If you want to win a bad faith case, you better hire attorneys that are contenders and not pretenders. Bad faith cases are not easy, and the term is overused by those ignorant on the topic. Larry Bache told me a story about a relatively new attorney from another firm on the speaking circuit who has never tried a bad faith, much less a complete insurance breach of contract case, who was pontificating about bad faith in an effort to make cases rain to his firm. Those are pretenders.

The first bad faith trial I was in was representing an adjuster who allegedly asked the local minister in a small town where “the owner who burnt down his store was located?” Forty years ago, when I first started my career, I represented insurance companies. We won that case. My first mentor, Paul Butler, gave a closing statement that had the jury in tears. The minister left the courtroom not to return for the verdict after all the evidence was fully disclosed.

I was thinking about those two memories while reading a recent ruling in an Oklahoma hail damage case where bad faith was alleged.1 The judge’s Order recited the facts:

On April 14, 2021, Kyle Hubbell made a claim for wind and hail damage to the roof of the house and a detached garage, as well as damage to gutters, screens, and an outdoor fire pit. The storm giving rise to claim took place on July 11, 2020. Johnny Gage, an independent insurance adjustor, was assigned to the claim and he scheduled an inspection of plaintiffs’ property for April 24, 2021. Plaintiffs were not present when the inspection took place, but Jordan Gray of Native Roof Co. was present on behalf of plaintiffs. Before the inspection, Gage reviewed an exterior image of the property, plaintiffs’ insurance policy, and a weather report verifying that a hail storm took place on July 11, 2020. Gage found minor hail damage to the shingles on the roof of the house, but he found no evidence that wind damaged the roof shingles. There was evidence of ‘heavy foot traffic’ and foot falls on the front slope of the roof, but this had nothing to with damage caused by hail. Gage concluded that there was insufficient damage caused by hail to warrant full replacement of the roof of the house. Gage also inspected the roof of a detached garage and found evidence of hail strikes on the roof shingles, but he found that the amount of damage did not require replacement of the garage roof. Gage did not inspect the interior of the home or the garage, because plaintiffs did not make a claim for interior damage.

Gage prepared an estimate for the replacement of some shingles on the roof of the house and garage, and he included damage to soft metal structures, window screens, and light fixtures as part of the estimate. Gage contacted Holly Hubbell and notified her of the outcome of the inspection, and she made it clear to Gage that she was dissatisfied with the outcome of the claim. Gage advised Holly Hubbell that she had a right to request a second inspection. State Farm subtracted the policy deductible and amounts for depreciation, and issued plaintiffs a payment of $1,174.69. (citations omitted)

This appears to be the way many hail damage cases initially come to our law firm. The insurance company makes an evaluation of damage that is less in the scope of damage. As a result, the price paid by the insurer is far less than the price for which the roofing contractor will do the work.

The court noted that the policyholder claimed the following in the lawsuit:

Plaintiffs did not request a second inspection by State Farm, and they did not directly have any additional communication with State Farm about their insurance claim. On July 12, 2021, plaintiffs filed a petition …alleging claims of breach of contract and bad faith against State Farm, and State Farm removed the case to this Court. The petition states that this case involves a ‘wind and hail loss’ that occurred at plaintiffs’ home…. The parties submitted a joint status report, and plaintiffs stated that State Farm has failed to fully reimburse plaintiffs after ‘a severe storm caused wind and hail damage.’ Plaintiffs have provided State Farm a series of estimates for the cost of a new roof ranging from $41,194.25 to $76,922. In a sworn statement for loss signed by both plaintiffs, they specifically reference “hail” as the cause of the damage giving rise to the need for a new roof.

State Farm argues that it acted reasonably during its investigation and settlement of plaintiffs’ insurance claim for wind and hail damage, and that State Farm has a legitimate basis to dispute the existence of coverage for plaintiffs’ claim. Plaintiffs respond that State Farm had a contractual obligation to consider any cause of damage to plaintiff’s property, and they argue that State Farm has acted in bad faith by focusing only on storm damage as the only possible cause for a covered loss under the policy.

I did not have to read any further to know what the federal judge was going to do with the bad faith case—throw it out. Based on the amount of evidence presented and allegations of bad faith, he did the right thing.

As stated in Do Insurance Companies Overpay Claims?, here is one basic obligation that insurance companies should do to act in good faith:

Insurance companies have an obligation to provide a sufficient number of competent and motivated adjusters to promptly and thoroughly investigate coverage, evaluate damages and pay the full benefits available for losses.

In the case cited above, the roofing contractor could be wrong and certainly has a motivation to charge as much as possible to do the work. So, why did the policyholder attorney not get a second opinion before filing the lawsuit? Yes, there is no legal basis to do so. But there is nothing to state why the investigation by the independent adjuster was done in bad faith or wrong. There was nothing to suggest that State Farm knew that the independent adjuster was not properly trained, acting out of some type of illicit motivation, did not spend sufficient time investigating the loss or anything except to look for things that were not what the policyholder was claiming caused the loss.

In addition to the basic obligation above, I noted five examples that demonstrate a lack of good faith in Good Faith (WKA Bad Faith) Lawsuits Do Not Always Result in a Policyholder Trial Victory:

  1. Dishonesty
  2. Delayed payment of agreed amounts owed.
  3. Persistent violations of regulations.
  4. Insurance company claims goals to reduce claims payments.
  5. Discrimination.

Oklahoma City-based Merlin Law Group attorney Drew Houghton participated in one of Oklahoma’s largest hail damage bad faith cases. He and I wrote about Oklahoma bad faith cases and quoted claims expert Steve Strzelec, who once worked for State Farm, regarding an insurance company’s obligation of good faith, in Wrongful Denial or Delay by Your Insurance Company in Oklahoma? Insurance Companies Have Good Faith Obligations and Can Be Held Accountable:

The duties of good faith and fair dealing are embedded within the industry and are taught and accepted as claim handling industry standards. These require an insurer to do nothing to injure the rights of the insured to receive benefits under the policy. Knowing and following the underlying precepts of claims work is crucial to fair claim practices. For example, an insurer must:

1. Adopt and implement reasonable standards for handling claims;

2. Assist the insured in presenting the claim;

3. Adequately and promptly investigate a claim;

4. Respond timely to letters and phone calls;

5. Adjust the claim (either pay it or deny it) within a reasonably prompt time;

6. Attempt in good faith to effectuate prompt, fair and equitable settlement of claims, where liability is reasonably clear;

7. Attempt to find a basis to pay the claim rather than find reasons to deny;

8. Timely pay all undisputed amounts owed under the policy;

9. Disclose all relevant coverages, conditions and restrictions under the policy;

10. Provide in writing a detailed reason for denying the claim specifying each contract term or provision upon which it relies.

Hiring truly qualified claims experts also helps in the explanation of claim misdeeds and the presentation of a bad faith claim. In the cited case, the attorney hired a contractor who was also trained to be a public adjuster. While I love restoration contractors and public adjusters, that training alone does not make them the type of qualified claims expert that most judges will find as true experts in the field of insurance company obligations of good faith.

Many property insurance attorneys advertise anything to get hired. They simply do not know how to properly develop a legal theory showing how the insurance company wrongfully adjusted the loss because they do not study how and what an insurance company is supposed to do. The case cited in today’s post is a classic example of what not to do when representing a policyholder when alleging bad faith.

Regarding contenders, best of luck to Merlin Law Group attorneys Mike Duffy and Christina Phillips, who are trying a case in Wisconsin this week.

Thought For The Day

There’s a real company in Facebook and then a lot of pretenders riding their coat tails.
—Whitney Tilson
1 Hubbell v. State Farm Fire & Cas. Co., No. 4:21-cv-00341 (N.D. Okla. Aug. 2, 2022).