Opinion ID: 2511821
Heading Depth: 1
Heading Rank: 8

Heading: Issue IVGood Faith and Fair Dealing

Text: [¶ 31] Mrs. Harper asserts that Fidelity breached the covenant of good faith and fair dealing by denying the benefits due under the policy without any reasonable or fairly debatable basis and by failing to fully and properly investigate. [¶ 32] In order to recover on a claim like the instant one, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy, and the defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. Darlow v. Farmers Ins. Exch., 822 P.2d 820, 824 (Wyo.1991). The test to be applied in determining whether bad faith has occurred is as follows: An objective standard is also used to determine whether an insurer has committed first-party bad faith. Kirkwood v. CUNA Mut. Ins. Soc., 937 P.2d 206, 211 (Wyo.1997). The question is whether the validity of the denied claim is fairly debatable. First Wyoming Bank, N.A., Jackson Hole v. Continental Ins. Co., 860 P.2d 1094, 1101 (Wyo.1993). The validity of a claim is fairly debatable if a reasonable insurer would have denied or delayed payment of benefits under the facts and circumstances. Ahrenholtz v. Time Ins. Co., 968 P.2d 946, 950 (Wyo.1998). To establish a claim for first-party bad faith, a plaintiff must establish (1) the absence of any reasonable basis for denying the claim, and (2) the insurer's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. Gainsco Ins. Co. v. Amoco Prod. Co., 2002 WY 122, ¶ 14, 53 P.3d 1051, 1058 (Wyo.2002). [¶ 33] Not only does Mrs. Harper iterate her argument that Fidelity had a duty to investigate, but she argues that Fidelity unreasonably denied her claim and suggests that post-claim underwriting took place in this case. When post-claim underwriting occurs, an insurer simply fails to perform any actual underwriting until after a claim has been made. Lewis v. Equity Nat'l Life Ins. Co., 637 So.2d 183, 188-89 (Miss.1994). See also Thomas C. Cady & Georgia Lee Gates, Article: Post Claim Underwriting, 102 W. Va. L.Rev. 809, 810 (2000) (concluding that post-claim underwriting is per se evidence of bad faith). Indeed, Mrs. Harper only suggests that this may have occurred in this case and does not altogether argue its existence. Nevertheless, it is our opinion that there is no showing by Mrs. Harper on appeal of an absence of a reasonable basis to deny the claim. [¶ 34] After Fidelity received Mrs. Harper's claim for benefits, Fidelity followed its routine practice and ordered the medical records of the deceased. When it appeared that things were amiss, the records were sent to the chief underwriter who then gave his opinion that the misrepresentations (whether intentional or not) were material. The procedure followed is one which Mrs. Harper's expert testified is routine within the insurance industry. Under Wyoming law, a claim for breach of the implied covenant of good faith and fair dealing cannot exist where a party is simply exercising those rights that they are contractually entitled to exercise. See Scherer Constr., LLC v. Hedquist Constr., Inc., 2001 WY 23, ¶ 19, 18 P.3d 645, 653-54 (Wyo.2001). [¶ 35] Fidelity rescinded the policy of insurance because it determined, after obtaining an opinion from the chief underwriter, that there were material misrepresentations, omissions, and incorrect statements made on the insurance application which, if they had been known at the time, would have caused the application to have been rejected. There is no question of material fact that § 26-15-109 allows rescission under those circumstances. Accordingly, Fidelity was entitled to summary judgment on whether it breached the duty of good faith and fair dealing.