This is the best time of the year for NBA basketball fans, and this year, particularly so for Ohioans rooting for the Cleveland Cavaliers to win their first ever NBA Finals Championship. While all eyes are fixed on the Cavaliers-Warriors series, I will turn my attention to Ohio and share my research on what constitutes insurance “bad faith’ in the Buckeye State.

To establish a claim for “bad faith” in Ohio, the policyholder must prove that the insurance company acted without “reasonable justification.” According to this standard:

[A]n insurer fails to exercise good faith in the processing of a claim of its insured where its refusal to pay the claim is not predicated upon circumstances that furnish reasonable justification therefore.1

Well, what are examples of claims handling not reasonably justified? One can look to the case of Zoppo v. Homestead Insurance Company. In Zoppo, the insured made a claim for a fire loss to his bar. From the outset, the insurance company focused its inquiry primarily on the insured. The investigation did not explore evidence that other individuals—i.e., patrons—had threatened to burn the bar down. Three weeks prior, there was an attempted arson where the wrongdoers bragged in public they were responsible for the fire and would be back “to finish the job.” The insurance company did not bother to locate key suspects, verify the insured’s alibi or follow up with various witnesses. While the insurance company claimed that the insured had a financial motive to set the fire, all evidence actually pointed to the contrary.

The above demonstrates that the insurance company’s investigation was inadequate and therefore, did not have “reasonable justification” to deny the claim. And if the insured succeeds in proving bad faith, the insured can recover the benefits withheld and other compensatory damages that flow from the claim denial. Similar to other jurisdictions, in Ohio, to recover punitive damages, “proof of actual malice, fraud or insult on the part of the insurer” is required.2 If there is no evidence of hatred, ill will or spirit of revenge, then one can ask whether the insurer consciously disregarded the insured’s rights. In Zoppo, the court held that the award of punitive damages was justified because the insurer’s investigation was so one-sided and breached its affirmative duty to conduct an adequate investigation. As for recovering attorney fees, it is not an automatic entitlement if bad faith is proven. Attorney fees may only be awarded if punitive damages are warranted.3

Thank you for reading. Enjoy the rest of the Finals.

1 Zoppo v. Homestead Ins. Co., 71 Ohio St.3d 552, 554 (1994).
2 Id. at 557.
3 Id. at 558.