Illinois law makes no express provision for awarding attorney’s fees to prevailing parties. However, Section 155 does allow recovery of such fees in cases where the insurer has acted vexatiously or unreasonably. A recent opinion of the Illinois Appellate Court has broadened this remedy to include insurers who pursue equitable contribution claims on behalf of their insureds.
One of the more nagging problems in bad faith litigation is failure to settle cases in which more than one insurance company is involved. In such circumstances, where the insurer does not have full control as to whether the case can settle or not, may a liability insurer be liable for bad faith where the failure of the settlement owes to the intransigence of an excess insurer or other parties. It was with some relief, therefore, that we received a ruling from the Georgia Supreme Court earlier this decade that created a "safe harbor" for primary insurers that had done everything in their power to effect a settlement within the overall limits. Last month, however, the Georgia Supreme Court took a disturbingly narrow view of its earlier ruling in Brightman and declared that any sort of condition imposed by the insurer in offering its limits vitiates this protection.
California appellate court opinions on insurance coverage matters are very often lengthy, but rarely entertaining. Here is a long but well-written one that it is not only intellectually well-done, but humorous in the delivery. And, the result was for the insurer.
In Griffin Dewatering Corp. v. Northern Ins. Co. of N.Y. (2009) 176 Cal.App.4th 172 (2009 WL 2344762), the California Court of Appeal, Fourth Appellate District, reversed the trial court’s $10 million judgment of attorneys fees and punitive damages against the insurer. The court concluded the insurer breached its duty to defend; however, the insurer acted reasonably in, after denying any duty, defending and paying the claim, all while the law was in flux as to application of the policy’s “Total Pollution Exclusion.” The court found the insurer’s conduct was objectively reasonable under the circumstances. The decision demonstrates an insurer can reconsider and, in doing so, avoid being found in bad faith.
Procedurally the case is also interesting, not only in its convoluted and extensive history, but in that the Court in denying a petition for rehearing issued a supplemental (unpublished) opinion directly addressing the additional “facts” and arguments raised by the insured. See 2009 WL 2659463. There is much that could be discussed about the case, but only a short synopsis is provided here.
Continue Reading...It appears that Chief Justice Roberts recent sabre rattling about punitive damage awards is having some impact.
In the years since the court’s seminal decision in State Farm v. Campbell, which had suggested in dicta that punitive damage awards should generally not exceed the amount of compensatory damages in most cases, only the Eighth Circuit has consistently applied a 1:1 ratio. By contrast, most state and federal appellate courts ignored this language as dicta and have generally sustained punitive damage awards so long as they are less than ten times the size of the compensatory award.
Continue Reading...Efforts by policyholder lawyers to "set up" a carrier to make a decision which will enable the lawyer to prosecute a bad faith claim are nothing new. The trend, however, seems to be increasing across the country as some policyholder lawyers resort to such tactics with more frequency than in prior years. Frustration among the insurance industry has also been growing as courts across the country fail to recognize a "set up" for what it is and, instead, find the facts giving rise to the set up simply create a "fact issue" that must be resolved by a jury at trial instead of by summary judgment. A federal court judge in Texas recently decided a bad faith summary judgment issue against a carrier who was "set up" illustrating how easily the "set up" can occur and the limits on a trial court to do much about it once the bad faith suit is filed.
Continue Reading...It didn’t take long for the first bad faith suits arising from Hurricane Ike to be filed in Texas. Last week, the first two Ike bad faith lawsuits that I am aware of were filed in Galveston and Ft. Bend Counties. In Fort Bend County, a breach of contract suit was filed last week titled Gatesco Inc. v. Steadfast Insurance Company in which plaintiffs claim the insurer failed to pay policy benefits after its property sustained damages during Ike. On November 7th, an Ike bad faith lawsuit was filed in Galveston County titled Williamson v. Brown & Brown Insurance Services of Texas and Chubb Lloyds Insurance Company of Texas for alleged failures to pay Ike-related damages. These are first of several thousand Ike lawsuits expected to be filed across Southeast Texas over the next several years. There doesn’t appear to be anything uniquely significant about them other than their apparently quick filing so soon after the storm. The big question being asked by carriers across the country is whether Hurricane Ike will generate the type and volume of litigation generated by Hurricane Katrina.
Continue Reading...The Minnesota Senate has approved bad faith legislation albeit only after significant insurance industry lobbying ameliorated some of the more onerous provisions of the original proposal.
As originally drafted, SF 2822, an insurer would be deemed to be acting in good faith unless the policyholder could prove the absence of a reasonable basis for denying benefits and that the insurer knew of the lack of a reasonable basis or acted in reckless disregard of the lack of a reasonable basis. A claimant must give written notice 60 days before bringing any such action during which time an insurer may avoid liability by acting to cure the violation.
The revised bill expands the definition of what constitutes good faith, caps the amount of economic damages and attorney’s fees that a prevailing insured may recover, and expressly limits the scope of the legislation to first party insurance (which is defined as precluding claims under liability insurance policies). The amended version caps attorneys fees at $40,000 while providing consumers up to $100,000 if insurers are found to have acted in “bad faith.”
Only weeks after its opinion in Williams v. Philip Morris upholding a punitive damage award that was nearly 100 times the amount of punitive damages (and largely ignoring the U.S. Supreme Court's directions through its application of state law to jury instructions), the Oregon Supreme Court issued a new opinion discussing the constitutionallity of punitive damages yesterday in the context of a bad faith claim against an insurer.
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Last Friday, the Texas Supreme Court withdrew its 2006 opinion in Evanston Ins. Co. v. Atofina Petrochemicals, Inc., 2006 WL 1195330 (Tex. May 5, 2006) (where the high court found the additional insured provisions of the liability policy were not broad enough to indemnify the third-party's own acts of negligence, but it failed to decide whether the scope of this coverage is limited in any way by the separate indemnity agreement between the third-party and the policy's named insured). Last Friday, the Texas Supreme Court reversed itself and closely examined the interplay between a contractual indemnity agreement and the scope of coverage afforded to additional insureds. In Evanston Ins. Co. v. Atofina Petrochemicals, Inc., 2008 WL 400394 (Tex. February 15, 2008), the court specifically addressed three specific issues: 1) “whether a commercial umbrella insurance policy that was purchased to secure the insured's indemnity obligation in a service contract with a third party also provides direct liability coverage for the third party;” 2) “whether the insurer is bound to pay the amount of an underlying settlement between the additional insured;” and 3) “whether article 21.55 (now Chapter 542) of the Texas Insurance Code, the “Prompt Payment of Claims” statute, authorized the imposition of penalties and attorney's fees for the insurer's failure to pay the claim timely.”
Addressing the first issue involving the breadth of additional insured coverage, the court focused on the policy language defining who is an insured, the provision discussing the named insured’s duty to indemnify the additional insured, and a separate provision defining an insured to include “A person or organization for whom you have agreed to provide insurance as is afforded by this policy; but that person or organization is an insured only with respect to operations performed by you or on your behalf, or facilities owned or used by you.” The court reasoned that each “who-is-an-insured” clause served to grant coverage independently and, therefore, it held the policy provided the broader scope of coverage and did not exclude liabilities arising out of the additional insured’s sole negligence.
Addressing the second issue of “whether the insurer was bound to pay the amount of an underlying settlement between the additional insured,” the court revisited related decisions and held the insurer’s “denial of coverage barred it from challenging the reasonableness” of the settlement and the insurer was thus bound to pay the $5.75 million settlement. Addressing the third issue of whether article 21.55 of the Texas Insurance Code applied in this context, however, the court observed the claim in this case was a third-party claim involving the insured’s liability to another and not a first-party claim falling within the statute. Accordingly, the court held that the additional insured was not entitled to attorney fees or damages under article 21.55.
The high court’s treatment of the 21.55 penalty provision is interesting in light of the court’s ruling last month in Lamar Homes where it addressed the same statute in a liability claim involving the duty to defend. Last Friday’s decision in Atofina Petrochemicals properly ruled the penalty provision does not apply to indemnity benefits under a liability policy. It still leaves claims for previously tendered defense benefits subject to the 18% statutory penalty pursuant to last month’s decision in Lamar Homes, despite the obvious inconsistency between the two decisions. A majority of the Texas Supreme Court apparently doesn’t have any problems with applying the 18% statutory penalty to defense benefits under a liability policy when coverage is later determined to exist, but it does have problems applying the same penalty provision to the same claim under the same policy as it relates to indemnity benefits. Friday’s decision in Atofina Petrochemicals is simply a good illustration of why the 21.55 holding in Lamar Homes last month was terribly wrong.
Although insurers have fared relatively well in recent years in contesting law suits alleging bad faith, they have recently lost ground in state legislatures. In addition to the new administrative regime for adjusting bad faith claims in Maryland and the Oregon referendum reported on earlier this week by Diane Polscer, legislation has now been proposed in Michigan that would permit policyholders to recover treble damages if an insurer unreasonably denied a claim to sue for damages (including costs). Senate Bill 866, which was introduced on November 1 and referred to the Committee on Economic Development and Regulatory Reform, would require insureds to give 20 days notice before such claims could be made.
While the fate of SB 866 is unclear, a proposal of this sort would have a dramatic impact on Michigan law. Michigan is among the few states that do not recognize claims for breach of an impllied covenant of good faith and fair dealing against insurers. As a result, bad faith damages are, for the most part, limited to penalty interest.
SB 866 also highlights the growing trend of plaintiffs and policyholder to obtain remedies and rights through the legislative process that they've heretofore been unable to secure in court.
The Washington Supreme Court released its opinion this week in Mutual of Enumclaw Ins. Co. v. Dan Paulson Const. Inc., No. 79027-2, 2007 Wash. LEXIS 788 (Wa. Oct. 11, 2007), finding that an insurer acted in bad faith by subpoenaing an arbitrator in an underlying case involving its insured for his mental impressions of the underlying arbitration and sending two letters to the arbitrator setting forth its coverage position with regard to the underlying case. The court further found that the insurer, Mutual of Enumclaw (“MOE”) failed to rebut the resulting presumption of harm to its insured.
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