Source: https://insuranceclaimsbadfaith.typepad.com/insurance_claims_badfaith/fairly-debatable-defense/
Timestamp: 2019-04-25 12:30:17+00:00

Document:
"INJURY IN FACT": WHAT HAPPENS TO BAD FAITH STATUTES?
New Section 9:14.50 contains only a part of the new material in the combined 661 pages of text excluding Tables in the 2018 Supplements to Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Third Edition Thomson Reuters), in addition to sections of new material including on Force-Placed Insurance, Defenses in Force-Placed Insurance cases including the Filed Rate Doctrine, the Status of Social Security, and Settlement of First Party Bad Faith Claims including secrecy agreements and sealing orders, among others.
Section 9:14.50 is titled, "'Injury in Fact': What Happens to Bad Faith Statutes" when courts require allegations and proof of what they call "injury in fact" in the litigation of bad-faith claims?
I want to give you a link to the new Section but the publisher will not let me right now. I will ask for Thomson Reuter's copyright permission and if they agree, I will provide you the link in a following post here and on Claims and Issues Blog!
COLORADO REASONABLENESS MEANS MORE THAN FAIRLY DEBATING LIABILITY OR DAMAGES.
In Nibert v. GEICO Casualty Co., ___ P.3d ___, No. 16CA0322, 2017 WL 710504, 2017 COA 23 (Colo. Ct. App. Div. V February 23, 2017) (STATED NOT RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS UNTIL AFTER REHEARING OR CERTIORARI REVIEW, IF ANY), a policyholder sued her underinsured motorist (UIM) carrier on both a common law bad faith claim, and on a statutory claim of delayed payment of policy benefits. Both claims required proof on the issue of "reasonableness" of the carrier's behavior.
Contrary to Geico Casualty's argument, the tendered instruction went beyond the reasonableness of a challenge to a claim that is fairly debatable. Instead, the instruction, as tendered, misstated the law by effectively conflating the reasonableness elements of the common law bad faith claim and the statutory delay claim by inquiring only into whether Nibert's claim was fairly debatable. Colorado law is clear that whether a claim is fairly debatable is not the sole inquiry in a reasonableness analysis.
Nibert v. GEICO Casualty Co., ___ P.3d ___, No. 16CA0322, 2017 WL 710504, AT *2 ¶ 12, 2017 COA 23 (Colo. Ct. App. Div. V February 23, 2017) (STATED NOT FINAL).
The Colorado appellate court affirmed a trial court's judgment entered on jury verdicts in favor of the policyholder on both of her claims against the UIM carrier in this case.
AND AFTER OTHER INSURANCE WAS FORCE-PLACED BY THE LENDER.
In what might be termed a 'comedy of damages' except for the great harm that was done, Mount Carmel Ministries purchased a property policy from GuideOne to cover a school which Mount Carmel ran. After a time, GuideOne attempted to cancel the policy, but a district court in Mississippi later held that the cancellation was void and that the policy was in place at the time of a tornado loss.
The district court awarded "$1,693,035 in damages, representing what would have been the cost to repair or replace the property roughly six weeks after the tornado, less depreciation." GuideOne Elite Ins. Co. v. Mount Carmel Ministries, ___ F. App'x ___, No. 15-60915, 2017 WL 344278, at * (5th Cir. January 23, 2017) (precedential value in at least some federal courts apparently limited by Fed. R. App. P. 32.1 and 5th Cir. Rules 28.7 and 47.5).
Parenthetically, Mount Carmel's lender, Seaway, placed insurance premiums on Mount Carmel by force for a replacement policy after Seaway learned of GuideOne's supposed "cancellation." In what we are definitely not going to call a 'comedy of damages' here, Seaway apparently forgot to keep the force-placed insurance policy in place.
That left the issue squarely presented of whether GuideOne had an arguable basis for denying coverage due to the assumed cancellation here; if it did not have an arguable basis for denying coverage in this case, then under Mississippi law, it would face the assessment of punitive damages for "bad faith" conduct. The district court held that GuideOne did not have to face a punitive damages assessment in this case, because here the district court found an arguable reason for GuideOne's coverage denial.
A three-judge panel of the Fifth Circuit affirmed the district court's holding that cancellation did not comply with the GuideOne policy requirements, and the district court's holding that GuideOne had an arguable basis for denying all coverage based on cancellation even though the cancellation was void.
Judge Owen concurred in affirming both invalid cancellation under the policy, and no punitive damages, but would have also reached the district court's holding that cancellation was invalid under a Mississippi statute as well as under the policy.
Coverage denied under a property policy that was not legally cancelled. Bad faith, punitive damages bullet dodged. Twin takeaways from this case.
"GENUINE DISPUTE" A DEFENSE TO AN UNFAIR TRADE PRACTICES CLAIM.
Unum argues that, pursuant to the genuine dispute doctrine, its handling of Cohan's claim cannot be considered either to have been in bad faith or an unfair trade practice. A claim for bad faith must fail if a genuine dispute exists whether an insured is covered under a policy. (Citation omitted.) At issue is not whether the insured was covered under the policy, but only whether a reasonable and legitimate dispute exists as to that coverage. In the context of the facts of the present case, the existence of a genuine dispute also requires dismissal of an unfair trade practices claim.
It is interesting to note that, as described by the carrier and by the federal judge in this Nevada case, whether a genuine dispute exists over coverage is not merely a "defense;" it is a "doctrine."
Please Read The Disclaimer. ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with Supplements). See in particular Volume 2, § 11:17, "Fairly or reasonably debatable [first-party] claims." You are invited to visit the author's website here. All rights reserved.
When "Insurance Coverage by Estoppel" Is Not Bad Faith.
SPECIALIZED 'CGL' INSURANCE STILL DOES NOT COVER CONSTRUCTION DELAYS.
No Bad Faith in Denying Coverage Under Such a CGL Where Coverage Does Not Exist, Washington Court Holds.
Delays have always been a problem in construction projects. Judging by the development of specialized Insurance products recently, it is a growing drag on General Contractors' profits.
In the case of Wellman & Zuck, Inc. v. Hartford Fire Insurance Co., 285 P.3d 892 (Wash. App. Ct. September 17, 2012), a General Contractor obtained "specialized" Insurance. The Court called the Defendant Insurance Company a "specialized Owners and Contractors Protective (OCP) Insurer". The "OCP Insurer" in that case was sued for breach of contract and 'Bad Faith' after it denied all Coverage including a Defense to an underlying lawsuit filed against the G.C. In the underlying lawsuit, damages were claimed against the G.C. involving alleged construction delays.
The G.C. defended on the basis that a Sub caused the delays. The G.C. sought Coverage under its OCP Policy and assigned all its rights against the OCP Insurer.
In sum, the case presents something old, something new. The 'something old' is the holding that 'where there is no Coverage, there is no Bad Faith,' is another holding representing the majority view on the subject, although there is significant authority to the contrary. The 'something new' is that even the development and purchase of "specialized Owners and Contractors Protective (OCP) Insurance" will not afford Coverage for damages claimed from construction delays.
RECORD: NO BAD FAITH FAILURE TO INVESTIGATE FIRST-PARTY CLAIM.
In Scorpio v. Underwriters at Lloyd's, London, 2012 WL 2010168 (D.R.I. June 5, 2012), the Federal District Court in Rhode Island was confronted with an alleged claim of First-Party Bad Faith denial of a Property Insurance claim. Specifically, the Plaintiff-Policyholder submitted a claim for Property Damage after a building containing six (6) residential apartment units was damaged by rainwater which accumulated on the roof during heavy rain storms during the policy period, on July 24, 2008. Scorpio v. Underwriters at Lloyd's, London, 2012 WL 2020168 *1 (D.R.I. June 5, 2012), Download Scorpio v. Underwriters at Lloyd's, London (D.R.I. No. 10.325, Memorandum and Order Filed June 5, 2012) PUBLIC ACCESS.
The Plaintiff claimed Bad Faith as a result of the Defendant Insurance Company's alleged failure "to properly investigate the claim." Scorpio v. Underwriters at Lloyd's, London, 2012 WL 2020168 *6 (D.R.I. June 5, 2012). The District Court held that the evidence of record disputed every element of this claim.
In order for Plaintiff to succeed on her bad faith claim she must “demonstrate an absence of a reasonable basis in law or fact for denying the claim or an intentional or reckless failure to properly investigate the claim and subject the result to cognitive evaluation .” Skaling v. Aetna Ins. Co., 799 A.2d 997, 1012 (R.I.2002).
Scorpio v. Underwriters at Lloyd's, London, 2012 WL 2020168 *7 (D.R.I. June 5, 2012).
Defendant's actions do not even approach the bad faith standard.
and reviewing the appropriate information, including Plaintiff's engineer's report, before denying the claim.
Defendant's denial letter noted the pertinent policy provisions and that the policy provided that a building that is still standing is not considered to be in a state of collapse.
Defendant's actions, in addition to the Court's conclusion that the collapse provision is ambiguous and thus the claim is fairly debatable, leads this Court to conclude that Plaintiff's bad faith claim cannot survive Defendant's motion for summary judgment.
This is a "case study," if you will, in the kind of record evidence -- and the kind of conduct in First-Party claim handling -- that can defeat a claim of First-Party Bad Faith in most Courts.
What did you say that Policyholders' "duty" was, again?
In Northrop Grumman Corp. v. Factory Mutual Insurance Co., 2011 WL 4501945 (C.D. Cal. September 28, 2011), Download Northrop Grumman Corp. v. Factory Mut. Ins. Co. (C.D. Cal. Case No. CV05.08444, Order Granting Partial Summary Judgment Filed Sept. 28, 2011) PUBLIC ACCESS, a Federal Judge applied existing California law. Then he invented new law out of thin air.
The Insurance Company contested Insurance Coverage in that case. The Policyholder's claim was for Hurricane Katrina damage. Ultimately, the Insurance Company won on Coverage in an appeal to the Ninth Circuit Court of Appeals. "[T]he Ninth Circuit reversed, holding that the Excess Policy's Flood Exclusion encompassed storm surge damage." Id. at *1.
This conclusion follows from existing California law, as noted. However, in reaching this conclusion (which may have been totally correct under the circumstances of that case and which is not in question in this post), the Federal Judge constructed a "duty" upon a Policyholder that never existed before in California.
That may be why the opinion did not contain any supporting citations of authority. There aren't any.
Where a contract is ambiguous, Northrop had the duty to seek clarification at the time of entering and agreeing to the policy. Under the facts of this case, failure to seek clarification at the time of signing resulted in a surviving ambiguity and a concomitant forfeiture of the right to seek bad faith damages.
To paraphrase this unique holding, what this Federal Court is saying is that a Policyholder had the duty to seek clarification at the time of entering and agreeing to the policy, presumably in the knowledge that years later Hurricane Katrina would make landfall and cause an ambiguity in the Business Interruption Coverage. Since a Policyholder cannot make such a forecast, of course, it means that whenever Coverage provisions are ambiguous as applied to an actual claim, there is always "a concomitant forfeiture of the right to seek bad faith damages."
That is one holding too far.
It should have been enough that Factory Mutual had a legitimate, reasonable basis to contest Business Interruption Coverage in that case, without resort to fiction. Citing no authority, this ruling in turn provides no authority for rulings in other cases in the same or other Courts.
Insurance Bad Faith, Expert Testimony and Report Issues After Hurricane.
Three recent holdings by Louisiana's Fourth Circuit Court of Appeal are of great interest to parties and attorneys involved in Insurance Coverage and Bad Faith Litigation. The first two holdings are posted here. The third is posted on Insurance Claims and Issues Web Log. All of the holdings came in the case of Download Patrick and Elizabeth Jouve v. State Farm Fire and Casualty Co. (La. Ct. App. 4th Cir. Case No. 2010CA1522, Opinion Filed August 17, 2011) PUBLIC ACCESS, also published as 2011 WL 3611800 (La. Ct. App. 4th Cir. August 17, 2011)(authorized password required to access Westlaw).
a. COVERAGE ("AN INSURER'S LIABILITY") OR b. THE INSURED'S DAMAGES ("THE EXTENT OF ... AN INSURED'S LOSS") ARE DEFENSES TO VEXATIOUS DELAYED PAYMENT CLAIMS IN A FIRST-PARTY BAD FAITH CASE IN LOUISIANA.
This holding may take only a little longer to state, than the heading I have written, above, to describe it. In the Jouve case, Mr. and Mrs. Jouve sued their Homeowner's Insurance Company, State Farm, for Property Damage allegedly caused by Hurricane Katrina. Among other causes of action presented by the Jouves, they alleged that State Farm violated Louisiana Statutes which provide for the recovery of penalties and attorney fees where, among other things, the Insurance Company failed to make a timely payment of the Insured's Claim after the Insurance Company received a satisfactory Proof of Loss, and "the insurer's failure to pay was arbitrary, capricious and without probable cause." Jouve v. State Farm Fire & Casualty Co., 2011 WL 3611800 at *4.
Under the Louisiana "First-Party Bad Faith" Statutes invoked by Mr. and Mrs. Jouve, "arbitrary, capricious, or without probable cause" means "vexatious," and a refusal to pay is "vexatious" when it is "unjustified, without reasonable or probable cause or excuse." Id. "When 'there are substantial, reasonable and legitimate questions as to the extent of an insurer's liability or an insured's loss, [the insurer's] failure to pay within the statutory time period is not arbitrary, capricious or without probable cause.'" Id. [Emphasis added.] This Louisiana defense to Insurer First-Party Bad Faith may go farther than the defense recognized in most other jurisdictions, that when Coverage is fairly and reasonably debatable, an Insurance Company is held "entitled to debate it." See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 11:17, "Fairly or Reasonably Debatable Claims" Defense to First-Party Bad Faith (West Publishing Co. 3d edition 2011).
The evidence submitted indicates State Farm timely initiated the loss adjustment of plaintiffs' property and made an unconditional tender based on the first inspection within the statutory time period. When plaintiffs' counsel submitted Mr. Caracci's estimate [requested by Mr. and Mrs. Joure] to State Farm, State Farm arranged for a re-inspection of the property with Mr. Caracci. Based on the re-inspection, State Farm made a second timely unconditional tender.
Plaintiffs offered no evidence in opposition to State Farm's motion for partial summary judgment that shows State Farm acted arbitrarily, capriciously or without cause in adjusting their homeowners claim. Given that plaintiffs will have the burden of proof at trial, and thus far have offered no evidence of bad faith on the part of State Farm to create a genuine issue of material fact, we find no error in the trial court's granting a partial summary judgment dismissing the bad faith claims against State Farm.
2. EXPERT TESTIMONY AND REPORT EXCLUDED IN INSURANCE COVERAGE CASE OVER PROPERTY DAMAGES CAUSED BY HURRICANE KATRINA.
The Trial Court in the Jouve case also excluded the testimony and Report of Plaintiffs' Loss and Damages Expert. The Report was actually prepared by the Expert's grandson, using a widely found computer program, Xactimate, to estimate the Plaintiffs' "actual wind and flood damage estimates on the Jouve property". Id. at *2.
The Trial Court excluded the Expert's Testimony, in addition. It appears that the Trial Court followed the requirements of Louisiana Law for Expert Testimony, id. at *2-*3, which are the same requirements generally followed in State Courts across the country in Property Insurance Cases. See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 12:18, "Experts in First-Party Insurance Bad Faith Cases: Specific Cases and General Rules" (West Publishing Co. Third Edition 2011). "Thus, the admission of expert testimony is proper only if all three of the following guidelines are met: (1) the expert is qualified to testify competently regarding the matters [she or] he intends to address, (2) the methodology by which the expert reaches [her or] his conclusions is sufficiently reliable as determined by the sort of inquiry mandated in Daubert [Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S. Ct. 2786 (1993)], and (3) the testimony assists the trier of fact through the application of scientific, technical or specialized expertise, to understand the evidence or to determine a fact in issue." Jouve v. State Farm Fire & Casualty Co., 2011 WL 3611800 at *2. Whether these guidelines are satisfied in a given Louisiana case is within the discretion of the Trial Court. Id. at *3.
In this case, the Trial Court's determination to exclude both the subject Expert's Testimony and the Report prepared by his grandson, was affirmed. "[W]e cannot say the trial court abused its discretion by granting State Farm's motion in limine to exclude the testimony and damage estimate of [Plaintiffs' Expert] from the trial." Id.
The third holding of interest in the Jouve case will be posted on Insurance Claims and Issues Web Log. It concerns the Partial Summary Judgment entered by the Trial Court on Plaintiffs' Dwelling Claims, including whether recovery should be limited to actual cash value at the time of Loss. See also for a Focused, Particular Policyholder perspective on these and many related issues, Property Insurance Coverage Law Blog, and in particular this interesting post there on August 18, 2011, "The Real Tropical Hurricane Season Begins".
The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida. The author will be speaking. As a result, the ACI will offer you a large discount if you choose to register for the Conference. In order to register and receive this discount from the ACI, contact Amanda Waltmon, Esquire, Legal Analyst and Program Director at the ACI and the deadline most recently announced by the ACI for requesting this discount is August 31, 2011. Ms. Waltmon's direct dial is 212.352.3220, ext. 5231 or send Ms. Waltmon an EMail at a.waltmon@americanconference.com. Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or anyone you know would like to attend.
Two From Missouri: 1. No Vexatious Refusal; 2. No Bad Faith.
Two Federal Court decisions highlight intricacies of Missouri Law. In one, an established line of Missouri case law was followed by the Eighth Circuit Court of Appeals in a First-Party Case, to the effect that there is no "vexatious refusal" to pay an Insurance Claim under Missouri Law if there is no Missouri Case on point. Macheca Transport Co. v. Philadelphia Indemnity Insurance Co., 2011 WL 3444553 *11 (8th Cir. Case No. 10-1482, Opinion Filed August 9, 2011)("When no Missouri case directly addresses a coverage issue, a litigiable issue exists." [emphasis added])(authorized password required to access Westlaw). This viewpoint appears to be at odds with the decisions in every other United States jurisdiction. See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 11:17, "Fairly or Reasonably Debatable Claims" (Third Edition 2011 West Publishing Co.).
In another case, Reserves were not set too high by a surety/indemnitor Insurance Company in the eyes of a Federal District Judge, and so the Insurance Company's setting of reserves in this case was not a good defense of "Bad Faith" under Missouri Law, in opposition to an equitable Claim in this case. The decision involved the Plaintiff Insurance Company's Motion for Partial Summary Judgment on its Claim, in Equity, for Specific Performance of collateral security clauses: Download Safeco Ins. Co. of Am.v. Lake Asphalt Paving & Constr., LLC (E.D. Mo. Case No. 4.10CV1160, Memorandum and Order Filed Aug. 5, 2011) PUBLIC ACCESS, also published as Safeco Insurance Company of America v. Lake Asphalt Paving & Construction, LLC, 2011 WL 3439129 *6 (E.D. Mo. August 5, 2011)(authorized password required to access Westlaw). Regarding the role of Reserves in Bond and other Insurance Bad Faith Cases, see generally Dennis J. Wall, supra, §§ 8:6 "Home Office Claims Files and Setting of Reserves" in Third-Party Cases including Discovery, and 12:16, "Discovery of Reserves on First-Party Claims".
Fairly or Reasonably Debatable ... Settlement of Underlying Liability Claim?
In some cases, Courts have equated a fairly or reasonably debatable claim to Coverage with a fairly or reasonably debatable defense to a Bad Faith Claim that a Liability Insurance Company allegedly Failed to Settle a Third Party's Claim against the Insured because settlement in the underlying liability case was reasonably or fairly debatable. See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 5:16 (West Publishing Co. 3d Edition 2011).
In that narrow context, a Federal Court in California apparently expanded California's "Fairly and Reasonably Debatable Defense", from Coverage to the merits of the underlying liability claim. Download Vaid-Raizada v. Lexington Nat'l Ins. Co. (C.D. Cal., Order Denying Motion to Correct or Clarify, Filed August 12, 2009) PUBLIC ACCESS, also published as Vaid-Raizada v. Lexington National Insurance Co., 2009 WL 2486467 *3 (C.D. Cal. August 12, 2009)(authorized password required to access Westlaw).
Parenthetically, this holding may or may not be a reliable interpretation of California Insurance Law. See Howard v. American National Fire Insurance Co., 187 Cal. App. 4th 498, 530, 115 Cal. Rptr. 3d 42, 70 (Cal. 1st DCA, Div. 4, 2010), review denied (unreported) (Cal. Nov. 23, 2010). "But it has never been held that an insurer in a third party case may rely on a genuine dispute over coverage to refuse settlement."
... Policyholder-Plaintiff fails to prove lack of a reasonable basis to deny Coverage, Federal Court holds.
Title Insurance Coverage and Good Faith are recurring issues in Courts throughout the nation. In a recent decision under New Jersey Bad Faith Law, a Federal Judge granted Summary Judgment to a Title Insurance Company on the ground that the Plaintiff-Policyholder failed to prove that the Title Insurance Company lacked a reasonable basis for denying Coverage. Dare Investments, LLC v. Chicago Title Ins. Co., Download Dare Investments, LLC v. Chicago Title Insurance Co. (D.N.J. Case No. 10-6088, Order Filed June 29, 2011) PUBLIC ACCESS, STATED NOT FOR PUBLICATION, also published as 2011 WL 2600594 *1, *12 (D.N.J. June 29, 2011)(authorized Westlaw password required to access Westlaw).
In this decision, the Federal Judge in New Jersey followed a vast majority trend toward requiring Policyholders-Plaintiffs to prove the lack of a reasonable basis for an Insurance Company to deny Coverage as a part of their case.
"Fair Debatability" Not a Complete Defense to Colorado Bad Faith.
An Underinsured Motorist Insurance Carrier's "defenses as to liability and ... PIP offsets" may or may not be "fairly debatable," but even if they are, "fair debatability" is not a complete defense to a Bad Faith Claim in Colorado. The Appellate Court so held, contrary to a Trial Court's rulings, in Sanderson v. American Family Mutual Insurance Co., Download Sanderson v. American Family Mutual Insurance Co. (Colo. Ct. App. Div. II Case No. 09CA1263, Opinion Filed November 10, 2010) PUBLIC ACCESS, STATED NOT FINAL, also published as 2010 WL 4492375 *3 (Colo. Ct. App. Div. II, November 10, 2010)(authorized password required to access Westlaw).
The issues of proving a "Fairly Debatable" Affirmative Defense, and of Proof on Failure to State a Claim or Cause of Action in First-Party Bad Faith Cases, are addressed in § 11:17 by Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement), and these issues are addressed in Third-Party Claims in id., §§ 5:16, 5:26 and 5:51.
Breach of Trust Covered; No Question Bad Faith; Question: Breach?
In Perkins v. General Insurance Co. of America, Download Perkins v. General Ins. Co. of Am. (D.S.C. Case No. 4.10cv439, Order Filed October 6, 2010) PUBLIC ACCESS, also published as 2010 WL 3941459 *1 (D.S.C. October 6, 2010)(Westlaw subscription required to access Westlaw), there was never a question about the Policy language. Mr. Gregory Perkins bought "a contract for insurance coverage on [his] motorcycle, which included comprehensive coverage for larceny". Under South Carolina Insurance Law, the Policy language was clear and unambiguous: It provided Coverage for larceny of the motorcycle. Id. at *3.
General Insurance Company of America disputed instead that "larceny" did not include a breach of trust under South Carolina case law. The Federal Court examined South Carolina statutory law and case law interpreting and applying South Carolina Statutes for about a Century and a half. At the end of its historical forensic analysis, the Court concluded that South Carolina law has included "breach of trust" as a "larceny" for about 150 years.
The Policy at issue clearly provides Comprehensive coverage for any loss of the motorcycle due to “theft or larceny.” Under South Carolina law, breach of trust is a larceny. In fact, Perkins' entrustment of the motorcycle to Johnson, who in turn allegedly formulated an intent to convert the property to his own and fraudulently appropriated it, is the exact scenario the prevention of which was the goal behind expanding the crime of larceny through passage of the breach of trust statute. See McCann, 166 S.E.2d at 412 (The “object of [passing the breach of trust statute] was simply to enlarge the field of larceny, removing what before might have been a defense for those who received property in trust and afterwards fraudulently appropriated it.” (quoting State v. Shirer, 20 S.C. 392 (1884))). Viewing the evidence in the light most favorable to Perkins, there is at least a genuine issue of material fact as to whether General has breached the insurance contract and acted in bad faith in denying Perkins' claim for benefits as a result of the loss of the motorcycle due to larceny. For the foregoing reasons, this Court DENIES the Defendant's Motion for Summary Judgment [Docket 20].
Id. at *5. The question of whether a First-Party Insurer can defend a Bad Faith Claim on the ground that the Contract Claim or Coverage for it was Fairly or Reasonably Debatable, is addressed in Section 11.17 of Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement).
﻿Please Read The Disclaimer. AUTHOR'S NOTE: The Online Docket of the Perkins Case on Pacer reflects that General Insurance is represented by Elmore & Wall of Charleston, South Carolina, which has no relation to the Author.
California Genuine Dispute Doctrine Applied: "Perfection is Not Required."
The California "Genuine Dispute Doctrine" Defense to Insurance Bad Faith Claims was analyzed anew in a Case presenting First-Party Bad Faith Claims: Worth Bargain Outlet, Inc. v. AMCO Insurance Co., Download Worth Bargain Outlet, Inc. v. AMCO Insurance Co. (S.D. Cal. Case No. 09CV839, Order Filed July 21, 2010) PUBLIC ACCESS also published as 2010 WL 2898264 (S.D. Cal. July 21, 2010)(Westlaw subscription required to access Westlaw). Pacer, the Online Docket of the Federal Courts, reflects that a Notice of Settlement was filed in this case on August 20, 2010.
The essence of California's Genuine Dispute Doctrine, known in other jurisdictions as a Fairly or Reasonably Debatable Claim Defense, may be distilled in this observation in this Federal Case: "A defendant must be reasonable, but not flawless, in its handling of a claim." Worth Bargain Outlet, Inc. v. AMCO Insurance Co., 2010 WL 2898264 at *8. Perfection is not required.
This Doctrine was developed as a Defense in California because under California law, "[a]n insurer's denial or delay in paying benefits gives rise to tort damages only if the insured shows the denial or delay was unreasonable." Id. [Emphasis added.] Parenthetically, most if not all other Courts in other jurisdictions will agree with this statement. See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 9:3, "The Question of Bad Faith" (Shepard's/McGraw-Hill Second Edition, West Publishing Company 2010 Supplement).
In California (as elsewhere), Courts have extended the Genuine Dispute Doctrine Defense from "cases involving disputes over interpretation of policy language ... to factual disputes as well." Id.
A post published here on August 19, 2010 explored a California Court's rejection of California's "Genuine Dispute Rule" in a Bad Faith Case against a Liability Insurer and also involving a dispute over Insurance Coverage. The present post examines the Majority View that Insurance Coverage can present a "Good Faith Dispute" Defense to Bad Faith Claims, at least in First-Party Cases.
In a case which presented Tortious Breach of Good Faith (i.e., First-Party Bad Faith) Claims, a Federal Court applied the Majority Rule and held that "a good faith dispute" over whether the underlying claim was covered can be a complete Defense. Given the record in that particular case, the Defendant Fire Insurance Company's Motion for Summary Judgment was denied as a Jury Issue was presented. Keten v. State Farm Fire & Cas. Co., Download Keten v. State Farm Fire and Casualty Co. (N.D. Ind. Case No. 2006.CV.341, Opinon and Order Filed March 29, 2010) PUBLIC ACCESS, also published as 2010 WL 1258198 *8 (N.D. Ind. March 29, 2010)(Westlaw subscription required to access Westlaw). The Online Docket of this case on Pacer reflects that a Settlement was reached at a Settlement Conference held on August 23, 2010.
Similarly, in a case involving a "business income loss coverage" claim (for Business Interruption Coverage), a Federal Court applied the same rule to a Statutory First-Party Bad Faith Claim and held that there was no Statutory Bad Faith Claim where "[i]t was reasonable" for the Defendant First-Party Insurance Company "to believe that coverage should be denied ...." Ski Shawnee, Inc. v. Commonwealth Insurance Co., Download Ski Shawnee, Inc. v. Commonwealth Insurance Co. (M.D. Pa. Case No. 2009.CV.02391, Memorandum and Opinion Filed July 6, 2010) PUBLIC ACCESS, also published as 2010 WL 2696782 *5 (M.D. Pa. July 6, 2010)(Westlaw subscription required to access Westlaw).
The great majority of the decisions in Bad Faith Cases in which Courts have recognized the Defense of Fairly and Reasonably Debatable underlying Claims, have come in First-Party Cases. Moreover, where the Defense is recognized, a majority of Courts also permits evidence of the reasonableness of the Insurance Company's position in contesting its Coverage for the underlying claim -- whether First-Party or Third-Party. See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 5:16 (Third-Party Settlement Claims), § 5:26 (Wrongful Refusal or Failure to Defend Claims), § 5:51 (Claims Based on Conduct of the Third-Party Insured's Defense), and § 11:17 (First-Party Bad Faith Claims) (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).
California Court Rejects "Genuine Dispute Rule" Applicability to Liability Insurer.
A California Appellate Court has rejected the application of California's "genuine dispute rule" as a defense to Bad Faith Claims against a Liability Insurance Company, in Howard v. American Nat'l Fire Insurance Co., Download Howard v. American National Fire Insurance Co. (Cal.1st DCA Case No. A123187, Opinion Filed August 11, 2010) PUBLIC ACCESS also published as 2010 WL 3156851 (Cal. 1st DCA August 11, 2010).
California's "genuine dispute rule" operates to absolve an Insurance Company from Bad Faith liability for Bad Faith in settlement where the insurer refused to settle because it reasonably disputed the value of the Claim, not because it disputed Insurance Coverage for it. "Although an insurer may reasonably underestimate the value of a case, and thus refuse settlement, an insurer does not act reasonably in using its no-coverage position to refuse settlement altogether." Howard v. American Nat'l Fire Insurance Co., 2010 WL 3156851 at *18.
The Howard Court further noted that California's "genuine dispute rule" had previously been applied only in First-Party Bad Faith Cases. Id. at *19.
In any case, held the Court, California's genuine dispute rule would not be applied to absolve a Third-Party Insurance Company which allegedly refused to settle for its Insured because it wrongly took the position that it had no Coverage. Id. Parenthetically, the Insured in that case is a Catholic Bishop who was sued for negligent retention of a sexual predator-priest. The Jury in the underlying case returned a Verdict against the Bishop in the amount of $5,500,000.00, consisting of $2.5 Million in Compensatory Damages and $3 Million in Punitive Damages. Id. at *1.
The Defense in Bad Faith Cases of Fairly and Reasonably Debatable underlying Claims, known in California as the "genuine dispute rule," is addressed in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 5:16 (Third-Party Settlement Claims), § 5:26 (Wrongful Refusal or Failure to Defend Claims), § 5:51 (Claims Based on Conduct of the Third-Party Insured's Defense), and § 11:17 (First-Party Bad Faith Claims) (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).
Where Chiropractor Says Further Treatment Unnecessary, Nonpayment Not Bad Faith.
In the case of Gorrell v. State Farm Mut. Auto. Insurance Co., Download Gorrell v. State Farm Mutual Auto. Insurance Co. (D. Nev. Case No. 2.08cv01757, OpinIon Filed June 28, 2010)(FREE ACCESS) also published as 2010 WL 2628651 (D. Nev. June 28, 2010)(Westlaw subscription required to access Westlaw), a treating chiropractor told the Defendant Insurance Company that Kathleen Gorrell and Daniel Gorrell would reach Maximum Medical Improvement by July 1, 2007. Gorrell, 2010 WL 2628651 at *3.
For some reason, their Insurance Carrier insisted on an IME or Independent Medical Examination which was performed by another chiropractor. The IME chiropractor also concluded that Mr. and Mrs. Gorrell would reach MMI no later than July 1, 2007. Id. The Defendant Insurance Carrier, which provided the Plaintiffs with Med Pay for otherwise covered "reasonable medical expenses," declined to pay for additional chiropractic treatment in a letter it sent to them in August, 2007. Id. at *1.
On these facts, the Federal Court in this case granted the Insurance Company's Motion for Summary Judgment "as to Plaintiffs' claim for breach of the implied covenant of good faith and fair dealing," citing Nevada law. Id. at *4.
The same Federal Judge had concluded previously in this same decision, that Wyoming and not Nevada law applied. In fact, "[b]ecause Wyoming law applies to this case," the Court earlier held, "Plaintiffs' cause of action for unfair claim practices under NRS 686A.300 fails as a matter of law." Id. at *2.
Presumably the Court would have reached the same result in that First-Party Bad Faith case under Wyoming law, based upon the evidence presented. See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 11:17, "Fairly or Reasonably Debatable Claims" (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement).
Massachusetts Consumer Protection Act "Chapter 93A" Claim Loses in "Reasonable Debate".
An Insurance Company's Summary Judgment Motion on a Chapter 93A Consumer Protection Act Claim was granted in Fundquest Inc. v. Travelers Casualty & Surety Co., Download Fundquest Inc. v. Travelers Casualty and Surety Co. (D. Mass. Caes No. 09.11471, Opinion Filed June 4, 2010) also published as 2010 WL 2223301 (D. Mass. 2010)(Westlaw subscription required to access Westlaw). The standard of liability under Chapter 93A is similar to other Insurance Bad Faith Claims across the nation. In particular, a fairly or reasonably debatable defense to Coverage will ordinarily bar such a claim.
Despite Travelers' ultimately erroneous interpretation of the Bond, the court does not believe that its actions rise to the level of bad faith, or that a reasonable insurer could not have deemed the issue one open to reasonable debate, particularly given the court's own struggle to see through the insurance-ese in which the Bond is written.
Fundquest, 2010 WL 2223301 at *6.
For the treatment by other Courts in other cases of "fairly or reasonably debatable" defenses in other First-Party Cases, see Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 11.17 (Shepard's/McGraw-Hill First Edition; West Publishing Co. Second Edition and 2010 Supplement in process). For the emergence of this defense in Third-Party Bad Faith Cases see id. §§ 5:16 (Settlement), 5:26 (Refusal to Defend), and 5:51 (Adequacy of Defense) .
No Coverage, "Reasonable Basis" for Denial, Holding: Prevented Bad Faith.
In an unpublished decision under New Jersey law, a Federal Judge was confronted with a Bad Faith Claim against an Insurance Company which had issued a Policy that the Court called "a businessowner's policy". Download Laverde v. Sirius Am. Ins. Co. (D.N.J. Opinion Signed August 26, 2009.Opinion Filed August 28, 2009.Stated NOT FOR PUBLICATION), attached Official Slipsheet Opinion at 1. The Policyholder presented a Claim for Coverage of lost "business personal property," and failed in establishing Coverage for the Claim. Download Laverde v. Sirius Am. Ins. Co. (D.N.J. Opinion Signed August 26, 2009.Opinion Filed August 28, 2009.Stated NOT FOR PUBLICATION), at 2, 5.
Plaintiff has not prevailed on his substantive claim, and even if he eventually does prevail, the Court finds that Sirius [the Insurance Company Defendant] has clearly established at least a reasonable basis for denying the claim. LaVerde's [Plaintiff's-Policyholder's] failure to prevail on his own substantive summary judgment motion is fatal to his bad-faith claim for damages.
Download Laverde v. Sirius Am. Ins. Co. (D.N.J. Opinion Signed August 26, 2009.Opinion Filed August 28, 2009.Stated NOT FOR PUBLICATION), at 6.
There is also a post on Insurance Claims and Issues Web Log concerning the LaVerde case.
Evidence, Experts Show Prohibited Practices in Insurance Business, Bad Faith.
A recent Federal Court Trial resulted in a Jury award of $48,414.97 on the Policyholders' Breach of Contract Claim, an award of $1,150,000.00 on their First-Party Bad Faith Claim, and an assessment of $1,150,000.00 in Punitive Damages on their Bad Faith Claim, in Download Moore v. American Family Mutual Insurance Co. (8th Cir. Opinion Filed August 14, 2009), attached Official Slipsheet Opinion at 1-2.
The Insurance Company Defendant in that case defended on the bases of Arson and Fairly Debatable Defenses, in pertinent part. (Actually, the Defendant in that case argued that the evidence on the First-Party Bad Faith Claim in that case reflected that it did not deny or disclaim all Coverage without a Fairly Debatable reason, under North Dakota law.) In affirming in all respects, the Eighth Circuit's Opinion is interesting in a couple of respects.
The Eighth Circuit held that although in that case an issue of potential error had not been preserved concerning a Jury Instruction based on the North Dakota Prohibited Practices in Insurance Business Act, nonetheless there apparently would not have been a good basis to find reversible error based on the Instruction anyway. Among other things, the Defendant Insurance Company asked its own Expert Witness at Trial about its supposed violations of that statute. The Appellate Court held: "At a minimum, we believe that evidence that an insurer's conduct violates a statute prohibiting unfair or settlement practices is relevant to whether the insurer acted in bad faith." Download Moore v. American Family Mutual Insurance Co. (8th Cir. Opinion Filed August 14, 2009), at 5.
The one-to-one ratio of Punitive Damages to Compensatory Damages on the Bad Faith Claim was held to be well within the parameters of the United States Constitution, the Eighth Circuit also held. Download Moore v. American Family Mutual Insurance Co. (8th Cir. Opinion Filed August 14, 2009), at 11-13. The Punitive Damages assessment was also simply not "excessive" under North Dakota law. Download Moore v. American Family Mutual Insurance Co. (8th Cir. Opinion Filed August 14, 2009), at 13-14.
On the Fairly or Reasonably Debatable element or Defense in First-Party Bad Faith Claims, see also Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 11:17 (Second Edition Shepard's/McGraw-Hill, 2009 Supplement in process West Publishing), and on its recent appearance in Third-Party Bad Faith Cases see § 5:51. Regarding Punitive Damages assessments in any Bad Faith Case, see § 13:15.
"Fairly Debatable" Defense to Denial of First-Party Insurance Benefits.
In yet another case, the "Fairly Debatable" Defense to a First-Party Bad Faith Claim over Denial of Insurance Benefits has been held to defeat the Bad Faith claim entirely: Download Merriam v. National Union Fire Insurance Co. (8th Cir. Opinion Filed July 17, 2009).
In this case, applying Iowa law, the Eighth Circuit Court of Appeals wrote that the legal standard for applying the Fairly Debatable Defense in that First-Party Bad Faith action based on a Denial or Disclaimer of all Coverage, was whether the Insurance Company had an "objectively reasonable basis" for the Denial of Coverage. Download Merriam v. National Union Fire Insurance Co. (8th Cir. Opinion Filed July 17, 2009), attached Official Slipsheet Opinion at 9-10.

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