Insurance Bad Faith Report, January 2025

Eastern District Of Texas Dismisses Statutory Bad Faith Penalties After Insured’s Death
Barron v. Century Sur. Co., No. 1:22-CV-144-MAC-ZJH, 2024 U.S. Dist. LEXIS 191312 (E.D. Tex. Oct. 4, 2024).

Following damage to an individual’s commercial building, the insured filed suit against the property insurer for breach of contract, statutory bad faith, and statutory interest and attorney’s fees under Chapter 542 of the Texas Insurance Code. While the suit was pending, the insured died. The insurer then sought to dismiss the Chapter 542 claims on summary judgment, arguing that they did not survive the insured’s death. Observing the absence of controlling Texas authority, the District Court for the Eastern District of Texas made an Erie guess that the Chapter 542 claims would not survive because they were penal, rather than contractual, in nature, and accordingly dismissed the claims. Read the decision.

Insurers Not Required To Post Appeal Bond Covering Portion Of Judgment Exceeding Policy Limit Absent Bad Faith In Louisiana
Martinez v. Am. Transp. Grp. Risk Retention Grp., Inc., 23-01716 (La. 10/25/24), 395 So. 3d 731.

An accident involving a commercial vehicle resulted in a verdict well in excess of the policy’s limit of liability. The insurer sought to post a bond covering only its policy limit and appeal the judgment. However, as the corporate insured had become insolvent during litigation, it was unable to post a bond covering the amount of the judgment exceeding the policy limit. The trial court required the insurer to post a bond for the entire judgment. On appeal, the Supreme Court of Louisiana concluded otherwise, recognizing that an insurer is not liable for amounts in excess of the policy’s limit absent bad faith. The court observed that, in such a situation, the insurer could file a “suspensive” appeal for the policy limit and a “devout” appeal of the remainder, allowing execution on the uninsured portion of the judgement while the appeal is pending, unless the insured posts a bond for the uninsured portion. Read the decision.

Ninth Circuit Finds No Bad Faith When Insurer Required Release Of All Potential Insureds
Garcia v. GEICO Cas. Co., No. 23-55646, 2024 U.S. App. LEXIS 26507 (9th Cir. Oct. 21, 2024).

Plaintiffs in an automobile wrongful death case sued the other car owner’s insurer, alleging bad faith failure to settle because the insurer rejected a policy limits demand that did not include the driver, a potential additional insured, as well as the owner. Plaintiffs argued that a reasonable investigation would have shown that the driver was not an additional insured and was not required to be included in the release. Plaintiffs also contended that the insurer’s failure to communicate the settlement offer to the owner was bad faith. The Ninth Circuit rejected plaintiffs’ arguments, finding it well established that an insurer does not act in bad faith by rejecting a policy limits demand for a release of only one potential insured. The court further found that the release dispute, not the failure to communicate the settlement offer, prevented the settlement, so there was no bad faith. Read the decision.

Texas Appellate Court Enforces Forum-Selection Clause For Extra-Contractual Claims
Havercombre Ventures Ltd. v. Spheric Assur. Co., No. 05-24-00220-CV, 2024 Tex. App. LEXIS 7948 (Tex. App.—Dallas Nov. 13, 2024).

Following a boating loss, the insured filed suit alleging violations of the Texas Insurance Code, breach of the duty of good faith and fair dealing, fraud, and violations of the Texas Deceptive Trade Practices Act. The insured, however, did not expressly allege breach of contract. The trial court granted the insurer’s motion to dismiss based on the policy’s forum-selection clause, identifying the British Virgin Islands. On appeal, the insured argued that the forum-selection clause applied only to contractual claims. The 5th Court of Appeals disagreed, holding that the insured’s “artful pleading” did not remove the extra-contractual claims from the scope of the forum-selection clause, as the basis for all of the causes of action was the denial of coverage under the insurance contract. Notably, the court observed that the insured failed to explain how the claim for bad faith and fair dealing could be adjudicated without referencing the parties’ contractual relationship or the policy’s terms. Read the decision.

Alabama Northern District Says Mistakes, Poor Communication, And Disagreements Are Not Bad Faith
Goodrich v. Pac. Indem. Co., No. 2:22-cv-00021-MHH, 2024 U.S. Dist. LEXIS 209005 (N.D. Ala. Nov. 18, 2024).

When the insureds’ home was destroyed by fire, the property insurer allegedly undervalued the loss. The insureds brought suit alleging breach of contract, bad faith failure to pay, interference with contractual relationship, and rage. The parties filed cross-motions for summary judgment on the breach of contract and bad faith claims. In granting summary judgment for the insurer on the bad faith claim, the district court observed that the record reflected “a string of mistakes, poor communications, and concern about overreaching payment requests,” but there was no evidence of a dishonest purpose on the insurer’s part or a reckless or intentional failure to investigate the claim. The court similarly acknowledged that although the parties held legitimate, but differing, perspectives as to the various claims handling issues, those disagreements did not amount to bad faith. Read the decision.

Sixth Circuit Affirms Partial Summary Judgment For Insurer On Bad Faith Claim Despite Insured’s Expert Report
Builders Mut. Ins. Co. v. GCC Constr., LLC 24-5179, No. 24-5152/5179, 2024 U.S. App. LEXIS 31518 (6th Cir. Dec. 11, 2024).

The insured construction company was hired to renovate a building, during which construction caused an inner part of one of the walls to partially collapse, leaving the remaining portion of wall intact. The insurer filed a declaratory judgment action seeking a declaration that coverage was properly denied because the wall had not fully collapsed as was required by the policy. The insured counterclaimed for breach of contract and bad faith. On summary judgment, the court dismissed the bad faith claim, and the insured appealed. The Sixth Circuit Court of Appeals affirmed, ruling that the insurer was entitled to a presumption of good faith because it had sought a declaratory judgment from the district court that the policy did not provide coverage. The insurer also had relied on testimony from its adjuster, who had investigated the worksite and concluded that the wall had not fully collapsed. Citing its own expert, the insured contended that the insurer could have taken additional steps to investigate the accident, such as getting a coverage opinion from an attorney or hiring a follow-up engineer to examine the wall, and that the failure to take such steps was evidence of bad faith. The Sixth Circuit disagreed, finding that the insured’s expert had conceded that the insurer correctly relied on reports generated by the insured in finding that a complete collapse had not occurred. Read the decision.