Opinion ID: 1598888
Heading Depth: 3
Heading Rank: 2

Heading: Breach of Contract/Bad-Faith Failure to Pay

Text: Mr. Kenney alleges that GEICO breached its contract with him by failing to pay him the full policy limits of $40,000 under the uninsured/underinsured-motorist provision of his policy. However, it is questionable whether any breach of contract or bad-faith-failure-to-pay claim exists in this case, because the policy between GEICO and Mr. Kenney, including the setoff provision, was not breached; Mr. Kenney admits that GECO carefully followed the terms of the policy. GEICO's faithfulness to the policy and the setoff provision contained in it is the basis for this litigation. The policy stated that GECO would reduce the amount paid under the uninsured-motorist provision by the amount paid under the medical-payments provision. GEICO followed the language of that contract and offered Mr. Kenney $38,000, the maximum amount payable under the policy. Mr. Kenney does not dispute the wording of the contract and does not contend that GECO did not follow that wording. He does dispute the legality of GEICO's reducing the amount paid under the uninsured/underinsured-motorist provision by the amount paid under the medical-payments provision. He argues that this policy violates Alabama's Uninsured Motorist Statute, under which, according to his argument, the minimum amount GEICO should pay in his case is $40,000. Mr. Kenney admits that GEICO did not breach the contract between him and GEICO. The elements of a bad-faith claim were set out by this Court in National Sec. Fire & Cas. Co. v. Bowen, 417 So.2d 179 (Ala.1982): [T]he plaintiff in a `bad faith refusal' case has the burden of proving: (a) an insurance contract between the parties and a breach thereof by the defendant; (b) an intentional refusal to pay the insured's claim; (c) the absence of any reasonably legitimate or arguable reason for that refusal (the absence of a debatable reason); (d) the insurer's actual knowledge of the absence of any legitimate or arguable reason; (e) if ... intentional failure to determine the existence of a lawful basis is relied upon, the plaintiff must prove the insurer's intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim. In short, plaintiff must go beyond a mere showing of nonpayment and prove a bad faith nonpayment, a nonpayment without any reasonable ground for dispute. Or, stated differently, the plaintiff must show that the insurance company had no legal or factual defense to the insurance claim. Id. at 183. See also Employees' Benefit Association v. Grissett, [Ms. 1961766, September 11, 1998] ___ So.2d ___ (Ala.1998), and Chavers v. National Sec. Fire & Cas. Co., 405 So.2d 1 (Ala.1981). Since recognizing the tort of badfaith failure to pay an insurance claim, this Court has held that mere negligence or mistake is not sufficient to support a claim of bad faith; there must be a refusal to pay, coupled with a conscious intent to injure. See King v. National Foundation Life Ins. Co., 541 So.2d 502 (Ala.1989); Pierce v. Combined Ins. Co. of America, 531 So.2d 654 (Ala.1988); Coleman v. Gulf Life Ins. Co., 514 So.2d 944 (Ala.1987); Blue Cross & Blue Shield of Alabama v. Granger, 461 So.2d 1320 (Ala.1984); Gulf Atlantic Life Ins. Co. v. Barnes, 405 So.2d 916 (Ala.1981). GEICO's decision not to pay the full $40,000 was based on the clear offset language of the insurance policy. Therefore, at least one of the elements necessary for a bad-faith claim is absent, i.e., the requirement that the insurer have no legitimate or arguable basis for denying the claim.