Claims and Bad Faith Law Blog

"Bad Faith Breach" of Homeowner's Policy Requires Coverage.

     In a recent decision under Oklahoma law, a Federal Court has joined the majority of Courts that has addressed the issue, and has held that Coverage is a prerequisite to recovery on a Bad Faith claim under a Homeowner's Insurance Policy:

Because the Court has found that the Stanleys' [the Policyholders'] claimed losses are excluded by their insurance policy and that Farmers, consequently, is not liable under the insurance policy, the Court finds that the Stanleys cannot recover under their bad faith breach of contract claim.

Stanley_v. Farmers Insurance Co. (W.D. Okla. Case No. CIV.05.622.M, Opinion Filed Oct. 25, 2006).pdf.  The same holding was reached under a Homeowner's Insurance Policy under California law, that where there is no breach of the Insurance Contract, there is no Bad Faith Claim, in the recent case of Loughney_v. Allstate Ins. Co. (S.D. Cal. Case No. 06CV1020.LAB, Opinion Filed Oct. 31, 2006).pdf.   Parenthetically, the 'rule' requiring Coverage before there can be a claim for Bad Faith applies to all kinds of Insurance Policies, and not just Homeowner's Policies, of course.  See Boardwalk_Condominium_Ass'n_v. Travelers Indem. Co. (S.D. Cal. Case No. 03CV505, Opinion Filed July 3, 2007).pdf, in which the Insurance Policies at issue were "'all-risk' business owners property policies" and there was a Bad Faith Claim:  "As a threshold matter, the insured must prove that there is coverage under the policy." 

    There is room for argument that perhaps sometimes, at least, even where Insurance Coverage does not exist, a Claim may exist for violation of one or more duties of Good Faith and Fair Dealing.  Not in Oklahoma in the above Stanley case, and not in California in the above Loughney and Boardwalk Condominium cases, however, nor in the great majority of cases in which Courts have to date addressed similar facts and contentions.

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Don't Let Your Babies Grow Up To Be Experts.

     Experts retained by Insurance Companies do not necessarily provide the Insurance Company with a shield of Good Faith or a brand of Bad Faith, by themselves.   A Federal Judge in Ohio has recently held:  "Ohio law does not provide that simply employing and relying on an expert shields an insurer from a bad faith claim....  Reliance on the expert must be reasonable and must provide reasonable justification for a denial of coverage."  See page 13 of the Official Opinion in Ullman_v. Auto-Owners Mutual Insurance Co. (S.D. Ohio Case No. 2.05.CV.1000, Opinion Filed June 11, 2007).pdf.

     In that recent Bad Faith decision, the Federal Court wrote that the Defendant Insurance Company's Motion for Summary Judgment would be denied on the record of that particular case:

It is a close call, but ... the Court must recognize that Plaintiffs have produced evidence that creates a genuine issue of material fact as to whether Defendant reasonably relied on the opinion of its expert in good faith in conducting a full and fair investigation.  There must be an appropriate and careful investigation to conclude that Defendant reached its conclusion as a result of the weighing of probabilities in a fair and honest way.  The claim was not fairly debatable if Defendant hastily relied on an expert who failed to conduct an adequate investigation in shaping his opinion.

Id. at 14.  [Emphasis added.]  In that case, clearly, the expert retained by the Insurance Company became part of the Insurance Company's investigation.  Thus, the expert necessarily became part of the answer to the question of whether that investigation was "full and fair" and part of a "fair and honest" process that resulted in the Insurance Company's conclusion to deny the Insureds' roof and wall collapse claim under a "commercial insurance policy" in that case.

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