Insurance Law Hawaii

Bad Faith Claims Based on Insurer's Lack of Concern Denied

    Bad faith and coverage for looting were at issue in Spears v. State Farm Ins. Co., No. 08-3183, 2009 U.S. Dist. LEXIS 49554 (E. D. La. June 12, 2009).  The insureds' home was damaged by Hurricane Katrina on August 29, 2005.  A homeowner's policy issued by State Farm provided coverage of up to $179,700 for dwelling and up to $134,775 for contents and loss of use. 

    In September 2005, State Farm opened a claims file and advanced $2500.  In November 2005, State Farm inspected the property.  On November 25, 2005, State Farm paid $55,205,87 for dwelling loss and $21,096 for contents and loss of use.  State Farm also opened a separate claims file for the alleged looting, but the claim was never paid. 

    The insureds filed suit in 2008, arguing State Farm had not paid full benefits.  Insureds included a claim for bad faith.  After suit was filed, State Farm made an unsolicited tender of $18,960 after an expert evaluation found additional uncompensated damages.

    State Farm moved for partial summary judgment on the bad faith and looting claims.  The Louisiana statues did not penalize insurance companies for failing to pay claims, but for failing to pay claims in a manner that was arbitrary, capricious, or without probable cause.  If the insurer had a reasonable basis to defend the claim and acted in good-faith reliance on that defense, the statutory penalties for bad faith were inappropriate.  Here, the insureds offered no evidence to suggest that State Farm acted in bad faith.  The basis of the claim appeared to be that State Farm was not sufficiently concerned about the insureds' family's welfare after the hurricane.  While there was a dispute about coverage, the insurer had not acted in bad faith.

    State Farm also moved for summary judgment to dismiss the looting claim because the insureds had not pled the claim in the complaint.  The insureds had moved to amend their complaint to add a claim for damage from failure to pay the looting claim, but the motion had been denied.  State Farm further argued the statutory extension of the prescription period for Katrina claims did not apply.  Because there was no looting claim in the suit, State Farm's motion for summary judgment was denied as moot.  It would be inappropriate for the court to address the applicability of the statute extending the prescription period for Katrina claims when the looting claim was not properly before the court.  The parties were free to file motions in limine on the relevance of evidence of looting in regard to State Farm's alleged liability for underpayment of the claim.

Kauai Trial Court Finds Workers' Compensation Carrier's Delayed Payment in Bad Faith

    In our last post [here] we discussed a decision from the Oklahoma Supreme Court recognizing a bad faith claim against a workers' compensation insurer.  My Damon Key colleague and fellow blogger, Mark Murakami (hawaiioceanlaw.com), informed me of a similar case winding its way through the trial court on Kauai.  See Ordonez v. Hawaii Employers Mutual Ins. Co., Civil No. 060138 (Circuit Court for the Fifth Circuit, State of Hawaii). The Pacific Business News reported on the case here in January. The case was also recently reported by the Advocates Research Company.

    In Ordonez, the decedent was killed on January 4, 2005, when her all-terrain vehicle, used by her employer to check hiking trails, overturned.  Decedent was survived by her indigent mother, a resident of Venezuela.  A workers' compensation claim for full dependency benefits was filed on Plaintiff's behalf with Hawaii Employers Mutual Insurance Company (HEMIC). 

    HEMIC contested the claim and refused payment.  After a hearing in January 2006, the Department of Labor and Industrial Relations ordered that full dependency benefits be paid.  The Department found HEMIC had delayed making payments for more than a year without reasonable basis for doing so.  After payment was made, Plaintiff sued HEMIC for bad faith in its delay in making payments. 

       After a trial, Findings of Fact and Conclusions of Law were issued on April 9, 2009.  The court ruled HEMIC had sufficient information in January 2005 to determine the decedent's death was compensable.  The delay in acknowledging the claim was unreasonable and violated established industry standards for good faith and fair dealing.  The court further found HEMIC's motivation in denying Plaintiff's claim was to delay payment so the statute of limitations would expire and HEMIC could escape ever making payment.  Plaintiff was awarded $75,000 in general damages and $250,000 in punitive damages.

    Based on the on-line docket sheet, it appears that judgment has not yet been entered.  HEMIC informed the Pacific Business News that it was considering an appeal.

Bad Faith Established against Workers' Compensation Carrier

    In Summers v. Zurich Am. Ins. Co., No. 105617 (Okla. May 26, 2009) [here], the Oklahoma Supreme Court addressed confusion under state law in a establishing a bad faith claim against a workers' compensation carrier.

    Ms. Summers was injured in March 2004 while employed at Walmart.  She was an insured under a workers' compensation policy issued by Zurich.  Several orders from the Workers' Compensation Court directed that medical and wage benefits be provided to Ms. Summers.  On October 16, 2007, the Workers' Compensation Court entered an Order Authorizing Medical Treatment which repeated prior authorizations in 2004, 2005, and 2006.  Zurich did not appeal from this final order or any order of the Workers' Compensation Court. 

    Zurich, however, refused on several occasions to authorize the treatment ordered by the Workers' Compensation Court.   She sued Zurich, asserting its refusal to comply with the Court's order and provide benefits in a timely manner constituted bad faith.  Zurich moved for summary judgment, arguing Ms. Summers had failed to secure proper certification of her workers' compensation claim as a necessary statutory precondition to an allegation of bad faith.  The trial court granted Zurich's motion and the Court of Appeals affirmed.

    The Supreme Court reversed. Indeed, a claimant seeking to enforce a monetary workers' compensation award had to use the statutory mechanism and have the award certified by the Workers' Compensation Court for enforcement.  But a claimant who obtained an order certifying that non-monetary benefits had not been provided could pursue a tort claim for bad faith in the trial court without pursuing execution of a certified judgment. 

    Here, Ms. Summers alleged Zurich refused to authorize the medical treatment ordered by the Workers' Compensation Court.  The record contained an order certifying that previously awarded medical benefits had not been provided as ordered, and demonstrated no good cause for Zurich's failure to do so.  Ms. Summers could therefore choose to pursue a tort claim in the trial court for Zurich's continuing failure to pay the overdue court-ordered medical treatment.  Consequently, the trial court erred in granting summary judgment.

    Hawai`i law similarly considers a tort claim against the workers' compensation carrier to be outside and separate from the workers' compensation statutes.  See, e.g., Hough v. Pacific Ins. Co., Ltd., 83 Hawai`i 457, 927 P.2d 858 (1996); Catron v. Tokio Marine Management, Inc., 90 Hawai`i 407, 978 P.2d 845 (1999).  In our next post, we will update a bad faith claim against a workers' compensation carrier percolating its way through the trial court on the island of Kauai.

Bad Faith Claim For Delayed Payment Fails

    The insured's property was damaged during Hurricane Katrina by wind, wind driven rain, flooding, storm surge and water in Jupiter v. Automobile Club Inter-Insurance Exchange, No. 07-1689, 2009 U.S. Dist. LEXIS 44083 May 26, 2009). Plaintiff recovered $225,500 from Allstate, its flood insurance carrier.  The insured also held a homeowner's policy with Automobile Club, who paid a total of $106,079.47.  The insured argued this was insufficient because its property was a total loss.  Auto Club submitted the wind and rain damage was not substantial.  Further, Auto Club contended water damage, a flood exclusion, power failure exclusions, and neglect exclusions precluded further liability under the policy.

    Auto Club moved for summary judgment on the issues of bad faith and whether the insured had been fully compensated.  On the bad faith issue, the insured contended a factual issue existed regarding Auto Club's failure to timely pay the claim despite evidence of damage being provided.

    The Court granted Auto Club's motion on the bad faith issue.  Louisiana law provided statutory penalties against insurers for failure to timely resolve claims or pay settlement awards.  But the insured had to prove that the insurer knowingly committed actions which were completely unjustified, without reasonable or probable cause or excuse. 

    Here, Auto Club did not act arbitrarily, capriciously, or without probable cause in resolving the insured's claims.  Although the insured asserted there was a factual dispute as to the timeliness of payments, there was no evidence that the payments were not timely made.  Further, the contents list provided by the insured did not include receipts, and there remained a dispute as to the extent to which the insured's property was damaged by wind as opposed to flood.  The parties dispute over the total coast of repairs caused by a covered peril did not warrant the imposition of statutory penalties for bad faith.

    The court denied Auto Club's motion regarding whether the insured had been fully compensated, however, because a factual issue was presented.

Post-Loss Assignment Upheld By Another Louisiana Federal Court

    Consistent with the recent decision issued in In Re Katrina Canal Breaches Consolidated Litigation [prior post here], the District Court for the Western District of Louisiana upheld a post-loss assignment of a property policy.  See Disaster Relief Serv. of North Carolina, LLC v. Employers Mutual Cas. Ins. Co., No. 07-1925, 2009 U.S. Dist. LEXIS 29443 (W.D. La. April 6, 2009).

    The insured's apartment complex was damaged by Hurricane Rita.  The property was insured by Employers under a business protection policy that included coverage for damage to property and loss of business income.  The insured hired Paramount Insurance Repair Service to do initial damage mitigation work.  Without the insured's permission, Employers contacted Paramount and negotiated the scope and cost of all repairs to the property, notwithstanding the limited authority the insured had given Paramount.  The insured later fired Paramount and hired Disaster Relief Services (DRS) to complete the repairs.  DRS's Complaint alleged Employers then failed to adjust and provide coverage for certain property losses and damage despite receiving sufficient proofs of loss.

    After purchasing the property and receiving an assignment of future insurance proceeds, DRS sued Employers.  Employers moved for summary judgment, arguing the policy prohibited the assignment of "rights and duties" without the insurer's consent.  Noting the decision in Katrina Canal Breaches, the court found the insured was entitled to assign the rights under Employer's policy because the assignment to DRS was executed after the property damage occurred.  The assignment of rights under the policy included the insured's bad faith claims if such claims accrued to the insured at the time of the assignment.  Neither party had submitted a copy of the assignment of rights to the policy, so the court could not determine when the bad faith claims accrued. 

    Nevertheless, the court determined Employers did not act in bad faith in failing to timely pay a claim after receiving satisfactory proofs of loss.  Such a claim could only be asserted under Louisiana law if the failure to timely pay was arbitrary, capricious or without probable cause.  There was no evidence of unjustified refusal to pay amounts due.  Therefore, Employers' motion for summary judgment as to DRS's bad faith claims was granted.

Insured's Motion for Summary Judgment on Bad Faith Denied

    The insured moved for summary judgment on bad faith because of the insurer's alleged delayed and incomplete payments after Hurricane Katrina destroyed property.  See Plaquemines Parish School Bd v. Indus. Risk Insurers, No. 06-7213, 2009 U.S. Dist. LEXIS 20004 (E.D. La. March 11, 2009). 

    School buildings operated by the insured School Board were damages by Hurricane Katrina in August 2005.  Policy limits were $15 million, and the School Board was paid $11.7 million.  The School Board filed suit against the insurer for additional proceeds under an "all risk" policy.  The suit sought the remainder of the policy limits and damages for bad faith.

    The insurer's adjusters had inspected the properties in September and October 2005, and provided detailed reports regarding the damage.  Substantial payments were made.  Nevertheless, the School Board argued the insurer failed to make timely payments once it had a sufficient proof of loss.  The School Board further argued payments for wind damage were insufficient and untimely. 

    Noting the Fifth Circuit's decision in Dickerson v. Lexington Ins. Co., 2009 U.S. App. LEXIS 2902 (5th Cir. 2009) [reviewed here], the District Court noted whether the insurer acted in good faith required a factual determination.  The School Board's evidence raised questions of material fact as to the timing and sufficiency of proof of loss in the insurer's possession and whether the insurer acted in good faith in delaying payment.  Therefore, the School Board's motion for summary judgment was denied.

    The court also considered whether the School Board's recovery from the insurer should be offset by amounts received from FEMA or in flood insurance proceeds to prevent a double recovery.  By statute, duplicate funding received from FEMA had to be returned.  The court held, however, that the School Board's receipt of FEMA funds had no bearing on the ability to recover from the insurer.  Nevertheless, the insurer would be entitled to an offset for any flood proceeds received by the School Board which the insurer proved was excluded from coverage.  At trail, the School Board would have the burden of proving the amount of damage caused by the covered peril of wind while the insurer would have the burden of proving the applicability of the exclusion for flood damage.

Jury's Determination of Bad Faith Upheld by Californa Court of Appeal

    In McCoy v. Progressive West Ins. Co., B199978 (Cal. Ct. App. Feb. 26, 2009) [here], the appellate court upheld the jury's verdict finding bad faith arising from Progressive's denial of the insured's vehicle theft claim. 

    In March 2004, the insured's Ford Mustang was stolen in Las Vegas.  When recovered, the Mustang, having been burned and damaged, was of no value.  Progressive denied the claim in March 2005, even though it had no specific evidence that the insured was involved in the theft of his own car.  Progressive, however, relied on various factors to support its belief that the insured had orchestrated the theft of his car. The insured had told his brother he wanted to get rid of his car.  He had also told his wife and brother he wanted to upgrade to a Cobra Mustang.  The insured and a friend had driven two cars to Las Vegas.  The wheels on the recovered Mustang appeared to be the originals.  Finally, the ignition was unaltered, meaning a proper key must have been used to drive the car away.

    The jury returned a verdict in favor of the insured, determining Progressive acted in bad faith, and the insured was entitled to punitive damages of $100,000. 

    On appeal, the Court of Appeal determined the trial court's failure to give jury instructions on "genuine dispute" was not error.  The trial court found the genuine dispute doctrine was subsumed within the instructions given.  Those instructions stated, among other things, that when an insurer unreasonably and in bad faith withholds payment on a claim of its insured, it is subject to liability in tort.  

    Further, evidence of a prior accident in which the insured was involved was properly excluded because it was more prejudicial than probative.  Excluding the entire claims file was also upheld.  The trial court allowed the parties to offer individual portions of the claims file into evidence.   Finally, the finding of bad faith was supported because the jury had implicitly found the denial of the claim was unreasonable.  

Damages For Mental Anguish Awardable for Delay in Adjusting Katrina Claim

    In a recent post, we discussed Dickerson v. Lexington Ins. Co., 2008 U.S. App. LEXIS 26504 (5th Cir. Dec. 22, 2008) where the Fifth Circuit determined damages for mental anguish were properly granted based on the insurer's bad faith delay in paying a claim after Hurricane Katrina.  Dickerson controlled a subsequent decision by the Federal District Court in Louisiana when State Farm's motion for summary judgment as to plaintiffs' claims for mental anguish was denied.  See Fasone v. State Farm Fire and Cas. Co., 2009 U.S. Dist. LEXIS 3027 (E.D. La. Jan. 9, 2009).

    In Fasone, plaintiffs sought coverage under their State Farm policy for damages sustained to their home during Hurricane Katrina.  Although coverage for their dwelling was $166,300, State Farm paid only $22,491.17.  The District Court noted in Dickerson, the Fifth Circuit had decided as a matter of law that plaintiffs may seek damages for mental anguish based on an insurer's bad faith failure to timely adjust a claim.  State Farm also challenged the sufficiency of plaintiffs' evidence on mental anguish because no expert testimony was offered.  Again relying on Dickerson, the District Court determined the plaintiff's affidavit describing his mental state and linking specific feelings, such as frustration, anger, and humiliation, to specific acts by State Farm was sufficient to create a genuine issue of material fact.

California Court of Appeal Affirms Bad Faith Ruling for Insurer's Delays

    The California Court of Appeal upheld a bad faith ruling based on the insurer's delay in paying benefits.  See Major v. Western Home Ins. Co., 2009 Cal. App. LEXIS 4 (Cal. Ct. App. Jan. 6, 2009).

    The insureds' home was destroyed by a wild fire in October 2003.  They held a homeowners policy from Western.  The policy provided $193,000 for dwelling, $19,300 for other structures, $135,000 for personal property, $38,600 for living expenses and $18,000 for mortgage disaster protection.  The policy included an "extended replacement cost" provision, promising to pay up to a specified percentage above policy limits to replace damaged property.

    After the home was totally destroyed by the fire, Western used another company, Cambridge, to administer the claims.  Western did not make its first payment until February 2004.  Thereafter, Cambridge assigned a new, inexperienced claims adjuster to the claim.  Western fell two months behind in mortgage payments.  The 77 page inventory sent by the insureds in May 2004 was ignored for over three months despite numerous call and requests from the insureds.  The new adjuster complained to the insureds that it would be a nightmare to have to review the inventory and that the file was 16 inches thick.

    The insureds hired counsel in October 2004.  A supervisor at Cambridge thereafter worked on the file.  Fifteen days later, Western paid personal property benefits the insureds submitted in May.  Subsequently, the insureds submitted receipts for replacement cost of personal property because Western had only paid depreciated value.  The supervisor claimed the receipts had been faxed and she could not read them.  She admitted at trial, however, this statement was false and the receipts had been mailed.  Moreover, the supervisor realized "other structure" benefits had not been paid for the pool and spa, but did not pay these benefits until five months after she began handling the claim. 

    Suit was filed in February 2005.  The jury found in favor of the insureds for breach of contract and bad faith. The total damage award was $1.3, including $450,000 for emotional distress and $646,471 for punitive damages.

    The Court of Appeal affirmed.  There was substantial evidence the insureds suffered significant emotional distress caused by Western's delayed payment of benefits and its refusal to pay amounts clearly covered under the policy. 

    Western argued punitive damages were not warranted because the supervisor and other claims adjusters at Cambridge were not managing agents at Western.  The Cambridge supervisor, however, exercised substantial discretionary authority to pay or not to pay benefits owed the insureds.  In fact, she made the decision to refuse to pay benefits ultimately awarded by the jury based on her untrue statement that the receipts were illegible because they were faxed.  The punitive damages were slightly more than a one-to-one ratio to the tort damages, and therefore not excessive.

    Hawai`i recognizes the tort of good faith and fair dealing against insurers.  Further, Hawai`i courts permit punitive damages in bad faith cases.  See, e.g., The Best Place v. Penn Am. Ins. Co., 82 Hawai`i 120, 920 P.2d 334 (1996).

Hawai`i Supreme Court Reinstates Emotional Distress Claim Against Insurer

    Although the insurer's conduct did not amount to bad faith in Young v. Allstate Ins. Co., No. 26887 (Haw. Sup. Ct. Dec. 26, 2008), the court held plaintiff's allegations of intentional infliction of emotional distress (IIED) were sufficient to survive a motion to dismiss.

    Plaintiff alleged she was stopped in traffic when a car operated by an Allstate-insured driver rear-ended her, destroying her auto. The insured informed Allstate he had fallen asleep and caused the crash.  Plaintiff, who was 84 years old, suffered injuries to her neck, ribs, right knee and thoracic and lumbar spine.

    An Allstate representative contacted Plaintiff the day of the accident, promised she was in good hands, would be provided with quality service, and would not need an attorney. In two subsequent letters, Allstate promised to provide quality service to plaintiff. 

    Plaintiff attempted to resolve her claim against Allstate without the assistance of an attorney.  Although she had already incurred over $6,000 in medical expenses, Allstate offered to settle for only $5,300.  Plaintiff rejected the offer, but was deeply distressed because she felt Allstate was breaking its promises.  She thereafter retained an attorney and sued. The answer alleged plaintiff was negligent and had failed to mitigate her injuries. This caused plaintiff, who was now 87, extreme distress and shame.  Ater taking her deposition, Allstate's attorney indicated he would recommed a policy limits settlement of $25,000.  Allstate, however, refused to increase its offer.  In non-binding arbitration, Plaintiff damages were determined to be $45,000.  Allstate never took the arbitration seriously and appealed the decision, requesting a trial de novo.

    The jury awarded plaintiff $198,971.71.  Fees and costs for the arbitration and pre-judgment interest were also awarded to plaintiff.  Allstate offered to settle for $260,000 if plaintiff would release any claim for bad faith.  Plaintiff refused and sued Allstate for bad faith and other claims. 

    Allstate filed a motion to dismiss, arguing it did not owe a duty of good faith and fair dealing because the parties did not have a contractual relationship by virtue of its promises and letters.  The trial court agreed.  Further, the trial court ruled Allstate's acts were not beyond all bounds of decency nor outrageous.  Therefore, the IIED claim was also dismissed.

    The Supreme Court affirmed dismissal of the bad faith claim.  Plaintiff alleged neither detrimental reliance nor consideration.  Accordingly, there was no contract between plaintiff and Allstate, and the bad faith claim failed.

    Plaintiff did, however, adequately allege a claim for IIED.  In Hawai`i, the tort consists of the following elements: (1) the act allegedly causing the harm was intentional or reckless, (2) the act was outrageous, (3) the act caused, (4) extreme emotional distress to another.  Allstate's insured admitted he caused the accident when falling asleep at the wheel.  Allstate immediately contacted plaintiff and assured her she would be treated fairly.  Nevertheless, Allstate only offered plaintiff a mere $5,300 to settle.  Given these facts, reasonable people could differ as to whether Allstate acted without just cause or excuse and beyond all bounds of decency in the underlying case.  The court determined that upon reading plaintiff's complaint, average members of the community might exclaim, "Outrageous!"  Therefore, the trial court erred in dismissing plaintiff's IIED claim.