Standards for extra-contractual recovery vary from state to state to some extent. While the standard for recovery may differ, evidentiary, discovery and interpretation issues overlap and arise in many bad faith cases regardless of whose law applies. District Courts in Florida, South Carolina and Illinois recently were tasked with addressing recurrent issues that arise in extra-contractual matters.

EVIDENTIARY ISSUES EXAMINED

Collazo v. Progressive Select Ins. Co., 2024 WL 4474667 (M.D. Fla. Sept. 25, 2024)

In Collazo, the trial court was tasked with ruling on numerous evidentiary issues at the Motion in Limine stage in a first-party underinsured motorist case in which extra-contractual damages were sought. Progressive had been accused of bad faith by its insured and sought to exclude evidence of its post-lawsuit filing conduct and testimony relating to its violations of the Unfair Claims Settlement Practices Act. The trial court disagreed with Progressive on both counts.

In rejecting Progressive’s arguments on the inadmissibility of post-lawsuit conduct, the court stated that the “bad faith” of an insurer is judged on the totality of the circumstances. Totality of the circumstances does not have a hard stop date and actions of the insurer in failing to resolve the claim, regardless of when they took place, can be considered when evaluating an insurer’s potential liability for bad faith. Further, the court determined that violations of the Unfair Claims Settlement Practices Act could be used in part to show an insurer has acted in bad faith. While violation of the act by itself might not be enough to prove bad faith, violations may be “key ingredients that make up bad faith.”

While Collazo did involve a first party underinsured motorist dispute, many of the issues involved overlap with liability claims such that the logic of Collazo can be extrapolated to third party extra-contractual cases.

HOW LATE IS TOO LATE

Old Republic Ins. Co. v. Parks Aviation, et al., 2024 WL 4475032 (S.D. Ill. Oct. 11, 2024)

The primary issue in Parks Aviation was what constitutes timely notice of a claim under an occurrence based liability policy. Parks Aviation was an insured under a liability policy issued by Old Republic. A customer of Parks Aviation was injured by a plane owned by Parks Aviation. Parks Aviation learned of the injury to the customer but did not report the claim to Old Republic for 10 months. Based on this ten month delay, Old Republic filed a declaratory judgment action claiming that the delay in reporting violated the timely notice provision of the policy and that coverage for Parks Aviation was forfeited.

The trial court disagreed and found that the most important issue was whether Old Republic had demonstrated actual prejudice from Parks Aviation’s delay in reporting the claim.  The court determined that Old Republic had not demonstrated any prejudice. Specifically, Old Republic had not shown that its ability to investigate and evaluate the customer’s claim was in any way impaired. Further, even though the injury was not reported for 10 months, the customer’s claim against Park Aviation was reported to Old Republic over a year before the customer actually filed a lawsuit against Parks Aviation. As such, the court could not find the carrier sustained any prejudice and the allegedly late notice would not result in coverage being forfeited.

Parks Aviation highlights that a lack of prejudice will normally excuse a delay in reporting a claim to a carrier at least under an occurrence policy. However, insureds should report claims to their carrier as soon as they receive notice of a potential claim to best avoid a late notice fight from the carrier.

ACCRUAL OF A BAD FAITH CLAIM

Miller v. Mag Mutual Ins. Co., 2024 WL 3106214 (D. S.C. June 24, 2024)

At issue in Miller was the date on which a bad faith failure to settle cause of action accrues. Miller was a Mag Mutual insured that had been sued for medical malpractice in a birth injury case. Mag Mutual had refused to settle the claim against Miller and a jury returned a verdict well in excess of Miller’s policy limits. Miller, by his counsel appointed by Mag Mutual, appealed the verdict and judgment entered against him in the medical malpractice case.

While the medical malpractice case was on appeal, Miller filed a lawsuit against Mag Mutual for bad faith failure to settle. Mag Mutual moved to dismiss the bad faith case on grounds that the bad faith claim was not yet ripe. Mag Mutual’s ripeness argument focused on the fact that the judgment in the medical malpractice case could still be overturned on appeal and therefore the judgment was not yet final and non-appealable. The court agreed and found that under South Carolina law, a bad faith failure to settle claim did not accrue until the excess judgment against the insured was final and non-appealable.

The decision in Miller likely only served to delay the inevitable bad faith case against Mag Mutual and may not have broad implications as it relates to ripeness. However, Miller is important for statute of limitations purposes despite statute of limitations not being directly at issue in Miller. Miller makes clear that a bad faith claim failure to settle claim cannot accrue until an excess final judgment is entered against an insured. Such a finding can be highly important as an insurer’s failure to settle or other bad faith conduct often occurs years before an insured is subjected to an excess verdict. Miller clarifies that an insurer cannot escape a bad faith claim on statute of limitations grounds by dragging out the liability case for years past the insurers initial failure to settle.

Need Assistance with a Bad Faith Situation?

Kirk Presley enjoys helping individuals and other lawyers with bad faith cases.

If you would like to speak with him about a bad faith case email him at [email protected] or call him at (816) 931-4611.

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