Totality of the Circumstances
Utilizing Post-Suit Conduct
To Demonstrate Bad Faith
While the vast majority of bad faith cases have focused on a carrier’s failure to resolve an excess claim against an insured for policy limits when given the opportunity to do so pre-suit, conduct of the carrier once a claim is in litigation should not be ignored.
Post-suit conduct can give rise to certain privileges and carriers may argue that statements made at various junctures are inadmissible to prove bad faith. However, certain steps can be taken, and arguments made, to ensure that these actions (which are potential gold mines for bad faith conduct) are not overlooked and are admissible.
Harman v. Golden Eagle Ins. Co.
Harman was a first party bad faith action involving a dispute over underinsured motorist coverage.
The Court in Harman was tasked with ruling on a carrier’s motion to strike the insured’s allegations concerning the carrier’s conduct at both mediation and throughout litigation. This, in turn required the court to examine the application of the mediation and litigation privilege in the bad faith insurance context.
Harman was a federal case based on diversity jurisdiction. As such, the federal court seemed to determine it was obligated to follow the mediation privilege rules of the state which supplied the rule of decision (California).
Like Missouri, California’s statute on the mediation privilege deemed communications, negotiations, and settlement discussions occurring at mediation to be confidential communications.
In reviewing the mediation privilege in the context of a bad faith case, the court stated that it “finds it troubling that a bad actor could potentially hide behind his poor actions during mediation….” However, the court determined it was obligated to strike any allegations concerning the amounts actually offered at mediation by the carrier as it found California’s mediation law to be airtight.
However, the court did note that, while the insured was not permitted to discuss the exact amounts offered at mediation, previous decisions had found it acceptable for the insured to “allege that [a carrier] offered less than [the insured] felt was due…” at a mediation to support the insured’s bad faith case. In the court’s view, this was a reasonable compromise.
While the Harman court carved out an exception permitting the insured to allege that a carrier had not offered an amount the insured felt was due at a mediation, other strategies are available to ensure a carrier cannot escape its bad faith conduct at a mediation.
A beneficial strategy may be to halt a mediation and offer the carrier another opportunity to resolve a case within limits if a case has excess potential and the carrier’s conduct at the mediation is questionable. The mediation can always be resumed on the same day, and this offer and the carrier’s response will potentially be admissible in any subsequent bad faith case.
In addition to the mediation privilege, the carrier in Harman also raised a litigation privilege to argue that allegations concerning its conduct throughout the litigation should be stricken.
The Harman court dismissed this argument in finding that the litigation privilege only applies to block liability from being imposed based solely upon statements made in a judicial or quasi-judicial proceeding.
Instead, the court determined that in the bad faith context, “the litigation privilege does not bar evidence concerning aggressive litigation tactics for the purpose of trying to show an insurance company’s bad faith conduct.” Rather, the actions of the carrier during litigation are permitted as evidence of an underlying course of conduct on the part of the carrier to show the carrier’s bad faith.
As is the situation in all bad faith matters, all actions of the carrier should be closely examined. This includes not only pre-suit but all actions during the course of litigation. These actions and course of conduct can be powerful evidence of the carrier’s bad faith and any assertion of privilege should be closely examined to determine its viability.