It is generally understood that a disagreement as to scope or cost of damages is not enough to rise to the level of bad faith in first-party property damage cases. However, a recent case out of the Western District of Oklahoma held that evidence of unreasonable underpayment of claim was sufficient to survive a 12(b)(6) motion to dismiss.
In Calvary Baptist Church v. Church Mutual Insurance Company,1 the Calvary Baptist sued Church Mutual for underpayment of a claim for roof, HVAC, and interior damages. In its complaint the church alleged that it had provided “good faith” estimates to Church Mutual for the cost of repairs to the church’s roof, vandalized HVAC units, and interior water damages. Calvary Baptist further alleged that the insurer offered an amount of money $100,000 less than the total amount claimed and completely omitted the cost for water removal and remediation. It was further alleged that the insurer knowingly underpaid the claim, and refused to provide a written explanation of its payment or reasons the water remediation was not paid.
Church Mutual filed a Motion to Dismiss the bad faith claims under Rule 12(b)(6) on the basis that the church had asserted basic allegations for a claim of bad faith, which did not meet 12(b)(6) standards. Citing the Oklahoma Supreme Court case of Christian v. American Home Assurance Company,2 the court pointed out that “tort liability may be imposed only where there is a clear showing that the insurer unreasonably, and in bad faith, withholds payment of the claim of its insured.” Reviewing the church’s complaint, the court found that the church sufficiently set forth plausible allegations in its complaint that would allow the court to draw an inference that Church Mutual “unreasonably, and in bad faith, withheld the additional payment of [the church’s] claims for the damage it incurred to its air conditioning units, roof, and to its interior from water damage.” The court found that the church’s bad faith claim should not be dismissed.
This case is interesting because it appears to set a fairly low bar to the pleading requirements in Oklahoma federal district courts for bad faith allegations to survive 12(b)(6) motions to dismiss. The Christian case says that a policyholder must prove that the carrier unreasonably, and in bad faith, withholds payment. That would seem to indicate that two things must be proved: unreasonableness and bad faith. However, the Calvary Baptist Church court did not define bad faith and didn’t really talk about it. Rather, the court seemed to rely on the allegation that the underpayment was unreasonable. Therefore, any plausible allegation in a complaint that a claim was unreasonably underpaid should survive dismissal in Oklahoma.