As we approach the start of summer 2010 in Pennsylvania, I thought it might be interesting with that tiny big of distance to take a quick sample of significant bad faith cases from around the country decided in 2009.
North Dakota: What Are The Fundamental Elements of Bad Faith? - Dakota Minnesota and Eastern Railroad Corp. v. Acuity
In Dakota Minnesota and Eastern Railroad Corp. v. Acuity, the Supreme Court of South Dakota ruled that the requisite elements of a bad faith claim in that state, similar to the elements in Pennsylvania, were proof that (1) a insurer’s denial lacked a reasonable basis under the insurance contract and (2) the insurer knew or recklessly disregarded the lack of the reasonable basis for the denial. The court in Dakota Minnesota did allow the for the possibility that an insurer’s knowledge of a lack of a reasonable basis might be inferred, as opposed to being established directly, but also held that an insurer would escape bad faith liability when its challenges for denials of insurance claims were “fairly debatable.” This is generally consistent with Pennsylvania law, see, e.g., Santer v. Teachers Insurance and Annuity Association.
California: Is Violation of Underwriting Guidelines Bad Faith?
In Kevorkov v. Direct Insurance Co., a California appeals court ruled that violations by GEICO Insurance of its own underwriting guidelines could not serve as a foundation for a bad faith claim because the underwriting guidelines were not included in the insurance contract. Presumably, the basis for the finding that not having been included in the contract, the guidelines did not constitute a duty assumed to the insured.
Delaware: Does Insurer Owe Fiduciary Duty To Insured?
In Brousseau v. Laccetti, a U.S. District Court in Delaware declined to find that insurer-insured relationship gave rise to a fiduciary obligation owed to the insured. The court also ruled that an individual insurance adjuster could not be individually liable for a bad faith denial of coverage under a long term disability policy, and that an insuring agreement did not create a fiduciary obligation running from the insurer to the insured. The court did not put any credence in the insured’s argument the fact that the insuring agreement was called an “insurance trust” created a fiduciary relationship, either.
Miscellaneous Insurer Claims Practices - Independent Medical Examinations
The 9th U.S. Circuit Court of Appeals has held that it is not bad faith for an insurer to request an independent medical examination where there was conflicting medical opinion as to the reasonableness of the need for spinal surgery for an insured, especially where an automobile insurance policy provided for an independent medical examination in the event an insured sought PIP insurance benefits. The case is Saddler v. State Farm Mutual.
Also last year the 11th Circuit held that simply because an insurer rendered a claims decision promptly was not in and of itself conclusive proof of bad faith. See Johnson v. GEICO General Insurance Co. Consider the obverse of the situation in Pennsylvania, where at least one court has ruled that an insurer’s agreement to reconsider a claim is not bad faith, either. The case is CRS Auto Parts v. National Grange Insurance Co. These decisions, it seems, would tend to foster common sense public policies encouraging insurance companies to render prompt both claims decisions where possible, and at the same time keep open and flexible minds to reconsider claims decision where appropriate also.
Can an Insurer Defend Itself In Court? Litigation Conduct
Finally, a federal district court last year in Paducah, Ky., ruled that an insurer’s conduct in defending itself and opposing a UIM claim could not in itself constitute evidence of bad faith, and simply constituted permissible “litigation conduct.” The district court relied on earlier precedent from the Supreme Court of Kentucky to protect the insured’s right to defend the claim. The right to defend the cases in litigation is an important one. To tortify it as bad faith conduct would have a chilling effect on an insured’s right to defend itself. See, e.g., Buddy v. State Farm Mutual. See also, Knotts v. Zurich Insurance.
Conclusion
Insurers and insureds around the country struggle with the very same issues in bad faith litigation that insurers and insureds do in Pennsylvania. While it appears that the current trend is to provide insurers with a bit of breathing room and latitude within which to operate and render claims decisions, there will continue to be tension on the rope between insurers and insureds that will have to be overseen by the courts in Pennsylvania and the other states.
Charles Haddick
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