: Bad Faith Claims Handling-What Constitutes?
im has responded to Jerry's question with some great information useful to us all on bad faith claims.
I'm a quasi "court watcher". It is a habit I picked up some 30 years ago while brown bagging my lunch as a new adjuster inside the warm confines of a carrier. As every insurer has in their claims library, we had a court reporting subscription that cross referenced evey conceivable type of action and reported cases. In later years it became an everyday tool in claims handling or management.
I'd like to supplement Jim's dealings with the topic by discussing with case law some of the issues of bad faith. The jurisdictions may be different, but the actions or inactions of the parties giving rise to bad faith claims are universal to North America.
The landmark case now in Canada was heard by the Supreme Court of Canada (SCC) this year, it is "Whiten vs Pilot Insurance Company" (W vs PIC).
A homeowners policy issued by PIC provided coverage for the W home. In 1994 a fire totally destroyed the dwelling and contents. PIC denied the claim in its entirety, alleging arson. PIC maintained the arson defense through trial at the lower court and at the first appeal level.
A Justice of the court addressed the two requirements that must be met to permit an award for punitive damages.
1. The defendant must have committed an independant or separate actionable wrong.
It is well settled in our case law that a contract of insurance is one of the utmost good faith, imposing on the insurer an implied obligation of good faith and fair dealing with its insureds. This is a contractual obligation.
2. The defendant's conduct must be sufficiently harsh, vindictive, reprehensible and malicious as to offend the Court's sense of decency.
The court went on to analyze the conduct of the insurer to justify the bad faith award as punitive damages. Here are less than half of the reported reasons;
(a) the insurer deliberately ignored the opinion and recommendations of an experienced adjuster to concluded the fire was accidental
(b) the insurer never provided the adjusters reports to the experts it later retained
(c) the insurer ignored the opinions of its engineering expert who provided three reports that the fire was accidental
(d) At every step the insurer considered that it could safely deny the claim because the insured would not refuse a reduced offer in the future
The Court therefore concluded that the above two requirements had been met.
The majority opinion of the Court looked to the USSC for enumeration of the factors to be considered in determining whether an award is reasonably related to the punitive goals of deterrence and retribution. It looked at "Pacific Life vs Haslip (1990) 499 US1". for the criteria for appealate review of punitive damages awards.
"Whiten vs Pilot Insurance" has generated a lot of discussion and commentary. The trial verdict of $1,000,000 punitive damages for bad faith, plus every cent of the Whiten's financial loss set a new and unprecedented Canadian threshold for punitive damages in first party insurance claims.
California is truly the bad faith litigation power house, especially related to third party bad faith claims. It began in the 1970's with "Royal Globe vs Superior Court" and led to the rampant rise of bad faith cases that insurers were settling short of trial due to fear and costs. In 1988, the California SC in "Shall vs Firemans Fund", reversed th