Insurance Bad Faith Report, October 2022

Dykema’s nationally recognized insurance practice is pleased to present its Insurance Bad Faith Report. All of the quarterly Reports, along with complete copies of the decisions reviewed, are available online to access at any time.

An Insurer’s Duty To Initiate Settlement Negotiations Is Limited To Clear Liability Cases In Florida

Kinsale Ins. Co. v. Pride of St. Lucie Lodge 1189, Inc., No. 2:21-cv-14053-KMM, 2022 U.S. Dist. LEXIS 127224 (S.D. Fla. July 14, 2022).

During the insured fraternal organization’s social event, a fight broke out between two groups of attendees. After the insured ejected the rabblerousers from the clubhouse, they continued fighting in the parking lot and one of the attendees was fatally shot. The deceased’s estate brought suit against the insured for “negligent security,” and the insured tendered the matter to its general liability insurer, Kinsale Insurance Company. Eleven days after the complaint was filed, Kinsale offered the policy’s $50,000 assault and battery sublimit to settle the suit, but the estate rejected the settlement offer.  After trial, the jury found the insured 70% liable and judgment was entered against the insured for almost $3.5 million. Kinsale then filed a declaratory judgment action, and the insured counterclaimed for bad faith failure to timely tender the sublimit. The Florida district court entered summary judgment in Kinsale’s favor, finding that, under Florida law, an insurer’s affirmative duty to initiate settlement negotiations applies only where liability is clear. According to the district court, liability was not “clear” enough to trigger the duty to initiate settlement negotiations, even though a jury found the insured 70% at fault. Read the decision. 

An Assignee Cannot Assert A Bad Faith Claim Based On Alleged Post-Assignment Conduct In Arkansas

4 Star Gen. Contracting, Inc. v. United Fire & Cas. Co., No. 2:22-CV-02036, 2022 U.S. Dist. LEXIS 133558 (W.D. Ark. July 27, 2022).

When the insured’s property suffered hailstorm damage, the insured submitted a claim under its policy issued by United Fire & Casualty Company. United Fire accepted coverage and issued a partial payment for the actual cash value of the property but allegedly refused to issue payment for “heldback depreciation” or to identify the amount or scope of replacement cost value loss. The insured assigned its rights under the policy to a contractor, who brought breach of contract and bad faith claims against United Fire. Seeking dismissal of the bad faith claim, United Fire argued that the tort of bad faith is unassignable under Arkansas law. The assignee argued that its bad faith claim was based on United Fire’s post-assignment, not pre-assignment, conduct, and because it stood in the insured’s shoes, it should be able to plead a claim for bad faith. The district court disagreed and observed that an assignment does not make the assignee the insured.  Holding that a bad faith claim may only be brought by the insured and that an assignee may not bring a bad faith claim for allegedly malicious acts committed against the assignee post-assignment, the district court dismissed the bad faith claim without leave to amend. Read the decision.

Delaware Superior Court Accords Expert Report Little Weight In Dismissing Bad Faith Claim

Guaranteed Rate v. Ace Am. Ins. Co., No. N20C-04-268 MMJ CCLD, 2022 Del. Super. LEXIS 367 (Del. Super. Ct. Aug. 24, 2022).

After settling with the U.S. Department of Justice and U.S. Attorney’s Office for the Northern District of New York for potential violations of the False Claims Act, the insured sought to recoup the $18 million settlement payment under its D&O policy issued by ACE American Insurance Company. During the resulting coverage litigation, the parties cross moved for summary judgment. While the court granted partial summary judgment in the insured’s favor, finding coverage under the D&O policy, it also dismissed the bad faith claim, rejecting the insured’s argument that genuine issues of material fact required resolution by expert testimony at trial. The court found that the insured’s expert’s report merely presented legal conclusions without creating any genuine issue of material fact. Thus, the court accorded little weight to the expert report and granted ACE’s motion for summary judgment on the bad faith claim, as there was a bona fide dispute over coverage when ACE made its coverage decision. Read the decision.

Delaware Superior Court Avoids Choice-Of-Law Analysis On Bad Faith Claim

G-New, Inc. v. Endurance Am. Ins. Co., No. N21C-10-100 MMJ CCLD, 2022 Del. Super. LEXIS 371 (Del. Super. Ct. Sep. 12, 2022).

G-New, Inc. d/b/a Godiva Chocolatier, Inc. was involved in a class action suit regarding its allegedly misleading use of the label “Belgium 1926.”  Godiva settled the action for over $20 million, and its D&O insurer, Endurance American Insurance Company, denied coverage.  Godiva brought suit against Endurance (and its excess insurer National Union Fire Insurance Company of Pittsburgh, PA) for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing.  The parties filed cross-motions for summary judgment, disputing whether New York or Delaware law applied. While recognizing differences between New York and Delaware bad faith law, the court found that Godiva failed to present facts supporting a separate cause of action for bad faith. The court accordingly dismissed Godiva’s claim for breach of the implied covenant of good faith and fair dealing without performing a choice-of-law analysis.  Read the decision.

Oklahoma District Court Finds Choice-of-Law Provision Inapplicable To Bad Faith Claim

Poinsett v. Life Ins. Co. of N. Am., No. CIV-21-1205-F, 2022 U.S. Dist. LEXIS 169540 (W.D. Okla. Sep. 20, 2022).

The insured submitted a claim for benefits under a long-term disability policy issued by Life Insurance Company of North America (“LINA”). After initially approving the claim, LINA reversed course, terminated benefits, and denied the insured’s appeal. In the resulting coverage litigation alleging bad faith, LINA moved for partial judgment on the pleadings, arguing that the bad faith claim failed as a matter of Illinois law, which applied under the policy’s choice-of-law provision. The insured countered that Oklahoma law should apply as Oklahoma, unlike Illinois, permits bad faith to be pled as an independent tort. While acknowledging that Oklahoma courts generally honor choice-of-law provisions, the district court cited other Oklahoma case law holding that tort claims, such as bad faith, are not subject to choice-of-law provisions unless expressly noted in the provision itself. After concluding that the policy’s choice-of-law provision did not apply, the court found that Oklahoma law applied under the “most significant relationship” test. The court reasoned that although Illinois does not permit an independent tort of bad faith, Illinois also did not have a strong policy against bad faith claims because Illinois allows for the recovery of attorneys’ fees, costs, and a limited penalty for an insurer’s vexatious and unreasonable conduct. The court accordingly denied LINA’s motion for partial judgment on the pleadings. Read the decision.

Premature Bad Faith Claims May Be Dismissed, Rather Than Abated, In Florida

City of Miami v. N.Y. Marine & Gen. Ins. Co., No. 22-cv-21741-DAMIAN, 2022 U.S. Dist. LEXIS 179243 (S.D. Fla. Sep. 30, 2022).

New York Marine and General Insurance Company issued the City of Miami a Specific Excess & Aggregate Excess Workers Compensation and Employers Liability Indemnity Policy. When a City of Miami police officer became disabled, the City paid over $1.6 million for the officer’s workers’ compensation claim. New York Marine denied coverage, refusing to indemnify or reimburse the City, which subsequently filed suit, alleging claims for declaratory judgment, breach of contract, and statutory bad faith. New York Marine moved to dismiss the statutory bad faith claim, arguing that dismissal, rather than abatement, was proper because the court lacked subject matter jurisdiction to adjudicate unripe claims. Conceding that a determination of coverage in its favor was a predicate for its statutory bad faith claim, the City urged the court to exercise its discretion and abate the claim. While acknowledging that other Florida district courts had abated similar claims, the court noted that Article III of the U.S. Constitution limits federal courts’ jurisdiction to ripe cases and controversies, and that concerns of judicial economy could not override this constitutional limitation. The court accordingly granted New York Marine’s motion to dismiss the bad faith claim. Read the decision.