Inclusion of Adjuster Not Sufficient To Defeat Removal Jurisdiction In Bad Faith Case

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DALLAS, Oct. 6  — Ruling that the insured failed to shoe that an  adjuster could be directly liable for the claims alleged, a federal judge in Texas denied the insured request for remand of a removed bad faith case.

In  Ministerio Internacional Lirios del Valle v. State Farm Lloyds, et al., No. 16-1212, N.D. Texas; 2016 U.S. Dist. LEXIS 137453, the plaintiff sued State Farm Lloyds in the 160th Judicial District Court of Dallas County, Texas, over a property damage claim.   The suit included claims for breach of contract, breach of the duty of good faith and fair dealing and violations of the Texas Insurance Code.  The complaint included allegations that adjuster Aaron Galvan, who conducted an investigation denied the claim on grounds that the damage was uncovered, was liable.

State Farm Lloyds removed the case to the U.S. District Court for the Northern District of Texas, arguing the adjuster was not properly named as a defendant.  The plaintiffs moved for remand, and Judge Sidney A. Fitzwater denied the motion, holding:

“Defendants have met their heavy burden of demonstrating that there is no reasonable basis to predict that Ministerio might be able to recover against Galvan. . . Galvan is an adjuster, and ‘[a]n adjuster “cannot be held liable under this section [of the Texas Insurance Code] because, as an adjuster, he does not have settlement authority on behalf of the insurer…[the adjuster had] no obligation to provide a policyholder a reasonable explanation of the basis in the policy for the insurer’s denial of a claim, or offer of a compromise settlement of a claim.”

The judge also found that Galvan could not be held liable because the sections of the Texas Insurance Code relied upon by the Plaintiff applied to specifically listed ‘insurers,’ and Galvan was  “not an insurer.”

Ministerio Internacional Lirios del Valle v. State Farm Lloyds, et al., No. 16-1212, N.D. Texas; 2016 U.S. Dist. LEXIS 137453 (October 4, 2016, Fitzwater, J.)

Editor’s Note:  joinder of individual adjusters is a common tactic used by insureds to attempt to defeat federal removal jurisdiction, because it provides a “same state” defendant as the plaintiff.  While cases across the country have gone both ways, the individual liability of an adjuster is highly questionable under standard agency principles, if he or she is acting in the course and scope of his or her employment.

 

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Hurricane Matthew Bad Faith Survival Kit

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In the wake of Hurricane Matthew last week, another storm looms for insurers — the flood of hurricane and weather-related claims which will follow.  Here is a  quick bad faith survival kit which insurers can use to efficiently process claims and minimize the risk of complaints of poor claims handling or worse, claims-related bad faith.

1.  Sympathize

Claims staff should be trained and prepared to be met with anxious and often angry insureds.  It is a time of extreme high stress for policyholders, and a large early heap of TLC and empathy will start the claims adjuster/insured relationship off on the right foot.  As with any other endeavor in life, people form first impressions rather quickly, which oftentimes overshadow the duration of the relationship.  It is better to have the claims relationship colored with a positive first encounter than a negative one.

It can be as simple as a kind, sympathetic word, or some free or useful information on disaster relief or other basic necessities.

2. Get Boots On The Ground

Most major insurers have pre-planned claims teams to move in quickly to storm-afflicted areas, and there is good business purpose behind it.  Insurers want to be visible, and to be seen as helpful, in the wake of a crisis, and the more staff sent in to help, the more reachable the insurer is going to be, and the less waiting customers will have to do.  So too, it is important to have specialists in the claims process, such as appraisers, inspectors, water remediation vendors, and special investigators,  available in the afflicted areas  as well.

Insurers can be certain that as soon as the storm passes, the plaintiffs’ bar and public adjusters are going to be combing the same territory hunting for dissatisfied insureds.  Insurers will reduce such bad faith exposure and provide plaintiffs’ lawyers and public adjusters less happy hunting by promptly getting boots on the ground to begin the healing and helping and starting the claims process.

3.  “Be Quick, But Don’t Hurry”

This saying was originally made famous by legendary UCLA basketball coach John Wooden, but it is also excellent advice when it comes to hurricane and disaster relief claims processing.  There is no greater time in the life of a claim at which promptness will be more welcomed by policy holders –  their lives have been disrupted in major, and sometimes catastrophic ways, and helping to begin to return a sense of normalcy and reparation to their daily life is good customer service which tends to reduce later criticism of claims handling.

At the same time, claims staff should not be so quick that customers feel overlooked or short-timed, or that the claims work is poorly done.  It is important to be thorough so as not to miss or overlook payable aspects of weather-related claims.  Not only is this good customer service, but thorough claims attention will also cut down on policyholder complaints, breach of contract, and bad faith claims.

4.  Know The Coverages And Educate The Insured, Accurately

Many bad faith suits arising out of natural disaster claims  have in them an unfortunate and annoying commonality:  early promises allegedly made by claims representatives about coverage which later turn out to be over-generous or inaccurate.  Claims staff should already have been long since trained on the homeowners or other property/casualty  policy coverage sold by their companies, and how the gears and internal mechanisms of that policy operate to put claims dollars in the hands of insureds victimized by hurricanes and storms.

Claims representatives should always remind insureds that the written policy language controls when expressing their understanding of the applicable coverage, and offer to supply copies of declarations pages, or the policy terms and conditions themselves.  Claims personnel should never represent that a coverage element will be paid, or how much will be paid, if he or she is uncertain about the accuracy of that representation.  It is far better for a claims professional  to tell a customer that she is unsure about a coverage and will consult and get back to the insured than to bluff or guess at an answer, only later to be proved wrong.

As part of this element, it is also important to be frank and honest, tactfully, as to the particular limits of coverage, or if exclusions may potentially apply.  The early phases of the claims process in the wake of a hurricane are NOT the time to be making outright denials of  coverage, but neither is it a time not to be up front with customers about what limitations in the policy may apply.

As is so often the case, good business and courtesy go a long way  toward minimizing an insurer’s bad faith exposure arising out of the handling of hurricane and disaster – related claims.

Third Circuit Affirms Summary Judgment For Nationwide in Bad Faith Case

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PHILADELPHIA, October 4 – Dickie McCamey lawyers C.J. Haddick and Bryon Kaster have won affirmance of a summary judgment in favor of Nationwide Insurance in a bad faith case before the U.S. Court of Appeals For The Third Circuit.

In Bodnar, et al. v. Nationwide Mutual Insurance Company, the Plaintiffs alleged that Nationwide was guilty of bad faith in the investigation of whether or not the work-related death of an employee of its insured was covered or barred by the terms of the  insured’s CGL policy, which included an  Employers’ Liability Exclusion.  During the investigation of the claim, Nationwide  filed a declaratory judgment action because of conflicting information on the employment status of the deceased employee.  Nationwide later dismissed the declaratory judgment action and settled with the estate of the deceased employee’s estate, ultimately agreeing to indemnify its insured.

The decedent’s estate took an assignment of rights from the insured as part of the settlement , and filed a bad faith action against Nationwide in the U.S. District Court for the Middle District of Pennsylvania. Nationwide requested and obtained summary judgment in its favor in the district court, U.S. District Judge Robert Mariani finding:

“The claims file reflects information that indicates that Berry [decedent] variously could have been an employee, a temporary worker, or independent contractor…Plaintiffs may not like how the claim was handled, but it cannot be said that Nationwide breached any duty under these facts.”

In affirming summary judgment, U.S. Third Circuit Judge Thomas Hardiman agreed, finding that Nationwide’s filing of a declaratory judgment,  and subsequent decision to indemnify its insured in the underlying wrongful death action,  reflected both an ongoing investigation and open minds on the part of Nationwide’s claims personnel:

“Given the ambiguities surryounding Berry’s employment status, it was reasonable for Nationwide to seek declaratory relief. . . Appellants failed to show by clear and convincing evidence that Nationwide acted unreasonably in the manner [in which] it handled Bodnar’s claim.”

Bodnar, et. al. v. Nationwide Mutual Insurance Company, No. 15-3485 (3d Cir., October 4, 2016)

Florida: Insurer Liable for Attorneys’ Fees Without Finding of Bad Faith

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FLORIDA, Sept. 29 – The Supreme Court of Florida has ruled that Omega Insurance can be held liable for the payment of an insured’s attorneys’ fees following the wrongful denial of a sinkhole claim, and that  bad faith is not a prerequisite to such an award.

In a 6-1 decision, the Florida high court reversed the Fifth District Court of Appeal’s ruling that homeowner Kathy Johnson was not entitled to recover attorneys’ fees in the absence of a finding of bad faith.  The majority concluded that the mere wrongful denial of a valid claim was enough to award fees under a Florida attorneys’ fees statute.

Omega obtained a report from a geology firm attributing Johnson’s home damage to causes other than a sinkhole, and used that report as a basis to deny the claim.  Johnson retained her own engineer which concluded that the damage was in fact caused by a sinkhole.

After Johnson filed suit, Omega agreed to undergo a neutral claim review process, after which it changed its decision and agree to pay Johnson’s claim.

Johnson thereafter sought and obtained  interest and attorneys fees under a Florida attorneys’ fees statute at the trial court level . The District Court of Appeals reversed, holding that the relevant statutory provision, Section 627.428, required a finding of bad faith by the insurer to justify a fee award.

The Florida Supreme Court found that the Fifth District’s ruling was contrary to prior Supreme Court precedent holding that fees under 627.428 were awardable upon the finding of merely the wrongful denial of the claim, and not a specific finding of insurer bad faith.

Florida Justice R. Fred Lewis wrote for the majority:

“We cannot, as the court below held and Omega requests here, discourage insureds from seeking to correct the incorrect denials of valid claims and allow insurers to deny benefits to which insureds are entitled without ramifications. . . Here, the facts are undisputed that Johnson submitted a claim, Omega denied that claim, Johnson filed an action seeking recovery, and Omega subsequently conceded that it had incorrectly denied the benefits based on an inaccurate report. . . These facts alone warrant an award of attorneys’ fees to Johnson under Section 627.428. . . Once an insurer has incorrectly denied benefits and the policyholder files an action in dispute of that denial, the insurer cannot then abandon its position without repercussion. . . To allow the insurer to backtrack after the legal action has been filed without consequence would ‘essentially eliminate the insurer’s burden of investigating a claim.”

Editor’s Note:  The majority did not address the danger it may have created in encouraging insurers to maintain denial positions for fear of being exposed to attorneys’ fees if they decided otherwise.  Nor did the majority address the potential problem created by the ruling of  discouraging insurers from keeping the claims process open to account for new information, allowing changes in claims decisions.   In the long run, the ruling may prove to be more anti-insured that it appears at first blush, because it disincentivizes amicable resolution of claims following initiation of suit.

Johson v. Omega Insurance,  (Florida, 2016)