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.
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