Elements and Proof of
Since the Supreme Court rendered its decision in Scottsdale v. Addison, the elements of a bad faith claim have been reinforced and include:
The first of these two elements are generally met by the rights and duties of the insurer as shown in the liability policy issued to its insured.
- The carrier reserves the exclusive right to contest or settle any claim;
- The carrier prohibits the insured from voluntarily assuming liability or settling claims without consent; and
- The carrier is guilty of fraud or bad faith in failing to resolve a claim within limits of the policy.
The third requirement (that the carrier act in bad faith) is case specific and involves a determination of whether the insurance carrier disregarded the insured’s financial interests in the hope of escaping its obligations under the policy.
The question of bad faith is generally a question of fact and can be proved by circumstantial as well as direct evidence that can take many forms depending on the circumstances of each case.
Time-Limited Demands and Bad Faith
As addressed in last month’s bad faith update, the legislature has set out certain requirements that must be met before a carrier’s failure to accept a time limited demand for policy limits can be used in evidence in a bad faith action brought by or on behalf of the original claimant. This potential evidentiary limitation could become highly important as, while not necessarily required to prove bad faith liability, most reported bad faith decisions involve in part a carrier’s failure to accept a time-limited demand. While time-limited demands may have been the hallmark of many reported bad faith cases, other evidence of bad faith should not be forgotten when litigating or evaluating a case for bad faith exposure.
Other Actions Demonstrating Bad Faith
Because the carrier’s intentions and motivations are at issue in bad faith claims, the facts and circumstances of the claims handling present in every case must be fully explored. As different bad faith litigation has progressed, Missouri Courts have noted that certain actions may be used as evidence to demonstrate bad faith on the part of the carrier. These actions include:
Allen v. Bryers
Johnson v. Allstate
- Failing to investigate fully a claimant's injuries or recognize the severity of such injuries.
- Ignoring that a verdict could exceed the policy limits.
- Refusing to consider a settlement offer.
Shobe v. Kelly
- Failing to keep an insured informed of settlement offers.
- Failing to inform the insured of the insured’s potential exposure to excess liability.
- Failing to inform the insured of the right to personal counsel in cases involving excess exposure or potential coverage issues.
- Failing to adhere to the company's own manuals or processes for claims handling.
Zumwalt v. Utilities Ins. Co.
- Performing a results oriented investigation in an effort to deny coverage.
- Limiting the investigation solely to the issue of coverage.
- Beginning an investigation with the presumption of no coverage.
- Making a coverage denial prior to a complete investigation.
Rinehart v. Shelter
- Requesting an insured contribute its own money to a settlement within the limits of the policy.
Ganaway v. Shelter
- Using a “straw man” for the express purpose of negotiating a settlement for less than the limits of liability policy.
In addition to the above actions, counsel should always remember that the failure of a carrier to send a timely and clear reservation of rights letter to its insured can result in that carrier being estopped from denying coverage to its insured. This in turn can lead to bad faith liability for the carrier as was the case in Advantage Bldgs. v. Mid-Continent Ins.
- Filing a declaratory judgment action to determine construction of a policy does not insulate the carrier from bad faith.
While a clear indication of bad faith may be the carrier’s failure to resolve a suit on a time-limited demand, numerous other actions or inactions on the part of a carrier are relevant to proving its bad faith claims handling conduct. Counsel should take great care in examining the conduct of the carrier throughout the course of the claim or suit when evaluating the potential for extra-contractual exposure.