Insurance policies have obligations for both the insurance company and the policyholder. When either the carrier or the insured fails to comply with those obligations, the consequences can be pretty daunting. In the case I write about this week, the policyholders’ delay resulted in the court barring their bad faith claim against the insurance company.
Brad and Marty Cagle had a homeowner’s insurance policy with State Farm Fire & Casualty Company. When their property sustained losses due to a fire, they filed a claim with State Farm. The policy required them to submit inventory forms for lost personal property. After multiple requests, Mr. and Mrs. Cagle submitted the required forms between October 26, 1995 and November 13, 1995, eleven months after the date of the fire. Under their policy, their fire claim was not payable until sixty days after State Farm received the insured’s proof of loss, including the inventory forms.
Mr. and Mrs. Cagle filed a lawsuit against State Farm on December 20, 1995, seeking recovery under the policy and alleging bad faith. The same day, they sent State Farm a letter demanding payment of the policy limits and stating that they would seek bad faith penalties and attorney fees if payment was not made within sixty days.
After State Farm paid the policy limits, the court determined that State Farm did not act in bad faith. The court’s decision was based on Mr. and Mrs. Cagle’s failure to make a timely demand for payment as required by the applicable statutes. When evaluating this appeal, the Georgia Appellate Court explained:
An insurance company is liable for penalties under OCGA § 33–4–6 when it fails to pay a covered loss within 60 days after a demand for payment has been made and there has been a finding that the refusal to pay was in bad faith. The purpose of the section is to penalize insurers that delay payments without good cause. As the section imposes a penalty, it is strictly construed; consequently, a proper demand for payment is essential to recovery. In this sense, a demand for payment must be made when immediate payment is in order …It is well-settled that, in order to assert a claim under OCGA § 33–4–6, the demand for payment be made at least 60 days before suit is filed. ..[A] failure to wait at least 60 days between making demand and filing suit constitutes an absolute bar to recovery of a bad-faith penalty and attorney fees under this statute.
In Mr. and Mrs.Cagle’s case, they made the demand for payment on the same day as filing suit against State Farm. They were supposed to wait sixty days between making the demand and filing the lawsuit against State Farm. State Farm was not required to pay their fire loss until sixty days after they submitted their proofs of loss. In other words, the insureds jumped the gun on filing the lawsuit.
Mr. and Mrs. Cagle argued that it would be inequitable to bar their claim because they were forced to file suit before the sixty day period expired because their policy required that any lawsuit against State Farm had to be brought within one year after the date of loss. The Court was unable to find any case law that supported the Cagle’s position. The Court also pointed out that because the statute imposes a penalty against a carrier for bad faith, the statute is to be strictly construed.
In this case, Mr. and Mrs. Cagle’s failure to make a timely demand for payment was due to their eleven month delay in submitting the property inventory forms, despite frequent requests from State Farm. The Court explained that after having waited eleven months to submit the necessary documentation, Mr. and Mrs. Cagle could not then complain that they were “forced” to file suit before the expiration of the sixty day period. For this reason, the Court determined the bad faith claim was barred.
This case serves as a reminder to policyholders that it is important to review the policy and comply with post-loss obligations as soon as reasonably possible. Please keep in mind that this ruling is specific to a Georgia appellate court. Courts in other jurisdictions might rule differently on the same or similar issues.