Steven Plitt, Expert Witness Steven Plitt, Expert Witness
Insurance Bad Faith Claim Handling Expert Serving Clients Nationwide

Bad Faith Archives

Settling into Bad Faith

Under Florida Insurance Code §624.155, in order to bring a bad faith action there must be a favorable determination of liability against the insurer as a prerequisite to maintaining a bad faith action. In Barton v. Capitol Preferred Ins. Co., Inc., 208 So. 3d 239 (Fla. Dist. Ct. App. 2016), a property insurer settled the insured's breach of contract claim relating to sinkhole damages for an amount less than the available policy limits. The insured alleged that the insurance company had failed to perform a complete, statutorily-compliant sinkhole/subsidence investigation prior to it summarily denying the claim for coverage. After the lawsuit was filed, the insurer proposed settling the claim for $65,000 in order to dismiss the breach of contract action. After the dismissal of the breach of contract action, the insureds brought a bad faith lawsuit. The insurance company moved for summary judgment on the bad faith claim, arguing that under the statute, the insured had failed to prove that the underlying breach of contract claim had been resolved in favor of the insured and that there had been a determination of the actual extent of the loss. Summary judgment was granted in favor of the insured. On appeal, however, the summary judgment grant was reversed. The Florida Court of Appeals found that while the insured may obtain a determination of liability and a determination of the full extent of damages through trial, there were other acceptable means for establishing the predicate for a bad faith lawsuit, including settlement, arbitration results, and stipulation. The court then found that the insurer's payment of $65,000 was a favorable resolution of the claim and the fact that the claim was settled for less than the policy limits or the amount initially demanded by the insured, was irrelevant. The court found that §624.155 did not condition the right to bring a bad faith lawsuit on the insured's recovery of the claimed policy limits or an amount that was greater than the insureds had demanded for the resolution of the claim.

Oregon Court Finds That Insurer Bad Faith Is Not Elder Abuse

The Oregon Supreme Court, answering a certified question by the 9th Circuit Court of Appeals, held that bad faith delay or denial of payment of an insurance claim did not state a claim under Oregon's Financial Elder Abuse Statute. In Bates v. Bankers Life and Casualty Co., 362 Or. 337, 408 P.3d 1081 (Or. 2018), the Oregon Supreme Court held that an insurance company's alleged bad faith did not simultaneously constitute a violation of Oregon's elder abuse statute. In this case, the plaintiffs were senior citizens who had purchased long-term healthcare insurance policies issued by Bankers Life. The seniors sued Bankers, alleging that Bankers had developed onerous procedures to delay and deny insurance claims that were submitted by seniors. The seniors brought an elder abuse claim against Bankers under ORS §124.110. However, the Federal District Court dismissed the claim, finding that the Elder Abuse Statute only applied in "bailment or trust scenarios expressly referenced in the statutory language." The dismissal was appealed to the 9th Circuit Court of Appeals. In turn, the 9th Circuit certified a question to the Oregon Supreme Court on the issue.

Refining Florida's Bad Faith Law

In order to bring a bad faith claim in Florida, the following three elements need to be established: (1) the insurer's liability for coverage needs to be determined; (2) the extent of the insured's damages needs to be determined; and (3) it must be established that the insured placed the insurance company on notice. See Florida Statute §624.155(a). This statute provides a civil remedy in cases where the insurance company fails to settle its policyholder's claim in good faith or where the insurer commits any one of the several unfair claims handling practices identified in Florida Statute §626.9541(1)(I).

Covenant Judgment Settlements In Washington Do Not Automatically Constitute A Waiver Of Attorney-Client Privilege And Work Product Protection When The Insured's Claims For Bad Faith Against The Insurer Are Assigned To The Adverse Party

In Steel v. Philadelphia Indemnity Co., 381 P.3d 111 (2016), a daycare center employee was convicted of child rape and child molestation while working at a daycare center. The parents brought a negligence action against the center. The daycare center had $1 million in coverage. Plaintiffs offered to settle for $4 million, which was rejected by Philadelphia. As trial approached, the insureds entered into a $25 million covenant judgment settlement with the plaintiffs. As part of the settlement the insureds received a covenant not to execute and the plaintiffs received an assignment of the insured's bad faith claims.

Timely Offering Policy Limits Does Not Immunize Insurer From Bad Faith Exposure

The California Supreme Court in Barickman v. Mercury Casualty Co., 2 Cal. App. 5th 508 (2nd Dist. 2016) held that the insurance carrier was liable for bad faith failure to settle, notwithstanding the fact that the carrier offered its policy limits to the claimants in a timely manner in exchange for a full release of civil liability. The court found that the insurer's failure to do "all within its power to effect a settlement" could constitute bad faith, notwithstanding the fact that the insurance company offered its policy limits to the injured claimants in exchange for a full release of liability. The insurance company had refused to consent to additional language in the release designed to preserve the claimant's rights to receive criminal restitution from the insured tortfeasor.

California Court of Appeals Fixes Punitive Damage Ratio and Bad Faith Cases

Historically the United States Supreme Court has admonished trial courts with the high court's observation that "few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process." State Farm Mut Automobile Ins. Co. v. Campbell, 538 U.S. 408, 424 (2003). The California Supreme Court has taken a different view of what the proper ratio of punitive to compensatory damages should be. In Simon v. Sao Paolo U.S. Holding, Inc.. 35 Cal. 4th 1159 (2005) the California Supreme Court upheld a ten-to-one ratio. The California Supreme Court observed that the one-to-one ratio of the Campbell decision would not be applied, with the court suggesting that a ratio of nine or ten-to-one would be the point in California where a punitive damage award became constitutionally suspect and required special justification. Simon, 35 Cal. 4th at 1182.

INSURANCE COMPANY RELIANCE UPON IME REPORT TO SUPPORT RULE 12 B6 MOTION TO DISMISS IN BAD FAITH CASE DID NOT REQUIRE DISMISSAL

The South Dakota Supreme Court in Mordhorst v. Dakota Truck Underwriters and Risk Administrative Services 886 N.W.2d 322 (S.D 2016) recently found that a rule 12-B6 motion to dismiss was not appropriate in a worker's compensation bad faith case notwithstanding the insurer's reliance upon an IME report finding that the injured employee was not injured.

A 10-to-1 RATIO OF COMPENSATORY DAMAGES TO PUNITIVE DAMAGES WAS RECENTLY PERMITTED BY THE CALIFORNIA COURT OF APPEALS IN AN INSURANCE BAD FAITH CASE

The California court of appeals in Nickerson v. Stonebridge Insurance Co. 5 Cal App, 5th 1,209 Cal Rptr. 3d 690 (2d Dist., November 3, 2016) recently found that the Court was constrained by case law in California and the California constitution from allowing a punitive damage award to be more than 10 times greater than the compensatory damage award. In calculating the compensatory damage award within the ratios denominator, the trail court properly excluded and the court of appeals held that it was proper to excluded contract damages and potential damages to others from the equation. However, the court found that the award of attorney fees in favor of the insured and compelling the insurer to pay contract benefits (so called Brandt fees) should be included in the ratios denominator.

THE CALIFORNIA COURT OF APPEALS FINDS THAT A 10:1 RATIO OF COMPENSATORY DAMAGES TO PUNITIVE DAMAGES IS APPROPRIATE IN AN INSURANCE BAD FAITH CASE AND THAT THE RATIO SHOULD BE NO HIGHER

In Nickerson v. Stonebridge Life Ins. Co., 5 Cal.App.5th 1, 209 Cal.Rptr.3d 690 (2nd Dist. 2016), the California Court of Appeals recently reduced a $19M punitive damages award in an insurance bad faith case to $475,000 applying a 10:1 ratio of compensatory damages to punitive damages.

IN THE STATE OF WASHINGTON INSUREDS DO NOT WAIVE ATTORNEY-CLIENT AND WORK-PRODUCT PRIVILEGES WHEN THEY SEEK THE COURT'S APPROVAL OF A COVENANT JUDGMENT SETTLEMENT WHICH ASSIGNS TO THE ADVERSE PARTY THE INSURED'S BAD FAITH CLAIM AGAINST THE INSURER

In Steel v. Philadelphia Indemnity Ins. Co., 195 Wash.App. 811, 381 P.3d 111 (Wash. App. 2016), the Washington Court of Appeals held that insurance companies do not waive attorney-client privilege or work product protection when their insured enters into a covenant judgment settlement that is subject to judicial determination as to reasonableness. In Steel, a day care center's employee was convicted of child rape and child molestation of two children at the day care center. At the time, the defendants were insured under a Philadelphia Indemnity policy providing $1M in coverage. Plaintiffs offered to settle their claims for $4M which was rejected by Philadelphia. Shortly before trial was scheduled to begin, the insureds entered into a $25M covenant judgment settlement with the plaintiffs, receiving a covenant not to execute in return, for an assignment of the insureds' bad faith claims against Philadelphia.

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