Insurance Claims and Bad Faith Law Blog

Good Faith Facts Can Make Law.

     The Federal Court in the Eastern District of Kentucky was faced with a question that, as of January 12, 2006, no Court in Kentucky had answered.  Lawyers call this "a case of first impression".  The author was retained as an Expert Witness in an Insurance case in Florida just like this one.

     The question in the Kentucky case was whether there was Good Faith or Bad Faith by a Liability Insurance Company in its settlement with more than one person who made a liability claim against the Policyholder.  In the process of settling these claims, the Insurance Company exhausted or used up the Policyholder's complete policy limits -- and triggered a policy provision that the Insurance Company no longer had to defend once the policy limits are exhausted.  The answer to this question will determine Good Faith or Bad Faith, and at the same time the answer in a case like this also determines whether the Insurance Company has to defend the next claim from the same automobile accident in this particular situation.

     In January, 2006, the Federal Court said that there was not enough evidence in the record to determine whether the Insurance Company had settled in Good Faith or in Bad Faith:  Safeco_Insurance_Co. v. Ritz (E.D. Ky., Opinion Filed Jan. 12, 2006).pdf.  When there was enough evidence to consider the Good Faith or Bad Faith question, Kentucky law as announced by the Federal Judge for cases involving more than one claimant, would require various facts to be considered:

     Among the 'various factors' to be considered in determining the existence of bad faith are (1) whether the settlement offers of all the claimants totaled the policy limits or less, (2) whether the insured demanded that the insurer settle with all claimants, and (3) the probability that the claimants excluded from the settlement would obtain a jury verdict or verdicts against the insured which would exceed the policy limits.

Slipsheet Opinion at page 12.  The Supreme court of Kentucky makes it clear that these are not going to be the only factors to consider, the Federal Judge hastened to add.  Among other things, Kentucky Courts in such cases will "likely look to courts in other jurisdictions" as the Federal Judge himself did in this case.

     In December of the same year, the Federal Judge held that there was no Bad Faith, granted the Insurance Company's motion for summary judgment on the record by that time, and also held that the Insurance Company in that case did not have a duty to defend the next claim, based on the same automobile accident, and by a claimant with whom the Insurance Company had not settled:  Safeco_Insurance_Co. v. Ritz (E.D. Ky., Opinion Filed Dec. 5, 2006).pdf.

     Many legal results depend on the actual facts, and this is one of them.

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Primary Carrier Good Faith: ....

                  "It's Not Just For A Policyholder Any More!"  Is It?

     A new case decided on Valentine's Day, 2007 forges new law and also  presents an apparent new conflict in Florida Insurance Law:  Progressive American Insurance Co. v. Nationwide Insurance Co. (Fla. 1st DCA Case No. 1D06-2159, Opinion Filed February 14, 2007).   That short case  -- the entire decision is concisely printed in 3 paragraphs -- involves two Liability Insurance Companies, both with a duty to defend except for one thing.  When the Court compares their "other insurance" clauses, one Insurance Company's Policy makes it "excess" by comparison while the other Policy is "primary" by comparison.

     On these basic facts, the conclusion in this decision is the distinct minority position across the United States.  This issue has been addressed many times by Courts, parties and their counsel including me over the years.

     Back to the new decision at hand.  In it, a distinguished panel of Florida's First District Court of Appeal applied a widely held rule of what is called "equitable subrogation".  Under this universal rule, an Excess Carrier pays indemnity under the Policy it issued to the Policyholder and thereby gets to stand in the shoes of the Insured-Policyholder.  That means that the paying Excess Carrier gets the ability to assert the same rights against, and to claim the same obligations from the Insured's Primary Carrier, that the Insured-Policyholder has.

     That includes the right if any that the Insured-Policyholder has to claim that the Primary Carrier did not act in Good Faith toward the Insured.  The Court in the new decision ended with a conclusion that is very different from this universal rule, however:  "Therefore, [the Primary Carrier] owed [the Excess Carrier in this case] a duty of good faith."

     The vast majority view to the contrary is discussed at length in, for example, Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith Ch. 6 and Ch. 7 (West Publishing Co. 2d Edition 1994, 2007 Supplement in Process).  I represented a Primary Carrier in an earlier case with a different result and an apparently conflicting decision by the same First District Court of Appeal.   The conflicting holding is not cited in the new decision, the oldest citation in it being to a case decided in 1985:  "We further find [the Primary Carrier's] remaining claim that [the Insured's Excess Carrier] owes a direct duty to [the Primary Carrier] not cognizable under Florida law."  Hartford Accident & Indemnity Co. v. Travelers Indemnity Co., 554 So. 2d 559, 560 (1st DCA 1989)[emphasis added], review denied, 564 So. 2d 1086 (Fla. 1990).

     It will be interesting to see how the First District Court of Appeal and other Florida Courts resolve the apparent conflict.  It will be significant whether Florida Insurance Law stays in the majority column or joins the tiny minority on this narrow but national issue.

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Four Corners vs. Facts Too.

    The duty to defend under a policy of liability insurance is determined by two tests in this country.  One is to compare the four corners of the compaint filed against the insured with the four corners of the insurance policy.  The other test is to also consider the facts known to the liability insurance company outside of  or "extrinsic to" the four corners of the underlying complaint and compare those, too, with the four corners of the insurance policy.  Some courts apply both tests. 

    Both tests were very recently applied under Minnesota law by the Federal Eighth Circuit Court of Appeals in Download travelers_property_casualty_co. v. General Casualty Insurance Cos. (8th Cir. Case No. 05-3863 Opinion Filed October 13, 2006)..pdf.   The person claiming Insurance Coverage there, namely a duty to defend him, is a Mr. Paine, who is a golf professional and a member at all times of the Professional Golfers' Association of America ("PGA").  A student allegedly injured in a phys-ed class sued the golf professional for negligence.  Regent Insurance, which has changed its name to General Casualty, issued a liability policy to the PGA which insures Mr. Paine.  Before the final round in the appellate court, the trial judge took pains to consider many links of Minnesota Insurance Law.  The District Court also fairly considered pertinent facts along the way, i.e., the facts and lay of the land known and presented to the liability insurance company.

    In a long opinion, the Eighth  Circuit reviewed the tour of Minnesota Insurance Law taken by the District Judge and pronounced the District Judge's decision as a master.  That Federal Appellate Court affirmed the Federal Trial Court's entry of summary judgment for the liability insurance company, "finding it had no duty to defend".  One Circuit Judge dissented, thereby perhaps either lending credibility to the commonly held but unsupported belief that every golf outing has a kibitzer, or providing support to the less widely held but totally supportable belief that Insurance Coverage Questions are not always as straight of a shot as they may seem to be.

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY IN AND FAMILIAR WITH THE PARTICULAR JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.

   

 

Defend or Ignore: Is Tender required or is Knowledge enough?

    Under liability insurance policies, insurance companies ordinarily owe their policyholders a duty to defend them against covered lawsuits.  Insurance companies issuing liablity policies containing standard defense provisions even have a duty to defend additional insureds, i.e., people, corporations, and entities that may not have paid a premium penny for the coverage.

    Some courts hold that when such a liability insurance company "knows" of a lawsuit against one of its insureds (whether policyholders or additional insureds), regardless of where the carrier's knowledge comes from, then that carrier likely has a duty to defend.  Other courts hold that a "tender" of the defense to the insurance company by the insured is required in order for such a liability insurance carrier to have a duty to defend that lawsuit.

    The differences and considerations involved in both of these points of view are discussed in a brand-new case arising under Texas state law and filed in the Fifth Circuit Court of Appeals.  In an opinion filed last Friday, September 29, 2006, Crocker v. National Union Fire Insurance Co. (5th Cir. No. 05-50813 Opinon Filed September 29, 2006) the Fifth Circuit panel reflected that Texas state law was changing on this issue.  The Federal appellate court was confronted with these questions, it wrote (see page 24 of the slipsheet opinion and access the opinion on the Fifth Circuit web site at Fifth Circuit public web site ):

            Does an insurer have any right or duty to defend a covered suit against an additional insured with whom it has no direct relationship and who, knowing of the suit, has not expressly or impliedly requested a defense?  If the insurer knows of the covered suit, what duty, if any, does it have to notify a sued additional insured (who does not know of the coverage) of the applicable coverage?  What duty, if any, does a sued additional insured have in such a situation?
            As to none of these related questions of law does there appear to be any controlling Texas Supreme Court precedent.

Having taken note of these confronting questions, the Fifth Circuit panel certified questions based upon them, to the Texas Supreme Court for answers.  Further updates on these issues will be posted as they become available.  It is a certainty that more cases will be filed raising these issues, and that future courts will be addressing these and related issues.

REMINDER:  THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP.  ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY IN AND FAMILIAR WITH THE PARTICULAR JURISDICTION AND ITS LAWS, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.