terms are often used interchangeably, the doctrines are different. Estoppel refers to conduct by the insurer that reasonably causes an insured to rely to his detriment. Waiver is an express or implicit intentional relinquishment of a known right demonstrated. And forfeiture is the assessment of a penalty against the insurer for either misconduct or failure to perform an obligation under the contract.”[1]

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A Jury Must Find An Insurer Acted Unreasonably In Order To Find Bad Faith Failure to Settle

On March 8, 2021 the California Court of Appeal, reversing a $10 million verdict against Farmers, found that a jury must specifically find unreasonable acts by an insurer to support a “failure to settle” bad faith finding.  Pinto v. Farmers Ins. Exch., No. B295742, __ Cal. App. 5th __, 2021 WL 857776 (Cal. Ct. App. Mar. 8, 2021).  The court also clarified that it has never held that a failure to accept a reasonable settlement is per se unreasonable under California law. 

The case involved a single-vehicle rollover accident, which left the claimant, a passenger in Farmers’ insured vehicle, a quadriplegic. Farmers issued an auto insurance policy with a $50,000 each person and $100,000 each occurrence limit to the owner of the insured vehicle, a pickup truck.  The owner allegedly allowed her friend to drive the pickup-truck on the day of the accident.

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Tips for Avoiding First-Party “Bad Faith” in Illinois

Illinois does not recognize bad faith as an independent tort. In the first-party context, bad faith is a purely statutory construct which hinges upon whether an insurer’s conduct was “vexatious and unreasonable.” Section 155 of the Illinois Insurance Code (215 ILCS 5/155) provides the exclusive remedy[1] for bad faith conduct by an insurer and also preempts other causes of action that at their core constitute a breach of good faith and fair dealing.[2]

Section 154.6 of the Illinois Insurance Code (215 ILCS 5/154.6) enumerates 18 improper claim practices. Although these practices are not dispositive of a Section 155 claim, a court may properly consider the enumerated actions when determining whether an insurer’s conduct was vexatious and unreasonable.[3] As a result, Section 154.6 provides a helpful guide for what not to do when handling a claim, which can be useful in establishing practices and rules of thumb for proper claims handling. The Section 154.6 improper practices can be distilled down to three distinct trouble areas: (1) where an insurer fails to be prompt and responsive; (2) where an insurer fails to be proactive; and (3) where an insurer fails to adequately investigate a claim.

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Recent Bad Faith Cases Regarding Reasonableness of Medical Treatment

In two recent cases, the courts showed substantial deference to patients’ treating physicians in determining the reasonableness of medical treatment. This deference appears to reflect a reluctance of courts to decide what healthcare is appropriate for a patient.

In Peterson v. Western National Mut. Ins. Co., 946 N.W.2d 903 (Minn. 2020), the policyholder was involved in a low-speed automobile accident. Following the accident, she sought treatment from a chiropractor for body aches and headaches. She entered into a settlement with the other driver and her insurer also paid her policy’s no-fault benefits. For two to three years following the accident, the insured underwent various treatments for her headaches. Eventually, she tried Botox injections, which she found effective. The insured’s treating physician reported that the insured would need the $2,500 per treatment Botox injections for the rest of her life. As a result, the insured demanded her insurer pay her policy’s full $250,000 underinsured motorist coverage limit, and then filed suit.

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Claims Handling: Questions Are the Answer

The key issue in insurance bad faith litigation is whether the claims professional reasonably handled the claim. Throughout the claims-handling process, the claims professional should constantly ask him-or-herself whether the investigation is sufficient to support a coverage determination and how someone might challenge that determination. By asking and answering those questions, the claims professional can be confident in his or her coverage determination. And to ensure that the claims professional’s analysis is not lost, his or her file should contain the evidence necessary to fully explain any such determination.

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Texas Supreme Court Crafts “Undisputed Evidence of Collusive Fraud” Exception to Eight-Corners Rule

In Texas, and as a general rule, only the four corners of the policy and the four corners of the petition against the insured are relevant in deciding whether the duty to defend applies. Richards v. State Farm Lloyds, ___S.W.3d ___, 2020 WL 1313782 at *1 (Tex. 2020). Texas courts and practitioners refer to this general rule as the “eight-corners” rule. After years of implicitly acknowledging an exception to the eight-corners rule may exist, in Loya Insurance Company v. Avalos, ___ S.W.3d ___, 2020 WL 2089752 (Slip.Op. Tex. May 1, 2020), the Texas Supreme Court affirmatively adopted a narrow exception to the rule: “courts may consider extrinsic evidence regarding whether the insured and a third party suing the insured colluded to make false representations of fact in that suit for the purpose of securing a defense and coverage where they otherwise would not exist.” Id. at *1.

Background Facts

Loya Insurance Company issued an automobile liability policy to Karla Flores Guevara. The policy specifically excluded coverage for Guevara’s husband, Rodolfo Flores. While moving Guevara’s car, Flores collided with another car carrying the Hurtados. Guevara, Flores, and the Hurtados agreed to tell both the responding police officer and the insurer that Guevara, rather than Flores, was driving the car. Guevara sought coverage from Loya for the Hurtados’ claim and Loya furnished an attorney to defend Guevara. Early in the discovery process, Guevara claimed to be the driver. However, she disclosed the lie to her insurer-retained defense attorney right before her deposition. 592 S.W.3d 138, 141-42 (Tex. App.—San Antonio 2018), review granted (Jan. 17, 2020), rev’d, 2020 WL 2089752. The deposition was cancelled and Loya denied a defense and coverage to Guevara. The opinion from the Court of Appeals states that Guevara “testified she did not tell anyone at Loya that Flores was driving until right before her deposition in the underlying suit was to begin.” 592 S.W.3d at 142. After reviewing the briefs filed in the Texas Supreme Court, it is unclear when or how Loya learned of Guevara’s confession. The Hurtados obtained a default judgment against Guevara. The trial court granted summary judgment in favor of the Hurtados and awarded approximately $450,000.00 in damages.

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Defending Institutional Bad Faith Claims, Part III – Proof by Other Claims

In Part I of this series, we explored the differences between institutional and non-institutional bad faith. For claims of institutional bad faith, plaintiffs often attempt to demonstrate a pattern and practice by offering evidence of claims of other policyholders. Unlike claims of institutional bad faith premised on the insurer’s policies and procedures, “other claims” allegations do not require knowledge of the insurer’s motives or internal programs, but instead rely on evidence of repeated behavior to make the threshold showing of bad faith.

When a plaintiff attempts to offer specific factual allegations relating to other policyholders in order to demonstrate a general business practice, the relevant inquiries relate to any actual similarities between the claims and the threshold at which the plaintiff alleges enough “other claims” to constitute a general business practice. “A defendant’s dissimilar acts, independent from the acts upon which liability was premised, may not serve as the basis for punitive damages.”[1] Unique policyholders make unique insurance claims. Factors courts consider in determining whether acts involving other policyholders suggest a general business practice include: (1) the degree of similarity between the alleged unfair practices in other instances and the practice allegedly harming the plaintiff; (2) the degree of similarity between the insurance policy held by the plaintiff and the polices held by other alleged victims of the insurer’s practices; (3) the degree of similarity between the claims made under the plaintiff’s policy and those made by other alleged victims under their respective policies; and (4) the degree to which the insurer is related to other entities engaging in similar practices.[2]

Use the plaintiff’s detailed bad faith allegations to show that the alleged bad faith is unique to the circumstances of the case, and but for the specific circumstances, each successive act or omission would not have happened. Consider the pool of policyholders that the plaintiff is offering as similar. Variables to analyze—in addition to the allegations of bad faith conduct—include the geographic scope, the temporal range, the type of loss or claim, and the personnel involved. In the discovery context, the Supreme Court of Texas considered “the many variables associated with a particular claim, such as when the claim was filed, the condition of the property at the time of filing (including the presence of any preexisting damage), and the type and extent of damage inflicted by the covered event.”[3]

With respect to the number of other claims, some courts require the plaintiff to “produce evidence of far more than three other claims in addition to his own.”[4] While there is no “magic number,” the “appropriate consideration is whether the plaintiff has made facially plausible allegations that, in the circumstances of the particular case, the defendant has engaged in the alleged wrongful acts enough to suggest it has a general business practice of doing so.”[5]

The best practice for limiting general business practices discovery is to stop it before it starts. Scrutinize the pleadings carefully. When the plaintiff attempts to demonstrate a general business practice with allegations regarding other insurance claims, explore the similarities and the dissimilarities of the claims and emphasize the latter. Failure to do so gives the plaintiff an opportunity to go on what might be a costly and intrusive fishing expedition.

[1] State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 422 (2003).

[2] Belz v. Peerless Ins. Co., 46 F. Supp. 3d 157, 166 (D. Conn. 2014).

[3] In re National Lloyds Ins. Co., 449 S.W.3d 486, 489 (Tex. 2014). In National Lloyds, the Supreme Court of Texas vacated a trial court order compelling an insurer to produce documents relating to the insurer’s valuation of other insurance claims. The court held that the insurer’s evaluation of the damage to other homes is not probative of the plaintiff’s undervaluation claims at issue. Id.

[4] See, e.g., Jablonski v. St. Paul Fire & Marine Ins. Co., No. 2:07-cv-00386, 2010 WL 1417063 (M.D. Fla. Apr. 7, 2010) (citing Howell-Demarest v. State Farm Mut. Ins. Co., 673 So. 2d 526, 529 (Fla. Dist. Ct. App. 1996)).

[5] Belz, 46 F. Supp. 3d at 167 (holding three alleged other instance of unfair settlement practices are sufficient to withstand a motion to dismiss); see also K Kim v. State Farm Fire & Cas. Co., No. 3:15-cv-879, 2015 WL 6675532, at *5 (D. Conn. Oct. 30, 2015) (“Here, Plaintiffs rely on one instance of wrongful conduct, the denial of their claim at issue in this litigation. They fail to allege any pattern of wrongful conduct, either with respect to their claim or those of others.”).

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Defending Institutional Bad Faith Claims, Part II – Focusing on Plausibility

In Part I of this series, we discussed institutional bad faith and best practices for insurers to minimize the risk of these costly and intrusive lawsuits. In Part II, we will focus on cutting discovery off at the pleadings—by narrowing the plaintiff’s claim, you limit the scope of relevance in discovery. Under Federal Rule of Civil Procedure 26(b), “[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case….”

Plaintiffs often allege institutional bad faith by providing a small amount of information pertaining to the company at large, and then making significant inferences and conclusions and offering those inferences as factual allegations. A skilled attorney can make such logical leaps appear valid. To avoid general business practices discovery, the battle begins with the initial pleadings. If the complaint does not allege institutional bad faith, then it will be much easier to argue that such discovery is not relevant. If, on the other hand, the complaint alleges institutional bad faith, limiting discovery will become more difficult and more dependent on the specific circumstances of the lawsuit and the discovery requests.[1]

Since the United States Supreme Court’s rulings in Twombly and Iqbal,[2] Federal courts are taking a closer look at bad faith allegations. For example, in a case out of Florida, the court dismissed a claim for punitive damages that contained only “[c]onclusory assertions about business practices and profit motives ….”[3] In Moss v. Liberty Mut. Fire Ins. Co., the plaintiffs alleged the insurer defendant hired a consultant to develop programs to increase the company’s profits and to motivate adjusters to pay claims unfairly and make “low ball” offers, and that this program led to an increase in profits.[4] But, the plaintiffs “fail[ed] to provide any factual underpinnings which make the leap from alleged bad faith delay in processing Plaintiffs’ insurance claim to a general business practice of acting with bad faith toward other unnamed insureds.”[5] The lesson learned from Moss is that you have to scrutinize even detailed, well-researched complaints. Inferences are not facts and do not raise a claim to the level of facially plausible.

Similarly, vague allegations of bad faith based upon a plaintiff’s “information and belief” do not rise to the level of “plausible.”[6] If the plaintiff knew of specific facts that would support its assertions of institutional bad faith, the plaintiff would allege those facts.[7] Some plaintiffs may attempt to skirt the pleading requirements of Rule 8(a) by arguing that “information regarding a company’s general business practices is peculiarly within the possession and control of the [company], such that they may plead facts on the basis of information and belief.”[8] “However, they still must plead enough facts to permit for the reasonable inference that the unfair insurance practice occurred with enough frequency for it to be deemed a ‘general business practice.’”[9] In Kim v. State Farm Fire & Cas. Co., the plaintiffs alleged “it is the general business practice of State Farm to wrongfully deny coverage by relying upon inapplicable policy exclusions.”[10] The court rejected the plaintiffs’ argument that “the issue of the frequency with which the defendants engaged in the insurance practices complained of is a more appropriate area for discovery than pleading and that conclusory allegations of [a] ‘general business practice’ suffice for purposes of permitting discovery.”[11] Accordingly, the court held that the plaintiffs’ bare allegations fail to state a claim.[12]

By challenging unsupported allegations, you take away the plaintiff’s argument that broad general business practices discovery is relevant to its claims. To that end, plausible claims of “general” business practices based on “other claims” require allegations of specific facts relating to the insurer’s conduct in regard to policyholders other than the plaintiff.[13]

[1] See All Moving Servs., Inc. v. Stonington, Ins. Co., No. 11-61003-CIV, 2012 WL 718786, at *5 (S.D. Fla. Mar. 5, 2012) (holding that if the general business practices allegations are deemed legally sufficient, or are not challenged, the plaintiff may pursue discovery relevant to its claim for punitive damages).

[2] Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 556 U.S. 662 (2009).

[3] Moss v. Liberty Mut. Fire Ins. Co., No. 3:16-cv-677-J-39JBT, at *5 (M.D. Fla. Aug. 18, 2017).

[4] Id. at *6.

[5] Id.

[6] 316, Inc. v. Md. Cas. Co., 625 F. Supp. 2d 1179, 1184 (N.D. Fla. 2008); accord Alqamus v. Pac. Specialty Ins. Co., No. 3:14-cv-00550, 2015 WL 5722722, at *3 (D. Conn. Sept. 29, 2015).

[7] See El Doral Office Condo. Ass’n v. Scottsdale Ins. Co., No. 19-20418, 2019 WL 1979361, at *2 (S.D. Fla. May 3, 2019) (“The inclusion of the term ‘to the extent’ within the pleading undermines any claim that the affirmative defense can be supported by facts known to Scottsdale at this moment. If such facts were known, they would almost certainly have been included.”).

[8] Kim v. State Farm Fire & Cas. Co., No. 3:15-cv-879, 2015 WL 6675532, at *5 (D. Conn. Oct. 30, 2015) (quotation marks omitted).

[9] Id. (quotation marks omitted).

[10] Id. at *4.

[11] Id. at *5 (quotation marks omitted).

[12] Id.

[13] Niagara Distribs., Inc. v. N. Ins. Co. of N.Y., No. 10-61113, 2010 WL 11441045, at *3 (S.D. Fla. Oct. 22, 2010).

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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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