Insurance Bad Faith Report, January 2024
Legal Alerts
1.18.24
By: Thomas J. Judge, Joanne L. Zimolzak, Jason C. Reichlyn, Sarah E. Cornwell, Christopher T. Sakauye
California Central District Dismisses Bad Faith Claim Absent Excess Judgment Under Florida Law
Tutor Perini Bldg. Corp. v. First Mercury Ins. Co., No. 2:20-CV-09329-CAS (GJSx), 2023 U.S. Dist. LEXIS 179317 (C.D. Cal. Oct. 2, 2023).
The insured general contractor was tasked with building a residential tower and garage in Florida. Due to alleged project delays (exacerbated by Hurricane Irma), the insured was removed from the project. The insured sued the owner for amounts owed, and the owner counterclaimed. When the insurer denied coverage, the insured brought suit for breach of contract and for tortious breach of the implied covenant of good faith and fair dealing. The insurer moved for partial summary judgment. The district court observed that, in order to plead bad faith under Florida law, there must be a causal connection between the bad faith and the insured’s damages, which is typically shown by an excess judgment or its functional equivalent. Citing Florida case law, the district court squarely rejected the insured’s argument that its bad faith claim did not need to be premised on an excess judgment in this case and granted the insurer’s motion. Read the decision here.
Louisiana Eastern District Court Acknowledges Open Question Regarding Third-Party Claimant Bad Faith Actions
AIG Specialty Ins. Co. v. Agee, No. 2:22-CV-05410-EEF-DPC, 2023 U.S. Dist. LEXIS 197437 (E.D. La. Nov. 2, 2023).
A D&O insurer brought a declaratory judgment action against third-party claimants who had been successful in their suit against the insured. The third-party claimants asserted a counterclaim arguing, among other things, that the insurer unreasonably withheld its consent to settle. The parties moved for summary judgment. In ruling on the motions, the district court examined contradictory precedent on whether Louisiana’s bad faith statute permits actions by third-party claimants against insurers. The district court noted that some cases interpreted the inclusion of the word “claimant” in one subsection of the statute to allow all third-party claimants to bring suit against the insurer, but other cases reached the opposite conclusion. Ultimately, the district court observed “that the law is not perfectly clear” on the issue but acknowledged the decisions allowing third-party claimants to bring claims directly against the insurer. The district court therefore denied summary judgment on that issue. Read the decision here.
Indiana Southern District Court Finds Coverage Letter Did Not Reflect Wrongful State Of Mind Necessary To Support Bad Faith Claim
City of Aurora v. Nat’l Fire & Cas. Co., No. 4:23-cv-00017-TWP-KMB, 2023 U.S. Dist. LEXIS 209135 (S.D. Ind. Nov. 21, 2023).
An insured city fell victim to a computer scam and wired money to a hacker. The insured notified its insurer, who denied coverage on various grounds. After the insured brought suit for breach of contract and bad faith, the insurer moved for judgment on the pleadings. The district court noted that a claim for bad faith required evidence of a state of mind of “conscious wrongdoing” on the part of the insurer. The insurer argued that the only evidence that the insured cited was the coverage letter itself. The insured countered that the insurer’s wrongful state of mind could be inferred by a coverage denial letter if the insurance provisions are clear. The district court rejected that argument, noting that the letter contained an explanation for the coverage decision. The district court accordingly granted the insurer’s motion on the bad faith claim. Read the decision here.
Pennsylvania Eastern District Court Handles Bad Faith Questions Regarding Prior Knowledge Exclusion
Cantaloupe, Inc. v. Axis Ins. Co., No. 22-030, 2023 U.S. Dist. LEXIS 211521 (E.D. Pa. Nov. 28, 2023).
The insured, Cantaloupe, Inc., a payment technology company, filed an 8-K informing investors of an investigation into the company’s revenue reporting. As the district court noted, the filing of the 8-K triggered a series of “melon-choly times,” including three securities class action suits, multiple shareholder derivative demands, an SEC investigation, and a private suit by a major shareholder. The company’s D&O insurer denied coverage for all of the matters based on the policy’s prior knowledge exclusion, pointing to communications made prior to the filing of the 8-K as evidence that the company’s officers knew of potential accounting and financial issues. The insured brought suit against the insurer for breach of contract, bad faith, and breach of the implied covenant of good faith and fair dealing. The insurer moved for summary judgment. The court, in addressing the bad faith claim, found that the insured had failed to meet either prong of Pennsylvania’s bad faith statute, as the insurer had a reasonable basis for its denial and took reasonable steps to investigate the claim. In analyzing the breach of the implied covenant of good faith and fair dealing claim, the district court found that it was subsumed by the breach of contract claim. Read the decision here.
Fifth Circuit Enforces Forum Selection Clause Notwithstanding Texas Public Policy
Eads v. Spheric Assurance Co., No. 23-20066, 2023 U.S. App. LEXIS 32973 (5th Cir. 2023).
A yacht was destroyed in a fire that led to coverage litigation. The insured Texans, who obtained the policy from a Texas agent, filed suit in Texas state court. The insurer removed the case to federal court and sought dismissal on forum non conveniens grounds, citing the policy’s forum selection and choice of law clause in favor of the British Virgin Islands. The insureds opposed on public policy grounds, citing Texas’s robust insurance laws. The Fifth Circuit Court of Appeals affirmed the dismissal, holding that while Texas has a strong public policy of regulating insurance, the Texas Supreme Court had noted it would be a “parochial concept” that all disputes must be resolved under Texas law notwithstanding contractual agreements selecting another forum. Read the decision here.
Oregon Supreme Court Allows Negligence and Emotional Distress Claim Related To Denial Of Life Insurance Benefits
Moody v. Or. Cmty. Credit Union, 371 Or. 772 (Or. 2023).
The insured was shot and killed in a hunting accident. As the insured had marijuana in his system at the time of the accident, his life insurer denied benefits under an exclusion for deaths caused by being under the influence of any narcotic or controlled substance. The decedent’s surviving spouse sued the insurer for breach of contract and negligence, seeking emotional distress damages. The trial court dismissed the negligence claim and emotional distress damages. On appeal, the Oregon Supreme Court reversed, finding that the spouse had a legally protected interest sufficient to state a common law negligence claim based on the public interest set out in Oregon’s unfair claim settlement practices act (which did not contain a private right of action), as violations of the act and bad faith denial of benefits could foreseeably cause emotional distress. Read the decision here.
United States Supreme Court Declines to Hear Case Involving Timing Of Appealable Ruling
USIC, LLC v. N. Illinois Gas Co., No. 21-13377, 2023 U.S. App. LEXIS 9134 (11th Cir. Apr. 18, 2023), cert. denied, __ S. Ct. __ (Jan. 8, 2024).
The United States Supreme Court denied a petition for writ of certiorari in a case addressing when exactly a district court’s decision becomes final and appealable. The Eleventh Circuit Court of Appeals held that, although the district court orally granted summary judgment and entered a minute order on the docket to that effect, the ruling was not appealable until more than two years later when the district court issued its written ruling. In its Supreme Court petition, USIC, LLC argued that the Eleventh Circuit overstepped its authority by holding that the district court’s ruling was an implicit denial of the defendant’s objections to a proposed order on the motion for summary judgment. USIC also argued that the appellate court improperly found that the summary judgment decision did not become final and appealable until the written order was issued. The district court’s intent to later issue a written order, USIC contended, did not affect the finality of the district court’s oral ruling. Because the Supreme Court declined to hear the case, some rulings in the Eleventh Circuit can stand in limbo (potentially for years) until the district court writes its decision.