I was thinking about an article I wrote five years ago, Insurance Companies Must Perform in Good Faith Regardless of Their Customer’s Imperfect Actions, while reading Steve Badger’s LinkedIn post about yesterday’s blog post, Claims Adjusters Should State and Provide the Reasons and Evidence for Partial or Entire Claim Denial. Badger stated in part:

I got up today and followed my usual morning routine – I made a cup of coffee, I went to the bathroom, and then while there I pulled up Chip Merlin’s blog (well, actually, I admit that I first checked on the live stream showing Jackie and Shadow’s eagle eggs).

As I have said before, every insurance industry professional involved with the first-party claims process should read Chip’s blog. I don’t always agree with what he says, but I usually find his posts to be well-founded and reasonable.

Such as today’s post, which is one I agree with.

Chip lays out an argument today as to why there should be transparency in the claims process, including insurance companies providing the bases for claim denials. I agree. Of course insurance companies should tell insureds why their claims are being denied. And I agree that insurance companies should share their outside consultant reports and estimates prepared during the claim process. As should the policyholder.

Chip is right. The duty of good faith and fair dealing is recognized by everybody in the insurance industry. But only as to the insurance company side of the contract.

So I raise the question….

Should a policyholder also have a duty of good faith and fair dealing in the claims process in its interactions with the insurance company?

In my prior article written long ago, which Badger, as well as anybody, certainly may not have read or has understandably forgotten, I made this observation about the answer to Steve Badger’s question:

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.

My mother used to remind me that ‘Chip, two wrongs never equal a right.’ …I often find myself reminding attorneys in my firm, as well as myself, that this is true regardless of what the other side is doing in a lawsuit, appraisal or insurance claim. Professionalism and ethical behavior call for honest, legal, proper, and civil conduct regardless of how poorly a party on the other side behaves. Still, it is sometimes difficult to turn the other cheek, but it is also not proper for a professional to get walked over by those using improperly aggressive and unprofessional behavior.

I am writing, researching, and preparing for a speech at the Georgia Association of Public Adjusters Association (GAPIA) Fall Meeting in Atlanta next week regarding insurance and public adjuster professionalism. My belief is that the most successful adjusters for insurers or public adjusters for insureds in the long run are extraordinary examples of consummate professionals. They know much more than others, are vested in becoming personally even better at what they do and are above the fray of any one claim.

These extraordinary performing claims handlers appreciate the other side and understand the other point of view. They look at the policyholder just as importantly a customer following the loss as before and that the insurance company is an important part and has an important societal responsibility of taking care of the policyholder and claimant’s problems promptly. They look at their personal insurance claims work as involving the public trust, do not game the system and look to act fairly, regardless of personal incentives and company objectives not aligned with honesty or fairness.

Every party and the representatives of a party to a first-party insurance claim have an obligation of good faith and fair dealing. In one of the replies to Steve Badger’s post, attorney Marc Mayerson emphasized this point when he noted that the Idaho Code states:

The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters. Upon the insurer, the insured, and their representatives, and all concerned in insurance transactions, rests the duty of preserving the integrity of insurance. [1]

One person disagreed with Steve Badger and me about the obligation of good faith and the need to be transparent. He publicly stated:

If Chip Merlin or any other attorney wants to know why a claim was denied and be provided with the evidence used to take that position, they should go get their place in line at the courthouse. If they can’t figure it out based upon discussions on the matter then they should be selling screen protectors at the mall, not practicing law. No way am I laying out the denial so that they can create their own narrative from scratch.

Chip Merlin The ethics of your firm have been in question for a long time. Blog what you will. IDGAF.

In most of my dealings with insurance company adjusters and their managers, this view is not publicly accepted. The problem is when this type of view is from those in managerial positions and demand unethical claims conduct from others. In my role as a policyholder’s attorney, I am zealously trying to hold these individuals and their principals accountable for wrongful claims conduct. We often delve into the incentives and reasons and call out those responsible for such a culture. The stakes and emotions are high because careers can be at stake. The ability for policyholders to have a cause of action for bad faith is extremely important if our society wants to stop unethical claims conduct against the consumers of insurance.

Finally, Steve Badger is a very clever guy. If he gives up work as an insurance litigator, he could be the campaign chair for any presidential candidate or in charge of the propaganda ministry for the insurance industry. He subtly is trying to lay the argument for “reverse bad faith” in his LinkedIn post. I can save him the time on this because I already put the issue to bed in an article written nine years ago, “Is There a Viable Cause of Action for Reverse Bad Faith Against an Insured?

Although there are no causes of action against insureds for reverse bad faith, insurance companies continue their attempt to change that landscape. Courts continue to find that insurers have unequal bargaining power and find no persuasive arguments for adding a cause of action against an insured for bad faith. Hopefully this will continue.

Steve—we can respectfully agree and disagree at the same time. I hope this post adds to your morning routine.

Thought For The Day

March is Ethics Awareness Month for the insurance Industry.
—Bill Wilson

[1] Idaho Code Ann. 41-113(2).