Insurance Bad Faith Report, October 2024

California Supreme Court Finds Unfair Competition Law Claim Not Barred By Contractual Limitations Provision
Rosenberg-Wohl v. State Farm Fire & Cas. Co., 551 P.3d 1097 (Cal. 2024).

When the insurer denied a homeowner’s property claim based on a wear and tear exclusion, the homeowner filed two lawsuits, one seeking coverage for the property repairs and alleging bad faith, and another seeking damages under California’s Unfair Competition Law (“UCL”) based on the insurer’s alleged pattern and practice of summarily denying coverage without adequate explanation. The trial court dismissed both suits, enforcing the policy’s one year contractual limitations period. The insured appealed the dismissal of the UCL claim to the California Supreme Court, which found that the limitations clause did not apply to the UCL suit as it was not made “on this policy for the recovery of any claim.” (emphasis in original). Instead, the court observed that the suit sought broad relief in the public’s interest. Read the decision.

South Carolina Appellate Court Finds Pre-Trial Policy Limits Offer Precludes Bad Faith Failure-To-Settle Claim
Morris v. State of Fiscal Accountability Auth., No. 2024-UP-288, 2024 S.C. App. Unpub. LEXIS 291 (Ct. App. July 31, 2024).

An individual died while in custody at a detention center, and the decedent’s estate brought a wrongful death action. Two months before trial, the insurer offered to settle the suit for the $600,000 policy limit, which the estate rejected. The case was tried and nearly $3 million in compensatory and punitive damages was awarded. The estate, as the detention center’s assignee, brought a bad faith failure-to-settle suit, alleging that the matter could have settled for less than policy limits early in the case. The trial court found no evidence of bad faith because the estate’s lowest settlement demand was for $1 million, which exceeded the policy limits. The South Carolina Court of Appeals affirmed and further reasoned that the insurer’s tender of the limits before trial barred the estate’s bad faith claim. Read the decision.

Nevada Supreme Court Affirms $160 Million Bad Faith Award
Sierra Health & Life Ins. Co. v. Eskew, 553 P.3d 441 (Nev. 2024).

The Nevada Supreme Court upheld a combined jury award of $200 million in damages against Sierra Health and Life Insurance Company for its bad faith refusal to cover proton beam radiation therapy for an insured who was battling lung cancer. After the insured’s death, his estate sued Sierra for bad faith. In a two-part trial, the jury awarded the estate $40 million in compensatory damages and $160 million in punitive damages. Sierra appealed to the Nevada Supreme Court, contending that the district court erred in denying its renewed motion for judgment as a matter of law on the bad faith claim. Sierra argued that it had a reasonable basis to deny coverage because the medical policy of its parent company stated that proton therapy was not medically necessary to treat lung cancer. The Nevada Supreme Court rejected that argument, finding “substantial evidence” from which the jury could conclude that Sierra knew it was not reasonable to deny a claim for proton therapy based on the policy. Accordingly, the court found that the district court did not err in denying the renewed motion for judgment as a matter of law because the bad faith finding was supported by substantial evidence. The court also determined that Sierra was not entitled to judgment as a matter of law on punitive damages, as the jury was properly instructed on the type of conduct that may expose a party to liability for such damages, and there was substantial evidence that Sierra acted with “oppression.” Read the decision.

Colorado District Court Dismisses Insurer’s Bad Faith Claim Against Non-Contributing Insurer
Acuity v. Kinsale Ins. Co., No. 23-cv-03105-PAB-KAS, 2024 U.S. Dist. LEXIS 176175 (D. Colo. Sep. 27, 2024).

The insured was a stucco subcontractor that had been sued over its work on a retirement community. The lawsuit’s allegations involved a period of time implicating three insurance policies issued by three insurers. At a settlement conference, two of the insurers contributed to a settlement, but Kinsale Insurance Company refused. In the later-filed contribution action against Kinsale, one contributing insurer asserted claims for common law and statutory bad faith. Kinsale moved to dismiss on the grounds that it could not be liable for bad faith to a co-insurer under common law or statute. The district court agreed and dismissed the bad faith claims. First, the district court found no support for the argument that an insurer, through its status as a third-party beneficiary or as a co-insurer, could sue another insurer for common law bad faith. Second, the district court found that because the claimant had not alleged statutory bad faith against the insured, and the insurers did not pay to settle such a claim against the insured, the contributing insurer acquired no subrogation or other rights permitting a bad faith claim against Kinsale. Read the decision.

Tenth Circuit Reverses Bad Faith Ruling Based on Timing of Excess Judgment
Jenkins v. Prime Ins., Co., No. 23-4113, 2024 U.S. App. LEXIS 22387 (10th Cir. Sep. 4, 2024).

The insured healthcare company was sued for medical malpractice, and its insurer undertook the defense. Due to a dispute over the amount of the policy’s limit, the malpractice suit failed to settle. Within two years after a $60 million excess judgment was entered against it, the insured sued the insurer for bad faith. The district court granted the insurer’s summary judgment motion, concluding that the bad faith claim was time barred. The Tenth Circuit Court of Appeals reversed, finding that, under the majority view, the bad faith claim began to accrue when the excess judgment became final and non-appealable, which was within the period of limitations. The Tenth Circuit remanded the case for further proceedings regarding the bad faith claim. Read the decision.