Can There Be Bad Faith in Reimbursement Claims Against Insureds?

     In American Modern Home Insurance Co. v. Fahmian, 2011 WL 1334959 (Cal. 4th DCA, Div. 3, April 8, 2011) a California District Court of Appeal affirmed and directed awards to American Modern Home Insurance Company which include reimbursement from its Policyholder, Mr. Fahmian, whom it defended in an underlying lawsuit.  The reimbursement award included $300,000 paid by American Modern to settle the underlying lawsuit on behalf of Mr. Fahmian and his business; fees and defense expenses "that the trial court determines are reimbursable under the terms of the policy," i.e., that were not covered by the policy;  plus prejudgment interest.  Id. at *10.

     The California Appellate Court applied what it called these "binding" rules concerning reimbursement claims and causes of action by liability insurance companies against their policyholders and other insureds:

Under binding California Supreme Court authority, an insurance company may obtain reimbursement from its insured for a policy limits settlement, when it is determined the underlying claim was not covered by the policy, if the insurance company (1) made a timely and express reservation of rights, (2) provided express notification to the insured of the insurer's intent to accept the proposed settlement offer, and (3) made an express offer that the insured could assume its own defense.  In this case, American Modern did all of the foregoing.  We decline to add any additional requirements.

 Id. at *1.

   The "additional requirement" that the California Appellate Court did not add in this particular case was a requirement added by the Trial Court in denying American Modern's claim for reimbursement against Mr. Fahmian.  The Jury in that case found as a fact, and the Trial Judge incorporated that finding into his ruling, "that Fahmian did not have sufficient time to make a reasoned reply to American Modern."  Id.

   Some practitioners have wondered whether there can be Bad Faith and Unfair Dealing issues where a Policyholder or other Insured -- and perhaps the Liability Insurance Company as well -- is presented with a situation like this, in which as a matter of fact the Insured "did not have sufficient time to make a reasoned reply to" their Liability Insurance Company.  The case law has not yet addressed this issue to my knowledge.

   The American Modern Home Insurance Co. v. Fahmian decision is the subject of a post I wrote for the Defense Research Institute Official Blogger at www.dri.org (no password or registration required to access it).  The case has also received comments at the "Insurance Coverage" Group on LinkedIn (registration believed to be required for access to www.linkedin.com).

Please Read The Disclaimer.

 

Comments

[Home nsurance Agency Framingham MA]

Great Blog!! That was amazing. Your thought processing is wonderful. The way you tell the thing is awesome. You are really a master.

Home
Insurance Framingham MA

[Dennis Wall]

Thank you for your kind words, and for taking the time to Comment.
Dennis Wall