Light reading for law nerds... comparative bad faith
I live in a state where the issue of whether the defense of "comparative fault" can be raised, against a claim of insurance bad faith, has not yet been decided. Some states allow such a defense. See, e.g., Patrick v. Maryland Casualty Co., 267 Cal.Rptr. 24 (Cal. Ct. App. 1990) (allowing comparative bad faith defense in 1st party context); cf. Kransco v. American Empire Surplus Lines Ins. Co., 2 P.3d 1 (Cal. 2000) (rejecting comparative bad faith defense in 3rd party context, leaving intact for now defense in 1st party context). Other states reject the defense. See, e.g., Nationwide Property & Cas. Ins. Co. v. King, 568 So.2d 990 (Fla. Ct. App. 1990).
Before me are two cases. One is a pathetic bad faith claim filed by a plaintiff's lawyer unfamiliar with bad faith law, with a case I don't place a very high value on. The second is a high-dollar value claim filed by two law firms serving as joint co-counsel, one of which has a snooty Ivy Leaguer as the partner in charge of the case. Obviously a more formidable opponent with greater liability exposure to our client. What the 2 lawsuits have in common, however, is that both involve conduct by the insureds which obstructed the respective insurers' handling of the claims. In the more expensive case (please note, as is always the case with my blog, that I change certain facts to avoid associating anything I talk about with real cases), the corporate insured was submitting bills to the insurer for ridiculous expenses like nights out at expensive restaurants, hotel stays at golf resorts, etc. As I went through the claims file I almost expected to find bills submitted for lap dances at a strip joint. (Didn't happen though; oh well). Each of those frivolous bills the insured sent to the insurer, the insurer had to review, handle, investigate if necessary, analyze under the policy, and reject only after careful consideration. In other words, these frivolous bills occupied the insurer's time. Yet the insured now claims, in part, that the insurer committed bad faith in unreasonably delaying the handling of this claim.
And therein lies the defense of comparative bad faith. This case is a beautiful argument for why the defense should be adopted in my state. Can you see why a law nerd like me thinks this is a cool job? I get to figure all of this out on my own, and test it against plaintiff's counsel (and run it by my partner of course, but he usually likes what I'm doing so he'll go along with it). I'll first formulate my theory in a detailed evaluation letter to our client. Unless some snooty in-house counsel like Rufus Firefly shoots me down to stroke his massive ego (I'm kidding Rufus!), we'll then insert the argument into our disclosure statement. And a few months down the road, if the timing is right, we'll draft a motion for summary judgment and argue the issue before a court of law. Maybe it'll even go up on appeal, all the way up to the state supreme court, which I had the marvelous opportunity to do on two occasions in my young career so far.
Fun stuff. For a law nerd anyway.
posted by The Uncivil Litigator at Monday, October 04, 2004
13 Comments:
First, I've dropped the Firefly; I'm just plain Rufus now. Okay, that said, was this first party or third party? Assuming that it was third party, because I can't imagine how such charges could get on a bill in a first party claim, but then I don't do first party, so who knows, I'm assuming that the insured used its own counsel. Was this because the insured had a counsel selection clause, or because there was a conflict due to a reservation? Assuming it was the latter, don't you require that such counsel, sometimes called Cummis counsel after the California decision, abide by the litigation guidelines? And in any event, what are the exatra-contractual damages from a delay in paying bills? That's a failure of logic I see in a lot of bad faith claims. The Insured's counsel gets all puffed up about bad claims handling, often justifiably, but there are no damages. That doesn't stop them from bringing the claim, however. And since judges love to sock it to insurance companies and can't be bothered to think, they often let that failure to show extra-contractual damages slide for awhile because of the bad facts about claims handling. And of course I'd let you make the argument, but I'd reserve the right to rewrite the brief.
The snooty in-house counsel speaks! Unfortunately I'd rather not answer publicly because I'd have to give away too many details of my case. He'll have to settle for a private email to satisfy his curiosity.
Patrick v. Maryland was not a comparative-bad-faith case. It was a comparative-negligence case. The Supreme Court was clear about that distinction in Kransco (at pp. 411–412), where it observed that the insured's contribution to his own damages in Patrick arose out of his "walking backwards on a roof while dragging a heavy sheet of plywood" while doing his own repairs after the insurance company denied coverage for his property damage. The insured's negligent care for his own personal safety was "outside the contractual relationship of the parties."
The Kransco court (at p. 402) was equally clear that an insured's breach of the covenant of good faith and fair dealing ("bad faith") could only be a breach of contract and therefore not subject to any allocation of comparative (tortious) fault.
There is no defense of comparative bad faith in California.
The California Court of Appeal in Patrick held, "We conclude that comparative negligence may be available as an affirmative defense in an action for bad faith." (P. 30). The poster states that "there is no defense of comparative bad faith in California" and that Patrick "was a comparative-negligence case". The disagreement is more over semantics than substance. The claim heard by the jury against Maryland Casualty Company specifically did not include negligence. As to the bad faith claim, the trial court refused to submit a jury instruction on the plaintiff's comparative fault, that the jury could consider as a defense to the BAD FAITH claim. Thus, whether you want to call it a "comparative bad faith" defense or a "comparative negligence" defense, it is in truth a comparative fault defense available to insurers against allegations of bad faith, at least in 1st party actions.
>> 'The disagreement is more over semantics than substance'
Well, when the disagreement means that the conduct described in your post -- ("conduct by the insureds which obstructed the respective insurers' handling of the claims") -- does not constitute a defense, then I would say it's more substantive than semantic.
Note that I'm not saying such conduct is irrelevant. Kransco doesn't either. But it's not a defense in California. And you wouldn't get a jury instruction, let alone a summary judgment.
I think you're missing the point, which may be my fault because I didn't choose my words very carefully in this blog post (which is neither a law review article nor a motion in court; see "My very first post" for my disclaimer about the posts I write at light speed). Toss out my reference to "comparative bad faith" and replace it with comparative fault as a defense to a bad faith claim. Patrick considered it reversible error to refuse a jury instruction of comparative fault by a plaintiff as a defense to a claim of bad faith. Kransco did not criticize, much less overrule, Patrick and instead distinguished itself on various grounds, the most imporant of which was that Kransco was a third-party claim whereas Patrick was a first-party claim. The net outcome for a practitioner like myself is that the right set of facts can warrant, under California law, a defense of comparative fault in bad faith cases. And my case has a pretty strong set of facts to give us a basis to argue that such a defense should be available in MY state, which has never before even considered the issue. California did it given the facts in Patrick, so my state should do it given the facts in this case. It's a reasonable argument to make, and there are holes to be punched in it and obstacles to be overcome, but my point is that all of these questions of whether to make the argument, whether the argument would fly, whether there are stronger, traditional arguments that warrant dropping this novel one, etc., are all part of what I do. And that's fun. And my point is no more than that. Formulating strategies and figuring out problems is fun.
>> "I think you're missing the point . . . my point is that all of these questions of whether to make the argument, whether the argument would fly, whether there are stronger, traditional arguments that warrant dropping this novel one, etc., are all part of what I do. And that's fun."
I got that, which is why I thought I'd join in the fun. Or did you think I was going to send you a bill?
Insurance companies are no better than Colombian drug cartels: they're both criminals who cause human beings to suffer unnecessary pain. I like you except you represent insurance companies.
I'm going to assume that the last comment was from someone who once again ignorantly lumps liability insurers in with evil health insurers. Friend, it's like comparing apples and oranges. Seriously, two entirely different businesses.
so what happened with this 'reverse bad faith' case? did you file it?
I can't remember what the first case I was referring to was. But as to the second case, we got the case dismissed on summary judgment. The issue of comparitive bad faith didn't even come up.
Hey, maybe someone can clarify this issue of "first party" to "third party" bad faith PLEASE!!!?? I have been searching in my very limited time to find out if I can now add "bad faith" into a lawsuit I now have. Its on a small property accident claim, and due to no injuries and amount under 6K no attorny will touch it..no money.
I won;t even bore with all the details, but simple, her insurance denied my claim on thier insured's testimony alone, not even having a copy of the police report. I have my testimony, police report which places her clearly and soley at fault and accident damage which puts her clearly and soley at fault.
So her insurance denies my claim, I immediately file a suit. Its now been over a year, they still contend I was 100% at fault, and we are going ionto court ordered mediation (typical bs raod). One question I asked them now, is why, since it has been over a year and her insurance (who is paying for her defense of course) has within weeks after the accident repaired her truck (only around 1,400 in damage) yet they still have not filed any claim with my insurance nor any cross complaint accusing me of being at fault. Easy answer, they do either my insurance kick in thier attornies and costs sky rocket on them.
Also, I have made at least 5 offers to settle, first 3 were simply for the estimated damage that estimate was done the same day of the accident. They refused all offers and never made one in over a year to settle. So I think I have good cause that they are acting in bad faith and simply using stalling and not willing to even make a settlement offer in over a year, just to try to wear me down. So here is the question...can I make a bad faith claim in this case???? Please feel free to e-mail me directly at abww760@yahoo.com Any help is VERY APPRECIATED!
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