I can imagine some readers are wondering why I did not simply title this post with the words “Bad Faith” rather than “Good Faith.” The reason is that an insurance company owes a duty for “good faith” conduct. It simply is wrong that we refer to these improper claims practice lawsuits as “bad” when the cause of action is for the breach of the duty to act in “good” faith. I noted this in, Insurance Companies Must Perform in Good Faith Regardless of Their Customer’s Imperfect Actions:
It is unfortunate that we call these cases ‘bad faith’ cases when they are really ‘lack of good faith’ cases. Just read the ethical rules that historically called for insurance companies and their employees to act in the ‘utmost of good faith and fair dealing’ with their customers.
I was recently working and networking with other policyholder attorneys regarding evidence in a FedNat claims practice claim arising out of Hurricane Michael when I came across a FedNat lack of good faith case that was lost at trial but reversed by the appellate court.1 The purpose of this post is to warn policyholders that a lot of people talk about “bad faith” and think these are the easiest cases to win at trial when that is not always true. Many experienced insurance company claims adjusters tell me that they become immune to the allegations of “bad faith” because so many people allege it but do not follow up or cannot win. Many attorneys bringing the actions do not know anything about claims handling other than the cases they read. Many jurisdictions now have an “arguable basis” standard which is easily met by many insurance companies.
So, what are some indications for a policyholder of a lack of “good faith” case?
1. Dishonesty—an insurance company that is keeping clandestine secret claims practices. A good current example is found in the pleadings noted in my recent blog, RICO Lawsuit Against United Property & Casualty Amended With More Allegations.
2. Delayed payment of agreed amounts owed. All insurers agree that they are trained to and have a good faith duty to promptly pay claims. In my recent post, Understanding Louisiana Bad Faith Law When Claims Payments Are Delayed or Paid Too Late, I commented:
The most important and basic principle good faith duty owed by insurers to Louisiana first-party customers is to make unconditional payments of claims within 30 days of receiving an adequate proof of loss. If an insurer delays payment for more than thirty days after investigation of the loss, my considered opinion is that Louisiana policyholders should seek and be referred to legal counsel about their legal rights.
Even in jurisdictions that recognize a reasonable basis for denial, there is no reasonable basis to pay for amounts agreed as being owed.
3. Persistent violations of regulations. A one-time mistake may be forgivable. Insurers and adjusters have to follow the law. A systemic, intentional refusal to follow the law must be punished. Otherwise, why have laws written for insurers to follow if there is no accountability for failing to do so? We discussed this in Wrongful Denial or Delay by Your Insurance Company in Oklahoma? Insurance Companies Have Good Faith Obligations and Can Be Held Accountable.
4. Insurance company claims goals to reduce claims payments. The largest bad faith claims verdict involved company-wide claims goals, as we noted in Insurance Companies Always Fight Requests for Production of Internal Claims Management Objectives and Goals:
Many policyholders think that insurance company adjusters get an individual bonus on each claim for paying less than a certain amount. They distrust the insurance company adjuster and often creatively claim more, fearing that the property insurance adjuster will wrongfully reduce the eventual settlement. The truth is that collectively, many insurance companies pay bonus incentives to claims personnel when they hit certain objective claims goals which also involve paying less on a claim.
Accordingly, when policyholder attorneys ask for this internal information, insurance company attorneys fight and object. They do this virtually in every case because it is harmful evidence. Most would suggest that the decisions and actions of the claims personnel who have such incentives indicate a strong bias and most would agree that it is unethical. Yet, this legal maneuvering by insurance company lawyers is routine.
University of Nevada insurance law professor Jeff Stempel authored a book on the issue in Litigation Road: The Story of Campbell v. State Farm. It is a study of the landmark wrongful claims practice case against State Farm. The case went to the United States Supreme Court, but only after years of stonewalling and objecting to the production of documents. State Farm eventually, by court order, turned over personnel files and company goals which showed how insurance claims handlers and claims management were paid bonus money to lower the average amount paid per claim.
5. Discrimination. Americans root for underdogs. We want to be judged on the basis of character and effort—not the luck of the draw of how we were born. The best example of this is a post, Hindin v. State Farm – The Landmark Claims Practice Case That Few Know About Finally Ends, where we quoted the court in part:
The case settled shortly before Divisional Claims Superintendent Ronald Middler was scheduled to testify at the bad faith/discrimination trial concerning STATE FARM’s use of its Special Investigation Units to discriminate based on race, religion and national origin. State Farm maintained a list of the names of predominantly Jewish lawyers (referred to at STATE FARM as the ‘Jewish Lawyers Lists’). The claims of the clients of the attorneys whose names appeared on the ‘Jewish Lawyers Lists’ were automatically transferred to STATE FARM’s fraud unit simply because the lawyer’s name appeared on the ‘Jewish Lawyers List.’ If your name was on the list of Jewish lawyers, your clients claim would be automatically referred to the fraud unit and never settled or paid. The Jewish Lawyers Lists which were produced by STATE FARM at the bad faith/discrimination trial…
I also look for big differences between the amount offered versus the amount recovered by the policyholder. For instance, if the insurance company is largely correct and just missed the evaluation, the case is very different from one where the insurance company missed the ball, and there needs to be a good faith explanation.
The term “bad faith” is overused. The insurance company should always be called upon to consider their decisions and actions in good faith. Maybe if a change of heart can occur due to this change of rhetoric and supporting facts, more cases will settle without any breach of “good faith” litigation at all.
Thought For The Day
Goodness is about character – integrity, honesty, kindness, generosity, moral courage, and the like. More than anything else, it is about how we treat other people.
1 Cooper v Federated National Ins. Co., No. 5D18-2585 (Fla. 5th DCA Jan. 7, 2022).