In Millard Gutter Co. v. Shelter Mutual Ins. Co., 312 Neb. 606, 980 N.W.2d 420 (Neb. 2022), the Nebraska Supreme Court held that an insured’s assignee lacked standing to bring a first party bad faith lawsuit in Nebraska. This case involved Millard Gutter Company as the plaintiff, who had repaired damage sustained by multiple insured property owners arising from a 2013 storm. Millard Gutter accepted the homeowners’ assignments of their rights against Shelter Insurance Company as compensation for the repairs. Millard then sued the insurers in its own name to enforce the insureds’ rights against the insurer. Millard Gutter also argued that the insurance company owed a direct duty of good faith and fair dealing to Millard Gutter once it succeeded to the insured homeowners’ rights and that Shelter’s post-assignment conduct in handling its claims constituted a breach of that duty. The trial court dismissed the action.
The Nebraska Supreme Court considered the case on appeal. The High Court held that by Nebraska law, insureds may assign a post-loss breach of contract claim for insurance proceeds due under a homeowners policy, and that the assignee of such a claim would have standing to bring the breach of contract claim in its own name. However, the Nebraska Supreme Court rejected Millard Gutter’s two theories of standing. First, Millard Gutter argued that it had standing to bring the bad faith claim as an assignee for already existing bad faith claims that the insurer’s policyholders had when the assignment was made. Second, Millard Gutter relied on the assignments to argue that it could assert its own claims for first party bad faith based on post-assignment conduct. Both of these arguments were rejected by the Nebraska Supreme Court.
Regarding the first theory regarding standing, the Court acknowledged that Nebraska law generally allowed a party to assign the proceeds from personal injury actions, but that Nebraska law did not allow assignment of the right to prosecute or control such actions. The Court noted the intentional nature of the tort of insurance bad faith, and reasoned that “plaintiffs in such actions are entitled to seek and recover traditional injury damages.” In that regard the Court held that the insured homeowners could not assign plaintiffs standing to prosecute or control their personal rights to sue for bad faith because it was a personal cause of action.
Addressing the second theory of recovery, i.e., that once Millard acquired the right to the proceeds of the homeowner claims, the insurer then owed Millard the same covenant of good faith and fair dealing obligation it owed to the homeowners. In rejecting this argument, the Court found that the duty of good faith and fair dealing was dependent on a contractual relationship between the policyholder and the insurer, and that it did not extend to non-policyholder beneficiaries. Millard Gutter, as a non-policyholder, lacked standing to bring a first party bad faith claim against the insurer.