Insurance Bad Faith Report, July 2024

Fifth Circuit Confirms Accrual Date For Statutory Bad Faith Damages
Kahlig Enters. v. Affiliated FM Ins. Co., No. 23-50144, 2024 U.S. App. LEXIS 8651 (5th Cir. Apr. 10, 2024).

After commercial properties were damaged in a storm, the insured disputed the insurer’s valuation of the loss. In accordance with an appraisal award, the insurer tendered payment for the “actual cash value” of the loss and damages under the Texas Prompt Payment of Claims Act (“TPPCA”) based on the proof of loss submission date. The insured sued, arguing it was owed additional TPPCA damages based on an earlier accrual date (either when the insurer acknowledged coverage or when it received repair estimates), plus attorney’s fees and prejudgment interest. Both the district court and Fifth Circuit reasoned that because the policy required submission of a sworn proof of loss, the proper accrual date was when the document was submitted. Further, because the insurer had already tendered the correct amount, there was no “judgment” to base an award of either attorney’s fees or prejudgment interest. Read the decision.

Prevailing Insurer Denied Fees and Costs in Montana
Nautilus Ins. Co. v. Farrens, No. CV 22-193-M-DWM, 2024 U.S. Dist. LEXIS 76710 (D. Mont. Apr. 26, 2024).

After obtaining a judicial declaration of no coverage for an underlying suit, the insurer moved for fees and costs, relying on Montana common law regarding recoupment and a Montana statute that permitted an award of costs in declaratory judgment actions if “equitable considerations” supported the award and were “necessary and proper.” The court denied the insurer’s motion on both grounds, finding the common law permitted recoupment only for fees paid in an underlying action, and the statute did not apply because the insurer “simply acted in the normal course of business” when it filed suit, thus falling short of the “extreme circumstances” warranting statutory fees. The court further found that the insurer could not recoup its expert witness costs, as the expert neither testified nor was deposed before summary judgment was entered. Read the decision.

No Bad Faith Where Insurer Failed To Affirmatively Commence Settlement Negotiations
Jimenez v. GEICO Secure Ins. Co., No. 2:23-cv-01290-APG-BNW, 2024 U.S. Dist. LEXIS 67973 (D. Nev. Apr. 12, 2024).

A drunk driver caused the death of another driver. After learning of the accident, the tortfeasor’s insurer did not contact the decedent’s estate during the insurer’s investigation. However, after being contacted by the estate, the insurer tendered the policy’s limit the following day. The estate rejected the tender and filed suit, obtaining a judgment exceeding $11 million. The tortfeasor then sued the insurer, alleging both common law and statutory bad faith. In granting the insurer’s motion to dismiss, the district court noted that, even if a settlement demand were a prerequisite for a bad faith claim, the factual allegations were insufficient to state a bad faith claim because there were no allegations of an unreasonable delay or denial or of an opportunity to settle prior to the insurer’s tender. Read the decision.

Fourth Circuit Affirms Dismissal of Bad Faith Claim in Beach Property Dispute
Bailey v. Certain Interested Underwriters at Lloyd’s London Subscribing to Pol’y No. BWD65240, No. 23-1642, 2024 U.S. App. LEXIS 13119 (4th Cir. May 31, 2024) (per curiam).

Following a hurricane, the insured disputed the insurer’s calculations regarding the extent of damage suffered at a beach house. The insurer made supplemental payments, and the parties proceeded to appraisal. While the appraisal was ongoing, the insured brought suit. When the appraisal concluded, the insurer paid the final award. Subsequently, the insured amended the complaint, adding a bad faith claim. The district court dismissed the bad faith claim, ruling that the insured failed to plausibly allege any bad faith or aggravating circumstances. The Fourth Circuit affirmed, observing that although the insurer may have been wrong about the severity of the damage, an “honest disagreement or innocent mistake” did not amount to bad faith. The Fourth Circuit similarly rejected the insured’s argument that the insurer’s alleged disregard of a directive from the North Carolina Department of Insurance regarding the need to conduct more thorough inspections on beach properties was bad faith in the present action. Instead, the Fourth Circuit concluded that the insurer’s payment of undisputed amounts and the final appraisal award demonstrated good faith. Read the decision.

Failure to Advise Insured of Potential Implications of Excess Verdict Not Evidence of Bad Faith
Cable v. ProAssurance Cas. Co., No. 3:21-CV-50248, 2024 U.S. Dist. LEXIS 90880 (N.D. Ill. May 21, 2024).

A physician was named as a defendant in a wrongful death and survival action. When the plaintiff made a settlement demand, the physician’s insurer rejected it. After a significant verdict was entered against the physician, he brought suit against the insurer alleging bad faith in rejecting the settlement demand and failing to sufficiently inform him that an excess verdict would put his personal assets at risk. The district court granted the insurer’s motion for summary judgment because the allegations were not sufficient to support a finding that the insurer acted in bad faith by rejecting the settlement demand – even if the insurer could have done a better job of keeping the physician apprised of the possible risks. Read the decision.

Florida District Court Enforces Choice-of-Law Provision, Allows Claim for Breach of Duty of Good Faith and Fair Dealing Under Federal Maritime Law
Liermo v. Nat’l Cas. Co., No. 23-cv-23045, 2024 U.S. Dist. LEXIS 85109 (S.D. Fla. May 9, 2024).

When a yacht was damaged by fire, the insured filed suit alleging breach of contract, breach of the duty of good faith and fair dealing, and bad faith. The recreational marine policy contained a choice-of-law provision, directing that claims arising out of a coverage dispute were governed by federal maritime law or New York law if no rule of federal maritime law applied. The insurer moved to dismiss the extra-contractual claims, arguing that federal admiralty law is silent with respect to claims for bad faith and breach of the duty of good faith and fair dealing, and New York law rejects bad faith claims when brought alongside a breach of contract claim premised on the same facts.  The district court denied the motion as to the breach of the duty of good faith and fair dealing claim, noting that such claims are “well-established” under federal maritime law and, therefore, New York law did not apply. Because federal admiralty law is silent with respect to bad faith claims related to a maritime insurance contract, the district court found that New York law applied to the common law bad faith claim and dismissed same. Read the decision.

New York Eastern District Court Denies Untimely Bad Faith Counterclaim
United Specialty Ins. Co. v. Lic Cont., Inc., No. 17-CV-5736(EK)(VMS), 2024 U.S. Dist. LEXIS 97589 (E.D.N.Y. June 2, 2024).

The insured construction company performed excavation work that damaged a nearby building, resulting in litigation. The insured’s excess insurer filed a declaratory judgment action seeking a ruling that an exclusion barred coverage. While the coverage litigation was pending, the underlying action went to a jury trial and resulted in a large settlement, which the excess insurer refused to pay. The insured then sought to amend its answer in the coverage action to include a claim for breach of the duty of good faith and fair dealing. The district court denied the motion for leave to amend on two grounds. First, because the excess insurer never had exclusive control of the defense, the proposed counterclaim lacked an essential element of a bad faith claim. Second, because the possibility of a verdict exceeding the primary policy’s limit was apparent as jury verdicts can be difficult to divine, there was no equitable reason to allow an untimely counterclaim. Read the decision.

Breach Of California Insurance Regulations May Serve As Basis For Bad Faith Claim
Yacullo v. AIG Prop. Cas. Co., No. 23-cv-2019-MMA (MSB), 2024 U.S. Dist. LEXIS 104758  (S.D. Cal. June 12, 2024).

A $200,000 engagement ring was insured under a “Private Collections” policy. When the ring went missing, the insurer denied coverage, and the insured brought suit for breach of contract and bad faith, alleging violations of California insurance regulations. The insurer moved for summary judgment, arguing that the ring was not covered because it was an unconditional gift and that the bad faith claim failed because there is no private right of action for violations of the California insurance regulations. The district court found that there was a genuine issue of material fact as to whether the engagement ring was an unconditional gift at the time of the loss. Regarding the bad faith claim, the district court agreed that the insurance regulation violations were not dispositive of a bad faith cause of action, but that such violations could be considered by a jury in determining whether the insurer acted in bad faith. Accordingly, the district court denied the insurer’s summary judgment motion. Read the decision.

Eleventh Circuit Rules Coblentz Agreement Unenforceable Against Excess Insurer
Davis v. Great N. Ins. Co., No. 23-10137, 2024 U.S. App. LEXIS 13286 (11th Cir. June 3, 2024).

The insured was a condominium complex that was sued by one of its residents alleging health problems related to mold on the property.  The primary insurer agreed to defend, and the excess insurer agreed to defend subject to a reservation of rights. As the underlying action progressed, the excess insurer sought to hire additional defense counsel for the insured. The insured objected and eventually entered into a Coblentz agreement with the plaintiff. The plaintiff then sought to enforce the agreement against the excess insurer, but the excess insurer moved for summary judgment on the basis that it had proceeded under a reservation of rights and had not denied coverage.  Because an essential element of enforcing a Coblentz agreement against an insurer is a wrongful denial of coverage, the plaintiff was unable to enforce the Coblentz agreement against the excess insurer. The Eleventh Circuit affirmed the district court’s grant of summary judgment in the excess insurer’s favor. Read the decision.