Six Red Flag Indicators of Reverse Bad Faith

 

Red-flags

While the debate still goes on across jurisdictions  as to whether and how the reverse bad faith of an insured serves as a defense to an insurer in a bad faith case, that reverse bad faith has a place of some sort in bad faith litigation is much less open to doubt.  Most jurisdictions recognize a place for consideration of the conduct of the insured in bad faith litigation, largely because it is grossly inequitable to judge a two-party interaction by the conduct of only one of those parties.  Fundamental fairness would seem to require that if the light of scrutiny is to be placed on the handling of an insurance claim, it be placed on two parties, not one.

Reverse bad faith comes in all shapes, sizes and shades.  Sometimes it is overt;  other times it is more passive.  Here are six of the biggest red flags indicating the presence of the reverse bad faith of the insured in an insurance claim:

  1.  The Early-Onset Time Limit Settlement Demand – This is one of the most obvious signs that the insured may be looking to construct a bad faith claim where one may well not otherwise exist.  This tactic is designed to pressure the insurer to pay a claim before it has had the full and fair opportunity to investigate it, or risk being painted as failing to settle within the limits after it is too late.   It is also the subject of an earlier  post  on how to defend against them.
  2. Refusal to Reduce A Policy Limits Demand – An intractable policy limits demand by an insured can be the functional equivalent of a “low-ball” settlement offer from the insurer.   In Pennsylvania, for example, courts have held that a limits demand by an insured can be tantamount to expressing no interest in compromise, which in turn may relieve the insurer of settlement responsibility.  Zapille v. Amex Assurance,  2007 WL 1651271 (Pa. Super. 2007)  As a result, an insured’s failure to contribute to a settlement-conducive environment is relevant to bad faith analysis.
  3. Delay – This one is the easiest to spot among The Big Six,  and relatively easy to prove.   Most courts consider the insured’s responsibility for delaying the life span of an insurance claim in bad faith litigation. Some courts have gone so far as to say that an insurer has a reasonable expectation that information requested will be provided promptly and accurately.  Delay which may be considered reverse bad faith is not merely calendar delay occasioned by the insured’s failure to respond, it can also be delay cause by the insured’s giving false, misleading, or partial answers to questions or requests for information. See, e.g., Sadel v. Berkshire Life Insurance Company of America et al., No. 09-612, 2011 WL 292239 (E.D. Pa. Jan. 31, 2011).
  4. Failure To Cooperate In Investigation – this is a close cousin of delay.  Non-cooperation is often most seen in an insured’s failure to produce medical authorizations, requested medical, wage, and property records, or the failure to  submit to an examination under oath, or an independent medical examination.
  5. Inconsistent, Exaggerated, and Untruthful Information – If an insured presents answers for information at various times which conflict with each other, or are plainly exaggerated or not truthful, this is fairly reliable evidence of reverse bad faith.  At a minimum, it may justify the insurer’s denial of a claim, extension of investigation, or lower settlement offer.
  6. Is The Insured Represented? – While this red flag is not intended to paint all practitioners with  the same broad brush, it would be foolish not to identify this factor as a potential red flag in the ferreting out of reverse bad faith.  I have lost count of the number of depositions of insureds I have taken in which I receive only a blank stare in response to the questions, “Do you know what bad faith is?” or “Can you tell me how the insurer committed bad faith in the handling of your insurance claim?” Insureds in and of themselves are not prone to the advocacy which tends to present itself when a trained legal professional has a contingent interest in the outcome of an insurance claim.

If any of these six factors are present in an insurance claim, it could well be that there may be some conduct on the part of the insured which the fact finder should consider in the bad faith analysis.

For more information on identifying and defending against reverse bad faith in the claims process, reach me at chaddick@dmclaw.com or 717-731-4800.

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Insured’s Failure To Cooperate In Corvette Theft Claim Dooms Bad Faith Case in Mississippi

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ABERDEEN, Feb. 26 – An insured’s failure to cooperate in the investigation of the claimed theft of his Corvette entitled his insurer to judgment as a matter of law on coverage and bad faith claims, a Mississippi federal judge has ruled.

In Holt v. Victoria Fire & Casualty Company, Plaintiff Eddie Gray Holt claimed his 2008 Corvette was stolen from an Alabama parking lot where it was left overnight, and filed a theft claim with his insurer, Victoria.  Because video surveillance of the parking lot did not show the presence or the theft of the car, Victoria sought Holt’s Examination Under Oath, and requested in writing that he bring to the examination documentation, including documentation regarding his finances, income, and expenses.

At his examination, Holt refused to produce the requested documents, and refused to answer certain questions.  After Victoria denied his claim, he filed a breach of contract and bad faith suit, after which Victoria moved for summary judgment on grounds that Holt breached several contractual duties in the policy, most notably his contractual duty to cooperate in the investigation of any claim.

After reviewing not only the applicable policy language but Mississippi common law, U.S. District Judge Carlton Reeves ruled that Holt’s refusal to cooperate in the investigation voided the policy, and entered judgment for Victoria on breach of contract and bad faith claims.

Holt v. Victoria Fire & Casualty Co., (N.D. Miss., March 3, 2016)