The question of bad faith involves insurance carriers' timely investigation and evaluation of claims against policyholders. In many jurisdictions, the question of bad faith also involves the carrier's conduct before and after the bad faith lawsuit is filed. See generally 2 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 9:6, The Question of Bad Faith -- Timely Investigation and Evaluation Before And After The First-Party Insurer is Sued for Bad Faith (West Publishing Co. 3d Edition, 2022 Supplements in process).
An opportunity for extracontractual exposure based on investigation and evaluation came in Nikfard v. State Farm Fire & Casualty Co.,[1] a first-party case involving loss from a fire. The fire in that case damaged a rental house owned by the plaintiff policyholder, who made a claim for the damage caused by the fire. His "first-party property insurance" carrier accepted coverage. The carrier recommended that the policyholder contact a certain general contractor who doubled as an insurance restoration specialist, which he did.
The g.c. prepared a preliminary estimate of the cost of restoration of the policyholder's house, using a computerized program called Xactimate. The Xactimate program is familiar both to insurance companies and to coverage practitioners.
In this case, the evaluation was only intended to be preliminary. It was never intended to be the basis for the g.c. performing the restoration work. The preliminary evaluation was $149,900.86.[2] The carrier seized upon this figure and this computer report and never let go. However, the evidence showed that the repairs would realistically take at least $100,000.00 more than that before restoration was finished on this particular house.
In fact, the restoration project ultimately cost $334,470.00. Before the project ended, the carrier paid $174,071.94.
Before the case was over, the carrier would pay $429,702.32.
The policyholder sued, alleging several claims. One was for breach of contract. He prevailed on this claim and received $160,398.06, which was the difference between what the project ultimately cost and what the carrier paid.[3]
The policyholder's final claim among several claims he alleged, was brought under the Consumer Protection Act in Washington. This claim was successful in generating an award of the policyholder's attorney's fees. He recovered attorney's fees in the amount of $261,964.00 and costs in the amount of $7,339.36. He proved his CPA claim in part by proof of a violation of an Unfair Claim Settlement Practices Regulation which has the force of law in Washington, and generally if not identically follows the Uniform Unfair Claim Settlement Practices Acts promulgated by the National Association of Insurance Commissioners and in force across the country.[4]
In the end, the carrier's reliance on its original investigation and evaluation until the bad faith trial came to an end, cost it another quarter of a million dollars.
[1] Nikfard v. State Farm Fire & Cas. Co., No. C19-6001RSL 2021 WL 3620277 (W.D. Wash. August 16, 2021).
[2] Nikfard, 2021 WL 3620277, at *1.
[3] Nikfard, 2021 WL 3620277, at *4.
[4] See WALL, supra, §§ 9:14 (Express statutory causes of action) and 9:15 (Implied statutory causes of action), infra. The effects of the UCSP Acts in third-party or liability insurance cases are discussed in § 3:28, supra.)
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