Bad Faith Blog

Summary: Ethel Nelson’s car struck Mary Busby on June 10, 1964 after Busby stepped onto the street. Nelson had an automobile insurance policy from Tri-State Insurance Company with a policy limit of $10,000. Busby made two settlement offers within the policy limits, but Tri-State refused both. At trial, the jury apportioned fault between Busby and Nelson and ultimately awarded Busby a total of $16,250, $13,000 to Busby herself and $3,250 to her husband (the first judgment). Nelson’s insurer, Tri-State, paid only the $10,000 policy limit.

Summary: The Maine Supreme Court in Linscott clarified to whom insurers owe duties. Because a plaintiff who brings suit against the insured is an adversary of the insurer defending the case, the insurer is entitled to use negotiating tactics commonly used by lawyers.

Summary: The insured, Morlan Enterprises (Morlan), brought an action against Owners Insurance Company (Owners) alleging bad faith and a violation of the Unfair Trade Practices Act (UTPA). In response, Owners sought a writ of prohibition seeking to prevent the Circuit Court from exercising jurisdiction over Owners, from applying West Virginia substantive law rather than Ohio law to an insurance coverage dispute, from allowing Morlan to proceed on its bad faith claim, and from prohibiting presentation of certain evidence. The majority of theSupreme Court of Appeals of West Virginia held in three opinions that Owners had not established the necessary elements for the granting of a writ and, therefore, denied the requested writ of prohibition.

Summary: Automobile insurer filed suit seeking declaratory judgment that “Limits of Liability” for “Each Person” limited coverage on derivative claims brought by passenger’s daughter for passenger’s death as a result of a car accident caused by insured’s negligence to $50,000 limit that had already been paid to passenger’s estate. The insured and personal representative of passenger’s estate, who was also acting as a conservator for the daughter, filed a counterclaim for breach of policy and bad faith.The District Court ruled that the insurer had correctly interpreted “Each Person” limit of liability. However, the Montana Supreme Court reversed and remanded (Freyer I). On remand, the insured and personal representative/conservator amended the counterclaim adding a claim for violation of the Unfair Trade Practices Act (UTPA) and sought enforcement against insurer of a stipulated judgment of $2.7 million in the suit brought by personal representative/conservator against insured for wrongful death. The District Court entered summary judgment in insurer’s favor on all claims. However, the Supreme Court held that the insurer’s reliance on precedent at time of claim was not an affirmative defense to a claim for policy breach, but the stipulated judgment between the insured and the personal representative/conservator was not an appropriate measure of consequential damages to passenger’s daughter for insurer’s breach of duty to indemnify. Moreover, insurer did not act in bad faith or breach its duty of good faith and fair dealing by refusing the settlement offer on daughter’s claims. Further, insurer did not misrepresent the scope of coverage on daughter’s claim under the provision for “Each Person” Limit of Liability under the UTPA. (Freyer II)

Summary: Pella Corporation, an Iowa company, was a defendant in two class action cases in Illinois. Those cases alleged that Pella’s windows were defectively designed and manufactured. Liberty Mutual filed a declaratory judgment action in Iowa federal court contending it owed no coverage. The District Court ruled that Liberty Mutual had a duty to reimburse Pella’s defense costs, but denied Pella’s bad faith denial of coverage claim. The Eighth Circuit affirmed the bad faith ruling on appeal.