3Reasons for Bad Faith Laws Contractual reason:Implied C0venant of Good Faith and Fair DealingEvery contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.Restatement (Second) of Contracts § 205 (1981)The implied duty of good faith and fair dealing in every insurance policy fundamentally requires that the insurer to do nothing to injure the insured’s right to receive benefits due under its policy.Richmond, Advice of Counsel and Insurance Bad Faith, 73 Miss. L.J. 95 (Fall 2003).ContractShort of a fiduciary relationshipK reason is why normally, only first party insurers can bring a bad faith claim – it is only they who have contracted with insurersAny tactics which may frustrate the insurer’s right to receive his benefits, such as delayed payments based on inadequate or tardy investigations, can breach this implied covenant
4Reason for Bad Faith Laws cont. Public Policy reason:Superior Bargaining Power of InsurersFactors showing superior bargainingThis makes insurance contracts particularly susceptible to public policy considerations.Standards for Limiting the Tort of Bad Faith Breach of Contract, 16 U.S.F.L. Rev. 187 (1982).This public policy extends damages for Bad Faith beyond mere contractual damages and into the realm of tort damages.Hunter v. Up-Right, Inc., P 2d 88 (Cal. 1993).Tort damages are generally more extensive than contractual damagesEvidence of superior bargaining power:Insured cannot obtain materially different coverage elsewhereContracts are wholly standardized without room for negotiationThe insured is attempting to secure an essential service or product, as opposed to obtaining a monetary gain in ordinary commercial contractsInsured has inherent trust in the insurer
5Definition of “Bad Faith” The phrase “bad faith” is one of the most often repeated phrases in the law, but may also be one of the least understood.“Bad faith” may connote moral culpability or fault, but it is unclear from cases or commentary to what degree bad faith actually indicates some evil intent or moral failing.
6Common Elements of Bad Faith 1. Wrongful failure to pay a claim or undisputed amount 2. Failure to investigate or investigate timely 3. Failure to defend vs. indemnify 4. Failure to promptly adjust the claim per legal timeline- Failure to investigate – carrier has breached the contract and wrongfully refused to pay the claim. Normally based on one of three reasons:1. Ignorance of correct policy interpretation2. Bias regarding policy interpretation3. Biased view of the evidence supporting the claim- Failure to investigate – this does not simply mean that no investigation occurs. Bad faith under this category also occurs when an investigation proceeds “only until such a time as the carrier has acquired sufficient evidence to justify a denial” and “the file is closed without examination of contradictory evidence.” This can fall into bad faith. All evidence must be examined and the benefit of the doubt given to the insured. A claim must be fairly debatable to avoid bad faith.- Failure to defend – the duty to defend in a liability policy is broader than the duty to pay claims. If there is any possibility that the carrier could be liable, however remote, the carrier is usually required to hire an attorney to defend the case.- Failure to promptly adjust the claim – do not delay! This bad faith claim is focused on the temporal element. A carrier cannot unduly prolong the process of responding to a claim. Different states provide different time periods within which an insurer is required to act.
7FloridaHistory:Florida has recognized third-party bad faith actions at common law since 1938First-party bad faith actions were recognized with the enactment of F.S.A. § in 1982Now, first-party and third-party bad faith claims fall under the same statutes and contain the same causes of action.Explain what “common law” isInequity of historically recognizing only third party bad faith claimsSOL – can’t find law saying it’s two years
8F.S.A.§Civil remedy (Chapter 625 of Insurance Code)— (1) Any person may bring a civil action against an insurer when such person is damaged: (a) By a violation of any of the following provisions by the insurer: 1. Section (1)(i), (o), or (x); 2. Section ; 3. Section ; 4. Section ; 5. Section ; or 6. Section (b) By the commission of any of the following acts by the insurer: 1. Not attempting in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for her or his interests; 2. Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which payments are being made; or 3. Except as to liability coverages, failing to promptly settle claims, when the obligation to settle a claim has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage. Notwithstanding the provisions of the above to the contrary, a person pursuing a remedy under this section need not prove that such act was committed or performed with such frequency as to indicate a general business practice. …. (4) Upon adverse adjudication at trial or upon appeal, the authorized insurer shall be liable for damages, together with court costs and reasonable attorney's fees incurred by the plaintiff.Violation of the following (statutes listed):Unfair claim settlement practicesFavoring an agent/insurer – coercion of debtorIllegal dealings with life or disability insurance (discriminating based on disability, etc…)Life insurance discrimination on basis of sickle-cell traitLife insurance discrimination on basis of sickle-cell trait (two statutes on)6. Cancelling a policy and not getting unearned portion of premium backMore on bad faith statute: in addition to it being mentioned in , there is an entirely different statute awarding attorney’s fees for these cases:Section provides:Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured's or beneficiary's attorney prosecuting the suit in which the recovery is had.- though this statute seemingly only applies to “named insureds” or “named beneficiaries,” Florida courts have extended this right to attorney’s fees to “allow for attorney's fee awards to assignees of third-party bad faith claims.” Allstate Ins. Co. v. Regar, 942 So. 2d 969, 972 (Fla. Dist. Ct. App. 2006) Allstate Ins. Co. v. Regar, 942 So. 2d 969, 971 (Fla. Dist. Ct. App. 2006)
9Florida law – what to know In Florida, the duty of an insurer is described as the “duty to use the same degree of care and diligence as a person of ordinary care and prudence should exercise in the management of his own business.” Boston Old Colony Ins. Co. v. Gutierrez, 386 So. 2d 783, 785 (Fla. 1980).This is a “fiduciary relationship” b/w the insurer and insured, placing the insured with a high burden. Allstate Indem. Co. v. Ruiz, 899 So. 2d 1121, 1125 (Fla. 2005).provides that an insured cannot bring a bad faith claim if, “within 60 days after filing notice, the damages are paid or the circumstances giving rise to the violation are corrected.” Such written notice is required of any party attempting to bring a bad faith claim against an insured. F.S.A.§After a debate on whether the insured must pay the claim amount or the claim amount plus bad faith damages within this time period, the Florida Supreme Court held, in Talat Enterprises, Inc. v. Aetna Cas. And Sur. Co., that the 60 day period, if complied with, precludes any recovery for bad faith damages. 753 So. 2d 1278 (La. 2000).Attack on law in Florida in that there is no reciprocal duty of good faith on part of the insured/claimant, resulting in a “bad faith set-up.”Baton v. Transamerica Ins. Co., 584 F. 2d 907, 914 (9th Cir. 1978)); Peraza v. Robles, 983 So. 2d 1189, 1192 (Fla. 3d D.C.A. 2008)Explain burdens of fiduciary relationshipAttack: Missing from this statute, however, is an affirmative, reciprocal obligation on the part of the insured or third-party claimant to likewise act in good faith in attempting to settle the claim…. Lawyers for insureds/claimants sometimes affirmatively seek to avoid — contrary to the public policy favoring settlements — in an effort to convert $10,000 policy limits into a multi-million dollar recovery under the policy. That plainly was not the intent behind this statute, which instead is intended to encourage settlement of insurance claims.- In Florida, adjusters are liable, but to the insurer. If an insurer must pay bad faith damages to an insured based on actions of the independent adjuster, the insurer can recoup (seek indemnity) from these costs from adjuster, based on contract between adjuster and insurer. Home Ins. Co. v. Crawford & Co., 890 So. 2d 1186, 1188 (Fla. Dist. Ct. App. 2005).
11Georgia Current elements to show bad faith: The claim is covered under the policy;Demand for payment made within 60 days prior to filing suit; andInsurer’s failure to pay motivated by bad faith.Lavoi Corp., Inc. v. Nat'l Fire Ins. of Hartford, 666 S.E.2d 387 (Ga. App. 2008)As occurs on national level, Georgia does not adequately define “bad faith.”Georgia bad faith law tends toward the vague and broad, as opposed to other state’s detailed lawsNo good def: “Bad faith” in failing to timely pay claim is shown by evidence that, under the terms of the policy upon which the demand is made and under the facts surrounding the response to that demand, the insurer had no good cause for resisting and delaying payment. Atlantic Title Ins. Co. v. Aegis Funding Corp., 2007, 287 Ga.App. 392, 651 S.E.2d 507, certiorari denied.Conversely, good faith is shown by the reasonableness of nonpayment of a claim. Id. This is circular and unhelpful.
12Ga. Code. Ann. §§ Liability of insurer for damages and attorney's fees on bad faith refusal to pay claims (a) In the event of a loss which is covered by a policy of insurance and the refusal of the insurer to pay the same within 60 days after a demand has been made by the holder of the policy and a finding has been made that such refusal was in bad faith, the insurer shall be liable to pay such holder, in addition to the loss, not more than 50 percent of the liability of the insurer for the loss or $ 5,000.00, whichever is greater, and all reasonable attorney's fees for the prosecution of the action against the insurer. The action for bad faith shall not be abated by payment after the 60 day period nor shall the testimony or opinion of an expert witness be the sole basis for a summary judgment or directed verdict on the issue of bad faith. The amount of any reasonable attorney's fees shall be determined by the trial jury and shall be included in any judgment which is rendered in the action; provided, however, the attorney's fees shall be fixed on the basis of competent expert evidence as to the reasonable value of the services based on the time spent and legal and factual issues involved in accordance with prevailing fees in the locality where the action is pending; provided, further, the trial court shall have the discretion, if it finds the jury verdict fixing attorney's fees to be greatly excessive or inadequate, to review and amend the portion of the verdict fixing attorney's fees without the necessity of disapproving the entire verdict. The limitations contained in this Code section in reference to the amount of attorney's fees are not controlling as to the fees which may be agreed upon by the plaintiff and the plaintiff's attorney for the services of the attorney in the action against the insurer. (b) In any action brought pursuant to subsection (a) of this Code section, and within 20 days of bringing such action, the plaintiff shall, in addition to service of process in accordance with Code Section , mail to the Commissioner of Insurance and the consumers' insurance advocate a copy of the demand and complaint by first-class mail. Failure to comply with this subsection may be cured by delivering same.Ga has a less detailed “bad faith” law
13Georgia law – what to know Need a “reasonable and probable cause for defending the claim”Colonial Life & Acc. Ins. Co. v. Donaldson, 322 S.E. 2d 510 (Ga. App. 1984)Where no evidence of bad faith or where issue of liability is close, court should not allow imposition of bad faith penaltiesMitchell v. Globe Life and Acc. Ins. Co., 548 F. Supp.2d 1385 (N.D. Ga. 2007)More detailed statute in respect to bad faith refusal to pay motor vehicle coverage claims. Ga. Code Ann., §Safe harbor in Georgia for situation where Plaintiff makes a settlement offer containing a condition beyond control of insurer.Cotton States Mut. Ins. Co. v. Brightman, 580 S.E.2d 519 (Ga. 2003)Insurance adjusters are not liable for failure to settle a claim with an insured in the absence of a contractual relationship.Moss v. Cincinnati Ins. Co., 154 Ga. App. 165 (Ga. App. 1980).Other notes: in GA, any activities that occurred after filing of lawsuit cannot create basis for “bad faith” claim. Executive Risk Indem., Inc. v. AFC Enterprises, Inc., 510 F. Supp.2d 1308 (N.D. Ga. 2007)Brightman regards instances where there are multiple insurers involved in Plaintiff’s demand- Tort statute of limitations (2/4 years depending on what underlying damage is – to property, 4, to person, 2)
14Louisiana Bad Faith Law Elements of insured’s claim of bad faith:1. That the insurer received a satisfactory proof of loss;2. That the insurer failed to pay the claim within the applicable period; AND3. That the insurer’s failure to pay was arbitrary, capricious, or without probable cause.Boudreaux v. State Farm Mut. Auto. Ins. Co., 896 So. 2d 230 (La. App. 4 Cir. 2005)Insurer’s defenses:Underlying claim invalid (e.g. prescribed)Hampton v. Audubon Ins. Co., 948 So. 2d 332 (La. App. 2d Cir. 2007)Refusal to pay has reasonable basisKottle v. Provident Life and Acc. Ins. Co., 775 So. 2d 64 (La. App. 2 Cir. 2000), writ denied 790 So.2d 635 (La. 2001)No satisfactory proof of lossReed v. State Farm Mut. Auto. Ins. Co., 857 So. 2d 1012, 1021 (La. 2003)Insured withholds necessary informationBoudreaux v. State Farm Mut. Auto. Ins. Co., 896 So. 2d 230, 234 (La. App. 4 Cir. 2005)Boudreaux: court found that insured withheld information, preventing recovery for bad faith. This information was the medical documents regarding a prior lumbar fusion (pre-accident), of which she did not inform insurers. Therefore, there was no satisfactory proof of loss, even though she informed them of serious prior back injuries.
16La. R.S. 22:1892 Extremely detailed: When to pay amounts due La. R.S. 22:1892 (formerly 22:658): Payment and adjustment of claims, policies other than life and health and accident; personal vehicle damage claims; extension of time to respond to claims during emergency or disaster; penalties; arson-related claims suspension A. (1) All insurers issuing any type of contract, other than those specified in R.S. 22:1811, 1821, and Chapter 10 of Title 23 of the Louisiana Revised Statutes of 1950, shall pay the amount of any claim due any insured within thirty days after receipt of satisfactory proofs of loss from the insured or any party in interest. The insurer shall notify the insurance producer of record of all such payments for property damage claims made in accordance with this Paragraph. (2) All insurers issuing any type of contract, other than those specified in R.S. 22:1811, R.S. 22:1821, and Chapter 10 of Title 23 of the Louisiana Revised Statutes of 1950, shall pay the amount of any third party property damage claim and of any reasonable medical expenses claim due any bona fide third party claimant within thirty days after written agreement of settlement of the claim from any third party claimant. (3) Except in the case of catastrophic loss, the insurer shall initiate loss adjustment of a property damage claim and of a claim for reasonable medical expenses within fourteen days after notification of loss by the claimant. In the case of catastrophic loss, the insurer shall initiate loss adjustment of a property damage claim within thirty days after notification of loss by the claimant except that the commissioner may promulgate a rule for extending the time period for initiating a loss adjustment for damages arising from a presidentially declared emergency or disaster or a gubernatorially declared emergency or disaster up to an additional thirty days. Thereafter, only one additional extension of the period of time for initiating a loss adjustment may be allowed and must be approved by the Senate Committee on Insurance and the House Committee on Insurance, voting separately. Failure to comply with the provisions of this Paragraph shall subject the insurer to the penalties provided in R.S. 22:1973. (4) All insurers shall make a written offer to settle any property damage claim, including a third-party claim, within thirty days after receipt of satisfactory proofs of loss of that claim. B. (1) Failure to make such payment within thirty days after receipt of such satisfactory written proofs and demand therefor or failure to make a written offer to settle any property damage claim, including a third-party claim, within thirty days after receipt of satisfactory proofs of loss of that claim, as provided in Paragraphs (A)(1) and (4), respectively, or failure to make such payment within thirty days after written agreement or settlement as provided in Paragraph (A)(2), when such failure is found to be arbitrary, capricious, or without probable cause, shall subject the insurer to a penalty, in addition to the amount of the loss, of fifty percent damages on the amount found to be due from the insurer to the insured, or one thousand dollars, whichever is greater, payable to the insured, or to any of said employees, or in the event a partial payment or tender has been made, fifty percent of the difference between the amount paid or tendered and the amount found to be due as well as reasonable attorney fees and costs. Such penalties, if awarded, shall not be used by the insurer in computing either past or prospective loss experience for the purpose of setting rates or making rate filings.Extremely detailed:When to pay amounts dueWhen to initiate loss adjustment (including for catastrophic losses: Katrina)When to make written offer to settleAmount of damages if don’t follow and act “arbitrary, capricious, or without probable cause”Damages – Sher v. Lafayette (SC case) held that 50% penalty (increased from prior 25%) is not retroactive. This case also held that mental anguish damages (nonpecuniary) is not appropriate for bad faith claims. It also held that judicial interest on payment of damages runs from date of judgment, not the date of judicial demand.Obligates insurer to pay the amount of an insured’s claim within thirty days of receipt of satisfactory proof of loss. For bona fide third party property damage and medical expense claims, payment shall be made within 30 days of written agreement of settlement. Obligates insurer to initiate loss adjustment proceedings within 14 days and to offer to settle property damage claims, including third party claims, within 30 days of receipt of satisfactory proof. Failure to comply, if arbitrary, capricious or without probably cause, shall subject insurer to penalty of 50% damages on amount found to be due or $1000, whichever is greater, and reasonable attorneys fees.
17La. R.S. 22:1973La. R.S. 22:1973 (formerly 22:1220): Good faith duty; claims settlement practices; cause of action; penalties A. An insurer, including but not limited to a foreign line and surplus line insurer, owes to his insured a duty of good faith and fair dealing. The insurer has an affirmative duty to adjust claims fairly and promptly and to make a reasonable effort to settle claims with the insured or the claimant, or both. Any insurer who breaches these duties shall be liable for any damages sustained as a result of the breach. B. Any one of the following acts, if knowingly committed or performed by an insurer, constitutes a breach of the insurer's duties imposed in Subsection A: (1) Misrepresenting pertinent facts or insurance policy provisions relating to any coverages at issue. (2) Failing to pay a settlement within thirty days after an agreement is reduced to writing. (3) Denying coverage or attempting to settle a claim on the basis of an application which the insurer knows was altered without notice to, or knowledge or consent of, the insured. (4) Misleading a claimant as to the applicable prescriptive period. (5) Failing to pay the amount of any claim due any person insured by the contract within sixty days after receipt of satisfactory proof of loss from the claimant when such failure is arbitrary, capricious, or without probable cause. (6) Failing to pay claims pursuant to R.S. 22:1893 when such failure is arbitrary, capricious, or without probable cause. C. In addition to any general or special damages to which a claimant is entitled for breach of the imposed duty, the claimant may be awarded penalties assessed against the insurer in an amount not to exceed two times the damages sustained or five thousand dollars, whichever is greater. Such penalties, if awarded, shall not be used by the insurer in computing either past or prospective loss experience for the purpose of setting rates or making rate filings. D. The provisions of this Section shall not be applicable to claims made under health and accident insurance policies. E. Repealed by Acts 1997, No. 949, § 2. F. The Insurance Guaranty Association Fund, as provided in R.S. 22:2051 et seq., shall not be liable for any special damages awarded under the provisions of this Section.State insurer’s obligation of good faith and fair dealing owed to insured. Recognizes affirmative duty of insurer to adjust claims fairly and promptly and to make reasonable effort to settle claims with insured or claimant or both. Subjects insurer to damages for the result of any breach. Lists six acts which, if knowingly committed, constitutes a breach.Strictly limited to actions against insurers.As this statute is penal in nature, must be strictly construed. Ullah, Inc. v. Lafayette Ins. Co., 54 So.3d 1193 (La. App. 4 Cir. 12/17/10), writ denied 61 So.3d 665, (La. 3/25/11)After settlement is reached, must pay within 30 days after the written agreement to avoid statutory penaltiesRecent case, Oubre v. Louisiana Citizens Fair Plan, (La. Dec. 2011), found that failure to timely initiate loss adjustment violates the statute regardless of cause. Also held hat proof of actual consequential damage is not required for an award of $5,000 penalties
18Proving Elements of Claim Satisfactory proof of loss:Defined as information which suffices to fully apprise insurer of claimJones v. Johnson, 56 So. 3d 1016 (La. App. 2 Cir. 2010)McDill tenderMcDill v. Utica Mutual Ins. Co., 475 So.2d 1085, 1089 (La. 1985)Necessary to show that insurer acted “arbitrary and capricious”Arceneaux v. Amstar Corp., 969 So.2d 755 (La. App. 4 Cir. 2007)Arbitrary, capricious, or without probable causeOften used as shorthand for “bad faith”Vaughn v. Franklin, 785 So.2d 79, 85 (La. App. 1 Cir. 2001), writ denied 798 So. 2d 969 (La. 10/5/01)However, this phrase really implies an abuse of power and doesn’t necessarily imply contemptuous behaviorSteadman v. Pearl Assurance Co., 167 So. 2d 527, 531 (La. App. 4 Cir. 1964), writ denied, 168 So. 2d 822 (La. 1964).Many courts describe this phrase as a “vexatious” and unjustified refusal to payLouisiana Bag Co., Inc. v. Audubon Indem. Co., 999 So. 2d 1104 (La. 2008)The failure to tender an “undisputed amount” within the time period required by statute is, per se, arbitrary and capriciousLouisiana Bag Co., Inc. v. Audubon Indem. Co., La. 12/2/08, 999 So. 2d 1104, 1114Maloney Cinque, L.L.C. v. Pac. Ins. Co., Ltd., La. App. 4 Cir. 1/25/12 (La. Ct. App. Jan. 25, 2012)McDill tender: 1)The owner or operator of the other vehicle involved in the accident was uninsured or under insured; (2) that he [or she] was at fault; (3) that such fault gave rise to damages; and (4) establish the extent of those damages.Maloney quotes:We recognize that the determination of whether an insurer acted in bad faith turns on the facts and circumstances of each case, because a prerequisite to any recovery under the statute is a finding that the insurer not only acted (or failed to act), but did so arbitrarily, capriciously, and without probable cause.The case law reveals that where a reasonable disagreement between the insured and the insurer as to the amount of a loss exists, the insurer's refusal to pay is not arbitrary, capricious, or without probable cause, and failure to pay within the statutory delay does not subject the insurer to penalties.However, if part of a claim for property damage is not disputed, the failure of the insurer to pay the undisputed portion of the claim within the statutory delay will subject the insurer to penalties on the entire claim. Sibley v. Insured Lloyds, 442 So.2d at 632; Leblanc [LeBlanc ] v. Underwriters at Lloyd's, London, 402 So.2d 292, 300 (La.App. 3d Cir.1981); O'Brian v. Allstate Ins. Co., 420 So.2d 1222, 1225 (La.App. 3d Cir.1982); Balehi Marine, Inc. v. Firemen's Ins. Co., 489 So.2d 1360, 1363 (La.App. 1st Cir.1986); Deville v. Louisiana Farm Bur. Mut. Ins. Co., 378 So.2d 457 (La.App. 3d Cir.1979); rehearing den. Consequently, when such a dispute arises, to avoid the imposition of penalties the insurer must unconditionally tender to the insured the undisputed portion of the insured's claim.
20Progression of MS LawBenchmark case in 1977 noted “necessity of awarding punitive damages when an insurance company refuses to pay a legitimate claim.”Standard Life Insurance Co. v. Veal, 354 So. 2d 239 (Miss. 1977)For punitive damages, must show:1. The insurer lacked an arguable or legitimate basis for denying the claim, and2. The insurer committed a wilful or malicious wrong, or acted with gross and reckless disregard for the insured's rights.State Farm Mut. Auto. Ins. Co. v. Grimes, 722 So. 2d 637, 641 (Miss. 1998)In Mississippi, an adjuster can face independent liability when his conduct constitutes gross negligence, malice, or reckless disregard for the rights of the insured.Bass v. California Life Ins. Co., 581 So. 2d 1087, 1090 (Miss. 1991)Prior, Mississippi had held that, as adjusters were not party to contract with insured, they were not independently liable. Griffin v. Ware, 457 So. 2d 936 (Miss. 1984)Veal: The Veal Court also recognized, however, that an insurer should not be subject to punitive damages merely because the insurer denies a claim. Even if denial of the claim is wrongful and amounts to a breach of the insurance contract by the insurer, a punitive damages award is not warranted absent some conduct by the insurer “attended by intentional wrong, insult, abuse or such gross negligence as to consist of an independent torGross negligence case: “In regards to gross negligence, punitive damages are ordinarily recoverable under Mississippi law only in cases where the negligence is so gross as to indicate reckless or wanton disregard of the safety of others; ultimately, it is the combination of misconduct with a negative mens rea that justifies punitive damages.” Jowers v. BOC Group, Inc. (S.D.Miss. 2009) 608 F.Supp.2d 724Actions severe: “Punitive damages are only appropriate in the most egregious cases so as to discourage similar conduct and should only be awarded in cases where the actions are extreme.” Warren v. Derivaux (Miss. 2008) 996 So.2d 729.
21Miss. Code. Ann. § 11-1-65. Punitive damages In any action in which punitive damages are sought:The court shall determine whether the issue of punitive damages may be submitted to the trier of fact; and, if so, the trier of fact shall determine whether to award punitive damages and in what amount.Punitive damages may not be awarded if the claimant does not prove by clear and convincing evidence that the defendant against whom punitive damages are sought acted with actual malice, gross negligence which evidences a willful, wanton or reckless disregard for the safety of others, or committed actual fraud.In all cases involving an award of punitive damages, the fact finder, in determining the amount of punitive damages, shall consider, to the extent relevant, the following: the defendant's financial condition and net worth; the nature and reprehensibility of the defendant's wrongdoing, for example, the impact of the defendant's conduct on the plaintiff, or the relationship of the defendant to the plaintiff; the defendant's awareness of the amount of harm being caused and the defendant's motivation in causing such harm; the duration of the defendant's misconduct and whether the defendant attempted to conceal such misconduct; and any other circumstances shown by the evidence that bear on determining a proper amount of punitive damages.In any action in which the claimant seeks an award of punitive damages, the trier of fact shall first determine whether compensatory damages are to be awarded and in what amount, before addressing any issues related to punitive damages.If, but only if, an award of compensatory damages has been made against a party, the court shall promptly commence an evidentiary hearing to determine whether punitive damages may be considered by the same trier of fact.The particularized statute in MS as to “unfair competition and practices” (found in Miss. Code. Ann § ) does not apply to failing to pay claim, investigate, etc… Rather, it addresses: misrepresentations in policy contracts, false advertising, defamation, coercion, false financial statements, unfair discriminationThe type of insurance bad faith claims we are discussing – settling and handling claims – falls under the general statute for “punitive damages”Amount of punitive damages depends on wealth of defendants (not good for insurers): In any civil action where an entitlement to punitive damages shall have been established under applicable laws, no award of punitive damages shall exceed the following:(i) 20 mill if net worth over a billion; (ii) 15 mill if net worth over 750 mill (iii) 5 mill if net worth over 500 mill (iv) 3 mill if net worth over 100 mill; etc.. Found in rest of punitive damages statute
22Mississippi – what to know Reasons for denial – insurer is limited in defense of bad faith claim to those reasons stated to the insureds when denying coverageSobley v. Southern Natural Gas Co., 210 F.3 d 561 (U.S. 5 Cir. 2000) rehearing deniedTo avoid bad faith liability, need an “arguable reason to deny coverage”McLendon v. Wal-Mart Stores, Inc., 521 F. Supp. 2d 561 (S.D. Miss. 2007)Four factors to determine amount of punitive damage award against insurers:(1) the amount should punish the insurer and deter it from engaging in similar actions in the future(2) the amount should serve as a deterrent for others;(3) the amount should account for the insurer's financial worth; and(4) the amount should compensate the plaintiff for her public service in holding the insurer accountable. United American Ins. Co. v. Merrill, 978 So. 2d 613 (Miss. 2007), rehearing denied, cert denied 128 S. Ct (U.S. 2007)Amounts recoverable cases King v. Progressive Gulf Ins. Co., 2005, 913 So.2d 1065 court allowed for 900k in punitive damages, upheld on appeal. Mississippi Power & Light Co. v. Cook (Miss. 2002) 832 So.2d 474, held that 5 million in punitive damages was too much.Under Mississippi law, in determining whether homeowners insurer denied coverage in bad faith, court could only consider reasons contained in insurer's denial letter, and water exclusion could not be considered if that was not given to insureds as reason for denying coverage. Sobley v. Southern Natural Gas Co. (C.A.5 (Miss.) 2000) 210 F.3d 561, rehearing deniedBullard above: dissent criticized that SOL wouldn’t run until knowledge/Plaintiff knew of damages, b/c alleged breach had been going on for more than 10 years
23North CarolinaHistorically, courts not willing to provide tort remedies for breach of contractRequired “aggravation” such as fraud or maliceCurrent elements to show bad faith refusal to settle a claim:Refusal to pay after recognition of valid claim;Bad Faith; andAggravating or outrageous conduct.Lovell v. Nationwide Mut. Ins. Co., 424 S. E.2d 181, 184 (N.C. 1993).Historically, North Carolina courts were not willing to provide any parties, including insureds, a right to obtain punitive damages without showing “aggravation” such as fraud or malice. They did not want to provide tort damages for contract law. North Carolina really only allowed such a recovery for breach of the contract of marriage. Newton v. Standard Fire Ins. Co., 229 S.E. 2d 297 (N.C. 1976)
24N.C.G.S.A. §The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance:j. Making claims payments to insureds or beneficiaries not accompanied by a statement setting forth the coverage under which the payments are being made;k. Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;(11) Unfair Claim Settlement Practices.--Committing or performing with such frequency as to indicate a general business practice of any of the following: Provided, however, that no violation of this subsection shall of itself create any cause of action in favor of any person other than the Commissioner:l. Delaying the investigation or payment of claims by requiring an insured claimant, or the physician, of or either,1 to submit a preliminary claim report and then requiring the subsequent submission of formal proof-of-loss forms, both of which submissions contain substantially the same information;a. Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;b. Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;m. Failing to promptly settle claims where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage; andc. Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;d. Refusing to pay claims without conducting a reasonable investigation based upon all available information;n. Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.e. Failing to affirm or deny coverage of claims within a reasonable time after proof-of-loss statements have been completed;f. Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;g. Compelling the insured to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insured;h. Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled;i. Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of, the insured;Note that this statute provides a right of action for the Commissioner only AND requires that violations be in such a frequency as to indicate a “general business practice.”This is a “consumer protection statute”Therefore, this statue does not provide for a private right of action
25Private Right of Action Private right of action for bad faith insurance claim found in N.C.G.S.A. §This statute requires“unfair or deceptive trade practices,” generally, not just in insurance aspectN.C.G.S. § broader than Chapter 58 (N.C.G.S.A. § )Adjusters can be sued personallyNo need to show frequency – general business practiceGray v. North Carolina Ins. Underwriting Ass’n, 529 S.E. 2d 676 (N.C. 2000)While Chapter 58 governs Insurance Law, including bad faith actions against insurers, an insured, to have a private cause of action, must sue under an entirely different statute regulating “unfair or deceptive trade practices,” generally. N.C.G.S.A. §N.C.G.S. § is broader than Chapter 58, so a violation of Chapter 58 per se will fall under the private cause of action of N.C.G.S. § Under the private cause of action, there is no need to show “frequency” evidencing a “general business practice. See Gray.Notably, this statute does not apply to insurers, so it makes sense that adjusters can be sued under it as well. Courts hold that no contract is necessary to bring unfair or deceptive trade practices. Dealers Supply Co., Inc. v. Cheil Indus., Inc., 348 F. Supp. 2d 579, 591 (M.D.N.C. 2004). “The proper test under Section 75–1.1 is not whether the parties had an enforceable contract, but rather whether the allegedly unfair practice “offends established public policy” or is “immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers.” id.Positive – because the private right of action is broad, courts do not seem to be as focused on strict time limits. See Westchester Fire Ins. Co. v. Johnson, 2002, 221 F.Supp.2d 637, finding that delay in paying settlement is not violation of unfair/deceptive trade practices statute, where payment was accompanied by “good faith attempt.”There is some case law indicating an insured can also bring an independent tort claim of bad faith in order to recover punitive damages. However, this claim really rises to a claim of “fraud.” Newton v. Standard Fire Ins. Co., 229 S.E.2d 297, 301 (N.C. 1976)
26Texas Bad FaithTexas Supreme Court first recognized independent tort of bad faith by first-party insureds in 1987Arnold v. National County Mut. Ins. Co., 725 S.W.2d 165 (Tex. 1987)Insured required to show the absence of a reasonable basis for denying or delaying payment.Aranda v. Insurance Co. of N. Am., 748 S.W.2d 210, 213 (Tex. 1988)Now, standard is whether insurer knew/should have known that it was “reasonably clear” that claim coveredUniverse Life Ins. Co. v. Giles, 950 S.W.2d 48, (Tex. 1997)Texas is one of very few states that bifurcate bad faith cases from its underlying breach of contract caseViles v. Security Nat'l Ins. Co., 788 S.W.2d 566, 567 (Tex. 1990)Went from negative showing of evidence (absence of reasonable basis to positive showing of evidence (reasonably clear claim covered) for insuredDespite this alleged change (nuance), cases still cite Arnold and hold that as the standardBad faith case separate from breach of good faith and fair dealing
27Tex. Ins. Code Ann. § et seq§ Unfair Claim Settlement Practices Prohibited(4) not attempting in good faith to effect a prompt, fair, and equitable settlement of a claim submitted in which liability has become reasonably clear;An insurer engaging in business in this state may not engage in an unfair claim settlement practice.(5) compelling a policyholder to institute a suit to recover an amount due under a policy by offering substantially less than the amount ultimately recovered in a suit brought by the policyholder;Any of the following acts by an insurer constitutes unfair claim settlement practices:knowingly misrepresenting to a claimant pertinent facts or policy provisions relating to coverage at issue;(6) failing to maintain the information required by Section ; or(2) failing to acknowledge with reasonable promptness pertinent communications relating to a claim arising under the insurer's policy;(7) committing another act the commissioner determines by rule constitutes an unfair claim settlement practice.(3) failing to adopt and implement reasonable standards for the prompt investigation of claims arising under the insurer's policies;Also, requires that the insurer keep a detailed record of all complaints receivedThere are many other statues outlining insurance bad faith claims: “unfair claim settlement practices;” “unfair or deceptive acts prohibited; “damages, attorney’s fees, and other relief”Also, in different section, Texas Deceptive Trade Practices Act (“DTPA”) Tex. Bus. & Com.Code Ann. §§ (West 1987 & Supp.1997). The DTPA is broad: “False, misleading, or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful and are subject to action by the consumer protection division under Sections 17.47, 17.58, 17.60, and of this code.” Tex. Bus. & Com. Code Ann. § (West).
28Texas – what to knowEvidence that merely shows a bona fide dispute about the insurer's liability on the contract does not rise to the level of bad faith.National Union Fire Ins. Co. v. Dominguez, 873 S.W.2d 373, 376–77 (Tex. 1994)Nor is bad faith established if the evidence shows the insurer was merely incorrect about the factual basis for its denial of the claim, or about the proper construction of the policy.Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 18 (Tex. 1994)Texas does seem to require a culpability akin to traditional bad faith.Jones v. Ross, 173 S.W.2d 1022 (1943)A claims adjuster responsible for the servicing of insurance policies can be held liable under the Texas Insurance Code for alleged Unfair and Deceptive Trade Practices.Gasch v. Hartford Accident & Indemnity Co., 491 F.3d 278, (5th Cir. 2007)“culpability note” The bad faith of the insurer justifies an award of compensatory damages and nothing more. Only when accompanied by malicious, intentional, fraudulent, or grossly negligent conduct does bad faith justify punitive damages. Id. Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 18 (Tex. 1994)One case held that a bad faith claim might exist even where there is no breach of the insurance policy. “We do not exclude, however, the possibility that in denying the claim, the insurer may commit some act, so extreme, that would cause injury independent of the policy claim.” This shows that even where a policy is determined to not provide coverage for an event, bad faith may still exist. Republic Ins. Co. v. Stoker, 903 S.W.2d 338 (Tex. 1995)