Opinion ID: 807901
Heading Depth: 3
Heading Rank: 2

Heading: The tort of bad faith

Text: The law of bad faith was properly encapsulated by Jury Instruction no. 10 in this case. The instruction on the elements of Bannister’s bad faith claim (i.e., breach of the duty good faith and fair dealing) was that “[Bannister] must prove each of the following elements by the greater weight of the evidence”: FIRST: That State Farm was required under the insurance policies to pay Mr. Bannister’s uninsured motorist claim10; SECOND: That State Farm’s refusal to pay the claim was unreasonable under the circumstances because 1) State Farm did not perform a proper investigation, 2) State Farm did not evaluate the results of the investigation properly, or 3) State Farm had no reasonable basis for the refusal. THIRD: That State Farm did not deal fairly and in good faith with Mr. Bannister; and FOURTH: That the violation by State Farm of its duty of good faith and fair dealing was the direct cause of the damages sustained by Mr. Bannister and sought to be recovered in this action. ROA v. II at 408 (emphases added, footnote added). The instruction went on to state: 10 State Farm argues that it is deserves JMOL on the independent basis of this first element, asserting that “undisputed evidence demonstrates that Bannister was majority at fault.” Aple. R. Br. at 1. Because of our other rulings in this appeal, we need not address that argument. 16 In determining whether the insurer had a good faith belief in some justifiable reason for denying payment at the time it made its decision on the insurance claim, you [the jury] may only consider evidence which the insurer had at the time it decided to deny the claim. In this action there is a factual dispute about when that decision was made. An insurer’s refusal to pay a claim is not bad faith when there is a legitimate dispute concerning coverage; however, merely because there is a reasonable basis that an insurance company could invoke to deny a claim does not necessarily immunize the insurer from a bad faith claim if, in fact, it did not actually rely on that asserted reasonable basis and instead took action in bad faith. The insurer is not required to show that its good faith belief was correct. Id. at 409 (emphasis added). That instruction properly stated the elements of the tort of bad faith. See Badillo v. Mid Century Ins. Co., 121 P.3d 1080, 1093 (Okla. 2005) (citing Oklahoma Uniform Jury Instructions Civ (2d) 22.3). The district court properly recognized that it was not bad faith per se for State Farm to resort to the judicial forum to settle legitimate disputes over insurance claims. See Garnett v. Gov’t Employees Ins. Co., 186 P.3d 935, 944 (Okla. 2008). The court correctly acknowledged that the decisive questions are whether State Farm’s denial of coverage was based on a good-faith reason at the time it decided to deny coverage, and also whether State Farm conducted an investigation reasonably appropriate under the circumstances to determine the validity of Bannister’s claim. See Buzzard v. Farmers Ins. Co., Inc., 824 P.2d 1105, 1109 (Okla. 1991). 3. Appellate review of JMOL in bad faith cases specifically “[A]s a matter of law . . . no reasonable inference of bad faith arises”—and hence JMOL is warranted for the insurer—“when an insurer denies a claim solely because of 17 the existence of a legitimate dispute.” Oulds v. Principal Mut. Life Ins. Co., 6 F.3d 1431, 1442 (10th Cir. 1993). However, “a legitimate dispute as to coverage will not act as an impenetrable shield against a valid claim of bad faith.” Timberlake Constr. Co. v. U.S. Fidelity & Guar. Co., 71 F.3d 335, 343 (10th Cir. 1995). Thus, in “cases in which the question of bad faith [is] required to be submitted to the jury, the evidence of the insurer’s defense to the underlying claim [is] so weak that a reasonable inference could be drawn that the insurer denied the claim in bad faith.” Oulds, 6 F.3d at 1442; see also Timberlake, 71 F.3d at 343 (“In sum, ‘in order to establish such a [bad faith] claim, the insured must present evidence from which a reasonable jury could conclude that the insurer did not have a reasonable good faith belief’ [for denying the claim].” (quoting Oulds, 6 F.3d at 1436) (alteration marks omitted)). In other words, if the evidence at trial demonstrates that “there was a legitimate dispute as to coverage under the policy, and that [the insurer’s] position was reasonable in light of the facts known or knowable to it at the time it denied [the] claim,” then “as a matter of law [the insurer] did not breach the duty of good faith merely by refusing to pay [the] claim.” Timberlake, 71 F.3d at 344. Rather, the claimant must “produce additional evidence of bad faith in order to send the issue to the jury.” Id. To that end, a jury may decide the issue of bad faith, even when the evidence reveals a legitimate possible basis for a dispute, if the claimant submitted evidence that the insurer did not actually rely on that legitimate basis but rather denied the claim for an illegitimate reason, such as a “systematic, bad faith scheme of canceling policies without 18 . . . good cause,” Vining v. Enter. Fin. Grp., Inc., 148 F.3d 1206, 1214; see also Capstick v. Allstate Ins. Co., 998 F.2d 810, 814-15 (10th Cir. 1993) (affirming denial of JMOL where “from the very beginning without any investigation, [the insurer] treated the claim as a ‘suspicious loss’” and “denied coverage without making any other bona fide investigation”). Another instance in which the jury may decide the issue is if there is evidence that the insurer “failed to adequately investigate [the] claim.” Timberlake, 71 F.3d at 345. Crucially, however, “when a bad faith claim is premised on inadequate investigation, the [claimant] must make a showing that material facts were overlooked or that a more thorough investigation would have produced relevant information” that would have delegitimized the insurer’s dispute of the claim. Id. That is, evidence of inadequate investigation must “suggest a sham defense or an intentional disregard of uncontrovertible facts” in order to be put to a jury. Id. To illustrate, where an insurer had interviewed a claimant, but had failed to question key individuals and therefore “had not completed an investigation [but rather] had only gotten one side of the story,” JMOL was still warranted when such questioning “would not have changed the underlying facts already known to [the insurer], facts from which [the insurer] was entitled to form a reasonable belief” regarding its justification for denying the claim. Id.