Bad Faith Developments from Around the Country
Bad faith and insurance coverage law is evolving around the country and decisions from other jurisdictions may very well impact future coverage and bad faith litigation in Missouri. Below are brief summaries of recent opinions and orders from various jurisdictions offering interesting takes on bad faith and coverage issues.
Dudash v. Southern-Owners Ins. Co., 2017 WL 1969671
DAUBERT AND BAD FAITH
Dudash involved a claim for bad faith against an automobile insurance carrier for failing to settle a third-party liability claim. Before the Court were various Daubert challenges claiming that a carrier’s retained expert (an attorney) and plaintiff’s retained expert (an insurance adjuster) were not qualified to offer expert testimony and that the opinions of the carrier's expert were not the subject of reliable methodology.
On the issue of the qualifications of the carrier’s expert, the Court looked at the attorney’s extensive practice in the area of insurance law and bad faith in finding the attorney qualified. The fact that the attorney had not worked as a claim adjuster or for an insurance provider only went to the weight of the attorney’s opinions instead of his qualifications.
Similarly, the plaintiff’s expert, based on her extensive experience handling claims and her previous experience training individuals on good claims handling practices rendered her qualified to testify as an expert. The fact that she was not an attorney would only go to the weight of her testimony.
On the issue of reliable methodology, the Court seemed to note that the attorney’s knowledge of insurance and bad faith law, his review of the documents and the application of his knowledge to the facts and documents in the case constituted a sufficiently reliable methodology in a bad faith action.
As Missouri transitions to the Daubert standard, Dudash may provide helpful guidance to bad faith practitioners.
Xia v. ProBuilders Spec. Ins. Co., 2017 WL 1532219 (Washington)
EFFICIENT PROXIMATE CAUSE LEADS TO COVERAGE
Xia involved the release of carbon monoxide into a home recently purchased by the Plaintiff from an insured. The Plaintiff sued the insured as a result of his carbon monoxide exposure and alleged that the insured was negligent in installing venting for the water heater and failing to properly discover and remedy the defective venting. The insured’s carrier denied coverage based on the release of carbon monoxide falling within and triggering a pollution exclusion in the insured’s policy.
While the Washington Supreme Court agreed that the release of carbon monoxide would constitute a pollution event triggering the pollution exclusion, the Court noted Washington’s recognition of the efficient proximate cause doctrine. The doctrine provides that coverage will be afforded when a covered risk sets in motion a causal chain, where the last link of which is an uncovered risk.
In Xia, the negligent installation of the water heater, a covered risk, set in motion and led to the release of carbon monoxide into plaintiffs home. Because the negligent installation was a covered risk, coverage should have been afforded for the loss and the carrier’s failure to defend its insured was a breach of contract and constituted bad faith.
Xia further reinforces the notion that what may at first blush appear to be an excluded loss, could potentially be a covered and compensable claim. A careful evaluation of all causes of a loss is imperative in jurisdictions recognizing either the efficient proximate cause doctrine or those, like Missouri, recognizing the concurrent proximate cause doctrine.
Cosgrove v. Nat. Fire & Marine Ins. Co. (D. Ariz.)
THE CONUNDRUM OF THE TRIPARTITE RELATIONSHIP
Much has been written regarding the pitfalls and hazards inherent in the tripartite relationship between a carrier, the carrier’s insured, and counsel retained by the carrier to defend the insured and the duties owed to each by retained counsel. As evidenced by Cosgrove, this relationship becomes ever more hazardous when a carrier provides a defense subject to a reservation of rights.
The carrier in Cosgrove offered a defense under a reservation of rights and retained counsel to defend its insured. In a meeting with the insured, retained counsel learned of information which would trigger an exclusion in the insured’s policy and subsequently reported this information to the carrier. Relying at least in part on this information, the carrier denied coverage based on the triggered exclusion.
In the subsequent coverage fight, the District Court held the carrier was estopped to deny coverage based on the triggered exclusion. The information triggering the exclusion was obtained during the course of the attorney-client relationship between the insured and retained counsel and retained counsel owed his full loyalty to the insured. As the information learned and disclosed was detrimental to the insured and directly impacted coverage, the carrier was estopped to rely on and deny coverage based on the exclusion triggered by the disclosure of such information.
Impact on Missouri
While the above examples are potentially limited to the facts of those particular cases, only time will tell if the opinions and orders will have a broader impact and extend to Missouri coverage and bad faith law. Developments from other jurisdictions may provide insight into developing trends and offer guidance to Missouri Courts when confronted with new factual situations.