Courts Across the Nation Find Insurance Companies in Bad Faith

 

 
By Robert D. Chesler, Esq. of ANDERSON KILL & OLICK, P.C.

 
A rising tide of first party bad faith decisions is providing policyholders with new weapons to combat the obstructions and delays too often encountered in the claims handling process. In the past six months, three courts have found first party insurance companies liable for bad faith claims handling. A fourth has permitted a bad faith claim to go forward, despite the fact that the insurer had paid the full amount that the appraiser had awarded.
 
Mave Enterprises, d/b/a Delish v. Metropolitan Adjustment Bureau, Factual Findings, Arbitration Proceeding (March 29, 2012) was a case of a fire loss and the claims handler from hell. The original claims handler had hired an adjuster who had handled the claim fairly. The new claims handler brought in a new adjuster, and together they made unreasonable demands for information and investigated for 20 months. The claims handler knew that the policyholder was a small company that did not have the resources to rebuild after the fire and was suffering significant hardship and loss of business. The court found that “The issue of business interruption losses, which were denied due to a technical failure of proof and accounting losses, would not have been an issue at all had [the insurance company] simply and promptly paid that which was not subject to reasonable dispute.” The court found that the insurer’s conduct was ‘willful and reprehensible.’
 
In Miller v. Safeco, F.3d (7th Cir. June 25, 2012) the homeowners purchased a house, and then found water damage which led to mold and the loss of use of the house. The insurance company denied based on prior knowledge. The court found that there was no prior knowledge: “Safeco lacked a reasonable basis for denial and …demonstrated a reckless disregard of its lack of a reasonable basis, thus entitling the [insured] to damages resulting from the Safeco’s bad faith…”
 
Bello v. Merrimack Mutual Fire Insurance Co., No. A-4750 (N.J.App.Div. July 12, 2012) involved damage to a retaining wall caused by a storm. The adjuster sent an individual who was not an engineer to inspect, and that individual found that the damage to the wall was caused by its pre-existing condition. As a result, the insurance company denied the claim. When the insured protested to a superior, that superior repeated the denial. However, in an earlier internal memo, the superior had concluded that it was a covered claim. Later, the insurance company reversed itself and paid the claim. However, the superior’ wrongful denial of the claim led to a finding of bad faith.
 
Often, a policyholder will think that a claim of bad faith is not possible once it has gone through an appraisal and the insurance company has paid the awarded amount. Trafalgar proves that an insured can accept payment and still proceed with a bad faith claim for ‘a pattern of delay and denial.’ In Trafalgar v. Zurich American Ins. Co., No. 4D11-1376 (Fla. Ct. App. Sept. 5, 2012), the insured submitted a proof of loss for $1,826,938.54, and the insurance company ultimately offered, in addition to the $150,000 deductible, $641,730.32. The policyholder sued, and the insurance company invoked the appraisal provision. The appraiser awarded $1,504,663.10, which the insurance company paid within 30 days. The insurance company moved for summary judgment on the original breach of contract claim, which was granted. Regardless, the court also granted the insured’s motion to amend and bring a statutory bad faith cause of action. The chief takeaway from these cases is that bad faith claims handling does occur, and that courts and juries will punish the insurance company that commits it.
 
These cases also show that the insured needs to be persistent in pursuing its original claim and fighting for its rights. The insured needs to respond to the insurance company’s reasonable requests for information and build a record of its cooperation in contrast to the insurance company’s delay. Most importantly, the insured needs to be aware of its rights and pursue them aggressively.
 
Robert D. Chesler is a shareholder in Anderson Kill's Newark office. Mr. Chesler represents policyholders in a broad variety of coverage claims against their insurers and advises companies with respect to their insurance programs. He can be reached at (973) 642A?a,?aEUR~5858 or rchesler@andersonkill.com
 
 

Meet The Experts

  • VIEW RATINGS FOR INSURERS
    Enter name of Insurance Company and press GO button.