Opinion ID: 1448289
Heading Depth: 1
Heading Rank: 19

Heading: Was NPIC's Denial of Coverage in Bad Faith?

Text: When an insurer rejects a policy limits settlement offer, the question of whether the insurer has breached the implied obligation to settle in good faith will invariably arise. While good or bad faith may be irrelevant to whether an insurer has breached its coverage obligation, it becomes relevant when the insurer bases its rejection of a policy limits settlement offer on coverage denial. Thus, we must decide whether material issues of fact remain concerning NPIC's bad faith in rejecting settlement because of coverage denial. We approve the Robinson v. State Farm Fire & Cas. Co., 583 So.2d 1063, 1068 (Fla. Dist. App. 1991), factors suggested for evaluating the circumstances surrounding an insurer's coverage denial, including: (1) whether the insured was able to obtain a reservation of rights; (2) efforts or measures taken by the insurer to resolve the coverage dispute promptly or in such a way to limit any potential prejudice to the insured; (3) the substance of the coverage dispute or the weight of legal authority on the coverage issue; (4) the insurer's diligence and thoroughness in investigating the facts specifically pertinent to coverage; and (5) efforts made by the insurer to settle the liability claim in the face of the coverage dispute. Applying the Robinson factors to a review of the record, we conclude material issues of fact remain concerning NPIC's bad faith in rejecting settlement because of coverage denial. We observe: (1) NPIC offered to defend Americold subject to an oral reservation of rights shortly after National Union tendered its policy limits. NPIC's duty to defend was not triggered until exhaustion of the primary coverage. National Union's coverage position was uncertain until that tender. On remand, the impact, if any, of National Union's delay in establishing its coverage position on NPIC's contractual obligations to Americold will be relevant. (2) After denying coverage and rejecting the policy limits settlement offer on March 10, 1994, NPIC, in mid-March 1994, filed a declaratory judgment action for a coverage determination in the district court of Johnson County. NPIC believed by early June 1993 that the pollution exclusion applied to preclude coverage, yet chose not to disclose its coverage position until Hasty's February 16, 1994, letter. NPIC claims it was not obligated, as an excess insurer, to disclose its coverage position until National Union's coverage was exhausted. NPIC's actions put Americold in the position of being a month from trial in federal court, facing $66 million in claims with no excess coverage. On the other hand, in view of the settlement and covenant not to execute, Americold may not have been prejudiced by NPIC's conduct. NPIC had no obligation to assume charge of Americold's defense until National Union's coverage was exhausted. However, it had all the information necessary to determine coverage regarding the absolute pollution exclusion at least by June 1993. Although NPIC may not have had an express contractual obligation to reveal its coverage position before the tender of Americold's defense by National Union, its implied good faith obligation could have required a more prompt disclosure of its coverage position after the initial policy limits settlement offer. In December 1992, Niewald wrote to Lynn, asking Americold's insurers to disclose any facts that would show non-coverage. No response was forthcoming. In the excess insurance context, the primary carrier (depending on the policy language) will not tender the defense to the excess carrier until exhaustion of coverage. Often the claim has reached the resolution stage, either through settlement discussions or entry of judgment. If the excess carrier claims it has no duty to investigate or make a coverage determination until tendered the defense, the excess carrier may have to decide coverage instantaneously when a settlement is demanded. The noninvestigating carrier may be unprepared. If the size of the claim is not likely to reach the excess coverage layer, then the excess carrier may not need to disclose coverage. Also, if the insured failed to maintain the primary coverage or the primary insurer defaults, the excess carrier's obligations may never be triggered, and a coverage disclosure could be unnecessary. However, if the size of the claim exceeds both the primary and excess coverage, the facts for a coverage determination are readily available, the primary insurer has assumed the defense, and settlement discussions reaching the excess policy limits are in progress, prompt investigation and disclosure of the excess carrier's coverage position seem advisable. (3) NPIC's assertion of the pollution exclusion seems questionable in view of the hostile fire amendment in National Union's policy, which was not clearly deleted from the NPIC policy. NPIC's position on the other insurance coverage exclusion, claiming that tenant policies provided coverage primary to NPIC's, lacked substance. NPIC never established that any of the alleged negligent acts occurred on the tenants' premises or that the tenants had any responsibility for the fire (although in the underlying tort litigation, Americold was attempting to establish negligence by Return, Inc., if the origin of the fire could have been linked to Return, Inc.'s space). (4) Although NPIC received copies of tenant leases in early 1992, Hasty did not begin requesting information about tenant insurance policies until January 1994. As an excess insurer, NPIC did not have the same duty to make a prompt investigation and disclosure of its coverage position that a primary insurer would have, at least until it was either called upon to make a settlement decision or the primary coverage was exhausted. NPIC did not reveal its coverage defenses to Americold until February 16, 1994, although NPIC received the initial policy limits settlement offer by November 1993. (5) NPIC made no effort to settle. The factual determination of whether NPIC exercised bad faith in denying coverage remains with the district court on remand. As we said in Bollinger: In the final analysis, the question of liability depends upon the circumstances of the particular case and must be determined by taking into account the various factors present, rather than on the basis of any general statement or definition. 202 Kan. at 338.