Disciplined in Sophisticated Defense and Insurance Litigation

July 01, 1999 | Publication| Standard of Care in First Party Bad Faith Actions: Is "Fairly Debatable" Fair?

Lee Craig, Kathy J. Maus, Brian D. Webb

This is one of a series of articles under the by line "Butler on Bad Faith" originally published in Mealey's Litigation Report: Bad Faith, Vol. 13, #5, p. 21 (July 1, 1999). Copyright Butler 1999.


Since the early 1970s, when first-party bad faith actions came into being,(1) a considerable body of law has developed on the standard of care for insurers to avoid liability. In creating and defining such standards, courts have struggled to balance the interests of insureds and insurers. This article is a general review of those decisions and standards.


In the absence of statutory mandate, at least 26 state courts of last resort have recognized the tort of bad faith in first-party cases.(2) Five others have allowed recovery of extracontractual damages without the tort.(3)

At least four state courts of last resort have rejected the "tort" of bad faith in first-party insurance cases.(4) Several others have rejected first-party bad faith at common law in tort or contract.(5) Still others expressly have refused to extend the cause of action for bad faith to a first-party case.(6)


Several jurisdictions have statutory causes of action for bad faith either by recognizing the tort directly, or otherwise allowing a private cause of action under unfair claim settlement practices statutes, consumer protection, or unfair competition statutes. These include Colorado (Colo. Rev. Stat. § 10-3-1113), Florida (Fla. Stat. § 624.155),Georgia (Ga. Code Ann. § 33-4-6), Louisiana (La. Rev. Stat. Ann. § 22:1220),Pennsylvania (42 Pa. Cons. Stat. § 8371) and Rhode Island (R.I. Gen. Laws § 9-1-33). Others, including Massachusetts, Montana, New Hampshire and New Mexico, permit private causes of action under Unfair Claim Settlement Practices statutes. MassachusettsGen. Law, Chapter 93A, § 9 (making violations of Massachusetts' Unfair Claim Settlement Practices Statute actionable under the Massachusetts Consumer Protection Statute);Mont. Code Ann. § 13-18-242; New Hampshire Rev. Stat. Ann. § 417:19(I); and N.M. Stat.Ann. § 59A-16-30. Similarly, consumer protection and unfair competition statutes exist in other states, including Illinois, New Hampshire, North Carolina, Pennsylvania, Texas,Washington, Alaska, California, Louisiana, Michigan, and New Jersey.


All jurisdictions which recognize first-party bad faith actions have essentially adopted either: (1) the "fairly debatable" standard, or (2) a negligence standard. Although some courts have articulated more elaborate variations of these standards, and others have utilized terminology that appears different, in practice the differences largely are semantic. Most jurisdictions fall into one of these two categories.

1.  "Fairly Debatable" Standard

Under the "fairly debatable" standard, an insurer may be liable for bad faith only when a denial or delay in payment lacked any reasonable basis. Where the insurer's position was one on which reasonable minds could differ, the insurer will not be liable as a matter of law.

The highest courts in at least sixteen different states have adopted the "fairly debatable" standard or a variation. National Security Fire & Cas. Co. v. Bowen, 417 So.2d 179 (Ala. 1982); Rawlings v. Apodaca, 726 P.2d 565, 572 (Ariz. 1986); Travelers Ins.Co. v. Savio, 706 P.2d 1258, 1275 (Colo. 1985); White v. Unigard Mut. Ins. Co., 730 P.2d1014, 1018 (Idaho 1986); Dolan v. Aid Ins. Co., 431 N.W. 2d 790, 794 (Iowa 1988);Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993); Andrew Jackson Life Ins. Co. v.Williams, 566 So. 2d 1172, 1184-85 (Miss. 1990); Tynes v. Bankers Life Co., 730 P.2d1115, 1124 (Mont. 1986); Pickett v. Lloyd's, 621 A.2d 445, 453 (N.J. 1993); Tokles & Son,Inc. v. Midwestern Indem. Co., 605 N.E.2d 936, 943 (Ohio 1992); Rumford Property & Liab.Ins. Co. v. Carbone, 590 A.2d 398, 400 (R.I. 1991); Walz v. Fireman's Fund Ins. Co., 556N.W.2d 68, 70 (S.D. 1996); Billings v. Union Bankers Ins. Co., 918 P.2d 461, 464-65 (Utah1996); Bushey v. Allstate Ins. Co., 670 A.2d 807, 809 (Vt. 1995); Warmka v. HartlandCicero Mut. Ins. Co., 400 N.W.2d 923, 925 (Wis. 1987); State Farm Mut. Auto. Ins. Co. v.Shrader, 882 P.2d 813, 825 (Wyo. 1994).

Other states have not expressly used the term "fairly debatable." For example, in Anderson v. Continental Ins. Co., 271 N.W.2d 368, the Wisconsin Supreme Court held the insured must prove: (1) the absence of a reasonable basis for denying benefits of the insurance policy and (2) the insured's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. Similarly, in Erie Ins. Co. v. Hickman, 622 N.E.2d515, 519 (Ind. 1993), the Indiana Supreme Court held an insured must plead and prove two elements. First, the insured must prove the insurer breached its obligation to refrain from (1) making an unfounded refusal to pay policy proceeds, (2) causing an unfounded delay in making payment, (3) deceiving the insured, or (4) exercising any unfair advantage to pressure an insured into a settlement of his claim. Erie, 622 N.E.2d at 519. Second, the insured must establish the insurer acted with intent. 622 N.E.2d at 520. As an example, an insured may satisfy the intent element by proving the insurer acted "knowing that there is no rational, principled basis" for denying or delaying a claim. Id. The mere lack of a diligent investigation is insufficient. Id., citing Continental Cas. Co. v. Novy, 437N.E.2d 1338 (Ind. Ct. App. 1982). In other words, under Indiana law, bad faith is an "intentional" tort which cannot be established upon evidence of mere negligence.

Indiana's requirement of intent is in accord with decisions in other states. By requiring the insured to establish intent, the courts are seeking a balance between the insured's right to be compensated and the insurer's obligation to investigate and reject non-compensable claims. E.g., Anderson v Continental Ins. Co., 271 N.W.2d 368, 376 (Wis.1978) (knowledge or reckless disregard of no reasonable basis); Aetna Cas. & Sur. v.Broadway Arms, 664 S.W. 2d 463 (Ark. 1984) (misconduct must be dishonest, malicious, or oppressive in an attempt to avoid liability under a policy); Hoskins v. Aetna Life Ins. Co.,452 N.E.2d 1315 (Ohio 1983) (bad faith is more than bad judgment or negligence; it imports conscious wrong doing).

The Alabama Supreme Court has given a nice discussion of the approach.

An insurer is liable for its refusal to pay a [first-party] claim when there is no lawful basis for the refusal, coupled with actual knowledge of that fact. No lawful basis "means that the insurer lacks a legitimate or arguable reason for failing to pay the claim." When a claim is "fairly debatable," the insurer is entitled to debate it, whether the debate concerns a matter of fact or law. (Citations omitted.)

National Security Fire & Cas. Co. v. Bowen, 417 So. 2d 179, 183 (Ala. 1982). The plaintiff must go beyond a mere showing of non-payment and prove a "bad faith non-payment, anon-payment without any reasonable ground for dispute. . . . The plaintiff must show that the insurance company had no legal or factual defense to the insurance claim." Id.

In a later case, the Alabama Supreme Court placed a heavy burden on the plaintiff.

In the normal case, in order for a plaintiff to make out a prima facie case of bad faith refusal to pay an insurance claim, the proof offered must show that the plaintiff is entitled to a directed verdict on the contract claim and, thus, entitled to re cover on the contract claim as a matter of law.

National Savings Life Ins. Co. v. Dutton, 419 So. 2d 1357, 1362 (Alabama 1982). The Rhode Island Supreme Court expressly has adopted the bad faith standard described in Dutton. Rumford Property and Liability Ins. Co. v. Carbone, 590 A.2d 398, 400 (R.I. 1991)(plaintiff must be entitled to a directed verdict on the contract claim).

Similarly, the Arizona Supreme Court held an insurer that intentionally and unreasonably denies or delays payment, breaches the covenant of good faith owed to its insured. Rawlings v. Apodaca, 726 P.2d 565, 572 (Ariz. 1986), citing Noble v. NationalAmerican Life Ins. Co., 624 P.2d 866 (Ariz. 1981) (failure to pay a claim is unreasonable unless the claim's validity is "fairly debatable" after an adequate investigation). The Rawlings court emphasized the following principles: (1) the fair dilatability of a claim cannot be created by the insurer's reliance on ambiguity in the policy, because such a rule would encourage insurers to write ambiguous insurance contracts; and, (2) the fair debatability cannot be raised where an insurer failed to make an adequate investigation. Id. at 572. Of course, not every breach of contract is a breach of the covenant of good faith and fair dealing.

Insurance companies, like other enterprises and all human beings, are far from perfect. Papers get lost, telephone messages misplaced and claims ignored because paper-work was misfiled or improperly processed. Such isolated mischances may result in a claim being unpaid or delayed. None of these mistakes will ordinarily constitute a breach of the implied covenant of good faith and fair dealing, even though the company may render itself liable for at least nominal damages for breach of contract in failing to pay the claim.

Id. at 573.

The Colorado Supreme Court also has required a measure of intent. An insurer acts in bad faith in delaying the processing of or denying a valid claim "when the insurer's conduct is unreasonable and the insurer knows that the conduct is unreasonable, or recklessly disregards the fact that the conduct is unreasonable." Travelers Ins. Co. v.Savio, 706 P.2d 1258, 1275 (Colo. 1985). The first element of the test -- unreasonable conduct -- will be determined on an objective basis and will require proof of the standard of conduct in the industry. Id. With respect to the second element of the test, the court stated:

The second element of the test reflects a reasonable balance between the right of an insurance carrier to reject a non-compensable claim submitted by its insured, and the obligation of such carrier to investigate and ultimately approve a valid claim of its insured. . . . [R]ecognition of the permissible scope of an insurer's right to refuse invalid claims requires the conclusion that in the context of a first-party claim, the insured must establish the insurer's knowledge or reckless disregard of the fact that a valid claim has been submitted.


In adopting the "fairly debatable" standard, the Idaho Supreme Court stated, "An insurer does not act in bad faith when it challenges the validity of a `fairly debatable' claim, or when its delay results from honest mistakes." White v. Unigard Mut. Ins. Co., 730 P.2d1014, 1020 (Idaho 1986) (citations omitted). Rather, the insured must show the insurer "intentionally and unreasonably denies or delays payment. . . ." Id.

The Iowa Supreme Court has held, to establish bad faith, the following must exist: the "absence of a reasonable basis for denying benefits of the policy and defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim." Dolan v. Aid Ins. Co., 431 N.W.2d 790, 794 (Iowa 1988), citing Anderson v. ContinentalIns. Co., 271 N.W.2d 368, 376 (1978).

Where a claim is fairly debatable, the insurer is entitled to debate it, whether the debate concerns a matter of fact or law(citations omitted). This test creates an objective standard and makes clear the intentional nature of the tort. Also, as noted in Anderson, It is appropriate, in applying the test, to determine whether a claim was properly investigated and whether the results of the investigation were subjected to a reasonable evaluation and review. . . .

Dolan, 431 N.W.2d at 794.

Under Kentucky law, an insured must prove three elements to establish first-party bad faith: (1) the insurer must be obligated to pay the claim under the terms of the policy;(2) the insurer must lack a reasonable basis in law or fact for denying the claim; and, (3) the insurer either knew that no reasonable basis for denying the claim existed, or acted with reckless disregard as to whether such a basis existed. Wittmer v. Jones, 864 So. 2d885, 890 (Ky. 1993).

The Mississippi Supreme Court took an interesting approach. Under that state's law, it is the trial judge's responsibility to determine whether an "arguably reasonable basis, either legal or factual, for denying the claim" existed. Andrew Jackson Life Ins. Co. v.Williams, 566 So. 2d 1172, 1184 (Miss. 1990). The determination whether an insurer rendered its denial fairly and in good faith generally will be considered by the trial judge when he rules on a motion for directed verdict on the underlying contract action. Id. Furthermore, "[i]f the judge is unable to make the determination, then logic generally dictates that the insurer's rightful or wrongful denial of the claim was not reached in bad faith." Id.

Under Montana law, there can be no liability for bad faith where the insurer had "reasonable grounds to debate the coverage in a court of law." Tynes v. Bankers Life Co.,730 P.2d 1115, 1124 (Mont. 1986). Where there is a "debatable question" of insurance coverage which provides the insurer with a "reasonable and valid ground on which to oppose payment of the proceeds," the insurer has the right to have the coverage question determined in a court of law. Id.

The New Jersey Supreme Court held an insured must prove "no debatable reasons existed for denial of the benefits." Pickett v. Lloyd's, 621 A. 2d 453, 457 (N.J. 1993). Regarding delay, the insured must prove "no valid reasons existed to delay processing the claim and the insurance company knew or recklessly disregarded the fact that no valid reasons supported the delay." 621 A.2d at 457- 458.

The Ohio Supreme Court has held an insurer breaches its duty of good faith by "intentionally refusing to satisfy an insured's claim where there is either (1) no lawful basis for the refusal coupled with actual knowledge of that fact, or (2) an intentional failure to determine whether there was any lawful basis for such refusal. Tokles & Son, Inc. v. Midwestern Indem. Co., 605 N.E.2d 936, 943 (Ohio 1992). The requisite degree of intent that caused the failure may be inferred and "imputed to the insurer when there is a reckless indifference to facts or proof reasonably available to it in considering the claim." Id. Under Ohio law, where a claim is fairly debatable, the insurer is entitled to refuse the claim, provided the refusal is based on a genuine dispute over either the status of the law at the time of the denial, or the facts giving rise to the claim. Id.

Similarly, the Supreme Court of South Dakota has held:

For proof of bad faith, there must be an absence of reasonable basis for denial of policy benefits and the knowledge or reckless disregard [of the lack] of a reasonable basis for denial, implicit in that test is our conclusion that the knowledge of the lack of a reasonable basis may be inferred and imputed to an insurance company where there is a reckless disregard of a lack of a reasonable basis for denial, or a reckless indifference to facts or to proofs submitted by the insured. . . . [A]n insurance company, however, may challenge claims which are fairly debatable and will be found liable only where it has intentionally denied (or failed to process or pay)a claim without a reasonable basis.

Walz v. Fireman's Fund Ins. Co., 556 N.W.2d 68, 70 (S.D. 1996).

The Utah Supreme Court held a first-party insurer does not breach the implied covenant of good faith where the insured's claim was fairly debatable. Billings v. UnionBakers Ins. Co., 918 P. 2d 461, 464-65 (Utah 1996). The implied obligation of good faith performance requires the insurer to: (1) diligently investigate the facts to enable it to determine whether a claim is valid, (2) fairly evaluate the claim, and (3) act promptly and reasonably in rejecting or settling the claim. Id. at 465. The court explained:

It is entirely consistent with this overall approach to hold that when an insured's claim is fairly debatable, the insurer is entitled to debate it and cannot be held to have breached the implied covenant if it chooses to do so.

Id., citing Western Cas. & Sur. Co. v. Marchant, 615 P.2d 423, 427 (Utah 1980).

The Vermont Supreme Court held a Plaintiff must show (1) the insurance company had no reasonable basis to deny the benefits under the policy, and (2) the company knew or recklessly disregarded the fact that no reasonable basis existed for denying the claim. Bushey v. Allstate Ins. Co., 670 A.2d 807, 809 (Vt. 1995). An insurance company may challenge claims that are "fairly debatable" and "will be found liable only where it has intentionally denied (or failed to process or pay) a claim without a reasonable basis." Id., quoting Booska v. Hubbard Ins. Agency, Inc., 312, 627 A.2d 333, 337 (Vt. 1993).

Under Wyoming law, a cause of action for first-party bad faith exists where an insurer "knowingly or recklessly denied a first-party claim for insurance benefits without having a reasonable basis for doing so." McCullough v. Golden Rule Ins. Co., 789 P.2d855, 860 (Wyo. 1990). Where the claim is not fairly debatable, the refusal to pay would be in bad faith and would give rise to an action in tort. A claim is "fairly debatable" when a reasonable insurer also would have denied or delayed payment under the particular facts and circumstances. 789 P.2d at 860. To establish a breach of the duty of good faith and fair dealing, the insured must show: (1) the absence of any reasonable basis for denying a claim for benefits; and (2) the insurer's knowledge or reckless disregard of the lack of reasonable basis for denying the claim for benefits. Id. at 860.

Finally, Wisconsin law requires the absence of a reasonable basis for denying benefits under the terms of the policy and the Defendant's knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. The Plaintiff cannot maintain a cause of action for the tort of bad faith if the validity of the claim was fairly debatable. Anderson v. Continental Ins. Co., 271 N.W. 2d 368, 376 (Wis. 1978) ("It is apparent, then, that the tort of bad faith is an intentional one"). Implicit in this test is the court's conclusion that the knowledge of the lack of a reasonable basis may be inferred and imputed to the insurance company where there is a reckless disregard or a lack of a reasonable basis for denial or a reckless indifference to the facts or to proofs submitted by the insured. Id. at377. The Anderson court made clear, however, that an insurance company may challenge claims and will be liable only where it has "intentionally denied (or failed to process or pay)a claim without a reasonable basis." Id.

We are satisfied that the application of the test formulated above, which recognizes the intentional nature of the tort of bad faith and puts the test upon an objective basis, will minimize the fears expressed by the defendant insurance company that to permit claims for bad faith will result in extortionate lawsuits. Such result cannot follow when an insurance company in the exercise of ordinary care makes an investigation of the facts and law and concludes on a reasonable basis that the claim is at least debatable. . . .Insurers in Wisconsin need not be mulcted by extortionate or questionable claims if they adhere to the standards of care which we have set forth above.


2. Negligence

As noted above, some jurisdictions equate bad faith with negligence. For example, under California Law, bad faith simply means the insurer acted tortuously or negligently. See Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 108 Cal. Rptr. 480, 510 P.2d 1032 (1973);Lunsford v. American Guar. & Liab. Ins. Co., 775 F. Supp. 1574 (N.D. Cal. 1991). Remarkably, in Idaho, an inference of bad faith can be established by the "merest showing that the insurer's conclusions . . . are or may be incorrect or that the insured's investigation was not complete in all details." State Farm Fire & Cas. Co. v. Trumble, 663 F. Supp. 317,321 (D. Idaho 1987).

Overall, only a few jurisdictions follow a broad standard of care which would impose liability on an insurer for mere negligence. Those that do appear to follow the lead of Gruenberg in defining the standard. "[The] duty not to withhold unreasonably payments due under a policy," the duty to "act fairly and in good faith in discharging its contractual responsibilities," and, the duty to avoid "refusing, without proper cause, to compensate its insured for a loss covered by the policy." Gruenberg v. Aetna Ins. Co., 510 P.2d 1032,1037 (Cal. 1973). Other jurisdictions adopting the negligence standard include North Dakota in Seifert v. Farmers Union Mut. Ins. Co., 497 N.W.2d 694 (N.D. 1993); Oklahoma in Roach v. Atlas Life Ins. Co., 769 P.2d 158 (Okla. 1989); South Carolina in Nichols v.State Farm Mut. Auto. Ins. Co., 306 S.E.2d 616, 619 (S.C. 1983), and; Washington in Safeco Ins. Co. of America v. JMG Restaurants, Inc., 680 P.2d 409 (Wash. 1984).

The North Dakota Supreme Court described the standard as the "duty not to withhold unreasonably payments due under a policy. . . ." Seifert v. Farmers Union Mut. Ins.Co., 497 N.W. 2d 694, 698 (N.D. 1993). Where an insurer fails to deal fairly and in good faith with its insured "by refusing, without proper cause, to compensate its insured for a loss covered by the policy, such conduct may give rise to a cause of action in tort for breach of an implied covenant of good faith and fair dealing." Id., quoting Gruenberg, 510P. 2d at 1037.

Under Oklahoma law, bad faith is established by evidence of the "insurer's unreasonable, bad-faith conduct, including the unjustified withholding of payment due under a policy. . . " McCorkle v. Great Atlantic Ins. Co., 637 P.2d 583, 587 (Okla. 1981). Where there exists conflicting evidence from which different inferences may be drawn regarding the reasonableness of an insurer's conduct, then what is reasonable is "always a question to be determined by the trier of fact by a consideration of the circumstances in each case." Id. at 587.

The South Carolina Supreme Court held an insured can recover consequential damages in tort where there was "bad faith or unreasonable action by the insurer in processing a claim under their mutually binding insurance contract. . . . " Nichols v. StateFarm Mut. Auto. Ins. Co., 279 S.C. 336, 306 S.E.2d 616, 619 (S.C. 1983). Public policy justifications support this cause of action, as the insurance business is "affected with a public interest" and the "insured ordinarily possesses no bargaining power and no means of protecting himself. . . . " Id. at 618.

Absent the threat of a tort action, the insurance company can, with complete impunity, deny any claim they wish, whether valid or not. During the ensuing period of litigation following such a denial, the insurance company has the benefit of profiting on the use of the insured's money.

Id. at 619.

The Florida Supreme Court specifically has rejected the "fairly debatable "standard and adopted a "totality-of-the-circumstances" approach. State Farm Mut. Auto.Ins. Co. v. Laforet, 658 So. 2d 55 (Fla. 1995). The Court outlined at least five factors whichshould be taken into consideration in determining whether an insurer engaged in bad faith:(1) whether the insurer was able to obtain a reservation of the right to deny coverage if adefense were provided; (2) efforts or measures taken by the insurer to resolve thecoverage dispute promptly or in such a way as to limit any potential prejudice to the insureds; (3) the substance of the coverage dispute or the weight of legal authority on thecoverage issue; (4) the insurer's diligence and thoroughness in investigating the factsspecifically pertinent to coverage; and (5) efforts made by the insurer to settle the claim inthe face of the coverage dispute. Id. at 63. By rejecting the "fairly debatable" standard, the Florida Supreme court took the issue out of the hands of the court, as a matter of law,and placed it into the hands of the jury.


The writers believe the "fairly debatable" standard fairly embodies the public policydetermination that an insurer has a "right to disagree" as to the amount and validity of aclaim. As the Indiana Supreme Court has stated:

It is evident that the exercise of [the right to disagree asto the amount of recovery] may directly result in theintentional infliction of temporal damage, including thedamage of interference with an insured's business(which an insured will undoubtedly consider to beoppressive). The infliction of this damage has generallybeen regarded as privileged, and not compensable, forthe simple reason that it is worth more to society than itcosts, i.e., the insurer is permitted to dispute its liabilityin good faith because of the prohibitive social costs ofa rule which would make claims non-disputable.

Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 520 (Ind. 1993), quoting Vernon Fire & Cas. Co.v. Sharp, 264 Ind. 599, 349 N.E.2d 173, 181 (Ind. 1976).

Jurisdictions holding to a negligence standard arguably have invited bad-faithlitigation over any claim even where reasonable minds could differ as to the amount ortiming of the claims handling. In these jurisdictions, insurers may be more likely simply topay questionable or even fraudulent claims, rather than litigate and risk an adversejudgment.



1. Gruenberg v. Aetna Ins. Co., 510 P.2d 1032 (1973).

2. Chavers v. National Sec. Fire & Casualty Co., 405 So. 2d 1 (Ala. 1981); State FarmFire & Casualty Co. v. Nicholson, 777 P.2d 1152 (Alaska 1989); Noble v. NationalAm. Life Ins. Co., 624 P.2d 866 (Ariz. 1981); Aetna Casualty and Sur. Co. v.Broadway Adams Corp., 664 S.W.2d 463 (Ark. 1984); Gruenberg v. Aetna Ins. Co.,510 P.2d 1032 (Cal. 1973); Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo. 1985);Buckman v. People Express, Inc., 530 A.2d 596 (Conn. 1987); The Best Place, Inc.v. Penn Am. Ins. Co., 920 P.2d 334 (Haw. 1996); White v. Unigard Mut. Ins. Co.,730 P.2d 1014 (Idaho 1986); Erie Ins. Co. v. Hickman, 662 N.E.2d 515 (Ind. 1993);Dolan v. Aid Ins. Co., 431 N.W.2d 790 (Iowa 1988); Curry v. Fireman's Fund Ins.Co., 784 S.W.2d 176 (Ky. 1989); State Farm Fire & Cas. Co. v. Simpson, 477 So.2d 242 (Miss. 1985); Lipinski v. Title Ins. Co., 655 P.2d 970 (Mont. 1982)(common-law bad-faith tort actions against insurers abolished by Mont. CODE Ann. § 33-18-242 (1993)); Braesch v. Union Ins. Co., 464 N.W.2d 769 (Neb. 1991); United FireIns. Co. v. McClelland, 780 P.2d 193 (Nev. 1989); State Farm Gen. Ins. Co. v.Clifton, 527 P.2d 798 (N.M. 1974); Corwin Chrysler-Plymouth, Inc. v. WestchesterFire Ins. Co., 279 N.W.2d 638 (N.D. 1979); Hoskins v. Aetna Life Ins. Co., 452N.E.2d 1315 (Ohio 1983); Christian v. American Home Ins. Co., 577 P.2d 899(Okla. 1978); Bibeault v. Hanover Ins. Co., 417 A.2d 313 (R.I. 1980); Nichols v.State Farm Mut. Ins. Co., 306 S.E.2d 616 (S.C. 1983); In re Certification of aQuestion of Law from the U.S. District Court, 399 N.W.2d 320 (S.D. 1987); Arnoldv National County Mut. Ins. Co., 725 S.W.2d 165 (Tex. 1987); Anderson v.Continental Ins. Co., 271 N.W. 2d 368 (Wis. 1978); McCullough v. Golden Rule Ins.Co., 789 P. 2d 855 (Wyo. 1990).

3. Tackett v. State Farm Fire & Cas. Ins. Co., 653 A. 2d 254 (Del. 1995); Marquis v.Farm Family Mut. Ins. Co., 628 A. 2d 644 (Me. 1993); Lawton v. Great S.W. FireIns. Co., 392 A. 2d 576 (N.H. 1978); Beck v. Farmers Ins. Exch., 701 P. 2d 795(Utah 1985); Hayseeds, Inc. v. State Farm Fire & Cas., 352 S.E. 2d 73 (W. Va.1986).

4. Spencer v. Aetna Life & Cas. Ins. Co., 611 P. 2d 149 (Kan. 1980); Kewin v.Massachusetts Mut. Life Ins. Co., 295 N.W. 2d 50 (Mich. 1980); Haagenson v.National Farmers Union Property & Cas. Co., 277 N.W. 2d 648 (Minn. 1979); Halpinv. Prudential Ins. Co. of Am., 401 N.E. 2d 171 (N.Y. 1979); Rocanova v. EquitableIns. Soc'y, 634 N.E. 2d 940 (N.Y. 1994); New York Univ. v. Continental Ins. Co.,662 N.E. 2d 763 (N.Y. 1995).

5. Allstate Ins. Co. v. Douville, 510 S. 2d 1200, 1201 (Fla. 2d DCA 1987); Tate v.Aetna Cas. & Sur. Co., 253 S.E. 2d 775, 777 ( Ga. App. 1979); Mazur v. Hunt, 592N.E. 2d 335 (1992); Spencer v. Aetna Life & Cas. Ins. Co., 611 P. 2d 149, 158(1980); Bye v. American Income Life Ins. Co., 316 So. 2d 164 (La. Ct. App. 4th Cir.1975); Marquis v. Farm Family Mut. Ins. Co., 628 A. 2d 644 (Me. 1993); Yuen v.American Republic Ins. Co., 786 F. Supp. 531 (D. Md. 1992)(Maryland does notrecognize a tort or hybrid tort/contract claim for bad faith in first-party cases); Kewin v. Massachusetts Mut. Life Ins. Co., 295 N.W. 2d 50, 56 (1980); Haagenson v National Farmers Union Property & Cas. Co., 277 N.W. 2d 648, 652 (Minn. 1979);Duncin v. Andrew County Mut. Ins. Co., 665 S.W. 2d 13, 20 (Mo. Ct. App. W.D.1983); New York Univ. v. Continental Ins. Co., 662 N.E. 2d 763 (1995); Employers' Fire Ins. Co. v. Love It Ice Cream Co., 670 P. 2d 160, 165 (Or. App. 1983);D'Ambrosio v. Pennsylvania Nat'l. Mut. Cas. Ins. Co., 431 A. 2d 966, 970 (Pa.1981); Chandler v. Prudential Ins. Co., 715 S.W. 2d 615, 621 (Tenn. Ct. App. 1986).

6. See Lawton v. Great Southwest Fire Ins. Co., 392 A. 2d 576, 580 (1978); and Levine v. Selective Ins. Co. of America, 462 S.E. 2d 81 (Va. 1995).

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November 24, 2014 PublicationThe Coverage Action 'Fixed' Bad Faith Damages: Are The Total Damages Binding?

Florida state and federal courts struggle with excess damage verdicts in first-party bad-faith actions arising out of uninsured motorist/underinsured motorist (UM) coverage. Recent case decisions produce mixed results for insurers. But mention UM coverage, bad faith, and total damages, and Florida Statute Section 627.727(10) immediately comes to mind. Comments by two judges framed the Section 10 debate.

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October 27, 2014 PublicationThree Is A Crowd: Revisiting The Third Party Beneficiary Doctrine

This article examines the third party beneficiary doctrine in conjunction with the approaches courts follow with regard to the collection of an excess judgment from a liability insurer.

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September 22, 2014 PublicationCourts' Different Views On Additional Insureds' Duties Under Liability Policy Notice Provisions

Liability policies typically require the insured to provide prompt notice of a claim or suit. Notice is regarded as a condition precedent to the insurer's duty to defend or indemnify. The notice provisions in a typical liability policy seem straightforward. However, issues surrounding notice become complicated when an additional insured, who is typically not a party to the insurance contract and sometimes unnamed in a policy, is involved. Under those situations, courts have had to address, among other issues, the sophistication and resources of the additional insured, whether the additional insured is aware that coverage potentially exists or even that policies potentially exist, whether the jurisdiction requires the additional insured to actually tender the claim or suit or whether another insured's tender of the claim or suit is sufficient and whether there was late notice or no notice at all by the additional insured. Different jurisdictions have reached different results. 

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August 25, 2014 PublicationWall Of Confusion: GEICO General Insurance Company v. Bottini And Its Ill-Begotten Progeny

On July 20, 2012, a three-judge panel of Florida's Second District Court of Appeal released what, on its face, appeared to be a relatively innocuous opinion in Geico General Insurance Company v. Bottini . The Bottini appeal arose as a result of Geico's appeal of a jury verdict in the amount of $30,872,266 rendered against it in an uninsured/underinsured motorist (‘‘UIM'') case. Consistent with precedent, the trial court entered a judgment against Geico in the amount of the policy's limit of liability, $50,000. Because the huge verdict had the effect of fixing the plaintiff's damages in a subsequent bad faith case, Geico naturally sought review of that verdict. The panel opinion concluded simply, ‘‘Based on the evidence presented, we are satisfied that even if Geico were correct that errors may have affected the jury's computation of damages, in the context of this case and the amount of the judgment, any such errors were harmless.''

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June 26, 2014 PublicationUninsured Motorist Bad-Faith Claims: Separate Action, Separate Trial, Separate Damages

First-party bad-faith claims arising from uninsured motorist (UM) coverage are separate and independent actions, too. If the uninsured motorist coverage action is truly separate and distinct from bad faith, one naturally expects a separate trial on bad-faith liability and extracontractual damages. However, there is a unique problem confronting first-party bad-faith claims arising from uninsured motorist coverage under Florida Statute Section 627.727(10). One decision characterizes the problem as a ‘‘conundrum'' created by Florida law.

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May 22, 2014 PublicationBurden Of Proof Issues In Consent Judgments

When a carrier refuses to defend its insured, the insured may consent to entry of a stipulated judgment. 1 In most jurisdictions the insured (or claimant) bears the burden of proof to show coverage exists as a prerequisite to recovery of an excess judgment. 2 The burden of proving coverage for a consent judgment can sometimes create problems. Consent judgments raise many other issues beyond the scope of this article. 3  

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April 25, 2014 PublicationAn Insurance Carrier's Good Faith Obligations Toward Its Insureds In Liability Settlements Where Not All Of the Insureds Are Released

Generally, liability insurers must secure a release of all of their insureds when settling claims against their insureds. However, some courts have recognized circumstances where an insurer may settle for an insured at the exclusion of another while still maintaining its good faith duties toward all of its insureds. Other courts have seemingly rejected the notion that an insurer can ever settle for one of its insureds at the exclusion of others. These release issues occur most prevalently in automobile accidents involving insured owners and additional insured drivers.  

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March 27, 2014 PublicationAnother Item For Your Checklist: The Bad Faith Concerns Related To Overreaching Proposed Releases

A common scenario: claimant's counsel issues a time limit demand for policy limits and the insurer decides to accept the demand and tender the limits. Once the decision is made to accept the demand, the insurer should go through its checklist of concerns to make sure that each element of the time demand is met, while ensuring that the insured is adequately protected.

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March 13, 2014 PublicationBad Faith And Ordinary Negligence: Distinguishing The Excusable From The Culpable

Bad faith and ordinary negligence typically involve two very different standards of care. In most jurisdictions, courts agree that proof of bad faith requires a showing of insurer culpability greater than ordinary negligence.

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December 19, 2013 PublicationRecent Cases Discussing The Advice Of Counsel Defense: The Good, The Bad, And The Discovery

The gravamen of a third-party claim of bad faith is that the insurer failed to settle a claim against an insured when it had the opportunity to do so. The essence of the claim is that the insurer acted solely on the basis of its own interests, failed to properly and promptly defend the claim, and thereby exposed the insured to an excess judgment. However, a claim based on insurer negligence is insufficient to establish bad faith

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November 21, 2013 PublicationThis Mediation Is Confidential, Right?

Mediation is an effective dispute resolution tool because it allows participants to openly discuss all aspects of a dispute without the fear of recourse or retribution. Confidentiality is a critical component of this process. Litigants and insurers participating in mediation often proceed under the assumption that all communications and conduct occurring during mediation will be cloaked with protection. However, exceptions to confidentiality are slowly eroding what is commonly referred to as the absolute ‘‘mediation privilege.''

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October 24, 2013 PublicationSeparating Fact From Fiction: Strategies For Contesting The Excess Consent Judgment

Few legal maneuvers generate greater skepticism – among courts and insurers – than the excess consent judgment, an increasingly common settlement device used In liability cases.

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September 26, 2013 PublicationSome Considerations In Addressing Time-Limit Demands

Liability insurance carriers should be prompt and proactive when they receive a time-limit demand from a claimant. Time is usually not on the carrier's side when it comes to these settlement communications.

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August 22, 2013 PublicationCausal Friday: Better To Be Lucky Than Good

Sometimes it is better to be lucky than good, as the insurers in the following cases learned. These cases demonstrate that, even where the facts indicate that the insurer acted in bad faith, it is still possible for the insurer to escape extra-contractual exposure. In the absence of a causal link between the excess judgment and the insurer's actions, bad faith liability cannot exist as a matter of law.

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July 25, 2013 PublicationAn Insurer's Liability For A Hospital Lien After Settlement Of A Claim That Impairs The Lien

Over forty states have hospital lien laws. Those laws typically allow hospitals to recover against parties, including insurers, who impair their liens. In many states, the hospital lien laws do not clearly identify the type and extent of damages a hospital can recover against a party who impairs a hospital lien. The damages a hospital can recover from a party who impairs a lien depends upon the language of the applicable hospital lien law and the courts' interpretations of that law. Results vary from state to state. 

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June 27, 2013 PublicationWhy Sue For Bad Faith When Consequential Damages Are Available?

Bad faith aside, insurers often assume a claim's ‘‘total" exposure under the insurance contract is the policy's limit.  Courts traditionally allow insureds to recover contractual damages based on the limit, plus legal interest.  However, a new trend is emerging in some jurisdictions.

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May 23, 2013 PublicationIs The Bad Faith Claim A Part Of The Package?

In an effort to create yet another way to present a claim for bad faith against an insurance company, plaintiff attorneys have been submitting ‘‘package deal'' demands on behalf of multiple claimants who have all incurred damages as a result of the same occurrence.

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April 25, 2013 PublicationRevisiting The Litigation Privilege And Its Application In Bad-Faith Cases

Over the last 25 years, courts have wrestled with the issue of whether to apply an absolute privilege to preclude bad-faith lawsuits based on an insurance company's conduct during the litigation of an underlying first-party or third-party claim. Some courts still refuse to recognize a bad-faith claim against an insurance company based upon its post-litigation conduct.  However, the prevailing trend seems to suggest that courts will find that some of the insurer's conduct remains relevant and admissible, while the conduct of the insurer's attorneys in defending the claim remains privileged.

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March 28, 2013 PublicationWho Is Entitled to the Claims File?

The United States Supreme Court has recognized the "attorney-client privilege" as "one of the oldest recognized privileges for confidential communications," the purpose of which is to encourage "full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and the administration of justice."

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February 28, 2013 PublicationNavigating The Southern Bad-Faith Buffet: Extra-Contractual Liability In The Absence Of Breach Of Contract

In the Southeast, catastrophic natural disasters have become all too common, and the physical and financial consequences are borne by the entire region. Five of the top ten costliest hurricanes to hit the United States have impacted North Carolina, and with approximately $159.6 billion in insured coastal assets, North Carolina continues to have significant loss exposure.

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January 31, 2013 Publication‘Bad-Faith' Discovery: Claim Files, Training Materials, Personnel Files, And The Kitchen Sink

A recent discovery order in the federal court case of Signature Development, LLC v. Mid-Continental Casualty Company is illustrative of our liberal discovery. Note, this liability insurer has yet to be found liable or guilty of any wrongdoing.  Signature alleges, however, that the corporate defendant insurer breached the contract of insurance, committed ‘‘bad-faith,'' breached its fiduciary duty to its insured, committed unfair trade practices, intentionally inflicted emotional distress and vexatiously refused to pay. Based upon these allegations alone, the court addressed the scope and burden of discovery. 

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November 21, 2012 PublicationMediation (Resolving Cases With Extra-Contractual Exposure)

By definition, mediation begins with ‘‘me.'' Once conflicting parties have resorted to litigation, they naturally act purely in their own respective self-interest. When a mediation involves allegations of insurer ‘‘bad faith,'' this is especially so. The parties are initially polarized. 

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October 25, 2012 PublicationSquare Pegs In Round Holes: When The Adjustment Process Meets The Evidence Code

If given the chance, most property adjusters would skip the aspect of their job involving litigation. Avoiding lawyers, depositions, and, of course, trials would alleviate much stress. Unfortunately, dealing with lawyers and litigation is an unavoidable job hazard for most adjusters.

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September 27, 2012 PublicationThe Troubles Of Trafalgar : Bad Faith In the Absence Of Breach Of Contract

How can a first-party insurer be legally liable for insurance ‘‘bad faith'' if it has already been found not to be liable for breach of the insurance contract? According to at least one Florida appellate court, by paying an Appraisal Award timely.

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August 23, 2012 PublicationScary Stuff: Insurance Claim Files And Exceptions To The Attorney-Client Privilege

Are all attorney-client communications contained in such claim files that were thought to be confidential now discoverable because the insurer lost the underlying first-party claim, litigation, or appeal

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July 26, 2012 PublicationThe Vanishing Right To Federal Jurisdiction In Bad Faith Claims In Florida

On April 25, 2012, the United StatesDistrict Court for the Southern District of Florida issued its opinion in Moultrop v. GEICO General Ins. Co., remanding a bad faith claim to state court pursuant to the one-year ‘‘repose'' provision of 28 U.S.C. § 1446(b). The Moultrop decision is one more in a growing line of cases which refuse insurers access to a federal forum based on the repose provision, under the anomalous reasoning that the right to removal expired before the cause of action for bad faith accrued. Unfortunately for the insurers, 28 U.S.C. section 1447(d) precludes appellate review of an order granting a motion to remand.

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May 24, 2012 PublicationProtecting Confidential Communications: Application Of The Attorney-Client Privilege In First-Party Insurance Bad-Faith Cases

Discovery of the insurance company's entire claim file—including confidential communications between the insurer and its attorney—is often the first target on the insured's agenda in a first-party bad-faith lawsuit. In any other context, a party's request for discovery of the opposing party's confidential attorney-client communications would be viewed by courts as a brazen and inappropriate attempt to obtain information obviously protected by the attorney-client privilege; however, in the context of bad-faith litigation, this type of request has been dignified by courts who often look for ways to permit discovery of the insurer's attorney-client communications.

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April 26, 2012 PublicationCreative Methods Used To Set-Up ‘Bad Faith' Claims — Use Of Multiple Coverage Demands

In the past decade, the bad-faith environment has rapidly shifted from a useful tool used by consumers to protect themselves from arguably egregious actions to an elaborate trap set by personal injury plaintiff attorneys to reap outrageous awards from seemingly innocent conduct by claims professionals. Insurance companies now fear multi-million dollar verdicts based on policies written for insureds who did not want more than the absolute minimum coverage allowed. Based on technicalities, clever plaintiff attorneys attempt to convince courts to rewrite insurance policies, allowing for unlimited recoveries.

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March 22, 2012 PublicationA Liability Insurer's (Almost Absolute) Right To Settle Claims Without The Insured's Consent

Many cases hold that a liability insurer can settle a claim against its insured without the insured’s consent because the policy language gives an insurer the right to settle even when an insured may not want to settle.1 For the most part, courts in California, Florida, and Louisiana allow insurers to settle claims without the insured’s consent where the policy gives the insurer the right to settle as it deems expedient. However, courts may nonetheless consider whether a settlement may have adversely impacted the insured to determine whether an insurer acted in good faith.

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February 23, 2012 PublicationBullock v. Philip Morris USA, Inc.: Where ‘Reprehensibility' As An Exception To Constitutional Protections And the Ratio Guidepost Includes The Wealth Of The Defendant

On November 30, 2011, the California Supreme Court exercised its discretion and let stand a $13.8 million punitive damage award that was more than 16 times the compensatory damages awarded by the jury. The case, Bullock v. Philip Morris, 1 (Bullock) involved a smoker diagnosed with lung cancer who filed suit against the cigarette manufacturer, seeking damages based on products liability, fraud, and other theories.

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January 26, 2012 PublicationWho Killed Reverse Bad Faith? And Why It Could Make A Comeback

In every state in the union an insured can seek some form of compensation for an insurer’s ‘‘bad faith’’ in adjusting a claim.Yet only one state, Tennessee, currently allows an insurance company to recover damages caused by the insured’s bad faith.This imbalance has allowed ‘‘bad faith’’ litigation to become big business.The tendency of courts to treat insureds like a disadvantaged class has created an uneven playing field for insurance companies in claims adjustment.

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December 22, 2011 PublicationA Wolf In Sheep's Clothing (Insurers Should Be Vigilant In Florida)

[ Editors note: Alan J. Nisberg, Esq., is a partner with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate attorney, specializing in extra-contractual, class action and complex coverage litigation. This commentary, other than the quoted material, expresses the authors opinions -  not the opinions of Butler or Mealey's. Copyright © 2011 by the author. Responses are welcome. ] 

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November 23, 2011 PublicationProximate Causation In Third-Party Bad Faith: Not Every Bad Decision Is A Bad-Faith Suit

Proximate causation is an element of a claim for bad faith. An often-overlooked element, but an element nonetheless. Even claims with grievous claim-handling errors and high excess judgments can still be very defensible if there is no proximate causation between the two. This article examines the element of the bad-faith cause of action that is most often glossed over. 

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October 27, 2011 PublicationRecent Application Of State Farm v. Campbell In Bad-Faith Cases

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 25, #10 (September, 2011). © 2011 

[ Julie A. Simonson is an associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. She is active in the firm's Extra-Contractual and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2011 by Julie A. Simonson. Responses are welcome. ]

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August 25, 2011 PublicationApplying The Litigation Privilege In Bad-Faith Cases

[BrianD.Webb,Esq.,is a partner with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate attorney specializing in extra-contractual and complex coverage litigation. This commentary expresses the author's opinions–not the opinions of Butler or Mealey's. Copyright#2011 by Brian D. Webb. Responses are welcome.] 

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July 28, 2011 PublicationThe Insurer's Bill Of Rights (A Balance Of Power)

[Editor's Note: Alan J. Nisberg is a partner in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial attorney and appellate lawyer, specializing in extra-contractual, class action, and complex coverage litigation. This commentary, other than the quoted material, expresses the author's opinions - not the opinions of Butler or Mealey's. Copyright#2011 by the author. Responses are welcome.] 

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June 23, 2011 PublicationChoice-Of-Law Principles Affecting Insurance Bad-Faith Claims

[R. Steven Rawls is a partner and Ryan K. Hilton is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. This commentary expresses the author's opinions–not the opinions of Butler or Mealey's. Copyright © 2011 by R. Steven Rawls and Ryan K. Hilton. Responses are welcome.] 

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February 24, 2011 PublicationThe Duty to Initiate Settlement Negotiations: Where Does it Begin and How Far Does it Go

In some jurisdictions, including Florida, the courts recognize a duty in some circumstances for a liability insurer to initiate settlement negotiations with a third-party claimant before the claimant has ever made a demand. This duty is a relatively recent invention in the common law and has yet to be fully defined. While most articles on the subject tend to focus on whether or not this duty should exist in the first place, this article skips that threshold question and delves into the particulars that apply in the jurisdictions that recognize it. What triggers the duty? What is required of the insurer to discharge it? What are the defenses to a claim for bad-faith failure to initiate settlement negotiations? This article tackles these emerging questions and more in attempt to define this nascent duty.

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December 23, 2010 PublicationDoes Policy Reformation Create A Retroactive Bad-Faith Claim?

[Editor's Note: Laura A. Turbe-Capaz is a senior associate in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. She is an experienced trial attorney in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Copyright#2011 by Laura A. Turbe-Capaz. Responses are welcome.] 

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December 09, 2010 PublicationSplitting The Baby: The Insurer's Duty To Notify The Insured Of The Need For An Allocated Verdict

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #15 (December 9, 2010). © 2010  

[Editor's Note: Fay E. Ryan is a partner the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee and Miami. She is an experienced trial attorney in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Kimberly N. Gorak is a senior associate in the Tampa office of Butler , also practicing in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2010 by Fay E. Ryan and Kimberly N. Gorak. Responses are welcome .]

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November 24, 2010 PublicationPitfalls For The Unwary: The Use Of Releases To Preserve Or Extinguish Any Potential Bad-Faith Claims Between The Primary And Excess Insurance Carriers

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #14 (November 24, 2010). © 2010 

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September 23, 2010 PublicationWe Said What We Meant And We Meant What We Said! — Enforcing Contract Language Despite Assertions Of Bad Faith And Insurer 'Misconduct' During The Adjustment Of The Claim

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #10 (September 23, 2010). © 2010  

[Editor's Note: John V. Garaffa is a Partner and Jason M. Seitz is an associate with the law firm of Butler Weihmuller Katz Craig LLP in Tampa, Florida.  Any commentary or opinions do not reflect the opinions of Butler or Mealey's Publications. Copyright © 2010 by Jason M. Seitz and John V. Garaffa. Responses are welcome.]

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August 26, 2010 PublicationChinese-Drywall Cases And Their Impact On Liability-Insurance Carriers In Settling Multiple Claims In Good Faith Against Their Insureds In Certain State Courts

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #8 (August 26, 2010). © 2010  

[Editor's Note: Steve Rawls is a partner and Ryan K. Hilton is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP in Tampa, Florida. Any commentary or opinions do not reflect the opinions of Butler or Mealey's Publications. Copyright © 2010 by R. Steve Rawls and Ryan K. Hilton. Responses are welcome.]

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July 29, 2010 PublicationBad Faith - Variations On A Theme

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #6 (July 29, 2010). © 2010  

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May 27, 2010 PublicationBad Faith and Beyond: A Business Law Primer For Insurers

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #2 (May 27, 2010). © 2010  

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May 13, 2010 Publication(Almost) Twenty Years After Powell: Case Studies On A Liability Insurer's Duty To Initiate Settlement Negotiations

The Florida Third District Court of Appeal’s 1991 decision in Powell v. Prudential Property & Casualty Insurance Co. recognized a duty, in some circumstances, for a liability insurer to initiate settlement discussions with a third-party claimant who has not made a demand. The case proved to have a strong ripple effect, bringing about a sea change in bad-faith jurisprudence for the next twenty years. This article examines the expansion of Powell from a unique facts-driven anomaly to an entire branch of bad-faith jurisprudence and discusses early indications that the courts may be retreating again to applications more in line with the original case.

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March 25, 2010 PublicationBreaking Down Privileges: Discovery of the Claim File In Florida Bad-Faith Actions

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #22 (March 25, 2010). © 2010  

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February 25, 2010 PublicationExtracontractual Recovery Without Bad Faith

Insurance intermediaries (insurance agents and insurance brokers) are especially vulnerable to claims by insureds. While bad-faith actions continue to be the favored method of pursuing recovery beyond a policy limit, some litigants turn to claims against insurance intermediaries (and the insurers they represent) for extracontractual recovery. In addition to bad-faith law, insurers need to know what kinds of claims can be brought in relation to the procurement of the insurance policy itself and what defenses can be raised. This article delves into this often-misunderstood area of the law and illuminates some legal issues with which every insurer should be familiar.

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January 28, 2010 PublicationA Look Back At Some Of 2009s Significant Bad Faith Decisions

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #18 (January 28, 2010). © 2010

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October 22, 2009 PublicationDoes An Insured Owe A Duty Of Good Faith To Its Insurer When The Insured Is Responsible For Defense Costs In A Self-Insured Retention?

Many businesses are increasingly utilizing insurance policies with large self-insured retention endorsements in order to exercise better control over the defense of claims. In these circumstances, an issue may arise regarding whether an insured who is responsible for defense costs under a self-insured retention ("SIR") owes a duty of good faith to its insurer.

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August 27, 2009 PublicationFairly Debatable?

On August 5, 2009, the South Dakota supreme court joined an exceedingly small minority of courts in the United States that have imposed a duty to conduct a reasonable investigation into first-party claims in order to avoid "bad-faith" liability.2 As they say, the road to Hell is paved with good intentions. This decision certainly affirms the truth of that old saw

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July 30, 2009 PublicationWrit Of Certiorari Dismissed As Improvidently Granted -- The Ambiguous End To Philip Morris USA, Inc. v. Williams

On March 31, 2009, the United States Supreme Court dismissed, as improvidently granted, a writ of certiorari in Philip Morris USA, Inc. v. Williams. While the reason for the court's action remains a mystery, it seemed to signal an end to the court's interest in the central constitutional issue in the case: punitive damages. Unfortunately, the court's decision to abandon the issue leaves both the litigants and observers wondering what, if anything, had been gained by years of decisions, reversals and remands.

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April 23, 2009 PublicationArbitrary and Capricious

In Grilletta v. Lexington Insurance Company,8 the United States Court of Appeals for the Fifth Circuit reviewed the insurer's handling of a Hurricane Katrina property claim.9 Mr. Xavier Grilletta and Mr. Randy Lauman owned a vacation lakehouse on the southeastern shore of Lake Pontchartrain, a lake bordering New Orleans to the north. 

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March 26, 2009 PublicationFlorida's Bad Faith Quagmire: Is Summary Judgment Ever Available?

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 22, #22 (March 26, 2009).

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February 26, 2009 PublicationIs Abnormal Becoming The New Normal In Alabama?

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 22, #20 (February 26, 2009).

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November 25, 2008 PublicationUnreasonable Consent Judgments; What Next?

The scene is all too familiar: an insured, disenchanted with its insurer's refusal to defend an action the insured believes is within coverage, decides to enter into a "consent judgment" with the plaintiff, in return for which, the plaintiff agrees only to pursue satisfaction of the "judgment" against the insurer. 

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August 28, 2008 PublicationTorts for Tots (Bad Faith And Other Independent Torts)

The responsibility of caring for a child is not one to be taken lightly. Our society demands vigilance from those who bring new life into rld, and rightly so. We are held to a higher standard in dealing with our offspring than with others. The special relationship between a parent and a child is built upon trust and an expectation that one (the parent) will give security tothe other (the child). So too is the bond between insurer and insured.

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July 15, 2008 PublicationExxon Shipping Co. v. Baker: Sailing Into The Confluence Of Common Law And Constitutional Standards For Punitive Damages

On June 25, 2008, the United States Supreme Court issued its much anticipated opinion in Exxon Shipping Co. v. Baker. The Supreme Court reduced the punitive damage award from $2.5 billion dollars to $507 million dollars, an amount approximately equal to the jury's award of compensatory damages. While the decision certainly warmed the hearts of Exxon's previously discomfitted stockholders, the Court's opinion provides only limited encouragement to defendants involved in the current punitive damage lottery.

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June 17, 2008 PublicationConsequential Damages Under the Insurance Contract -- The New "Bad Faith?"

The ability of an insured to recover consequential damages under an insurance contract allegedly caused by failure or delays in the insurer making payments has traditionally been controversial. Jurisdictions have been divided in their approach as noted in the following annotation cited by the district court in Indiana

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January 22, 2008 PublicationRipe for Campbell Review: A Florida Uninsured Motorist Claimant's Statutory Right to Recover Excess Verdict Damages in a Bad Faith Action

In many jurisdictions, jurors can award punitive damages to punish or penalize an insurer for improper claims handling, in addition to any compensatory damages caused by an insurer’s bad faith. Such jury awards of punitive damages now are subject to scrutiny under State Farm Mutual Automobile Insurance Company v. Campbell.1 As a result of Campbell, insurers have one final check against excessive punitive damages awards by juries.

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December 18, 2007 PublicationPunitive Damages - the Rationale of Ratios

Since the Supreme Court’s decision in State Farm Mutual Automobile Insurance Company v. Campbell, courts have struggled to define when the Campbell court’s presumptive limit of 9 to 1 ratio of punitive damages to compensatory damages is appropriate. The Supreme Court stated that the "most important indicium of the reasonableness of a punitive damages award" was the highly subjective measure of the "degree of reprehensibility." Wrestling with such an amorphous concept trial courts and appellate courts have sought to justify various punitive damage awards on the basis of a sliding scale, doing little more than subjectively comparing the "reprehensibility" in the case being reviewed, to other recent cases decided before it. The result is a marked disparity from one court to the next as to what constitutes behavior falling within the five (5) factors of reprehensibility discussed in Campbell.

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July 24, 2007 PublicationOxymoronic ("Tortious Breach of Contract")

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 21, #6, p. 32 (July 24, 2007).

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June 19, 2007 PublicationWilliams v. Philip Morris Inc. II – The Fog of Legal Rationale

On February 20, 2007, the United States Supreme Court issued its much-anticipated second opinion in the negligence and fraud suit brought by the widow of Jesse Williams against Philip Morris. Mrs. Williams had asserted that the company had purposefully taken actions to obscure the dangers of smoking and, as a result, her husband was deceived into believing smoking was not harmful, a 47 year delusion that ultimately led to his illness and death.

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March 20, 2007 PublicationCaveat Insuror

On December 21, 2006, the Florida Supreme Court released its opinion in Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co.[FN1] In Dadeland, a bare majority of the high Court, led by Justice Lewis, held that an obligee under a performance bond qualifies as an "insured" within the meaning of section 624.155, Florida Statutes (1999). The Court's decision resulted from the following question certified to it by the Eleventh Circuit Court of Appeals:

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September 19, 2006 PublicationRemanded in Light of State Farm v. Campbell: The Opportunity For Further Illumination Presented by Williams v. Philip Morris Inc.

On May 30, 2006, the U.S. Supreme Court again granted a petition for writ of certiorari in the ongoing dispute between Philip Morris and the widow of Jesse Williams, an Oregon resident who died of lung cancer after smoking cigarettes for about 47 years.

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June 15, 2006 PublicationSelected Third-Party Bad Faith Liability Standards Governing Failure to Settle Cases

Under liability insurance policies, insurance companies assume the obligation of defending their insureds. In so doing, carriers can settle and foreclose their insured's exposure or refuse to settle, leaving the insured potentially exposed to damages that exceed the policy limits.  Most courts find that this obligation places insurers and insureds in a fiduciary (or fiduciary-type) relationship.  Accordingly, courts recognize that an insurer owes a duty to the insured to refrain from acting solely on the basis of the insurer's own interests in settlement. This duty extends to situations where an insurer has an opportunity to settle a third-party liability claim against its insured within policy limits and requires an insurer to pay an excess judgement against an insured, where the carrier in good faith should have settled.
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April 18, 2006 PublicationAchilles' Heel: First-Party Property "Bad-Faith" Damages

Insurance "bad-faith" is recognized throughout the United States. In the setting of first-party property insurance, the relationship between the insured and insurer commences contractually. However, that contractual relationship can also provide exposure for tort damages in a first-party "bad-faith" action. Indeed, the threat of facing a first-party property "bad-faith" tort action commonly influences insurers to resolve litigation out of fear, rather than for substantive purposes based on the merits. One of the "Achilles' Heels" of such causes of action is the inability of the insured to prove any measurable "bad-faith" damages. The identification and measurement of "damages" in first-party property "bad-faith" actions varies greatly depending on the jurisdiction. This commentary will discuss certain jurisdictional differences relating to damages in first-party "bad-faith" actions, exclusive of punitive damages.[FN1]

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February 21, 2006 PublicationThe Implied Covenant of Good Faith and Fair Dealing

Until the 20th Century, insurance contracts were treated the same as any other contract, with recovery generally limited to the damages contemplated by the parties when they entered into the contract. Insurance contracts, like any other, were enforced by their explicit terms, and courts were reluctant to substitute their own judgment for the terms upon which the parties agreed absent some independent tort or injustice. By the end of the 19th Century, however, the judiciary in the United States began to recognize a general obligation of good faith performance implied in every contract.  By the 1930s, the implied covenant of good faith became a standard doctrine. This duty of good faith and fair dealing originated to resolve disputes over agreements that were not explicit on pivotal contract terms, or left discretionary power in the hands of one of the contracting parties.

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June 07, 2005 PublicationAn Insurer's Liability For Punitive Damages In An Excess Judgment

Ging v. American Liberty Insurance Company, 423 F.2d 115 (5th Cir. 1970) is a case often cited for the proposition that third party insurers who act in bad faith could be held liable for punitive damages awarded against their insureds. However, the strength of this proposition appears to depend upon the extent to which a jurisdiction would permit the insurability of punitive damages. Those jurisdictions that permit coverage for punitive damages would also likely permit recovery of those damages later as a result of the carrier's bad faith. Jurisdictions whose public policy precludes insuring against punitive damage awards, may be more reluctant to permit recovery in a later bad faith action, depending upon the nature of the liability giving rise to the punitive damage award.

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April 19, 2005 PublicationDetours: Campbell Stops At The Willow Inn

Dealing with punitive damage claims is like driving down a road that is constantly under repair. The road is dangerous, uncomfortable, and full of detours. Although the United States Supreme Court has issued a rather clear and accurate map to help us through this rocky road, in some respects the map is already outdated, just as the road darkens and your interior auto light dims.

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March 22, 2005 PublicationThe Timely Demise of Excess Judgments (Probate Nonclaim Statutes)

Imagine your insured is at fault in an accident that kills her and causes devastating injury to another individual. You (the insurer) fail to meet a settlement demand within policy limits. Liability is clear and excess exposure is inevitable. The claimant files a civil lawsuit naming the "estate" of the insured as the defendant. However, the estate of the insured is not set up yet. Having no entity to actually serve with the complaint, the claimant petitions the probate court for administration of the decedent's estate, has a personal representative appointed, and immediately serves legal process on that representative. A multi-million dollar excess judgment is obtained in the civil action.

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January 18, 2005 PublicationPiece Of Mind: The Utah Supreme Court's Response To Campbell

Given that the Utah Supreme Court (“Utah”) previously reinstated a $145 million punitive damages award in favor of the Campbells, it is not surprising that on remand from the U.S. Supreme Court, this same state high court goes to great lengths to justify the largest punitive damages award it believes could possibly survive further constitutional review.

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November 16, 2004 PublicationHospital Lien Laws and Personal Injury Settlements

Many jurisdictions have hospital lien laws. These laws ensure payment to hospitals for the beneficial services they provide. Some jurisdictions liberally interpret these laws so that technical deficiencies in establishing or seeking enforcement do not defeat payment to the hospitals. Other jurisdictions are less likely to ignore such deficiencies.

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July 07, 2004 PublicationThe Continuing Need for De Novo Review of Punitive Damage Awards -- Liggett Group, Inc. v. Engle

In Liggett Group Inc. v. Engle, the Florida's Third District Court of Appeal reversed the largest punitive damage award in history. The circumstances of the award indicate it would have bankrupted the defendants and was, in essence, a civil death sentence. If that were the only error, Engle would merely mark another notch in the continued upward spiral of American jury awards. However, the compounded procedural and constitutional errors in Engle make it particularly useful for those who wish to examine the pros and cons of the current system of punitive damages. 

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January 21, 2004 PublicationDo Liability Insurers Have A Duty To Make An Offer Where There Is No Claim Against The Insured?

A liability insurer has a duty to handle and settle claims made against its insured in good faith. Courts have grappled with whether this duty requires an insurer to make a settlement offer when there is no claim against the insured.

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October 15, 2003 PublicationJuggling Multiple Claims With Inadequate Limits

Everyone knows that an insurer has to act in good faith to its insured when settling claims with third parties. However, when an insurer is faced with multiple claims exceeding the limits of coverage, the insurer is faced with tough choices. Insurers are frequently called upon to defend these choices in “bad-faith” actions. Can an insurer get summary judgment on the issue of “bad-faith” in multiple claimant/inadequate limits cases? Will the insurer be forced to litigate the “bad-faith” issue through a trial? This article attempts to answer these questions and provide guidance to insurers on meeting their duty of good faith when met with multiple claims, the sum total of which exceed policy limits.

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August 13, 2003 PublicationReflections – Thirty Years After Gruenberg v. Aetna Ins. Co.

It has long been accepted that parties to an insurance contract have an obligation to deal with each other fairly and in good faith. As early as 1914, this obligation was found to be grounded within an implied covenant within the contract between the insurer and its insured.  If a denial of benefits under the policy was ultimately resolved by a suit on the contract of insurance, a policyholder who prevailed would receive the amount due plus interest. The recognition of a cause of action for the tortious breach of the duty of good faith and fair dealing in the context of the first-party contract of insurance is relatively recent.

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July 16, 2003 PublicationWhat is a "Reasonable" Settlement When There Are Multiple Claimants?

Sometimes several people sustain injuries in an accident. This article addresses a recent decision of Florida's Fourth District Court of Appeal, Farinas v. Florida Farm Bureau General Insurance Company, that discusses what liability insurers should do when several people sustain injuries in an accident caused by the insured and the value of most, if not all, of each individual claim exceeds policy limits. This article discusses the basis for the Farinas holding and identifies some questions raised by Farinas.

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June 18, 2003 PublicationAppraising Windstorm Claims

Once again the annual “hold-your-breath” season is upon us. In Hartford, New York, and London weather channels are beating “sitcoms” on the “Nielson” ratings. Internet strikes on weather.com are out-numbering those for kournikova.com – well, maybe this is a slight exaggeration. But the point remains; that is, CAT losses, especially windstorm, commonly called Hurricanes, make or break a property insurer's profitability, not just in the year of the occurrence, but typically with a two to three year tail.

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April 16, 2003 PublicationThe Current State of Comparative Bad Faith

In most every jurisdiction, the basis for a claim of insurer bad faith is the recognition of a duty of good faith and fair dealing inherent in any contract of insurance. See, e.g., Boston Old Colony v. Gutierrez, 386 So. 2d 783 (Fla. 1980). The focus in such cases is usually the question of whether or not the insurer has violated that duty. Inevitably, the question arises as to whether or not the actions of the insured can be considered bad faith and, if so, whether such actions can be raised as an affirmative defense to a claim of insurer bad faith. 

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March 19, 2003 Publication"Advice of Counsel" – Defense or Defeat

The involvement of legal counsel to provide advice concerning the settlement of property and liability claims has become increasingly commonplace. This is primarily due to the general proliferation of litigation and specifically "bad-faith" claims. As the involvement of legal counsel becomes more prevalent, so does the "defense" of "advice of counsel." This commentary will address this so-called "defense" in the context of "bad-faith" cases.

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February 19, 2003 PublicationInstitutional Bad Faith: Individual Or Class Action Litigation (All For One? - Or - One For All?)

In 1844, Alexandre Dumas, one of the most famous French writers of the nineteenth century, shared his vision of comradery and unified ambition. In his classic, The Three Musketeers, set under the seventeenth century rule of Louis XIII, a small association of elite combatants swore their allegiance to a common purpose . . . and to each other: All for one, and one for all! Is this sense of nobility and uniformity present in the battle cry of plaintiff lawyers brandishing their swords in modern day litigation against the insurance industry?

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January 22, 2003 PublicationAnger And Punishment

Horace once wrote: “Anger is a brief madness.” Such human condition apparently has not changed in over 2000 years.

USA Today's January 9, 2003 editorial page began with the topic sentence: “Horror stories abound about huge damage awards turning courts into lotteries, transforming plaintiffs and their lawyers into instant winners.” In addressing a recent Ohio Supreme Court decision, the editorial stated

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December 18, 2002 PublicationCan It Be 'Bad Faith' For An Insurer To File A Declaratory Action?

In recent months, insurance company clients of the author have faced allegations that the filing of a declaratory action, by an insurer, to determine or cut off coverage, is bad faith. This is a somewhat novel and, as it turns out, disfavored cause of action. To begin with, a “declaratory judgment action is the preferred manner of deciding a dispute between an insured and insurer over the construction and effect of the terms of the insurance contract.”

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October 23, 2002 PublicationTime Bombs

Insurers find nothing more frustrating than paying for unearned indemnification dollars. In a first-party context this may result from unreported values causing a deflated premium. In other words, the insurer's actual exposures require more premium than charged -- usually over many policy years. In a third-party context this unearned protection is the result of an excess judgment that the liability carrier is required to pay. In most jurisdictions this is the consequence of the liability insurer's failure to settle within policy limits when it had the opportunity to do so. 

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September 18, 2002 PublicationSpoliation As Bad Faith

What happens when an insurer's employee, insured, adjuster or attorney alters or destroys critical evidence? Can spoliation of evidence also constitute bad faith? Although there is no published decision directly on point, it appears that some courts may be willing to extend an insurer's exposure to include extra-contractual damages for such conduct

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April 17, 2002 PublicationSeventh Circuit Court Of Appeals Finds "Independent" Insurance Broker To Be Intermediary Of Insured, Barring Coverage And Bad Faith Claims

The Seventh Circuit recently addressed the question of whether an independent insurance broker, who provided clients to the insured, was their intermediary, thus barring coverage and bad faith claims. (First Insurance Funding Corporation v. Federal Insurance Company, No. 01-2855 (7th Cir. March 28, 2002)).

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November 21, 2001 PublicationRecognizing Subtle Exposures To Avoid Bad Faith Claims

“The insurer does not . . . insure the entire range of an insured's wellbeing outside the scope of and unrelated to the insurance policy, with respect to paying third party claims. It is an insurer, not a guardian angel.”

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October 17, 2001 PublicationJustices: Please Take This Case!

Two recent state court decisions jeopardize the right of insurers to consult legal counsel when considering whether to pay or deny the claim of a policyholder. The Arizona and Ohio state supreme courts have issued opinions eroding, even abrogating, the attorney client and work product privileges. In one of these decisions, Boone v. Vanliner, 744 N.E.2d 154 (Ohio 2001), the insurer has petitioned the United States Supreme Court to issue the writ of certiorari, hear the case and reverse the Ohio Supreme Court. The undersigned urges the United States Supreme Court to take the Vanliner case for the reasons stated below.

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September 19, 2001 PublicationAdditional Insured Coverage And Bad Faith

Coverage determinations regarding the nature of policy duties that liability insurers owe to additional insureds may create bad faith exposure for the unwary insurer. Bad faith liability frequently arises when an insurer fails to recognize the scope of defense and indemnification obligations it owes to an additional insured. Issues also arise when additional insureds compete with named insureds for limited policy proceeds which cannot adequately protect the interests of both. This article highlights the source of the dilemma – the scope of the coverage afforded to an additional insured – and provides illustrations of bad faith exposure in the wake of claims asserted against additional insureds.

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April 18, 2001 PublicationResolution of the Underlying Claim as a Prerequisite to Bad Faith

In every jurisdiction that has considered the issue, a claim for bad faith does not accrue until there has been a final determination of the underlying claim for insurance benefits or third party damages. Taylor v. State Farm Mutual Automobile Ins. Co., 913 P.2d 1092 (Ariz. 1996); Blanchard v. State Farm Mutual Automobile Ins. Co., 575 So. 2d 1289 (Fla. 1991). Thus, before a plaintiff can sue an insurance company for bad faith, he must first finally resolve the claim which he contends the insurance company failed to settle in good faith. What constitutes a resolution of that claim varies with the type of claim asserted and the jurisdiction in which it is brought, but it can generally be broken down into three categories: excess judgment, settlement of the underlying claim, and judgment below policy limits.

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March 21, 2001 PublicationDiminished Value In Auto Damage Claims

We have seen, in recent years, a spate of actions for bad faith, and class actions, on the issue of so-called diminished value. These suits claim payment by the insurance company of the actual cash value of a property loss - or the cost to repair a loss - does not make the insured whole. This is because of some intangible quality in the property that cannot be restored by repair. Before the loss it was pristine or original. Afterward it is corrupted or compromised. It is worth less in the market.

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February 21, 2001 PublicationPossible Bad Faith In The Allocation Of Coverage For Third Party Continuous Loss Claims

An insured causes damage or injury that results in a third party claim for continuous loss spanning three years. The third party makes a claim under the policy in effect at the time of the loss. The policy covers the same three years as the loss and provides $300,000.00 for each year. In other words, the policy provides a total of $900,000.00 aggregate coverage over three years. We will assume the claim is settled for $300,000.00.

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October 24, 2000 PublicationRaising the Coverage Defense in the Bad Faith Case

In representing insurers in bad faith litigation, from time to time one will find a coverage issue that was not raised in the underlying litigation. The question to be addressed in this article is whether the coverage issue may be raised for the first time as a defense to the bad faith litigation.

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August 22, 2000 PublicationIs It Bad Faith to Settle Covered Claims Only?

It is beyond dispute that the duty to defend, under liability insurance, is contractual, and is broader than the duty to indemnify. National Grange Mut. Ins. Co. v. Continental Cas. Ins. Co., 650 F. Supp. 1404 (S.D.N.Y. 1986). Even if some allegations of the complaint clearly are outside the scope of coverage, the insurance company is obligated to defend the entire suit. Id. See also, Aerojet-General Corp. v. Transport Indemnity Co., 948 P.2d 909 (Cal. 1997).

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July 25, 2000 PublicationLevel The Playing Field: Abate Or Stay The Bad Faith Action Pending Resolution Of The Underlying Liability Or Coverage Case

Before resolution of a first-party action for coverage or a third-party action to establish an insured's liability, a plaintiff will often initiate an action for bad faith. By doing so, the plaintiff attempts to gain an unfair advantage in discovery and at trial. This article outlines some of the reasons why the bad faith action should be abated in its entirety or, at the very least, stayed pending resolution of the underlying claim.

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June 20, 2000 PublicationThe Public Adjuster's Perspective

Mr. Lesser is a prominent public adjuster. His business office is located in Miami Beach, Florida. The views and opinions stated by Mr. Lesser in this interview are his own. Neither Mr. Craig, nor Butler , necessarily approve or agree with any of them.

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May 19, 2000 PublicationContractors' Bonds: Who Can Sue The Surety For Bad Faith?

A contractor's performance and payment bond creates rights and obligations among three parties ­ the principal, the obligee and the surety. The principal may be the general contractor or a subcontractor. The obligee (under a performance bond) usually is the owner of the project or (under a payment bond) the subcontractors, materialmen and equipment suppliers. The surety most often is an insurance company or financial institution engaged, among other things, in the business of issuing performance and payment bonds.

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April 18, 2000 PublicationThree Reasons Why Loss Reserves Ought Not Be Admissible In A Bad Faith Case

In the trial of a bad faith case, plaintiff often tries to put into evidence the reserves the insurance company set for the claim. This article contends that evidence ought not be admissible. It will outline three reasons why not.

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March 01, 2000 PublicationIssue Revisited: Who Can Sue The Surety For Bad Faith Under A Construction Bond?

In this journal, in May 2000, the author discussed the then recent decision in Ginn Construction Co. v. Reliance Insurance Co., 51 F. Supp. 2d 1347 (S.D. Fla. 1999). He argued that, contrary to a suggestion in Ginn, an obligee under a general contractor's performance bond ought not be allowed to sue the surety for bad faith. This article will look at some decisions handed down since. The trend is toward no bad faith liability by a surety to either an obligee or a principal under a surety bond.

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February 15, 2000 PublicationPerfunctory Defense

per-func-to-ry   per-fúngk'te­re   adj.   Done or acting routinely andwith little interest or care. The American Heritage Dictionary, NewSecond College Edition (1983).

The Scenario

Consider a common scenario. An insurance company issues a liability policy. The policyholder does something, or fails to do something, as a result of which a partyis injured. The injured party becomes the plaintiff, and the policyholder the defendant,in a tort action. The insurance company reviews the tort action and sees right awaythat probably it is not covered. It retains a defense attorney to handle the tort action butsends a reservation of rights letter to the policyholder and files a separate declaratoryaction to determine coverage. So far so good. See, e.g., Insurance Co. of the West v.Haralambos Beverage Co., 195 Cal. App. 3d 1308, 1319 (1987).

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December 21, 1999 PublicationMalicious Defense

This is one of a series of articles under the by line "Butler on Bad Faith" originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 13, #16, p. 25 (December 21, 1999). © Copyright Butler 1999.

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November 16, 1999 PublicationWhy A First Party Insurer Is Not A Fiduciary

Courts, commentators, lawyers and others have applied the word "fiduciary" to insurance companies and insurance claims in a loose manner. The result has been bad law and confusion over if and when an insurer is a fiduciary. This article will argue that an insurer does not, and ought not, owe a fiduciary duty to an insured who has presented a first party claim.

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October 19, 1999 PublicationThe Duty of Good Faith: Continuing Into Litigation

First-party bad faith cases are typically based on conduct or events (e.g., settlement offers, investigations and evaluations) occurring during the time period after a claim is made but before any litigation is commenced. Once a breach of contract or declaratory action is filed, it is generally understood that the insured and insurer stand in an adversarial relationship which presumably entitles each party to zealously pursue its litigation tactics and strategy. Thus, courts generally will not permit an insurer's litigation conduct to be admitted as evidence of bad faith. Over the years, however, a significant number of courts have held an insurer owes a continuing duty of good faith to an insured throughout the litigation process and, therefore, an insurer's post-filing conduct may be admitted as evidence of bad faith. This article is a brief review of some of the leading cases addressing the continuing duty of good faith and its ramifications affecting insurance companies and defense counsel.

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September 21, 1999 PublicationGood Faith Settlement of Claims in Excess of Policy Limits Against Multiple Insureds


Insurers and insureds alike may find themselves in the dark when claims against multiple insureds exceed policy limits. Only a few jurisdictions explicitly have addressed how policy proceeds should be allocated in this situation. The jurisdictions that have addressed the issue have split into two general camps. Some hold that carriers must allocate proceeds proportionately among all insureds. Other jurisdictions hold that a carrier need only act in "good faith" and may settle on behalf of fewer than all insureds. The manner of proportional allocation and the characteristics of a "good faith" settlement under such circumstances are not well described in the case law.

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August 17, 1999 PublicationMultiple Claims Exceeding the Policy Limits

When courts and state legislatures expand the duties owed by liability insurers to insureds there is a commensurate expansion of the grounds for extracontractual claims. One area of expansion has been in cases involving multiple third-party claimants - with liability clear and damages exceeding the policy limits. These cases make difficult issues for claims professionals.

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July 20, 1999 PublicationAdvice of Counsel: Insurance Companies' First and Last Line of Defense / Mealey's Litigation Reports: Bad Faith

The dynamic nature of bad faith law throughout the country practically mandates that insurers have ongoing legal advice to protect the interests of the company, the shareholders and all insureds. Such advice can prevent unwitting misconduct by the insurer. The "advice of counsel defense" in the context of insurance bad faith litigation issimply an insurer asserting, as proof that it did not act in bad faith, that it reasonably relied on the advice given by its legal advisors.

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March 16, 1999 PublicationStatute of Limitations in a Bad Faith Action: Which One Applies and When Does It Accrue?

Determining which statute of limitations governs a cause of action against an insurer for bad faith is complicated. It depends on whether the action is a first or third party action. It depends also on whether the controlling jurisdiction deems the action to be one sounding in tort or contract.

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January 19, 1999 PublicationDuty of Insurers to Advise Insureds of Policy Benefits

This article considers whether an insurer has a duty to advise an insured of policy benefits not claimed. Some courts require insurers to protect an insured's interests affirmatively by informing the insured of available benefits. Other courts have refused to impose this duty upon insurers. Recent cases suggest a trend toward imposing this duty.

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December 15, 1998 PublicationFederal Preemption of Extracontractual Claims Under Flood Insurance Policies

During the past year, numerous areas in the United States have experienced severe and, at times, unprecedented flooding. Whether the flooding occurred as a result of the active Atlantic hurricane season or the effect of "El Nino" on national weather patterns, the result for insurers is the same: an increase in the number of claims under flood insurance policies. With this comes a corresponding increase in the likelihood of extracontractual or bad faith claims.

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December 14, 1998 PublicationSupplement to Federal Preemption of Extracontractual Claims Under Flood Insurance Policies

This is a supplement to the December 1998 article published in Mealey's Litigation Reports: Bad Faith on "Federal Preemption of Extracontractual Claims Under Flood Insurance Policies" following the U.S. Third Circuit Court of Appeals reversal of its decision on rehearing in Van Holt v. Liberty Mutual Fire Insurance Co. This supplement was originally published in Mealey's Litigation Report: Bad Faith, Vol. 12, #18, p. 27 (Jan. 19, 1999). Copyright Butler 1999.

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November 17, 1998 PublicationThe Expanding Scope of Discovery in Bad Faith Cases

Bad faith litigation is complex and the stakes are high. In such cases, the discovery process has become critical as litigants struggle for advantage. The litigation often raises issues outside the facts of the particular case or claim. The conduct of the insurance company as a whole sometimes is placed on trial.

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October 20, 1998 PublicationDoes a Liability Insurer Have a Duty to Initiate Settlement Negotiations?

Liability insurance policies typically provide the insurer with complete control over the defense and settlement of third-party claims against the insured. This control imposes upon the insurer a duty to exercise good faith in settling claims. When the claimant makes a reasonably prudent offer to settle within the policy limits, courts generally agree the good-faith duty owed an insurer will require the insurer to settle the case. 

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August 18, 1998 PublicationChoice of Law in Bad Faith Cases

The substantive law of bad faith is not uniform from state to state. Some states treat bad faith as a breach of contract; some as a tort. In some states, punitive damages are available. In others, they are not. Some allow claims for emotional distress, while others reject them.

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July 21, 1998 PublicationRecovery of Damages for Emotional Distress in Tort, Contract and Statutory Bad Faith Actions

Emotional distress damages may be the most significant aspect of any bad faith action in jurisdictions that allow them. This article outlines the several theories that justify the recovery of such damages. It discusses also the impact of a recent Florida Supreme Court decision which authorized recovery for emotional distress under that state's bad faith statute.

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