Mr. Chester owned property that was covered by an insurance policy issued by State Farm. A fire destroyed his farm, so he filed a claim with State Farm. State Farm offered to pay the actual cash value of the barn but not the replacement cost, and Mr. Chester filed a lawsuit against State Farm for breach of contract and bad faith.

Mr. Chester claimed that State Farm improperly delayed the payment of clean up costs, coverage on the personal property in the barn, and the actual cash value of the barn. The Idaho Court of Appeals began its bad faith analysis with the following principle:

In order to prove bad faith, an insured must show that the insurer intentionally or unreasonably denied or delayed payment of his claim… Mere failure to settle a debatable claim does not constitute bad faith.1

In order for Mr. Chester to prove that State Farm acted in bad faith when delaying payment on these portions of the claim, he had to show that State Farm delayed payment intentionally and unreasonably. The Court carefully evaluated the facts and decided that there was evidence to support a finding that State Farm acted in bad faith.

Mr. Chester’s barn was destroyed in January, 1985, but State Farm did not offer of a settlement for the actual cash value of the barn and the personal property until August, 1985, or seven months later. Even though some of this delay was caused by Mr. Chester’s failure to return certain claim forms, the Court pointed out that there was evidence that State Farm failed to supervise its adjuster’s handling of the case. If State Farm’s adjuster had been properly supervised, he could have ensured that the forms were returned and processed quickly. Instead, Mr. Chester’s file remained virtually inactive for several months.

The evidence also demonstrated that State Farm repeatedly rejected Mr. Chester’s personal inventory forms. After submitting one set, State Farm told Mr. Chester that he had been given the wrong forms. When he submitted the second set of forms, State Farm told Mr. Chester that they had been improperly filled out and gave him yet another stack of forms to complete. At trial, one of the experts testified:

[T]his prolonged and confusing process could have been a tactic used by State Farm to ‘starve out’ Chester.

When State Farm finally offered the undisputed amount due, Mr. Chester understood the offer to be one for a final settlement, acceptance of which would preclude him from suing for the disputed amounts. As a result, Mr. Chester chose to reject the offer and file suit.

Based on the above, the Idaho Court of Appeals agreed with the lower court’s decision finding that State Farm acted in bad faith by delaying payment on the claim.

1 Chester v. State Farm Ins. Co., 789 P. 2d 534 (Ct.App. 1990).