Bad Faith Standards: Different Strokes for Different Folks
As most practitioners recognize, especially those in the Kansas City and St. Louis area, the right to recovery and amount of damages recoverable may vary depending on the location of the injury producing event.
These issues can have an important impact on resolving claims with extra-contractual exposure to the insurance carrier. This, along with an early recognition of questionable claims handling conduct, played a vital role in the early resolution of an extra-contractual case involving State Farm in Kansas.
State Farm Pays $15,000,000
For Claims Handling Errors
Recently, Presley & Presley and Brown & Crouppen were able to make a recovery of $15,000,000 for a catastrophically injured client who sustained injuries in a motor vehicle accident in Wyandotte County, Kansas.
At the time of the collision, the young client was a passenger in a vehicle driven by his friend that was t-boned by a pick-up truck while making a left turn at a stoplight. Both drivers maintained they had the right-of-way and both were ticketed by the police department for the accident.
Following the collision, our client was rushed to the hospital, remained in a coma for several months, and was ultimately discharged from rehabilitation with a severe brain injury that left him unable to speak or walk. Around a month and a half after the collision, Brown & Crouppen sent a letter of representation to the pick-up driver’s insurer, State Farm.
A week later, State Farm acknowledged receiving Brown & Crouppen’s letter of representation and denied any liability for the collision through separate letters dated the same day.
Based on this denial, a lawsuit was filed on behalf of the client. A few months later, State Farm offered its policy limits of $100,000 in a belated attempt to resolve its insured’s liability.
This offer was not accepted.
However, negotiations continued between the parties and State Farm. Prior to trial and after mediation, State Farm agreed to pay $15,000,000 (150 times its contracted for policy limits) to resolve the claims made against its insured, which included a release of State Farm.
Several insights can be gleaned from this settlement. The first is recognizing which jurisdiction’s law may apply to any potential extra-contractual claims.
The above case stemmed from a Kansas accident involving Kansas residents. In Kansas, recovery for an extra-contractual award can be based upon either negligence or bad faith claims handling conduct on the part of the carrier. Importantly, negligence or bad faith is not dependent upon and can be shown even in the absence of a demand by the plaintiff for the payment of the policy limits.
Instead, Kansas Courts recognize that the “duty of a liability carrier, in connection with settlement negotiations, to consider the interest of the insured arises not because there has been a settlement offer but because there has been a claim for damages in excess of policy limits.” While the failure to pay a policy limits demand is often a safe harbor for submissibility of extra-contractual claims, especially in Missouri, not all jurisdictions or fact patterns require the denial of a policy limits demand to impose an extra-contractual liability.
Recognizing the requirements in each jurisdiction is of the utmost importance in deciding whether an extra-contractual recovery is possible under a given fact pattern.
Further, an early recognition of questionable claims handling conduct is vital. While it is often impossible to fully recognize a carrier’s failures until receiving discovery in a subsequent bad faith claim, early recognition of questionable claims handling conduct helps guide the negotiations in the underlying liability lawsuit. In the above case, recognizing that no carrier should deny payment of a claim in which its insured was looking at a multi-million-dollar exposure even with comparative fault assessed to another driver was vital to a meaningful recovery.
Finally, holding carrier’s responsible for their early claims handling decision is essential. Carriers should be given the opportunity to perform their obligations to their insureds.
However, coverage denials or failures to pay policy limits cannot be excused by later actions. Often these later actions take the form of carriers belatedly offering their policy limits to settle a claim or offering a defense months or years after a denial of coverage. These belated offers should not excuse prior failures and counsel should not allow carriers a second bite of the apple without ensuring claimants or the insureds are made whole for damages caused by the carrier’s prior misconduct.
A combination of the above allowed for the quick resolution of the underlying liability litigation without the need to formally pursue an extra-contractual garnishment action saving the insured and claimant both time and resources.
We would like to thank Brown & Crouppen for allowing our office the opportunity to work with their office to help secure a recovery that is one of the largest individual payments made under Kansas law.