Insurance companies hate producing its claims guidelines, loss ratios, and other relevant documents in bad faith litigation. Recently, a Nebraska federal trial court denied Owners Insurance Company’s request to bifurcate my client’s bad faith claim from its breach of contract claim. This ruling prevents unnecessary costs and delay and will allow the insured its day in court much faster.

The case is Norfolk Transmission & Muffler Service, Inc., v. Owners Insurance Company.1 The facts will sound familiar to policyholder representatives. The insured reported a hail loss to its insurer. Owners Insurance Company retained Donan Engineering to evaluate the ballasted and EPDM low-slope roofing systems for hail damage. Donan Engineering improperly applied a “functional” damage standard to its investigation, despite the policy covering for direct physical loss or damage resulting from the covered loss. Indeed, Donan Engineering ignored leaking resulting from the storm, which satisfies any standard of hail damage.

Because of Owners Insurance Company’s improper investigation, a lawsuit was filed alleging breach of contract and bad faith. Owners filed a motion to bifurcate all bad faith litigation until the resolution of the breach of contract action. The purpose in filing its motion was to prevent me from conducting depositions and written discovery relating to its alleged bad faith conduct. An additional benefit to Owners was requiring its insured to incur additional costs in litigating twice, despite the same witnesses and the same facts being involved in both the breach of contract action and the bad faith action.

Fortunately for my client, the court rejected the insurance company’s request and held:

The evidence before the Court suggests that staying proceedings related to the bad faith clam would not promote expeditions progression or resolution of this case. To the contrary, the record indicates that such an approach would unduly prolong and complicate this litigation. It appears that the outcome of each of the causes of action hinges upon Defendant’s evaluation and investigation of the amount owed under the policy. It seems that many of the same witnesses and documents will be used to prove each claim. In fact, Plaintiff anticipates calling the same witnesses to testify on both issues at trial…. In short, the nature of the claims in this action are so intertwined that bifurcation would create a duplicative process, which would result in increased costs for the parties and the frustration of judicial economy.

This Nebraska federal court got it right. I will be conducting discovery on both the insured’s breach of contract and bad faith claims without unnecessary delay and costs. Most importantly, the jury will have the opportunity to hear all the facts, including what Owners Insurance Company’s own claims guidelines require. I fully anticipate Owners will agree the handling of this claim does not measure up to its own claims handling standards.
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1 Norfolk Transmission & Muffler Service, Inc., v. Owners Ins. Co., No. 8:16-CV-489 (D. Neb. May 25, 2017).

  • shirley heflin

    Dear Mr. Bache:

    I think there are pros and cons to pursuing the breach of contract and bad faith actions together and separately. The pros are that the Insured saves time and money by pursuing both actions at once. The cons are that the jury may not award as much in damages if they feel they’re “settling up everything” all at once w/the parties.

    In other words, the insured wins the breach of contract action, is paid accordingly and able to return to its “pre-loss” condition as best as possible. Then the Insured files the Bad Faith action and depicts their damages (i.e., how “bad” their insurance company treated them, violated their own adjusting standards, put their interests ahead of their own, neglected to resolve their claim when they could – and should – have, etc.). Let the bad faith jury award more – and hopefully – ALOT MORE – in damages. I personally think the wait is worth it and the costs and attorneys fees are also paid (assuming the insured wins).

    Finally, it would seem logical that a uniform procedure should be applicable to all states regarding this matter. The causes should be litigated together or separately. That’s just my opinion.

    Respectfully,
    SHIRLEY HEFLIN
    Tampa, FL