Bad faith cases really should be named “lack of good faith” cases because the duty is on the insurance company to act in the utmost of good faith and fair dealing with the policyholder. “Bad” has nothing to do with it. Alabama, however, carries the “bad faith” definition one step further by delineating a cause of action for “abnormal bad faith.”

Cole v. Owners Insurance Company,1 set forth the unique standard for Alabama’s “abnormal” bad faith:

Abnormal” bad faith adopts the elements of “normal” bad faith and adds a conditional fifth element: “the plaintiff must prove the insurer’s intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim.” …In effect, under the “abnormal” bad faith theory, a plaintiff can establish that the insurer had actual knowledge of the lack of a legitimate or arguable reason to deny the claim because the insurer intentionally failed to determine whether such reason existed….The “abnormal” bad faith theory is akin to deliberate ignorance. The insurer cannot refuse to investigate the claim or stick its head in the sand about it and avoid bad-faith liability by failing to discover whether it had any legitimate or arguable reason to deny a claim.

Thorough investigation of facts related to coverage and facts related to evaluating the value of the loss are fairly standard duties all insurance adjusters are taught that they have to perform promptly after notice of loss. I am not certain what is “abnormal” about that duty because failing to do a thorough investigation will “normally” result in wrong decisions about coverage or amounts of loss. Nevertheless, I often say that differing law in various states is often not wrong or right, they just reflect a different view of justice.

Auto-Owners must have its able defense counsel in various states going to a similar training camp because its new modus operandi, among other name calling tactics, is to aggressively claim fraud and demand repayment whenever it is confronted with allegations of bad faith. In this Alabama case, the federal judge was having none of it:

Owners argues that the Coles committed fraud by asserting that they could not salvage their furniture and that their entire roof had been damaged. Owners also responds that ‘the extreme difference’ between its valuation of the loss and the Coles’ ‘vastly inflated valuations’ evidence the Coles’ fraud. Owners misunderstands misrepresentation of fact versus representation of an opinion. In this case, in the materials they submitted to Owners, the Coles presented an opinion about their losses. Owners, having made separate conclusions as to the value, treats its own opinions about the value as fact. But, without more, a disagreement as to a dollar amount for loss does not equal fraud or misrepresentation. Neither the Coles, nor Owners, have established a fact about the valuations—the parties have merely presented differing opinions about how much damage the fire caused. Accordingly, the court will GRANT the Coles’ motion for summary judgment in their favor on Owners’s breach of contract claim premised on the Coles’ alleged fraud and misrepresentations.

Systemic bad faith and litigation tactics by insurers eventually can be ferreted out by an organized effort of determined policyholder counsel in different law firms throughout the country. If you have information, cases or claims similar to the one above, please contact me at (813) 229-1000, and plan to go to the AAJ Bad Faith Litigation Group Meetings.

Thought For The Day

Ignorance is not bad faith. But persistence in ignorance is.
—Joanna Russ
1 Cole v. Owners Ins. Co., 326 F.Supp.3d 1307, 1327 (N.D.Ala., 2018).