Bad Faith Misconduct
Knows No Borders
In addition to a St. Louis area court imposing significant vexatious liability on American Family for the second time in 18 months, appellate and trial courts from other jurisdictions were busy in August handing down opinions and orders with the potential to influence Missouri extra-contractual claims.
Missouri
Cockerham v. American Family Mut. Ins. Co., 15SL-CC02435-01 (STL County 2020)
After the Supreme Court denied transfer in Quershi, AMFAM took another hit based on its claims handling conduct in adjusting first party claims. While Quershi dealt with liability for conduct after the filing of an uninsured motorist lawsuit, the trial court in Cockerham imposed vexatious penalties and liability for AMFAM’s conduct after losing an appeal on the issue of coverage.
Cockerham originated as a result of extensive damage to the Cockerham home caused by faulty construction. The Cockerhams were insured by AMFAM and AMFAM challenged its obligation to pay for any damages based on policy exclusions. The Cockerhams filed a lawsuit and summary judgment on the coverage issue was initially granted to AMFAM. However, the Eastern District found coverage was available and that judgment should be entered for the Cockerhams on remand.
Following remand, the Court entered a partial judgment for the Cockerham’s totaling $845,292 in June 2019. AMFAM made no payments to partially or wholly satisfy this judgment and instead filed writs in the Eastern District challenging the trial court’s damage decision. These were denied.
After AMFAM made no payments, the Cockerhams filed a motion for summary judgment on their vexatious claim solely as to AMFAM’s conduct after the entry of the June 2019 judgment. This was a time period in which AMFAM no longer had a defense to coverage but still made no payments. After full briefing, the Court agreed with the Cockerhams and entered a judgment in the total amount of $1,441,487.
AMFAM is certain to appeal the trial court’s judgment. If affirmed on appeal, Cockerham will further confirm Quershi’s finding that conduct at all stages of the underlying litigation supports extra-contractual awards.
Ohio
Cook v. Erie Ins. Co., 2020 WL 4604438 (S.D. Ohio Aug. 2020)
Cook dealt with another 1st party loss and the order cited above focused primarily on the admissibility of a claims handling expert’s testimony. However, several important nuggets are contained in the order.
The first is that a carrier’s excessive requests for documentation for a claimant can be bad faith. This is especially true when there is arguably no legitimate business interest for the requests. In these circumstances, testimony will be permitted that the carrier is simply delaying payment in an effort to boost its profits. This is of course well known and the ex-auto adjuster serving as the claimant’s expert was permitted to testify as such.
Even more importantly to Missouri claims, the Ohio Court recognized that a carrier’s legal right to take an action does not mean that it hasn’t acted in bad faith in exercising that right. Cook dealt with the carrier having a right to request documents but did so solely to advance its own interests. In Missouri this finding is highly useful to combat a carrier’s argument that because §537.065 grants a right to intervene, the carrier’s act of intervening cannot be evidence of bad faith.
Based on Cook and common sense this argument is of course incorrect. Just like a carrier has the policy right and must choose to accept or reject a demand, the carrier must choose whether intervening into a given lawsuit is proper. If a carrier has no real interest to advance by intervening and does so to the detriment of the insured, of course it should be considered an act of bad faith. At a minimum, intervention in such circumstances should be used to show that the carrier knew it acted in bad faith previously and was only trying to mitigate its future liability by further delaying the entry of an underlying judgment.
Alabama
Thomas v. Auto-Owners Ins. Co., 2020 WL 4757070 (M.D. Ala. Aug. 2020)
The entirety of Thomas is worthy of a read as a primer on why carriers should immediately tender policy limits when an insured was even mildly intoxicated at the time of an accident. In Thomas the insured was hit with a $3.8 million verdict after his carrier refused to offer more than $300,000 pre-trial.
In addition the Court pointed out the following principles that were in play in the subsequent bad faith case as it approached trial:
- Carriers are not shielded from bad faith exposure due to evaluations below limits made by retained counsel;
- An insured’s opinion on their lack of liability and a plaintiff’s inflated damages is not a shield to a bad faith claim;
- A carrier offering less than settlement authority at late stages of litigation will almost certainly create a triable bad faith issue;
- Failure to make any response to settlement demands is a risky course of action for a carrier to take; and
- An insured’s execution of a fee sharing agreement with the claimant concerning a bad faith recovery is not evidence of collusion.
In addition to the above, the Court dealt another blow to the Reverse Bad Faith, Comparative Bad Faith, or Contributory Bad Faith defense advanced by many carriers by acknowledging that such defenses are not recognized as viable. Instead the concept of Bad Faith in the insurance world extends only to the actions of the insurance company. As many states recognize, this is appropriate as the insurance company has full control over the settlement and defense of claims against the insured and not the other way around.
11th Circuit
Kemper v. Equity Insurance Company, 2020 WL 5085875 (11th Cir. 2020)
Kemper is the latest in a line of 11th Cir. and Florida based cases in which a court has found that a carrier timely offering the liability policy limits does not act as a bar to a bad faith failure to settle claim.
Instead, a carrier placing conditions on a timely policy limits offer (in this case requiring the claimant to hold the funds in escrow until the resolution of all liens) could support a bad faith claim. When there are no known liens as was the case in Kemper, the reasonableness of the condition imposed by the carrier is a question for the jury.
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