Claims and Bad Faith Law Blog

"DUDE, YOU OVERDID IT."

It is settled Florida law that "implications of bad faith should not form a basis to determine liability in a first party insurance coverage action."  Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 184 (Fla. 4th DCA 2018).  The appellate court granted the carrier's motion for new trial "grounded on [the policyholder's attorney's] improper arguments and questioning of HCI's litigation manager[.]"  Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 183 (Fla. 4th DCA 2018).

          The appellate court summarized the implications and arguments in general terms as follows:

    HCI argues that a new trial is warranted because Kuwas presented his theory of the case in such a way as to improperly imply HCI's bad faith in the handling of the claims in this case and other cases in general. In particular, HCI points to [the policyholder's attorney's] remarks that HCI was “playing the odds” in deciding to deny a claim “in the hope that the party who is seeking to be paid under a policy will not sue them.” HCI argues that [the policyholder's attorney] improperly used this phrase in his opening statement, closing argument, and his examination of HCI's litigation case manager.

Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 184 (Fla. 4th DCA 2018).   The appellate court gave a few details about these questions and implications, but not very many.  Not until they reached the policyholder's attorney's closing argument.

          Then the appellate court quoted the following apparently verbatim:

“Everything that one needed to know was stuff that they knew from day one. And what they did was, they decided to play the odds. Right? We'll talk a little bit about that. They decided, we're going to play the odds. And we're just going to disregard responsibilities that they have, personal responsibility.”

Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 184 (Fla. 4th DCA 2018) (emphasis added by the Fourth District Court of Appeal).

          And so, on the basis of all these implications, arguments, questions, and statements, the appellate court granted the carrier a new trial in this first-party insurance coverage case because the remarks implied bad faith as a basis for the jury to determine the carrier's liability on an insurance coverage claim.

          But the appellate court was not done, because the arguments, questions and statements were not done in the trial court.  The carrier initially alleged an affirmative defense based on "the sewer backup exclusion" in its policy, but withdrew it sometime before this case was tried.  See Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 186-87 (Fla. 4th DCA 2018).  At the trial, the policyholder's counsel closing included the following additional commentary, all in addition to the remarks previously quoted:

And you know, this case was filed last year. And we're litigating for—it's an early case, the number 500 case last year probably is 14 months old. We're litigating for 14 or 15 months. And we're fighting like the dickens over whether or not a sewer backup is excluded. And then we come to court after all this litigation, after all of this depositions, and motions, and whatnot—... Right? After depositions and whatnot, and [HCI] comes in and says oh, by the way, we just were kidding about that one. We're just kidding about that. That one doesn't apply. You know the plaintiff's right, that doesn't apply, okay, but let's try something else, right?

Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 186 (Fla. 4th DCA 2018) (again, emphasis added by the Fourth District Court of Appeal).

          The appellate court agreed with the carrier's argument that it was deprived of a fair trial by these remarks in this insurance coverage case, because, it asserted, "this comment denigrated its defense and implored the jury to punish it for exercising its rights to conduct discovery and litigate motions in connection with the case[.]"    Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 187 (Fla. 4th DCA 2018).  The appellate court agreed.  It reversed and remanded the case for a new trial on the strength of these additional remarks, as well:

We agree that a new trial is warranted because the comments made by [the policyholder's counsel] in closing argument improperly denigrated HCI's defenses and were so highly prejudicial and inflammatory such that it was denied its right to a fair trial.

Homeowners Choice Prop. & Cas. Ins. Co. v. Kuwas, 251 So. 3d 181, 188 (Fla. 4th DCA 2018).

          The moral of the story is not so much to keep your mouth shut, for what else is a lawyer hired to do, except represent her or his client?  Rather, the moral of the story is summed up in the title of this article:  Dude, you overdid it.

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COURT HOLDS CLAIMS ADJUSTMENT CAN INFLICT EMOTIONAL DISTRESS.

The Connecticut Superior Court denied the insurance carrier's motion for summary judgment in O'Connor v. QBE Insurance Corp., No. CV126032396, 2018 WL 4838937 (Conn. Super. Ct. Sept. 19, 2018).

     The Connecticut court held that the adjustment of claims can also be the negligent infliction of emotional distress.  The carrier argued against the negligent infliction of emotional distress on many grounds.

    The Connecticut court rejected each and every one of the grounds for summary judgment that the carrier raised in that case, including this one,  that the carrier never dealt directly with the plaintiffs.  The carrier's policy was issued to a condominium association, and while the plaintiffs were owners of units in the condominium, they were not the policyholders and the carrier did not deal directly with them on their claims for damages to their unit.

    The court rejected this as a good reason for the carrier's summary judgment motion in that case:

    The defendants' various claims are in conflict with both the law and the evidentiary record, and the plaintiffs' objections are well taken. Accordingly, the defendants have not shown that they are entitled to summary judgment on the plaintiffs' negligent infliction of emotional distress claims. As relates to the defendants' claim that their lack of direct contact with the plaintiffs precludes the plaintiffs' recovery on a negligent infliction of emotional distress claim, they have cited no law in support of that proposition. In fact, there is no such requirement; rather, the plaintiffs are correct that the relevant inquiry focuses on a defendant's conduct, the foreseeability of that conduct causing a plaintiff emotional distress, and whether the plaintiff's distress actually is attributable to the defendant's conduct rather than some other circumstance.

O'Connor v. QBE Insurance Corp., No. CV126032396, 2018 WL 4838937, at *4 (Conn. Super. Ct. Sept. 19, 2018) (emphasis added).

    The court also rejected the carrier's proffered reasons for entering summary judgment in its favor on the plaintiffs' remaining claims under the Connecticut Unfair Trade Practices Act and the Connecticut Unfair Insurance Practices Act.  O'Connor v. QBE Insurance Corp., No. CV126032396, 2018 WL 4838937, at *7-*8 (Conn. Super. Ct. Sept. 19, 2018).

    So, the way things look now, all of these claims are going to trial in this case.

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The saga origin story of Senator Joe Manchin, and the theatrical career of Senator Susan Collins, are explored in articles posted on Claims and Insurance Blog in the last 2 days.

 

QUIET IN THE COURTS! GOOD FAITH CLAIMS FILES.

There are many insurance bad-faith claims.

Most of them settle.

Virtually all insurance bad-faith cases in litigation include fights over production of claims files.  If you are the claims representative for the insurance company who handled the underlying case against the policyholder, or who handled the claim of the policyholder for coverage, then it is your file that supposedly show your company's risk of bad-faith exposure.

Some cases are likely to lead to large verdicts against your company for bad faith.  Most, probably not.  Consider an alternative.

Your claims handling shows your good faith.  Your claims file is good faith on display.

Consider an alternative to concealing evidence and making secret settlements.

When you have handled this claim like so many other claims in good faith, your claims file shows your good faith. 

Maybe not all fights over production of your claims file are necessary.

Maybe not all bad-faith claims need to be settled either.

Consider putting good faith on display.

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NEW: "INJURY IN FACT": WHAT HAPPENS TO INSURER BAD FAITH STATUTES?

FROM THE 2018 SUPPLEMENT:

 

Litig. & Prev. Ins. Bad Faith § 9:14.50 (3rd ed.)

Litigation and Prevention of Insurer Bad Faith, Third Edition

A pdf of this new section can be accessed here or on my website at www.dennisjwall.com.

 

July 2018 Update

Dennis J. Wall

Part III. First-Party Claims

Chapter 9. Standards of Insurer Conduct

• 9:14.50. “Injury in Fact”: What happens to bad faith statutes?

Claims handling and penalties statutes regulating the business of insurance may not any longer provide causes of action to many policyholders and claimants.

In 2016, the Roberts Court grafted a requirement onto the U.S. Constitution which is not found in it—standing — but which is instead found in the Court's cases. Cases decided in lower courts since the Roberts Court raised standing to a constitutional prerogative are divided over whether Congress and State Legislatures can provide standing by providing remedies for statutory violations.

In Spokeo, Inc. v. Robins,¹ the Court raised the judge-made doctrine of standing to constitutional status. “Standing to sue,” the Court recognized, “is a doctrine rooted in the traditional understanding of a case or controversy. The doctrine developed in our case law,” said the Court in Spokeo, Inc. v. Robins.²

One of the elements of standing is “injury in fact,” which the Spokeo Court raised to “a constitutional requirement” which bars legislatures from conferring standing on people and organizations in most cases. To establish injury in fact, a person invoking a statutory remedy now must meet a newly-found constitutional requirement that she or he had a legally protected interest that is concrete and individualized to her or him, and that the harm is “actual” or “imminent,” not “conjectural” or “hypothetical.”³The Spokeo case itself was presented when Mr. Thomas Robins filed a lawsuit claiming an alleged violation of the Fair Credit Reporting Act by an internet search engine service which incorrectly provided information to the world about him. The Roberts Court remanded for a determination of whether Robins adequately alleged an injury in fact in his complaint.

As it has done by replacing “ultimate facts” pleading with “plausibility” pleading, in which allegations of fact in a complaint must be weighed by each individual judge who must dismiss the complaints that he or she does not think are “plausible,” the Roberts Court has laid down another obstacle to filing lawsuits in Federal Courts.⁴ It is fundamental to its process to note how many times the Court would have people believe that its work has consisted for several years now of finding procedural and constitutional limitations which other Courts somehow must have overlooked.

In an interesting application of the Spokeo “standing-means-injury—in-fact” requirement, the District Court in Stromberg v. Ocwen Loan Servicing, LLC^4.10 was confronted with a lawsuit filed as an alleged class action by “Plaintiff Bonnie Lynne Stromberg [who] asserts a California state law claim against two mortgage lenders and a mortgage loan servicing company for failing to reconvey a deed of trust on real property within thirty days after repayment of her home loan.”^4.20 The Court rejected the mortgage lenders' and mortgage servicer's challenges to Ms. Stromberg's standing to sue them by ruling that she had sufficiently alleged “injury in fact” through these “conclusory” allegations (which she handily supported with an affidavit and which the Court considered together with the allegations in her complaint):

The Court does not need to decide whether a bare procedural violation of California's analogous prompt-recording statute constitutes a concrete injury-in-fact for standing purposes because Stromberg has not alleged “a bare procedural violation, divorced from any concrete harm.” Spokeo, 136 S. Ct. at 1549. To the contrary, she has alleged “additional harm beyond the one [the legislature] has identified.” Spokeo, at 1549–50 (emphasis in original). In her complaint, Stromberg alleges that she “suffered injury in the form of slander of title, incurred costs, impaired credit and incomplete and inaccurate public records respecting her financial obligations and credit worthiness.” Compl. ECF No. 58 ¶ 43. Even if this allegation regarding injury is, as Defendants contend, too conclusory by itself to establish an injury-in-fact, Stromberg has also submitted an affidavit that includes further factual support for her standing. ECF No. 101-1, Ex. A.^4.30

Other Courts have found Spokeo standing to assert Fair Debt Collection Practices Act claims,^4.40 Telephone Consumer Protection Act claims,^4.50 Fair Credit Reporting Act claims alleged by a pro se plaintiff,^4.60 and products liability claims in multi-district litigation which include allegations of noncompliance with standards set under regulations issued by the federal Environmental Protection Agency and by the California Air Resources Board.^4.70

As an example of lower federal courts actively seeking situations in which people simply cannot sue for alleged violations of State statutes, even though States have provided the statutory remedies alleged in the given case, the Eleventh Circuit Court of Appeals held after Spokeo that a borrower-mortgagor in New York State could not bring that particular lawsuit for an alleged violation of New York Real Property Law because now the United States Constitution forbids such a suit.⁵ The Eleventh Circuit's decision in this case has been rejected by name in other Circuits,⁶ and it has been distinguished in the Eleventh Circuit based, perhaps ironically, on other Eleventh Circuit case law.⁷

However, this decision is by no means alone.⁸ In Spokeo itself, the Court deciding that case remanded for a determination of “plausibility,” in effect, of whether Thomas Robins and persons like him had alleged injury in fact as the U.S. Constitution now apparently requires.

The following case did not directly involve the Spokeo “injury in fact” directive, but it does illustrate the relative probabilities of success of any statutory action under a “Consumer Protection Act” by whatever name. In Fat Bullies Farm, LLC v. Devenport,⁹ potential sellers of real property brought a New Hampshire Consumer Protection Act (“CPA”) claim against prospective purchasers on account of the alleged conduct of the prospective purchasers. To describe the attitude of the New Hampshire Supreme Court in rejecting a New Hampshire CPA claim in this case as hostile, is to put it mildly. It is nonetheless instructive:

Viewing Fat Bullies and Simmons's [the prospective purchasers'] misrepresentation in conjunction with the remainder of their course of conduct does not alter our determination. Even taken together, the acts of showing up unannounced with an attorney and an option agreement, not recommending that the Devenports [the potential sellers of the real property] obtain legal counsel, attempting to negotiate price, not explaining the meaning of the language contained in the draft agreement, threatening and attempting to enforce an option agreement, and pursuing a contentious litigation strategy would not “raise an eyebrow of someone inured to the rough and tumble of the world of commerce.” (Citations omitted.) We cannot conclude that the subject conduct offends established public policy, is immoral, unethical, oppressive, or unscrupulous, or causes substantial injury. (Citation omitted.)

For these reasons, we reverse the trial court's ruling on the Devenports' CPA claim and its award of attorney's fees to the Devenports as damages under the CPA.¹⁰

If the idea of “injury in fact” has been elevated surreptitiously from standing to the U.S. Constitution, it can certainly have an effect on claims based on State statutes providing remedies to ‘private attorneys general’ that the States rely on to enforce the laws. Time will tell whether State Unfair Claim Handling Practices Acts and Penalties Statutes governing the business of insurance will feel the effects and, if so, how.

Westlaw. © 2018 Thomson Reuters. No Claim to Orig. U.S. Govt. Works.

Footnotes

1

Spokeo, Inc. v. Robins,  U.S. , 136 S. Ct. 1540 (2016).

2

Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016).

3

Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547-48 (2016).

4

See, e.g., Klika v. Capital One Bank, N.A., No. C15-0107RSL, 2016 WL 4544373 at *1 (W.D. Wash. June 30, 2016), and “PLAUSIBILITY AS A STANDARD? DON'T BELIEVE IT,” published on Insurance Claims and Issues Blog on Monday, May 1, 2017, at http://insuranceclaimsissues.typepad.com/insurance_claims_and_issu/2017/05/plausibility-as-a-standard-dont-believe-it-its-just-another-way-of-saying-theres-nothing-left-to-lose-with-apologies-to-m.html.

4.10

Stromberg v. Ocwen Loan Servicing, LLC, No.15-cv-04719-JST, 2017 WL 2686540 (N.D. Cal. June 22, 2017).

4.20

Stromberg v. Ocwen Loan Servicing, LLC, No.15-cv-04719-JST, 2017 WL 2686540at*1 (N.D. Cal. June 22, 2017).

4.30

Stromberg v. Ocwen Loan Servicing, LLC, No.15-cv-04719-JST, 2017 WL 2686540at*6 (N.D. Cal. June 22, 2017).

4.40

E.g., Ferrell v. HSI Fin. Serv's, LLC, No. 1:16-cv-04624-RWS-AJB, 2017 WL 8186795 at *4 (N.D. Ga. December 22, 2017) (“After careful consideration of the pleadings and the rapidly expanding catalogue of case law interpreting and applying Spokeo, the undersigned is persuaded that Plaintiff's pleadings are sufficient to establish standing. The Court finds Defendant's motion unavailing on several grounds.”); Abraham v. Ocwen Loan Servicing, LLC, 321 F.R.D. 125, 166 (E.D. Pa. 2017) (“Numerous courts have applying Spokeo found a sufficient ‘injury in fact’ to support a FDCPA claim from allegations that a plaintiff suffered an ‘informational injury’ because the character of a debt had been misrepresented.”).

4.50

Progressive Health & Rehab Corp. v. Strategy Anesthesia, LLC, 271 F. Supp. 3d 941 (S.D. Ohio 2017) (“Indeed, as Plaintiff points out, the overwhelming number of courts that have addressed standing in a TCPA case subsequent to Spokeo have found standing.”) (pinpoint page references not available in April 2018).

4.60

Lovess v. Embrace Home Loans, Inc., No. JKB-17-2212, 2017 WL 4745452 at *2 (D. Md. October 20, 2017) (“This case is very close to Spokeo, but not quite there. Plaintiff is similarly alleging a procedural violation of FCRA and claiming that she is harmed by potential future consequences. But she has also alleged actual damages in the amount of $100,000 stemming from emotional distress and mental anguish, and therefore this is not a ‘bare’ procedural violation of the type at issue in Spokeo.”).

4.70

In re Chrysler-Dodge-Jeep Ecodiesel Marketing, Sales Practices, & Prod's Liab. Lit., No. 17-md-02777-EMC, 2018 WL 1335901 at *6 (N.D. Cal. March 15, 2018)(“Because Plaintiffs allege a financial injury, Spokeo does not support dismissal of their case.”).

5

Nicklaw v. Citimortgage, Inc., 839 F.3d 998, 1002-03 (11th Cir. 2016).

6

See, e.g., Weldon v. MTAG Services, LL, No. 3:16-cv-783 (JCH), 2017 WL 776648 at *6 (D. Conn. Feb. 28, 2017).

7

See Tillman v. Ally Fin. Inc., No. 2:16-cv-313-FtM-99CM, 2016 WL 6996113 at *4 n.7 (M.D. Fla. Nov. 30, 2016).

8

See also Michael G. McLellan, “Finding a Leg to Stand On: Spokeo, Inc. v. Robins and Statutory Standing in Consumer Litigation,” 31 Antitrust 49 (Summer 2017).

9

Fat Bullies Farm, LLC v. Devenport, 170 N.H. 17, 28, 164 A.3d 990 (2017).

10

Fat Bullies Farm, LLC v. Devenport, 170 N.H. 17, 164 A.3d 990, 998–99 (2017).

End of Document	© 2018 Thomson Reuters. No claim to original U.S. Government Works.

Reprinted from Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith, Third Edition (Thomson Reuters). Further reproduction of this article without the express consent of the publisher is prohibited.

"INJURY IN FACT": WHAT HAPPENS TO BAD FAITH STATUTES?

New Section 9:14.50 contains only a part of the new material in the combined 661 pages of text excluding Tables in the 2018 Supplements to Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" (Third Edition Thomson Reuters), in addition to sections of new material including on Force-Placed Insurance, Defenses in Force-Placed Insurance cases including the Filed Rate Doctrine, the Status of Social Security, and Settlement of First Party Bad Faith Claims including secrecy agreements and sealing orders, among others.

Section 9:14.50 is titled, "'Injury in Fact':  What Happens to Bad Faith Statutes" when courts require allegations and proof of what they call "injury in fact" in the litigation of bad-faith claims?

I want to give you a link to the new Section but the publisher will not let me right now.  I will ask for Thomson Reuter's copyright permission and if they agree, I will provide you the link in a following post here and on Claims and Issues Blog!

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GREAT EXPECTATIONS: THE NEW JERSEY INSURANCE FAIR CONDUCT ACT

Some commentators are getting so excited about the prospect of the "New Jersey Insurance Fair Conduct Act" becoming law that they may have jumped the gun, just a bit.

It is true that on June 7, 2018 the New Jersey State Senate passed Bill S2144, which would become the Act, once the New Jersey State Assembly passed it.

However, on June 11, 2018 the New Jersey State Assembly sent S2144 to the Assembly Financial Institutions and Insurance Committee.  Presumably, the Bill will not become a law until it is passed out of that Committee and is approved by the full Assembly.

When it does become law, the Act for sure bears watching.  It will take a little while to understand all of the issues it raises, so the present interval we have before enactment is time that can be put to good use studying the final version when and if it passes the New Jersey State Assembly.  In the interim, the biggest excitement seems to be the onset of first-party bad faith litigation if the bill becomes law in anything like its present form.

Time will tell.  In the interim, one provision that has so far survived two bouts in the New Jersey Senate and the introduction of a corresponding bill in the New Jersey Assembly, is this language that has not been changed in its appearances in either chamber:

2. As used in this act:

     "First-party claimant" or "claimant" means an individual, corporation, association, partnership or other legal entity asserting an entitlement to benefits owed directly to or on behalf of an insured under an insurance policy.

(Emphasis added.)  The italicized language does not appear to be ambiguous in any way.  Taken literally, this language would mean that parties other than an insured could assert an insured's entitlement to benefits owed "on behalf of an insured under an insurance policy."

So, if a mortgagee like a bank that has lent money for a mortgage is owed money after a loss, or even if say it is named as a payee on the check that pays the loss ("ATIMA," or as their interests may appear), does this mean that it can assert "an entitlement to benefits owed ... on behalf of an insured under an insurance policy" that protects the collateral, in this case, the insured's house?

As a mortgagor, every insured homeowner has to agree to obtain insurance to protect the bank's interest in being paid.  So, it is usual and ordinary for that insurance policy to reflect that the bank will be named as a payee on the check that pays the insured's loss, as the bank's interests may appear.

So, to say again, will the New Jersey Insurance Fair Conduct Act -- if enacted in anything like the pending bills' present forms -- confer standing on a bank or any other mortgagee to sue the insurance company because, as the mortgagee, it has an entitlement to benefits owed on behalf of the homeowner-insured under the insurance policy?

So, to say again, time will tell.

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"HOW TO" PRESERVE NEW YORK THEFT CLAIMS EVIDENCE AFTER HURRICANE SANDY.

A U.S. Magistrate Judge writes a seemingly complete "how to" guide to seeking, obtaining, and writing "preservation orders" in Toussie v. Allstate Ins. Co., No. 15 CV 5235 (ARR) (CLP), 2018 WL 2766140 (E.D.N.Y. June 8, 2018) (Pollak, USMJ).

The nature of the litigation is probably best described in the magistrate judge's own words:

    This action was commenced on September 10, 2015 by plaintiffs Robert and Laura Toussie, alleging that defendant Allstate Insurance Company (“Allstate”) had improperly adjusted and mishandled plaintiffs’ claims for property theft incurred in the days following Hurricane Sandy (the “theft case”). A companion case brought by Mr. Toussie seeking coverage for damage to his home under a flood insurance policy issued by Allstate is currently pending as well.

Toussie v. Allstate Ins. Co., No. 15 CV 5235 (ARR) (CLP), 2018 WL 2766140, at *1 (E.D.N.Y. June 8, 2018).

So much judicial time, usefully spent for those interested in obtaining orders to preserve evidence of an insurance claim.

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REDACTING COSTS YOU ARE ASKING FOR = COSTS DENIED IN FLORIDA.

GEICO prevailed in a first-party bad faith case in Florida.  Then came GEICO's request for costs as the prevailing party.  Prevail?  Not so much when it came to costs, it seems.

GEICO asked for its insured to pay two kinds of its litigation costs.  One  was for copies made in-house, and the other was for copies made for GEICO by third-party vendors.  The total, by my calculations:  $7,159.56.

GEICO did not get the $7,159.56 in costs it asked for in this bad faith case, even though it was the prevailing party on the bad faith claim.  Instead, a United States Magistrate Judge recommended that GEICO's costs claim be reduced by some $5,000.00, or to $2,316.76.  The U.S. District Judge approved, confirmed, and adopted this recommendation.  Strong v. GEICO Gen. Ins. Co., No.: 8:16-cv-1757-T-36AAS, 2018 WL 671342 (M.D. Fla. January 10, 2018) (Sansone, USMJ), opinion adopted, confirmed and approved by United States District Judge, 2018 WL 647457 (M.D. Fla. January 31, 2018) (Honeywell, USDJ).

Why?  Well, first, there apparently was a real problem regarding all of the claimed copying costs.  According to the policyholder, the whole case was "virtually paperless."  Virtually all of the discovery was electronic and both parties' printed papers in evidence filled only one binder.

With this background, GEICO's submission was actually redacted as to the copies allegedly made in-house.

The Court said that it simply could not determine "whether the copies were necessarily obtained for use in the case or simply for GEICO’s convenience."  As the party requesting a costs award, the Court pointed out that it was GEICO's "burden to prove that it is entitled to recover each cost and expense it seeks."

In the Court's eyes, GEICO simply had not met this burden by first redacting the costs and then requesting those costs here:  "More support is necessary to award GEICO its costs for copying 10,582 documents in a case that, according to Ms. Strong, was paperless."

Although GEICO did not redact its costs for third-party copying, in the Court's eyes GEICO failed to adequately support this costs request, too.

As noted, the U.S. Magistrate Judge in this case recommended a reduction of some $5,000.00 in GEICO's requested costs.  The U.S. District Judge in this case agreed.  GEICO's $7,159.56 costs request was reduced to $2,316.76.

The wages of redaction are not reimbursed, you might say is the lesson from this case.

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WAIVING A CIVIL REMEDY NOTICE OF BAD FAITH IN FLORIDA.

In Evergreen Lakes HOA, Inc. v. Lloyd's Underwriters at London, 230 So. 3d 1, No. 4D16–2657, 2017 WL 4679597 (Fla. 4th DCA October 18, 2017), the plaintiff homeowner's association incurred hurricane damages and sued for breach of the insurance contract.  It also served a civil remedy notice of bad faith as required under Florida's Bad Faith Statute.  However, the address to which it sent a copy may not have been the carrier's correct address. 

Parenthetically, the carrier argued that the claimant could not prove that the claimant had actually sent a copy of the CRN to the carrier.  It did not argue apparently that it had never received a copy, because eventually it did receive a copy.  The carrier actually received a copy long before the claimant sued.

Although the Florida statute requires the claimant to provide a copy of the CRN to the insurance carrier, that requirement can be waived.  That is what happened here, the Florida appellate court ruled.  The effect was to reverse a summary judgment that the trial court had granted in favor of the insurance carrier in this case on the ground that proper notice had not been given to it.

In other words, waiving the CRN that the claimant waved meant that at least one obstacle to trial of a bad faith claim is no longer an obstacle in this case.

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CLAIM DENIAL INFORMATION PRODUCED IN FIRST-PARTY BAD FAITH CASE.

In Gowan v. Mid Century Insurance Co., 309 F.R.D. 503 (D.S.D. 2015) (Duffy, U.S.M.J.), the Court ordered production of documents informing the denial of the plaintiff-policyholder's claim:

Mr. Gowan asks for an order compelling Mid Century to provide documents responsive to requests for production numbers 34 through 37. These requests seek from Mid Century every document or legal opinion that it relied upon to deny Mr. Gowan's request for Mid Century to pay for 100 percent of his total knee replacement surgery, both at the time Mid Century initially denied that request, and now in order to defend Mr. Gowan's bad faith claim.

Gowan v. Mid Century Insurance Co., 309 F.R.D. 503, 514 (D.S.D. 2015).  The Court granted the motion to compel production responsive to these requests:

The court grants Mr. Gowan's motion to compel as to requests for production numbers 34 through 37. If the documents have already been provided, Mid Century shall identify by BATES stamp or other specific identifier which documents it relied upon then and now for the denial of Mr. Gowan's claim. Mid Century shall provide this information to Mr. Gowan within 14 days of the date of this order.

Gowan v. Mid Century Insurance Co., 309 F.R.D. 503, 515 (D.S.D. 2015). 

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COLORADO REASONABLENESS MEANS MORE THAN FAIRLY DEBATING LIABILITY OR DAMAGES.

In Nibert v. GEICO Casualty Co., ___ P.3d ___, No. 16CA0322, 2017 WL 710504, 2017 COA 23 (Colo. Ct. App. Div. V February 23, 2017) (STATED NOT RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS UNTIL AFTER REHEARING OR CERTIORARI REVIEW, IF ANY), a policyholder sued her underinsured motorist (UIM) carrier on both a common law bad faith claim, and on a statutory claim of delayed payment of policy benefits.  Both claims required proof on the issue of "reasonableness" of the carrier's behavior.

However, more than proof that the UIM claim was "fairly debatable" was required to prove "reasonableness":

Contrary to Geico Casualty's argument, the tendered instruction went beyond the reasonableness of a challenge to a claim that is fairly debatable. Instead, the instruction, as tendered, misstated the law by effectively conflating the reasonableness elements of the common law bad faith claim and the statutory delay claim by inquiring only into whether Nibert's claim was fairly debatable. Colorado law is clear that whether a claim is fairly debatable is not the sole inquiry in a reasonableness analysis. 

Nibert v. GEICO Casualty Co., ___ P.3d ___, No. 16CA0322, 2017 WL 710504, AT *2 ¶ 12, 2017 COA 23 (Colo. Ct. App. Div. V February 23, 2017) (STATED NOT FINAL).

The Colorado appellate court affirmed a trial court's judgment entered on jury verdicts in favor of the policyholder on both of her claims against the UIM carrier in this case.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

MISSISSIPPI PROPERTY POLICY CANCELLATION VOID, $1,693,035 "REPAIR OR REPLACE" DAMAGES, ...

AND AFTER OTHER INSURANCE WAS FORCE-PLACED BY THE LENDER. 

In what might be termed a 'comedy of damages' except for the great harm that was done, Mount Carmel Ministries purchased a property policy from GuideOne to cover a school which Mount Carmel ran.  After a time, GuideOne attempted to cancel the policy, but a district court in Mississippi later held that the cancellation was void and that the policy was in place at the time of a tornado loss.

The district court awarded "$1,693,035 in damages, representing what would have been the cost to repair or replace the property roughly six weeks after the tornado, less depreciation."  GuideOne Elite Ins. Co. v. Mount Carmel Ministries, ___ F. App'x ___, No. 15-60915, 2017 WL 344278, at * (5th Cir. January 23, 2017) (precedential value in at least some federal courts apparently limited by Fed. R. App. P. 32.1 and 5th Cir. Rules 28.7 and 47.5).

Parenthetically, Mount Carmel's lender, Seaway, placed insurance premiums on Mount Carmel by force for a replacement policy after Seaway learned of GuideOne's supposed "cancellation."  In what we are definitely not going to call a 'comedy of damages' here, Seaway apparently forgot to keep the force-placed insurance policy in place.

That left the issue squarely presented of whether GuideOne had an arguable basis for denying coverage due to the assumed cancellation here; if it did not have an arguable basis for denying coverage in this case, then under Mississippi law, it would face the assessment of punitive damages for "bad faith" conduct.  The district court held that GuideOne did not have to face a punitive damages assessment in this case, because here the district court found an arguable reason for GuideOne's coverage denial.

A three-judge panel of the Fifth Circuit affirmed the district court's holding that cancellation did not comply with the GuideOne policy requirements, and the district court's holding that GuideOne had an arguable basis for denying all coverage based on cancellation even though the cancellation was void.

Judge Owen concurred in affirming both invalid cancellation under the policy, and no punitive damages, but would have also reached the district court's holding that cancellation was invalid under a Mississippi statute as well as under the policy.

Coverage denied under a property policy that was not legally cancelled.  Bad faith, punitive damages bullet dodged.  Twin takeaways from this case.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.   

 

WHEN THIRD-PARTY GOES TO THE MOVIES WITH "FIRST-PARTY.".

 

A Federal District Judge recently wrote that Florida's bad-faith statute, Section 624.155, provides a remedy to an insured who has a first-party bad faith claim:

Count I: Insurance Bad Faith

In Florida, an insured is authorized by statute to bring a first-party bad-faith claim against an insurer, when the insured is damaged by: (1) the insurer's failure to attempt “in good faith to settle claims when, under all the circumstances, it could and should have done so;” or (2) the insurer's violation of enumerated statutory provisions, including Fla. Stat. § 626.9541(1)(i), which prohibits unfair claim settlement practices. See Fla. Stat. § 624.155(1)(a), (b).

Kapral v. GEICO Indemnity Co., No: 8:13-cv-2967-T-36EAJ, 2016 WL 7234147, at *3 (M.D. Fla. January 5, 2016).

There is so much wrong with this that I could spend all the time between now and Christmas writing about it.

A few words will avoid that fate.  First, section 624.155 does indeed authorize "an insured" to bring a first-party bad faith claim against an insurer.  At common law in Florida before this statute was enacted, an insured did not have a claim for first-party bad faith in Florida.  That is the main reason that section 624.155 was enacted.

Second, section 624.155 provides a statutory cause of action to "any person damaged" (emphasis added) by an insurance carrier's alleged bad faith.  The statute does not limit its availability to "an insured." 

Third, in the above quotation and especially following the above quotation in its opinion, the Court in this case went on to cite and summarize Florida rules governing alleged third-party bad-faith-in-settlement.  That is after all what the Kapral case was all about, namely, alleged bad faith by a liability carrier in failing settle an underlying claim within liability policy limits.

But none of that makes "third party" mean "first party," or "first party" mean "third party."  As the warden said when the character Luke was shot to death in the movie "Cool Hand Luke":

What we have here is failure to communicate.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall.  All Rights Reserved.

FLORIDA UM BAD FAITH CLAIM ABATED UNDER SECTION 624.155.

In Johnson v. State Farm Mut. Auto. Ins. Co., No: 6:15–cv–1942–Orl–31TBS, 2016 WL 1127748 (M.D. Fla. March 21, 2016) (Presnell, J.), the plaintiff in State Court received a jury verdict in excess of policy limits on a UM claim.  She then asked for and received leave to amend to allege a bad faith claim.    The Florida State Court Judge left entry of the judgment open, however.

The UM carrier removed the case to Federal Court.  The Federal Judge denied the plaintiff's motion to remand the case to State Court.  The UM carrier then asked the Federal Judge to dismiss the bad faith claim.   As there was no final determination of damages in the UM case because there was no final, appealable judgment, the Federal Court granted relief but refused to dismiss.  Instead, the Federal Judge abated the UM bad faith claim "pending entry of judgment and any appeal taken by State Farm."  Johnson v. State Farm Mut. Auto. Ins. Co., No: 6:15–cv–1942–Orl–31TBS, 2016 WL 1127748, at *2 (M.D. Fla. March 21, 2016) (Presnell, J.).

The Federal Judge did not say so, but his reasoning was apparent that the State Judge retained jurisdiction over the UM case for at least the purpose of entering judgment on the jury verdict.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  Abatement of UM bad faith claims in particular is discussed in Volume 2, § 11:24, "Other defenses:  Defenses potentially available in all claims and cases of first-party insurance bad faith."  All rights reserved.

Related articles

Abate That Premature Bad Faith Claim? Dismiss? What to Do?

PENNSYLVANIA DELAY OVER UNCERTAIN VALUE, NECESSARY INVESTIGATION, NOT BAD FAITH.

In a case decided under Pennsylvania law, it was held that there was no First-Party Bad Faith under a commercial property insurance policy.  The carrier's delay in paying the claim was attributable to the claim's uncertain value, and a need to investigate further.  The case involved Pennsylvania's bad faith statute, 42 Pa. Cons. Stat. § 8371.  Great Lakes Reins. (UK) PLC v. Stephens Garden Creations, Inc., 119 F. Supp. 3d 297, 306 (E.D. Pa. 2015).

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with  Supplements).  See in particular § 9:6 in Volume 2 which addresses the issues which were addressed in the Great Lakes case, "The Question of Bad Faith -- Timely Investigation and Evaluation Before and After The First-Party Insurer is Sued for Bad Faith."  All rights reserved.

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No Coverage, No Bad Faith Under Pennsylvania Law.

CYBERINSURANCE LIABILITY COVERAGE:  NO IT'S COVERAGE FOR "DAMAGES."

Pennsylvania Supreme Court: "Yes" to Assigning Statutory Bad Faith Claim.

NO COVERAGE, NO BAD FAITH -- AND NO "MORALE HAZARD" EITHER WAY.

Image by NASA.

I have been pleasantly surprised by the tremendous response to the article I posted yesterday on Insurance Claims and Issues Blog, "LEAKING SINK IN UTAH IS EXCLUDED, BUT NOT 'MORAL HAZARD.'"  So pleased, in fact, that I am going to continue my discussion here of both the holding and the record in the Utah case.

The Magistrate Judge's holding was straight-forward enough.  First, an exclusion applied to bar coverage.  The exclusion barred all coverage for damages caused by seepage and leaking over a prolonged period, and the exclusion barred coverage under the homeowner's policy at issue when applied to the record in Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *6-*10 (D. Utah September 29, 2015)(Wells, USMJ).

The Magistrate Judge based this ruling firmly on "the plain meaning of the insurance policy."  Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *7 (D. Utah September 29, 2015)(Wells, USMJ).  "Therefore, based upon the plain language of the insurance policy, as well as case law from this district, the Court finds [that the exclusion] is not fairly susceptible to the interpretation Plaintiff suggests.  Accordingly, the insurance policy is not ambiguous."  Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *7 (D. Utah September 29, 2015)(Wells, USMJ).

Since the policy language was unambiguous, no extrinsic evidence could alter its terms or change its meaning.  As applied to the undisputed facts on the record of this case, the exclusion applied and barred coverage:

Therefore, the Court finds as a matter of law that the insurance policy is not ambiguous and Allstate did not breach the insurance contract by failing to cover Plaintiff's loss to his cabin. Accordingly, the Court finds that Plaintiff is not entitled to recovery for the loss sustained to the cabin.

Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *10 (D. Utah September 29, 2015)(Wells, USMJ).

Second, falling in line with the overwhelming majority view in this country, the Magistrate Judge ruled that where there is no insurance coverage, there cannot be an insurance bad faith claim.  The Magistrate Judge once again also considered the evidence properly in the record and concluded that there was no bad faith claim handling under the facts.  Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *11 (D. Utah September 29, 2015)(Wells, USMJ).

Early in the opinion summarizing the posture and record of this case, the Magistrate Judge quoted from a report drafted by Allstate's expert.  The Magistrate Judge did not, however, refer to the report in making any rulings.  Clearly, the "expert" report was proffered as extrinsic evidence for the purpose of testifying to an opinion that, after review of the policy language at issue in this case, the policy language could only be understood as a bar against "morale hazards."  (In writing my article on Insurance Claims and Issues Blog, I understood that this expert person was trying to refer to "moral hazards" because that would make sense, but a reader wrote to me to point out that the testimony proffered in the Wheeler case referred to "morale hazards" and not to "moral hazards.")

Clearly, this unsupported invention of drafting history was not only unnecessary to understand the language of the exclusion, but this opinion was inadmissible extrinsic evidence offered to vary the terms of an unambiguous insurance contract.  Despite the report's proffered written opinion that "morale hazards" are not covered under homeowner's policies, and the hazard of seepage and leakage at issue in this case was a "morale hazard," Wheeler v. Allstate Ins. Co., No. 2:12-cv-193-BCW, 2015 WL 5714392, *4 (D. Utah September 29, 2015)(Wells, USMJ), the Court ignored the opinion and the expert's opinion had no effect on the outcome.

In the end, the "morale/moral hazard" dichotomy in the expert's report was inadmissible extrinsic evidence in this case, seemingly proffered but perhaps not fully proof-read.

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements), including  Section 11:1 which addresses the general rule that where there is no coverage for first-party claims, there cannot be a first-party bad faith claim in the ordinary case.  All rights reserved.

WHETHER 'TIS NOBLER IN THE LAW TO ABATE ...

... OR BY ORDER DISMISS THEM?

 

The true story of how to handle unripe first-party bad faith claims in Florida. 

    Florida law requires that the policyholder or other insured prevail on the question of whether there is insurance coverage for a given claim, before there can legally be a claim for first-party bad faith.  (In Florida, every first-party bad faith claim is statutory.  There is no common law of first-party bad faith in Florida.)

    A claim for first-party bad faith filed before coverage is determined is called "unripe".  There is a question whether a Court applying Florida law should abate an unripe first-party bad faith claim in a case before the Courrt, or dismiss the unripe claim without prejudice.

    At least in some Federal Courts in the Middle District of Florida, the emerging answer is to abate.  See Smith v. 21st Century Centennial Insurance Co., 2014 WL 5474591 *1 (M.D. Fla. October 29, 2014).

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  All rights reserved.  No claim to Original U.S. Government Works.

 

ABATE THAT PREMATURE BAD FAITH CLAIM? DISMISS? WHAT TO DO?

    Florida Courts deal with many bad faith claims.  In particular, Florida Courts deal with many premature statutory first-party bad faith claims, and it is hard to get more particular than that.

    However, Florida Courts have not definitively answered the question of what to do with a premature statutory first-party bad faith claim.  In a recent case in a Federal Court in Florida, the Court wrote  that "[b]oth parties recognize that a statutory bad faith claim that is filed prior to resolution of the underlying insurance claim is premature.  However, they disagree as to what to do about the premature claim in the instant case."  The plaintiff wanted to have his bad faith claim abated until his underlying claim of Uninsured/Underinsured Motorist Coverage was determined.  The UM/UIM carrier understandably wanted to have the bad faith claim dismissed instead.  Gianassi v. State Farm Mut. Auto. Ins. Co., 2014 WL 4999443 *2 (M.D. Fla. October 7, 2014).

    The Florida Courts have not shown a clear route out of this quandary.  "The Florida appellate courts have not settled on a single course of action for handling unripe bad faith claims."  Some Florida Courts say abate; some say dismiss.  Gianassi v. State Farm Mut. Auto. Ins. Co., 2014 WL 4999443 *2 (M.D. Fla. October 7, 2014).

    Left to its own wisdom in this case, the Federal Court opted for abatement as the course which offered the greater chance of ultimately being fair both to the parties and to the Courts:  "As the law now stands in Florida, trial courts have the option of either abating or dismissing unripe bad faith claims.  Because abatement offers at least the possibility of increased judicial efficiency for those bad faith claims that do become ripe, Count II [the bad faith count] will be abated rather than dismissed."  Gianassi v. State Farm Mut. Auto. Ins. Co., 2014 WL 4999443 *3 (M.D. Fla. October 7, 2014).

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  All rights reserved.  No claim to Original U.S. Government Works.

FLORIDA BAD FAITH ACTION AFTER U.M. VERDICT: DISCOVERY, DAMAGES, DUE.

          In the first-party bad faith case of  Batchelor v. GEICO Casualty Co., 2014 WL 3906312 (M.D. Fla. June 9, 2014), GEICO contended that it would be deprived of due process if it could not get answers to its damages interrogatories.

          The interrogatories certainly appear to be standard, form interrogatories used in U.M. cases.  They inquire into the plaintiff's damages sustained in the given accident, what physicians she has seen, what injuries she claims, what effects the accident had on her employment history and capacities, and so on.

          The interrogatories were served in a bad faith case.

          Ms. Donna Batchelor is GEICO's insured.  She was injured in an auto accident.  She had U.M. coverage of $30,000.00 under a policy issued by GEICO.  After GEICO refused to pay the U.M. coverage, Donna Batchelor sued GEICO and a jury in a Florida State Court determined her damages at $1.8 Million.

          The U.M. trial court granted GEICO's motion to reduce the verdict to the U.M. policy limit of $30,000.00.  GEICO appealed the result (except, certainly, the trial court's ruling limiting the plaintiff's recoverable damages to the U.M. policy limits).  Florida's Fifth District Court of Appeal affirmed.

          GEICO served its U.M. interrogatories in the instant first-party bad faith lawsuit.  A motion to compel filed on behalf of GEICO presented the argument that GEICO would be denied due process in the bad faith lawsuit if it were not allowed to serve U.M. interrogatories inquiring into the plaintiff's damages from the accident.  This argument was based on a State District Court of Appeal Judge's concurring opinion in a case, which was followed by two U.S. District Judges in two later cases.

          The due process argument was successful in front of a U.S. Magistrate Judge in the bad faith case, who granted the motion to compel the plaintiff to answer interrogatories about what damages she incurred in the auto accident, until the argument reached a third U.S. District Judge, in the Middle District of Florida.

          As the District Judge pointed out, the due process argument which originated in a State DCA Judge's concurring opinion and "which is wholly unsupported by authority--is contrary to Florida law and, indeed, to the ... majority opinion itself."

          GEICO's position might have been made stronger if the interrogatories in question were written to ask what damages Ms. Batchelor claimed in this bad faith lawsuit.  Instead, the interrogatories are a form used in U.M. cases directed to the issue of damages sustained in the underlying automobile accident.  So, GEICO's position here was that due process would be denied if a U.M. carrier could not send out another set of U.M. interrogatories to ask about damages already fixed by a verdict, reduced in a judgment to U.M. policy limits by motion, and affirmed on appeal to a State District Court of Appeal.

          The District Court rejected the due process argument on these facts:

This Court cannot discern any due process violation from this procedural posture.  Defendant fully litigated the issue of the extent of Plaintiff's damages, argued that issue on appeal, and obtained a ruling from the appellate court.  It has received all of the process to which it is due.

Batchelor v. GEICO Casualty Co., 2014 WL 3906312 *3 (M.D. Fla. June 9, 2014).

          GEICO's position may yet prevail.  One of the U.S. District Court cases mentioned as accepting this argument on certain facts, is the subject of a pending appeal in the U.S. Eleventh Circuit Court of Appeals.  The Batchelor opinion may be one District Judge's comment on that pending issue.

          GEICO also argued that the underlying jury verdict was not a determination of bad faith damages.  This contention appears to be contrary to the language of Florida's "Bad Faith Statute," Fla. Stat. § 624.155(8), which provides that "[t]he damages recoverable pursuant to this section ... may include an award or judgment in an amount that exceeds the policy limits."   The District Judge in this case disposed of this argument as follows:

Defendant's position would improperly read the words "award or" out of the statute.  If the legislature intended only for the amount of a judgment to establish the damages, those words would be superfluous.

Batchelor v. GEICO Casualty Co., 2014 WL 3906312 *4 (M.D. Fla. June 9, 2014).  [Emphasis by the Court.]

I was going to include the interrogatories for you to see, so I copied them from the motion to compel from the electronic court file on PACER.  They are not quoted in the Court's opinion, although the Court's decision in Batchelor becomes clearer on reading the defendant's interrogatories and the plaintiff's answers and objections.  When I copied them from the Court File, however, the copy came with a formatting command embedded in the motion to number the paragraphs, so the formatting started over again at paragraph number 1 instead of beginning with paragraph number 5 and ending with paragraph number 15.  Renumbering some eleven paragraphs is more work than I anticipated, and so I intend to post the interrogatories separately later.

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

Please Read The Disclaimer.

Related articles

Affirmative Defenses in First-party Bad Faith Case in Florida.

BAD FAITH WITHOUT COVERAGE: WASHINGTON STATE AND THE UNITED STATES.

          Increasingly, both in third-party bad faith cases and in first-party bad faith cases, Courts throughout the United States are finding insurer bad faith liability without insurance coverage.  See generally the 5,000 authorities collected and particularly the authorities assembled on this issue in1 Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith § 3:105, "Bad Faith" Liability Without Coverage:  Third party (West Publishing Co. 3d ed. and 2014 Supplement); 2 id. § 9:25, "Bad Faith" Liability Without Coverage:  First-Party.

           In the 2013 decision in the case of Siena Del Lago Condominium Association v. American Fire & Casualty Co., 2013 WL 2127137 (W.D. Wash. May 14, 2013), a U.S. District Court in the State of Washington took this line of case law back to the element of proximate cause and damages -- or so it appeared at first glance.

           In the Siena Del Lago case, the District Court applied the general State-Court rule which prevails in the U.S., that without coverage, there is no bad faith claim, either.  However, the Court in that case applied the rule only to one set of claims alleged in that first-party bad faith case.

          The Court held that relief could not be granted upon the "bad faith" claims and certain of the statutory claims alleged in that case because no damages were shown to result from them:

                    The Court must dismiss Plaintiff's IFCA [Insurance Fair Credit Act] claim because Mt.Hawley's denial of coverage was proper and therefore it did not act unreasonably in denying coverage. The Court must dismiss Plaintiff's bad faith and CPA [Washington State Consumer Protection Act] claims because Plaintiff has failed to identify damages proximately caused by Mt.Hawley's conduct.

Siena Del Lago Condominium Association v. American Fire & Casualty Co., 2013 WL 2127137 *5 (W.D. Wash. May 14, 2013).  Accordingly, the Court in that case granted the insurer's motion for summary judgment and dismissed the bad faith claims and related statutory claims with prejudice.

© 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

Please Read The Disclaimer.

AFFIRMATIVE DEFENSES IN FIRST-PARTY BAD FAITH CASE IN FLORIDA.

          In a recent decision, a respected U.S. District Judge confirmed and adopted the well-reasoned report and recommendation of a U.S. Magistrate Judge to deny a plaintiff's motion to strike certain affirmative defenses in a statutory first-party bad faith case in Florida.  Cadle v. GEICO General Insurance Co., 2014 WL 793339 (M.D. Fla. February 27, 2014)(Presnell, USDJ; Kelly, USMJ).  However, the affirmative defenses were not stricken because they were well taken but instead because for the most part, they were denials of the complaint and were not really affirmative defenses at all.

          This was the holding with respect to the first, fourth, fifth, and sixth affirmative defenses, namely, that they are not true affirmative defenses but are instead general denials.  In Federal Court, "[w]hen a specific denial is labeled as an affirmative defense, a court will generally treat the defense as a denial and not strike it."  Cadle v. GEICO General Insurance Co., 2014 WL 793339 *2 (M.D. Fla. February 27, 2014).

          That left two affirmative defenses, at least as far as the Court's discussion of the plaintiff's motion to strike.  One was the defendant's second affirmative defense of "setoff".  The plaintiff argued that there is no setoff available in a first-party bad faith case in Florida; the defendant argued that there is.  Neither side cited any supporting authority, however, according to the Court.  It comes as no surprise, then, that the motion to strike this material was denied.  Cadle v. GEICO General Insurance Co., 2014 WL 793339 *2 (M.D. Fla. February 27, 2014).

          Finally, the only remaining defensive matter under discussion on this motion to strike was the third affirmative defense in this case, which was simply that plaintiff's punitive damages claim in this case is barred by Section 627.737(4) of the Florida Statutes.  The motion to strike was denied as moot in this respect because the Court previously granted the defendant's motion to dismiss the plaintiff's request for punitive damages.  Cadle v. GEICO General Insurance Co., 2014 WL 793339 *3 (M.D. Fla. February 27, 2014).

 © 2014 by Dennis J. Wall.  All rights reserved.  No claim to original U.S. Government works.

 Please Read The Disclaimer.

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Calling a Wrong Number Does Not Initiate Settlement.

 

BAD FAITH IS NOT ALWAYS A CLAIM.

          The case of Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 (M.D. Fla. May 22, 2013) presents interesting issues of law and of conduct.

          The case did not involve insurance bad faith claims.  It was a first-party case based on Elieser Lumpuy's efforts to repair commercial property that was damaged by a sinkhole.  Scottsdale insured the property with $150,000.00 in sinkhole coverage.

          Scottsdale had the right under the policy to select or repair the professional engineer who would recommend the way in which the property would be repaired.  Lumpuy retained one FTE, an engineering company, to make repair recommendations.  Based on FTE's recommendations, Lumpuy next obtained a "proposed contract" with one Champion to perform the repairs recommended by FTE.  Scottsdale rejected the FTE recommendation and refused to pay for Champion to proceed with the contract for repairs.  Scottsdale instead demanded a neutral evaluation, which it was permitted to demand by the terms of the insurance policy.

          The neutral evaluator, one Thomas Miller, recommended repairs which, like the repairs recommended by FTE, would cost in excess of the $150,000.00 policy limit on sinkhole coverage.

          Faced at this point with competing recommendations for repairs both of which were in excess of the policy limit, Lumpuy rejected Miller's repair recommendation and elected to insist on FTE's repair recommendation.  Scottsdale refused.

          Scottsdale refused to pay for the repairs as recommended by FTE since it, Scottsdale, had not approved or selected FTE to perform the repairs under the policy.  Further, Scottsdale refused to pay because no repairs recommended by an engineer selected or approved by Scottsdale had begun on the property.

          Lumpuy filed a breach of contract action.  To say again, Lumpuy did not allege a bad faith claim.

          Lumpuy alleged breach of the insurance contract on two grounds:  First, Scottsdale's "failure to tender the policy limits, even after the neutral evaluator estimated the repair costs to exceed the $150,000 policy limit;" and, second, Scottsdale's conduct in exercising its contract discretion to approve or select the engineer who would recommend repairs, was allegedly exercised unreasonably.  "The case went to trial, and the jury concluded that Defendant did breach the insurance policy."  Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 *1 (M.D. Fla. May 22, 2013).

          The District Court consistently held that "[t]he insurance policy gave Defendant discretion over the selection and approval of the engineer whose subsurface repair recommendation would be followed."  Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 *2 (M.D. Fla. May 22, 2013).  The Court instructed the jury accordingly, including an instruction that Florida law requires the contract party with a discretionary power to exercise that discretion "'in a reasonable manner.'"  Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 *2 (M.D. Fla. May 22, 2013).

          The Court rejected Scottsdale's repeated arguments that this breach of contract claim in Florida was really governed by Florida's law of first-party bad faith.  The Court rejected this argument on Scottsdale's Motion for Reconsideration.

          "Since Defendant has made the argument contained within this motion several times throughout this case, the Court denies this motion without requiring Plaintiff to file a response."  Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 *1 (M.D. Fla. May 22, 2013).

          Concisely stated, Scottsdale refused to pay for repairs under the proposed contract because the proposed contract with Champion was not enforceable, but the Champion proposed contract "was not enforceable, because it was contingent on Defendant's approval, which Defendant refused to give."  Lumpuy v. Scottsdale Insurance Co., 2013WL 2249288 *2 n.1 (M.D. Fla. May 22, 2013).

          There you have it:  A case of breach of contract where a jury determined that the first-party insurance carrier's conduct under a commercial insurance policy was unreasonable and thereby breached the contract, so that the jury awarded damages to the plaintiff-policyholder without any claim of insurance bad faith being filed in the case.

Please Read The Disclaimer.    

FLORIDA BAD FAITH CLAIM: PREMATURITY, CIVIL REMEDY NOTICE CONDITIONS PRECEDENT.

           Case law applying Florida's Bad Faith Statute, Section 624.155, imposes one condition precedent which flows from the Statute, but refuses to add another condition precedent that the Statute itself does not contain.

          These decisions are embodied in the recent case of Hunt v. State Farm Florida Insurance Co., 2013 WL 1352471 (Fla. 2d DCA April 5, 2013).  Section 624.155 has been held to offer a defense of prematurity particularly to First-Party Bad Faith Claims.

"Prematurity" is really a defense that liability and covered damages have not been favorably determined to the Policyholder.  A Judgment of Breach of Contract is not the only way of obtaining a favorable resolution to satisfy the Florida Statute, however.  It is settled now that an Arbitration Award which establishes the validity of the Policyholder's Coverage Claim is a satisfactory condition precedent.  So it was held in  State Farm Florida Insurance Co., 2013 WL 1352471 *1 (Fla. 2d DCA April 5, 2013).

          In addition, there is an explicit statutory condition precedent of a Civil Remedy Notice of Insurer Violation (CRN) under the Florida Statute.  One thing that the Florida Statute does not require, however, is that the CRN contain a definite "cure" amount, meaning an amount of money stated in the CRN which the Policyholder (or other complainant) contends is the amount of money due from the Insurance Company under the Insurance Contract.  "On its face, the statute does not require a specific cure amount.  We are hesitant to impose a requirement beyond that directed by the legislature."   State Farm Florida Insurance Co., 2013 WL 1352471 *2 (Fla. 2d DCA April 5, 2013).

          One condition precedent imposed, another supposed condition precedent rejected.  Florida Statute Section 624.155 is interpreted by the Florida Courts and Florida lawyers in ways which may often be unknown to others.

Please Read The Disclaimer.

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Order Allowing Discovery From Property Insurance Company Claim File Quashed.

Florida Supreme Court: First-Party Bad Faith Claims Only By Statute.

PART PAYMENT OF FLORIDA PROPERTY CLAIMS.

          In Florida, the Unfair Claim Settlement Practices Act has been amended to apply to situations of “partial coverage”:

 (i) Unfair claim settlement practices.--

***

 e. Failing to affirm or deny full or partial coverage of claims, and, as to partial coverage, the dollar amount or extent of coverage, or failing to provide a written statement that the claim is being investigated, upon the written request of the insured within 30 days after proof-of-loss statements have been completed ....

 Fla. Stat. § 626.9541(1)(i)3e.  Paragraph (i) of Subsection 626.9541(1), quoted above, is made actionable by Fla. Stat. § 624.155(1)(a), “the Florida Bad Faith Statute”.

        A more recently enacted Florida statutory provision, Fla. Stat. § 627.70131(5)(a), provides in pertinent part:

    Within 90 days after an insurer receives notice of an initial, reopened, or supplemental property insurance claim from a policyholder, the insurer shall pay or deny such claim or a portion of the claim unless the failure to pay such claim or a portion of the claim is caused by factors beyond the control of the insurer which reasonably prevent such payment.

 Failure to comply with this provision is a violation of the Florida Insurance Code.  Fla. Stat. § 627.70131(5)(a).  "However, failure to comply with this subsection does not form the sole basis for a private cause of action."  Fla. Stat. § 627.70131(5)(a).  [Emphasis added.]

        It has therefore been held in the Florida case law that failure to comply with this subsection does not provide a separate claim.  However, the same Court that announced this holding also stated in apparent dicta that a violation of this statutory subsection could nonetheless be considered in evidence in a bad faith claim or a Department of Insurance review.  Buckley Towers Condo., Inc. v. QBE Insurance Corp., 2008 WL 2490450 *11 (S.D. Fla. June 18, 2008)(Torres, United States Magistrate Judge), report and recommendation adopted by United States District Judge in 2008 WL 2856457 (S.D. Fla. July 24, 2008).  Accord as to holding, QBE Insurance Corp. v. Dome Condo. Ass'n, Inc., 577 F. Supp. 2d 1256, 1261-62 (S.D. Fla. September 16, 2008).

        Perhaps in response to such Federal judicial decisions, a new statutory Unfair Claims Practice was thereafter enacted by the Florida Legislature:

       4.  Failing to pay undisputed amounts of partial or full benefits owed under first-party property insurance policies within 90 days after an insurer receives notice of a residential property insurance claim, determines the amount of partial or full benefits, and agrees to coverage, unless payment of the undisputed benefits is prevented by an act of God, prevented by the impossibility of performance, or due to actions by the insured or claimant that constitute fraud, lack of cooperation, or intentional misrepresentation regarding the claim for which benefits are owed.

 Fla. Stat. § 626.9541(1)(i)4.  The new provision applies to residential property insurance claims. 

           New Florida case law clarifies the meaning and application of the statutory mandates for paying undisputed parts of residential property insurance claims.

 To be continued on Insurance Claims and Issues Weblog ....

 Please Read The Disclaimer.

 

First-Party Policies: EXAMINATION UNDER OATH AND PRODUCTION OF DOCUMENTS.

  One standard policy provision among several purports to require the following behavior from First-Party Insureds in all claims:

Your Duties After Loss.

In case of a loss to covered property, you must see that the following are done:

…

 

f. as often as we reasonably require:

(1). show the damaged property;

(2). provide us with records and documents we request and permit us to make copies; and

(3). submit to examination under oath, while not in the presence of any other insured, and sign the same.

 

However, majority views in the case law include the following bullet points:

•      E/U/O NOT a deposition;
•      NOT Rules of Civil Procedure;
•      NOT Rules of Evidence;
•      Provisions of the Insurance Contract.

   A recent Supreme Court of  Washington en banc decision added the holding, which may or may not represent the coming majority view, that if an Examination Under Oath is not material to the claim, it is no defense to the Insurance Carrier if the Insured does not provide an EUO.  "Given the quasi-fiduciary nature of the insurance relationship, we hold that if an EUO is not material to the investigation or handling of a claim, an insurer cannot demand it."  Staples v. Allstate Insurance Co., 2013 WL 258877  ¶ 26 *5 (Wash. January 24, 2013).

Please Read The Disclaimer.

EXTRAORDINARY REVIEW OF EXTRACONTRACTUAL COMPLAINTS.

          In a small number of cases, Complaints containing legally inadequate claims of Insurer Bad Faith can be attacked and dismissed on Appellate Review based on Petitions for Certiorari or discretionary review.

          One of the first such challenges came in the case of Safeco Insurance Company of America v. Campbell, 433 So. 2d 25 (Fla. 2d DCA 1983).  In that case, the Trial Court denied the Motion to Dismiss I filed on behalf of Safeco and ordered discovery on the Bad Faith Claim alleged in the Complaint.  While another lawyer drove, I began writing a Petition for Certiorari by the light of the glove compartment in my car on the return trip from the Judge's Hearing Room in Clearwater to my office in Orlando, a trip of about 2 1/2 hours or so.  The Petition was a request for Certiorari Review of the Discovery Order on the ground that the Complaint failed to state a cause of action for First-Party Bad Faith as a matter of Florida law.

          I finished writing the Petition in the wee hours of the next morning.  A  few hours later it was filed with the Clerk of the Second District Court of Appeal in Lakeland.  In this case, hard work paid off as it may or may not pay off in other cases and in other circumstances.

          When the Second District ruled on the Petition, they granted Certiorari Review and ruled that the Complaint in that case should be dismissed for failure to state a cause of action for First-Party Bad Faith as a matter of Florida law.  Safeco Insurance Company of America v. Campbell, 433 So. 2d 25, 26-27 (Fla. 2d DCA 1983).

          An increasing number of recent decisions has followed that rule.  Similarly, Florida's Third District Court of Appeal allowed Certiorari Review of a discovery order compelling "discovery of materials concerning its business practices and policies" under Commercial Property Insurance Policies, in the case of General Star Indemnity Co. v. Atlantic Hospitality of Fla., LLC, 93 So. 3d 501, 502 (Fla. 3d DCA 2012),  The Appellate Court granted the review and quashed the Discovery Order.  One of the alternative grounds for this ruling was that the Complaint failed to state a Common Law cause of action for alleged Breach of the Implied Covenant of Good Faith and Fair Dealing.  General Star Indemnity Co. v. Atlantic Hospitality of Fla., LLC, 93 So. 3d 501, 503 (Fla. 3d DCA 2012),

          Cf.  General Insurance Co. v. Harvey, 2013 WL 238162 *1 (Fla. 4th DCA January 23, 2013), in which Florida's Fourth District Court of Appeal granted Certiorari to review "a trial court order that denied [the Insurance Company's] motion to dismiss defendant's post-verdict cross claim against it."  A verdict was entered against the Defendant-Insured in that case for $8 Million.  After the verdict, the Trial Court permitted the Insured to add the Insurance Company as another defendant in that same tort case.  Immediately after that, the Defendant Insured's Estate filed a crossclaim against the Decedent's own Insurance Company for alleged Bad Faith.  After the Insurance Company's attempted removal to Federal Court was remanded, the Insurance Company unsuccessfully pursued a motion to dismiss the crossclaim but successfully requested Certiorari Review and dismissal of the crossclaim Complaint against it for alleged Bad Faith.  General Insurance Co. v. Harvey, 2013 WL 238162 *1-*2 (Fla. 4th DCA January 23, 2013).

          Three cases, three Writs of Certiorari Review granted, and three alleged "Bad Faith" Complaints dismissed.  As was said at the beginning, in a small number of cases, Complaints containing legally inadequate claims of Insurer Bad Faith can be attacked and dismissed on Appellate Review based on Petitions for Certiorari.

Please Read The Disclaimer.     

Related articles

Florida Bad Faith Litigation Workshop Discussion.

Bad Faith in Florida: Southern District "subsumes" and "Dictas" Too.

FLORIDA BAD FAITH LITIGATION WORKSHOP DISCUSSION.

            There were many excellent presenters and attendees offering good observations at the 23rd National Advanced Forum on Bad Faith Litigation, held recently in Orlando, Florida.  After the main Forum Conference concluded, there was a Florida Workshop on Bad Faith Litigation.  Some of the comments at the Workshop are worth some further thought.

          A person in the Workshop audience addressed Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 2012 WL 3822215 (Fla. 4th DCA September 5, 2012).  He and another Workshopper offered that the opinion in this case shows that the Defendant Insurance Company paid within the time prescribed by law in a First-Party Bad Faith Claim.  I could not recall that being mentioned in the opinion.  That's because it wasn't mentioned in the opinion.

          I pulled the case up on a tablet, read the opinion, and related this result during the Workshop.  It bears repeating.

         The Trafalgar opinion certainly reflects a difficult ruling to understand.  The Workshoppers spent a lot of time trying to understand it, someone even suggesting that perhaps the opinion resulted from legal advocacy.  I said that was clearly not the case.  The issues were raised by counsel, but the Court is the one which treated those issues their own way in this case.

       After taking the opportunity to read the opinion again, it appears that the answer lies in the facts and the timeline of events which resulted in the Appellate Panel in this case unanimously reversing the Trial Court's Summary Judgment in favor of the Insurance Company "and remand[ing] for trial on Trafalgar's bad faith action."   Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 2012 WL 3822215 *3 (Fla. 4th DCA September 5, 2012)(STATED NOT FINAL).*

*For ease of reference, the facts and the timeline of events which resulted in this opinion and result, are summarized in the extension of this post, below.

       The opinion quoted settled Florida law concerning the requirements of a statutory First-Party Bad Faith action in Florida.  Such an action is premature unless (1) Coverage is not contested, or Coverage exists because it has been determined adversely to the Insurance Company, and (2) there has been a final determination of liability and the extent of the insured's damages.  In this particular case, the Appellate panel was satisfied that the first condition was met because "Zurich had waived any defense to coverage by acknowledging and paying a loss amount to Trafalgar" and the second condition was also met here, in their view, because "the appraisal award resulted in a final determination of the loss amount."  Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 2012 WL 3822215 *2 (Fla. 4th DCA September 5, 2012).

       Understandably, Zurich contended that the first condition, that Coverage existed, was not met here because it obtained a Summary Judgment on the underlying Breach of  Contract Cause of Action.  The opinion seems to address this contention by referring instead to the second condition which the panel was required to address on this statutory First-Party Bad Faith Claim, that there was a final determination of liability and the extent of damages:  "Thus, we hold that the appraisal award constitutes a 'favorable resolution' of an action for insurance benefits, so that Trafalgar has satisfied the necessary prerequisite to filing a bad faith claim."  Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 2012 WL 3822215 *2 (Fla. 4th DCA September 5, 2012).  Moreover, in addition to seemingly missing the mark on which of the two requirements the Court was aiming at, there is no such requirement in Florida First-Party Bad Faith Law, and no requirement imposing a "favorable resolution" by that name, other than in this opinion.

       As another Workshopper observed of this case, we do not know from this opinion what was stated in the required Civil Remedy Notice of Insurer Violation of Florida's Bad-Faith Statute.  The opinion in this case just does not even refer to it, let alone summarize it in any way.  I still agree with that observation, as I did at the Florida Workshop, and I would add this related observation, in addition to the above observations also:  We also do not know anything from this opinion about what Coverages were provided in the Policy at issue nor does it contain a word about what Coverages and Damages Trafalgar actually claimed in this case.

       The moral of this Trafalgar battle:  It pays to read the Policy, the pleadings and Exhibits, and the reported case.

       The moral also applies to an important decision of the Florida Supreme Court which was also mentioned in the Florida Workshop recently:  Cunningham v. Standard Guaranty Insurance Co., 630 So. 2d 179 (Fla. 1994).  The comment was made that the Court in this case did not require the Carrier's agreement to pay Policy Limits.  That is not so.  A so-called "Cunningham Agreement," the Florida Supreme Court held in the Cunningham case, allows a Liability Insurance Company to contest Bad Faith by agreeing to try the Bad-Faith action before the Underlying Liability Case against the Insured and further that if the trier of fact in the Bad-Faith action does not find Bad Faith then the Underlying Liability Claims against the Insured will be settled for Policy Limits, and the Insured will not be exposed to a Judgment in Excess of the Policy Limits.  The Supreme Court approved this stipulation, and it has forever afterward been followed in Florida in one form or another:

 In an arrangement such as the one in the instant case, trying the bad-faith claim before the underlying negligence action would result in a full release of the insured if no bad faith were found, thereby avoiding a time consuming and expensive trial on negligence and damages. We see no reason why the stipulation should not have been recognized.

Cunningham v. Standard Guaranty Insurance Co., 630 So. 2d 179, 182 (Fla. 1994). 

          To say again, the moral of the story, as they say, is to know the story.

Please Read The Disclaimer.

        *Trafalgar submitted a Claim for Damage to its shopping center from Hurricane Wilma in 2005.  Zurich made part payments on the Claim at the following times:

January, 2006:  Zurich paid Trafalgar $468,381.30 on the Claim after subtracting Trafalgar's $150,000.00 deductible.

April, 2006:  Zurich paid Trafalgar another $112,475.10.

June, 2006:  Trafalgar provided a Proof of Loss.  (Why there was no POL earlier, or whether the Insurance Company demanded a POL at any time, are facts not addressed in the opinion.)  At this time, Trafalgar' s claim was for what the opinion termed "total damages" of $1,826,938.54.

September, 2006:  Trafalgar filed suit "alleging that Zurich breached its contract of insurance by failing to pay all proceeds due."  Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 2012 WL 3822215 *1 (Fla. 4th DCA September 5, 2012).  The opinion does not detail what Coverages were claimed by Trafalgar under this clearly Commercial Property Insurance Policy, and simply does not say  for example  whether Trafalgar's Claim was strictly for physical damage to covered property, or also for such things as Business Interruption, Extra Expense, Civil Authority, Service Interruption, Ingress/egress, or any other form or type of Coverage.

October, 2006:  Stating that its investigation was complete, Zurich "tendered" another payment, "bringing the total payments to $641,730.32."  At this time, Zurich also demanded Appraisal in accordance with the Policy.  Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 2012 WL 3822215 *1 (Fla. 4th DCA September 5, 2012).  [Emphasis added.]  However, to say again, the opinion does not recite what the Coverages in this Policy were nor does it state even one of  the Coverages which Trafalgar invoked in this case.

September, 2007:  An Appraisal Award was entered in Trafalgar's favor for the total sum of $1,504,663.10. 

Within 30 days after the September, 2007 Appraisal Award:  Zurich paid the Appraisal Award, "after deducting its previous payments and the deductible amount."  Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 2012 WL 3822215 *1 (Fla. 4th DCA September 5, 2012).

Thereafter:  Zurich filed a Motion for Summary Judgment on Trafalgar's Breach of Contract Claim "[b]ased on its payment of the appraisal award ...."  Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 2012 WL 3822215 *1 (Fla. 4th DCA September 5, 2012).  [Emphasis added.]  The Trial Court granted Summary Judgment for Zurich on the Breach of Contract Claim "but also granted Trafalgar's motion to amend its complaint to state a cause of action for statutory bad faith, deeming the amended complaint to be filed" on that same date.  Trafalgar at Greenacres, Ltd. v. Zurich American Insurance Co., 2012 WL 3822215 *1 (Fla. 4th DCA September 5, 2012).

Again:  Please Read The Disclaimer.  And what the Courts select from the record of a litigated case to put in their Opinions to decide that case.

 Emily Holbrook linked to Insurance Claims and Issues Blog last week in the Cavalcade of Risk #171 on her Risk Management Monitor Blog.  Here is a link to the November 7, 2012, post, "Computer Models Doing Good After Hurricane Sandy?  Not so Much."     

Experts in Insurance Cases: Care, Not "Bad Faith" or "Violation".

           A catastrophic fire erupted at a sawmill in Idaho.  The lumber company turned to its Insurance Company.  The lumber company sued the Insurance Company for Bad Faith after the Insurance Company's "valuation of certain property destroyed in the fire," and its handling of the lumber company's claim for losses under the Policy.  Mills v. Indiana Lumbermens Mutual Insurance Co., 2012 WL 5831196 *1 (D. Idaho November 16, 2012).

          This decision involved Expert Witness Testimony in the lumber company's Bad Faith case.  The lumber company requested leave to amend its Complaint to add a claim for Punitive Damages.  It attached an Affidavit from one of its listed Experts in support of its Motion for Leave to Amend.  The Insurance Company objected and filed its objections in a Motion to Exclude the Expert's Testimony.  In pertinent part, the Insurance Company's objections to the Expert Witness's Affidavit were that in the Affidavit, the Expert tried to define what the law is; that the Expert "offered legal conclusions as to compliance with, or violations of, particular statutes;" and that in the Affidavit, the lumber company's Expert offered legal conclusions "as to the meaning and application of the insurance contract".  Mills v. Indiana Lumbermens Mutual Insurance Co., 2012 WL 5831196 *1 (D. Idaho November 16, 2012).

          A United States Magistrate Judge granted the Insurance Company's Motion to Exclude the Expert Witness's Testimony in part, and denied it in part.  The Motion was granted to the extent that Expert Testimony is not admissible in an Insurance Bad Faith case in order to "attempt to preemptively answer ultimate issues of law" such as violations of specific statutes including identified "fair claims practices" laws, all of which apparently happened to be at issue in this Bad Faith Case.  Expert Opinions of this sort simply "do not constitute admissible expert testimony."  Mills v. Indiana Lumbermens Mutual Insurance Co., 2012 WL 5831196 *3 (D. Idaho November 16, 2012).

          However, the lumber company-Policyholder-Plaintiff in this Bad Faith Case will nonetheless be allowed to offer more generalized Expert Testimony "speaking to [the Insurance Company's] duty under the circumstances and whether, in fact, [the Insurance Company] complied with that duty of care."  Mills v. Indiana Lumbermens Mutual Insurance Co., 2012 WL 5831196 *3 (D. Idaho November 16, 2012).

          Accordingly, the Court denied the Insurance Company's Motion to Exclude to the extent that Expert Witnesses can still testify to the Insurance Company's more general Good Faith standard of care with respect to the lumber company's Claim, and whether the Insurance Company complied with that duty of care.  The Court further held that the Insurance Company will still be free to file a Motion or Motions in Limine to challenge the Expert's Testimony, "being sure to challenge his actual report instead of affidavits offered in support of an ancillary motion."  Mills v. Indiana Lumbermens Mutual Insurance Co., 2012 WL 5831196 *3 (D. Idaho November 16, 2012).

          In these rulings, the Court's decision is in accord with the weight of authority that Expert Witnesses can testify to prevailing Good Faith standards to which Insurance Companies allegedly should conform their conduct and purportedly did so, or did not do so, whereas Expert Witnesses cannot permissibly Testify in Federal Court to alleged violations of particular Statutes, or of specific Administrative Rules and Regulations which have the force of law.  See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ 8:17 ("Experts in Third-Party Insurance Bad Faith Cases:  Specific Cases and General Rules") & 12:18 ("Experts in First-Party Insurance Bad Faith Cases:  Specific Cases and General Rules")   (West Publishing Company Third Edition, 2012 Supplement).

The American Conference Institute's 23rd National Advanced Forum on Bad Faith Litigation begins with a workshop on Tuesday, November 27, 2012 at the Hyatt Regency Grand Cypress Hotel at Disney World in Orlando, Florida, and continues over the following two days.  I will be speaking on both of the following days.  On Wednesday, November 28, 2012 I will be part of a panel addressing the handling and litigation of a typical Bad Faith Claim.  I will address in particular the permissible proffers and uses of Expert Witnesses before and at Trial of the Bad Faith Case.  On Thursday, November 29, 2012 I will be a co-presenter of an afternoon-long Florida Workshop.  Please plan on attending.  I would prefer to present these issues with you in the audience!

CALIFORNIA "REASONABLENESS" FIRST-PARTY BAD FAITH STANDARD: NATIONAL STANDARD SAME?

     The case of Bafford v. Travelers Casualty Insurance Co. of Am., 2012 WL 5465851 (E.D. Cal. November 8, 2012), involves a burglary claim under an auto repair shop owner's Property Insurance Policy.  The Travelers, the Property Insurance Company, denied all Coverage "on the grounds that [the Policyholder] had made material misrepresentations during the investigation and while being examined under oath."  Bafford v. Travelers Casualty Insurance Co. of Am., 2012 WL 5465851 *4 (E.D. Cal. November 8, 2012).

     The Policyholder then became a Plaintiff and The Travelers became a Defendant.   The Plaintiff sued for alleged Breach of Contract and for alleged Bad Faith.  The Travelers filed a Motion for Partial Summary Judgment on the Bad Faith Claim, in part here pertinent.  The Defendant's Attorneys attended the Hearing, while the Policyholder's Attorney did not attend the Hearing.  Only after what appears to be nothing less than a dissection of the entire record in this case, Bafford v. Travelers Casualty Insurance Co. of Am., 2012 WL 5465851 *1-*4 (E.D. Cal. November 8, 2012), the District Court denied the Motion for Partial Summary Judgment on the Bad Faith Claim under established rules of California Bad Faith law, which can accurately be summarized in three parts, below.

1.  "Reasonableness" is an Objective Standard in California to Measure a First-Party Insurer's Exposure to a Bad Faith Claim.

            The Federal Court reiterated established standards of California Bad Faith law at the beginning of its decision.  A Plaintiff-Policyholder claiming Bad Faith under a First-Party Insurance Policy must, under California law, show in essence that (1) the Damage claim was covered by the Policy and (2) the First-Party Insurance Company's withholding of the Covered benefits was objectively "unreasonable".  See Bafford v. Travelers Casualty Insurance Co. of Am., 2012 WL 5465851 *5-*6 (E.D. Cal. November 8, 2012).  In stating this holding, the Court followed not just California Bad Faith law, but the Court also followed the established majority First-Party Bad Faith view in United States jurisdictions:

The legal standard governing an insurer's settlement conduct is one of reasonableness.  D. Wall, Litigation and Prevention of Insurer Bad Faith § 9.03 (1985).

Cruz v. American United Insurance Co., 580 So. 2d 311, 312 (Fla. 3d DCA 1991).

2.  Reasonable conduct includes a "reasonable" investigation.  It does not include a pretextual investigation where the Insurer's conclusion was already reached before the investigation was concluded.

     "One form of objectively unreasonable conduct is failure to fully investigate the grounds for denial."  Bafford v. Travelers Casualty Insurance Co. of Am., 2012 WL 5465851 *6 (E.D. Cal. November 8, 2012).  In other words, "reasonable" conduct includes conducting an objectively reasonable investigation.

    The Federal Court in this case fully explored the contours of California case law on this Insurance Bad Faith issue as well.  Bafford v. Travelers Casualty Insurance Co. of Am., 2012 WL 5465851 *6-*7 (E.D. Cal. November 8, 2012).  One species of the generic "unreasonable" investigation recognized by the California Courts is a "pretextual" investigation, although the California cases summarized by the Federal Court in this case do not appear to use that description.  An unreasonable failure to investigate, in short, includes an investigation which is shut down early and the Insurance Company refuses to reconsider a denial of its Coverage for the Claim even when presented with evidence of factual mistakes during the investigation or further evidence which has not yet been explored.

3.  In the Bafford Case, the Movant Insurance Company Did Not Negate Record Evidence That It Made Its Mind Up Long Before Its Investigation Was Complete.

     The Travelers failed to meet its Burden as the party requesting the entry of a Partial Summary Judgment when it failed to negate record evidence that would support the Plaintiff's-Policyholder's Claim.  Bafford v. Travelers Casualty Insurance Co. of Am., 2012 WL 5465851 *10 (E.D. Cal. November 8, 2012).

    To say again, the Court reviewed what appears to be the entire record in this case, and apparently left no stone unturned in doing that.  Bafford v. Travelers Casualty Insurance Co. of Am., 2012 WL 5465851 *1-*4 (E.D. Cal. November 8, 2012).  After that review, the Court appears to be convinced that the legal questions based on this record could not be clearly decided in the Insurance Company's favor.

    Twice the Court used the word, "disingenuous," to describe several arguments.  See Bafford v. Travelers Casualty Insurance Co. of Am., 2012 WL 5465851 *11 (E.D. Cal. November 8, 2012).  "Finally, the evidence suggests that Travelers concluded quite early in the investigation that Bafford had submitted a fraudulent claim and proceeded to seek information confirming that position."  Bafford v. Travelers Casualty Insurance Co. of Am., 2012 WL 5465851 *11 (E.D. Cal. November 8, 2012).  [Emphasis added.]

    In all cases, it is a best practice as it were to behave with objectively verifiable Good Faith.  In no case is it ever a best practice to behave in what a Judge or Jury can reasonably perceive as the opposite.

One Thing More:  The Court in the Bafford case could not conclude that there was a "genuine dispute" here as a matter of law.

     In reading the Bafford case, California lawyers will also be interested in the fact that The Travelers pursued its Motion for Partial Summary Judgment on the additional ground of what California Courts call "the 'genuine dispute' doctrine."  However, the Court concluded that the doctrine or rule, which operates as a Defense as a matter of law in California, does not relieve an Insurance Company from its "duty" to perform a reasonable investigation and that includes this case.  Bafford v. Travelers Casualty Insurance Co. of Am., 2012 WL 5465851 *12 (E.D. Cal. November 8, 2012).

Dennis Wall is a featured speaker at this year's National Forum on Bad Faith Litigation in Orlando, Florida on November 28 and 29, 2012.  I will be speaking on both days.  On November 28, I will be part of a panel addressing the handling of Bad Faith litigation.  My particular topic will focus on Expert Witnesses.  On November 29, I will be one of the leaders of a Florida Workshop.  Here is the American Conference Institute's website:  www.americanconference.com/badfaith.

Please Read The Disclaimer.

EVIDENCE AFTER CIVIL REMEDY NOTICE OF INSURER VIOLATION HELD INADMISSIBLE.

            In a First-Party Bad Faith Case in Florida, a Federal Court was confronted with a Plaintiff's-Policyholder's First Motion in Limine to Limit Evidence at Trial to the Relevant Time Period.

            The case is Alexander v. GEICO, 2012 WL 5382051 (M.D. Fla. November 1, 2012).  The Plaintiff, Randolph Alexander, was caught in an automobile accident involving four vehicles in 2005.  He made a claim for Coverage under his GEICO Uninsured/Underinsured Motorist Policy.  It has limits of $50,000/$100,000.  Mr. Alexander filed suit against GEICO for his "UM benefits" in 2007.  Alexander v. GEICO, 2012 WL 5382051 *1 (M.D. Fla. November 1, 2012).

            After he filed his UM benefits lawsuit, Mr. Alexander filed two Civil Remedy Notices of Insurer Violation ("CRNs") outlining GEICO's failure to pay, in essence.  The first CRN was filed in 2008, and the second in 2009.

            Thereafter, Mr. Alexander obtained a verdict, apparently in the UM case against GEICO, and apparently for the damages caused to him by the other parties in the automobile accident.  The verdict amount was entered into a Judgment after the amount was reduced by setoffs to $212,356.95.

The District Judge did not reveal when Mr. Alexander's Bad Faith Claim or Claims was or were alleged in a lawsuit, but his Florida First-Party Bad Faith Claims could only have been alleged under Florida Statute Sections 627.727(10), Florida's UM Statute, and 624.155, Florida's Bad-Faith Statute.  Following the Verdict and Judgment, "Alexander seeks to collect the balance of the verdict from GEICO based upon its alleged bad faith failure to settle within the $50,000 policy limits."  Alexander v. GEICO, 2012 WL 5382051 *1 (M.D. Fla. November 1, 2012).  Parenthetically, the Federal Court did not explain whether or in what way GEICO had a duty in the first place to settle Mr. Alexander's claims, if any, against the other parties involved in the four-vehicle automobile accident.

            Instead, this decision revolves around only Mr. Alexander's First Motion in Limine to Evidence at Trial to the Relevant Time Period.  In that motion, Mr. Alexander asserted that the relevant time period for any and all evidence on the Bad Faith Claims ended when the time period for responding to his second CRN ended.  His argument ran to the effect that his filing of a CRN is a condition precedent to First-Party Bad Faith Claims like his and, that being so, "the improper conduct alleged must necessarily pre-date the expiration of the CRN."  Alexander v. GEICO, 2012 WL 5382051 *1 (M.D. Fla. November 1, 2012).

            The Federal Judge decided this open question of Florida law in favor of the Plaintiff-Policyholder in this case.  The Court appears to have observed that Mr. Alexander's Bad Faith Claims are based at least in part on the Florida Bad-Faith Statute, and although there is no other authority on the issue, in the Court's opinion the structure of the Statute required the Court to grant Mr. Alexander's motion:

[S]ection 624.155(3)(b) requires the CRN to “state [ ] with specificity ... the facts and circumstances giving rise to the violation,” which leads to the logical conclusion that the conduct constituting the alleged bad faith must have occurred prior to the plaintiff filing the CRN.

    Although the parties have not cited Florida case law directly on point—and the Court is unable to locate any—this conclusion also appears in alignment with related Florida bad faith case law.

* * *

Thus, evidence of GEICO's actions taken after the expiration of the second CRN is not relevant to the issue of bad faith and will not be admissible at trial.

 Alexander v. GEICO, 2012 WL 5382051 *3 (M.D. Fla. November 1, 2012).

            Not content to rest on this decision which "the Court believes ... to be legally correct," the Federal Court also noted in a footnote "that the facts appear to be that GEICO was on notice of the pertinent facts well before the expiration of the second CRN."   Alexander v. GEICO, 2012 WL 5382051 *3 & n.1 (M.D. Fla. November 1, 2012).  [Emphasis added.]

            Well, that takes care of that, probably.

Please Read The Disclaimer.