We cover current issues, highlights and best practices exclusively on claims of bad faith and extra contractual damages.
After almost 20 years of reading judicial opinions from around the country discussing insurance bad faith, a common thread seems to be mentioned--communication (or lack of) by the insurance company with its insureds.
In High Country Paving Inc. v. United Fire and Casualty Co., after a trucking accident, Plaintiff’s counsel submitted a demand on the carrier for policy limits without releasing the insured. The insurance carrier agreed to the settlement, and offered to continue to pay defense costs after settling for policy limits.
LMA North America, Inc. (LMA) sued National Union for breach of contract and bad faith after defendant refused to either contribute $3.75 million towards the settlement of counter-claims asserted by LMA’S competitor, Ambu, or take over the defense of the trade disparagement and false advertising claims. After settling the underlying claims above the $1M primary coverage, LMA asked National Union to pay the balance of the settlement or assume the defense. After the settlement was finalized, National Union agreed to assume the defense. LMA claimed in the coverage and bad faith case that National Union acted in bad faith. The district court denied National Union’s motion for summary judgment and entered judgment for LMA on the jury’s verdict in favor of LMA on the breach of contract and bad faith claims while rejecting the punitive damages claim. The Ninth Circuit affirmed the contract and bad faith judgments.
State Farm provided automobile insurance to Barry and Kimberly Shaffer which provided medical payments and UIM coverage. Barry was involved in a head-on collision which resulted in multiple serious injuries to his neck, back, eyes, and knees. At that time, Barry was on Social Security and military disability for several physical ailments. Shaffer underwent back surgery and six months later asked State Farm to assign a UIM adjuster. The Shaffers settled their liability claim with the adverse driver for roughly $28,000 below that driver’s liability limit. After a $250,000 UIM settlement demand was met with a $10,000 settlement offer, the Shaffers filed suit more than four years after the accident. The District Court granted State Farm’s motion for summary judgment on the bad faith claim and thereafter the UIM breach of contract claim was tried, which resulted in a $250,000 award in favor of the Shaffers. The Shaffers appealed the bad faith summary judgment, which was affirmed by the Third Circuit.
If a tree falls in the woods, and no one is around to hear it, does it still make a sound? If a claimant offers a settlement, and the insured would have rejected it had she known of the offer, is it bad faith? The Ninth Circuit said no. Rejecting a settlement without contacting the insured is never wise, but if evidence shows the insured would have rejected such an offer, a valid bad faith claim may not exist for lack of injury.