It is generally understood that a disagreement as to scope or cost of damages is not enough to rise to the level of bad faith in first-party property damage cases. However, a recent case out of the Western District of Oklahoma held that evidence of unreasonable underpayment of claim was sufficient to survive a 12(b)(6) motion to dismiss.


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I recently defeated a motion to sever and abate breach of contract from extra-contractual claims filed by a carrier. I thought it would be good to blog a refresher on this issue. My client (“Insured”) owns a home in Houston. Insured was a long-time customer of a local agent and the carrier he was licensed to sell for. Insured had a separate auto and homeowner’s policy such that premiums were paid separately. Both premiums were automatically drafted from insured’s bank card monthly. In December 2015, the card was stolen. Insured replaced her card, but forgot to inform agent and carrier. In January 2016, insured starting getting calls from agent and notices from carrier. Insured went to agent’s office and gave agent new card information. Unknown to insured, the agent attached the new card information to the automobile policy premium, but failed to do so for the homeowner’s policy. Therefore, when the insured saw notices from the carrier about her insurance lapsing she thought they had crossed in the mail since she went to agent’s office to give him credit card information.


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It is the general understanding when one brings a lawsuit on a flood claim under the National Flood Insurance Program (NFIP) that the only recovery available to the policyholder is actual damages. The policyholder is not entitled to attorney fees or bad faith (extra-contractual) damages, which might be recoverable in other first-party property damage cases. In an unusual case out of the Eastern District of North Carolina, a federal district court found Allstate acted in bad faith for unfair claims handling in a flood claim and assessed extra-contractual damages.1


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Lately I have had several public insurance adjusters call me about a specific problem with Lloyds.1 The public adjuster and the Lloyds (third-party) adjuster agree on the scope and amount of damages on a claim. Then Lloyds never pays. It’s not that Lloyds refuses to pay. They just don’t pay, like for a real long time. Usually there are lots of comments about Lloyds being across the pond and time differences and things like that, but this is not 1492 when Columbus sailed the ocean blue. We are in the age of air travel, FEDEX, the Internet, bank wiring funds, etc. Hell, I went to the much-maligned US Post Office the other day to send something to the UK and even the US Post Office got it there in five days.


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Shaun Harrington was subcontracted to install a well on the McLaughlins’ property (sorry for the bad pun in the title). Unfortunately, in July and August of 2003, this well starting pumping salt water onto the McLaughlin’s irrigation system causing extensive damage.

A claim was submitted to Harrington’s insurer, American States Insurance Company (ASIC) on November 3, 2003. After not hearing back from ASIC’s adjuster for quite some time, the McLaughlins’ insurance agent called the ASIC’s adjuster, Dresner, on January 26, 2004 inquiring about the status of the claim. After the adjuster spoke with Rachel McLaughlin, Dresner documented the call, sent a letter requesting documents from Harrington and then took no further action until the McLaughlins’ agent called ASIC on February 19, 2004. When Rachel McLaughlin spoke to another adjuster at ASIC during Dresner’s absence, they verbally denied coverage stating the plants may have been damaged by other causes. The adjuster for ASIC was verbally abusive to McLaughlin and when pressed why ASIC had not sent an adjuster out to the property to adjust the damages, the adjuster for ASIC said they had no intention of doing so.


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I was recently approached by a policyholder inquiring whether he had a viable claim for bad faith under Alabama law. In responding to his inquiry I did quite a bit of research and will share my findings with you now in this two-part blog on Alabama Bad Faith.


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