Court Says Claims for Unreasonable Delay or Denial of Insurance Benefits Can Be Filed Beyond One Year

Jonathan Bukowski | Property Insurance Coverage Law Blog | June 12, 2018

As discussed in a previous post, Colorado allows policyholders—even repair vendors such as contractors or roofers where there has been an assignment of insurance benefits—to bring a cause of action for bad faith where an insurance company unreasonably delays or denies the payment of covered insurance benefits.1

This law allows the potential recovery of two times the covered insurance benefits that have not been paid, or that were paid after an unreasonable delay. The statute provides a powerful deterrent against the wrongful delay or denial of insurance benefits to policyholders. While the statute provides strong protection for policyholders, the legislature did not assign a timeframe for which a policyholder or repair vendor must bring a claim for the unreasonable delay or denial of insurance benefits leading to much uncertainty.

The Colorado Supreme Court issued two important decisions this week surrounding Colorado’s statutory bad faith law. My colleague, Ashley Harris, previously wrote about the Colorado Supreme Court’s decision in American Family Mutual Insurance Company v. Barriga, holding that an award for unreasonable delay or denial of insurance benefits cannot be reduced by payments delayed, but later paid by an insurance carrier. This post will discuss Rooftop Restoration, Inc. v. American Family Mutual Insurance Company, and the Colorado Supreme Court’s decision to strike down arguments made by insurance carriers that any claim for unreasonable denial or delay of payment of benefits must be brought within one year.

In late August 2013, the insureds timely filed a claim for hail damages to their property with American Family. American Family inspected the property several days later, determining that the damage to the insureds property did not exceed the $1000.00 deductible of their policy. The insureds assigned their insurance claim to Rooftop Restoration, who provided American Family an estimate for damages of approximately $70,000.00 in May 2014. Following a reinspection, American Family increased its estimate to $4,000.00 and issued payment less the policy’s deductible on May 28, 2014. Rooftop Restoration subsequently sued for breach of contract and unreasonable delay and denial of insurance benefits in September 2015. American Family moved to dismiss Rooftop Restoration’s bad faith claim for unreasonable delay and denial of benefits as untimely, arguing that a claim for the unreasonable delay or denial of insurance benefits is penal in nature and therefore must be brought within one year. Due to the lack of a controlling decision on the issue, the lower court requested that the Colorado Supreme Court provide direction.

After considering the legislative intent in creating the statute, the Colorado Supreme Court ultimately ruled that the one-year statute of limitations applicable to penal actions did not apply to Colorado’s unreasonable delay and denial statute because the legislature did not intend the statute to operate as a penalty. The Colorado Supreme Court decision is helpful to policyholders where even the property adjustment of an insurance claim can take well over one year to complete.

While the Court’s decision brings some clarity to the time requirements for filing a claim for the unreasonable delay or denial of insurance benefits, the Colorado Supreme Court did not specifically identify the limitation period applicable to a cause of action under for the unreasonable delay or denial of insurance benefits. Therefore, it remains important to pay attention to the claims process and identify unreasonable conduct by the insurance carrier. If you have been affected by one of the many recent Colorado hailstorms and feel that your insurance company has unreasonably delayed or denied the payment insurance benefits, consider contacting a Colorado licensed attorney experienced in protecting first-party policyholder claims.
1 Colorado Revised Statute § 10-3-1115 and § 10-3-1116.

New Jersey Senate Passes Bad Faith Bill

Jason Cleri | Property Insurance Coverage Law Blog | June 10, 2018

Recently, the New Jersey Senate passed S-2144, entitled the New Jersey Insurance Fair Conduct Act. While the bill still must go through the Assembly and be signed by the Governor, this is much welcomed news by insureds and their representatives. Since 1993, insureds have had basically no right to bad faith claims against their insurers under the blanket of the Picket v. Lloyd “fairly debatable” standard.1

That standard set the bar so low for the insurance carrier to overcome that most cases could only proceed under the breach of contract claim. The new bill states:

a. In addition to the enforcement authority provided to the Commissioner of Banking and Insurance pursuant to the provisions of P.L. 1947, c.379 (C.17:29B-1 et seq.) or any other law, a claimant may, regardless of any action by the commissioner, file a civil action in a court of competent jurisdiction against its insurer for:

(1) an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy; or

(2) any violation of the provisions of section 4 of P.L. 1947, c.379 (C.17:29B-4).

b. In any action filed pursuant to this act, the claimant shall not be required to prove that the insurer’s actions were of such a frequency as to indicate a general business practice.

c. Upon establishing that a violation of the provisions of this act has occurred, the plaintiff shall be entitled to:

(1) actual damages caused by the violation of this act;

(2) prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses; and

(3) treble damages

This could be a huge win for insureds in New Jersey if it passes as-is. Not only could a Plaintiff recover extra-contractual damages but those damages can also be tripled (treble damages).

In addition, removing the requirement to show a pattern or practice by the insurance company allows a single litigant the ability to collect under this act. Stay tuned for more developments as this bill makes its way through the New Jersey legislature.

I leave you with a quote from Matt Mead, Governor of Wyoming who stated: Connectivity is important to our state, including the opportunity for our citizens to see our legislative process at work. Let’s hope the New Jersey legislature does the right thing here and passes this bill.
1 Picket v. Lloyd, 131 N.J. 457 (1993).

Adjusters May Be Personally Liable Under Washington Law

Dwain Clifford | The Policyholder Report | April 11, 2018

The Washington Court of Appeals recently held that the obligation to act in “good faith” applies to the adjuster working for an insurer, not just the insurer that employed the adjuster. This rule not only permits insureds to go directly after the person at the insurance company responsible for denying a claim in bad faith, but it may also allow insureds to keep state-law claims filed in state court right where they were filed.

In Keodalah v. Allstate Ins. Co., Division 1 of the Washington Court of Appeals accepted the insured’s request for interlocutory review of a trial judge’s decision that shielded an adjuster making bad-faith decisions from personal liability (this procedure allows review of trial-court decisions before the case goes all the way to trial). The trial judge had ruled that bad-faith claims and claims under Washington’s Consumer Protection Act (CPA) could be brought only against the insurance company, Allstate, but not Allstate’s employee, Tracey Smith, who made the decisions about what Allstate would pay.

In this case, Moun Keodalah had stopped at a stop sign and then started to drive through an intersection when his truck was struck by a motorcycle, killing the motorcycle driver and injuring Keodalah. The police department determined that the motorcycle had been traveling between 70 and 74 mph (in a 30 mph zone!). And the insurer’s own investigator found that Keodalah had stopped, that the motorcycle had been going at least 60 mph, and that the motorcyclist’s “excessive speed” had caused the accident. Straightforward approval of the claim, right? Well, no.

Photo by Chris Yarzab

Despite all of this evidence pointing to the motorcyclist’s fault, Allstate responded to Keodalah’s claim under his underinsured-motorist coverage with its determination that Keodalah was somehow 70% at fault, offering only $1,600 to settle the claim (the jury in this first lawsuit later found nearly $109,000 in damages). Disregarding the police report and the conclusions of Allstate’s own investigators, Smith claimed that Keodalah had run the stop sign and been talking on his cell phone (the latter conclusion was contradicted by Keodalah’s phone records). Keodalah won his coverage lawsuit, including a jury determination that the motorcyclist was 100% at fault, and then filed a second lawsuit asserting bad-faith and CPA claims against both Allstate and Smith.

In this second lawsuit, the trial judge gave a quick victory to Smith in dismissing the bad-faith and CPA claims against her, but this was not to last. The Keodalah court held that Washington’s statute requiring “good faith” in the business of insurance applies to insurers and those acting on behalf of insurers: “Smith was engaged in the business of insurance and was acting as an Allstate representative. Thus, under the plain language of the statute, she had the duty to act in good faith. And she can be sued for breaching this duty.”

Similarly, the court followed a recent decision by the Washington Supreme Court to reverse an older case that had required a contractual relationship between the defendant and a plaintiff asserting claims under the CPA. Without this element, the Keodalah court held that CPA claims can be asserted against adjusters like Smith even though, of course, an insured and an adjuster do not have any contact with each other.

While this result will gratify insureds who often feel personally aggrieved by an adjuster’s bad faith and relish the thought of holding an adjuster personally responsible, Keodalah will doubtlessly play an important role in the familiar battleground between insurers and insureds about which court will hear a case.

Insurers often prefer federal court and remove coverage cases filed in state court to federal court based on what is known as “diversity jurisdiction,” which applies when the plaintiffs and defendants are all citizens of different states. Under Keodalah, insureds can sue individual adjusters, which may defeat diversity jurisdiction (if the insured and adjuster are citizens of the same state) or defeat removal (if the adjuster is a defendant of the state where the suit is brought).

Both because of the availability of bad-faith and CPA claims against another defendant, and because of the procedural advantages in suing an adjuster, Keodalah offers several tools for lawyers on the policyholders’ side of the bar.

Georgia’s Bad Faith Demand Requirements

Ashley Harris | Property Insurance Coverage Law Blog | March 31, 2018

I’ve previously discussed Georgia’s bad faith demand requirements in Georgia Unfair Claims Handling. A recent Georgia appellate court opinion1 highlights how strictly OCGA § 33-4-6 is construed by the courts.

OCGA § 33-4-6 provides, in relevant part:

In the event of a loss which is covered by a policy of insurance and the refusal of the insurer to pay the same within 60 days after a demand has been made by the holder of the policy and a finding has been made that such refusal was in bad faith, the insurer shall be liable to pay such holder, in addition to the loss, not more than 50 percent of the liability of the insurer for the loss or $5,000.00, whichever is greater, and all reasonable attorney’s fees for the prosecution of the action against the insurer.

Georgia courts have held that to bring a claim under this statute the policyholder must prove:

  1. That the claim is covered by the relevant insurance policy;
  2. That a demand for payment was made by the policyholder at least 60 days prior to filing suit; and
  3. That the carrier’s failure to pay was motivated by bad faith.2

In Thompson v. Homesite Insurance Company of Georgia, the policyholder’s home was damaged when a tree fell on it during a storm. The policyholder sustained damages to her home and expenses to remove the tree and other debris from her property. Homesite’s initial payment for these damages was $1,812.33.

The policyholder disagreed with Homesite’s valuation of her claim, and made a number of complaints to and about Homesite regarding the handling of her claims. Specifically, the policyholder filed a formal complaint with the Georgia insurance commissioner and sent several messages to Homesite representatives in May 2011, inquiring about, and criticizing, the handling of her claims. After receiving documentation of the expenses incurred by the policyholder for removal of the tree and other debris in June 2011, Homesite issued an additional payment for $1,800 on October 6, 2011.

In a letter dated October 12, 2011, the policyholder’s counsel demanded payment for the reimbursement for the policyholder’s tree and debris removal expenses. In this letter, the policyholder’s counsel threatened to file a bad faith claim against Homesite under OCGA § 33-4-6 if Homesite did not properly reimbursement the policyholder for the tree and debris removal expenses. This letter also notified Homesite that the policyholder disagreed with Homesite’s estimate of damages to repair her home.

The parties ultimately went to appraisal and an umpire awarded the policyholder $50,713.69 less the $1,000 deductible and prior payments. Homesite issued payment for the umpire’s award.

The policyholder then sued Homesite claiming that Homesite unreasonably delayed reimbursing her for the tree and debris removal expense and that it had underpaid on the umpire’s award, subjecting Homesite to liability under OCGA § 33-4-6. Homesite moved for summary judgment on these claims.

The court analyzed whether the policyholder’s communications with Homesite were sufficient to support recovery under the bad faith statute. The court concluded that statements by the policyholder to Homesite and the Georgia insurance commissioner that she was unhappy with the progress of her claim were not sufficient to alert Homesite she was considering filing a bad faith claim.

The court held that a demand under OCGA § 33-4-6 must not only express displeasure with the insurer’s handling of the claims process but actually alert the insurer that the insured plans to take legal action for bad faith if the claim is not paid.

The only communication the policyholder had with Homesite in which potential litigation was threatened was the October 12, 2011, letter sent by her counsel. However, this threat of litigation pertained only to the Homesite’s failure at the time to reimburse the policyholder for tree and debris removal expenses. Since Homesite paid the policyholder for those expenses on October 6, 2011, Homesite had already satisfied the specific demand made by the policyholder. As the policyholder never threatened to invoke OCGA § 33-4-6 regarding any remaining portions of her claim with Homesite, the appellate court affirmed the trial court’s grant of summary judgment on the policyholder’s bad faith claim.

While Georgia courts have held that no special language is necessary for the demand under OCGA § 33-4-6, this opinion emphasizes how strictly courts will review and interpret the demands in order to hold carriers liable under the bad faith statute.
1 Thompson v. Homesite Ins. Co. of Georgia, No. A17A1938 (Ga. App. Mar. 14, 2018).
2 BayRock Mortg. Corp. v. Chicago Title Ins. Co., 286 Ga.App. 18, 19 (648 S.E.2d 433) (2007).

In Washington, an Insurer Cannot Refuse to Defend, Change Its Mind, and Still Expect to Control the Defense or Avoid Bad Faith

Kevin Mapes | The Policyholder Report | February 20, 2018

A recent decision from the U.S. District Court for the Western District of Washington again demonstrates the decidedly pro-policyholder nature of insurance-coverage law in the state of Washington. Like so many coverage cases, 2FL Enterprises, LLC v. Houston Specialty Insurance Co., arose from underlying construction-defect litigation.

The insured, 2FL Enterprises, first notified its insurer, Houston Specialty, when a dispute arose between 2FL and the owner of an apartment building that 2FL had worked on. The next month, the owner filed suit, and 2FL promptly tendered the lawsuit to Houston Specialty. Five months later, Houston Specialty issued a letter denying any coverage for the lawsuit. After a default judgment was entered against 2FL, Houston Specialty reconsidered and offered to retain counsel on behalf of its insured. 2FL rejected Houston Specialty’s offer of a defense.

Photo by GotCredit

In the ensuing coverage litigation, the court initially set out the broad nature of the duty to defend under Washington law, finding that “all that is required to trigger the duty to defend is the ‘potential’ for liability,” asking “whether allegations in the complaint could conceivably impose liability on the insured,” and concluding that “if there is any reasonable interpretation of the law that could result in coverage, the insurer must defend.” Applying these standards, the court found that Houston Specialty had breached its duty to defend and acted in bad faith. The court was particularly bothered by the Houston Specialty’s attempt to rely on extrinsic evidence to support its denial. Under Washington law, extrinsic evidence may be used in support of coverage, but an insurer can never rely on documents beyond the complaint and the policy in denying coverage.

Significantly, the court was unimpressed by Houston Specialty’s belated change of heart and attempt to provide a defense. Houston Specialty argued that any breach was “cured” when it belatedly offered to participate in 2FL’s defense, and that 2FL had breached its duty to cooperate when it rejected the offered defense. The court disagreed, finding that Houston Specialty “had already breached the contract by the point in time it argues that Plaintiff was required to cooperate. ‘An insured … should no longer be bound by contractual obligations if the insurer breaches its duty to defend the insured.’” Releasing the insured from its duty to cooperate was not the only consequence of Houston Specialty’s denial of coverage. The Court went on to conclude that by breaching its contractual obligation to defend, the insurer lost the right to control the insured’s defense, despite its later offer to defend.

Finally, the Court found that Houston Specialty had acted in bad faith, and its later offer to defend did not change the court’s position:

The fact that both the delay and the denial were unfounded and unreasonable dictate a finding of bad faith which is unmitigated by the insurer’s later change of heart.

For insurers, this decision reinforces the general state of Washington law: deny the insured a defense at your own peril. The decision also adds a new wrinkle: an insurer that denies a defense cannot simply change its mind and still expect to control the defense of the insured in order to guard against bad-faith exposure. For policyholders, that same wrinkle presents a potential opportunity. Once an insurer has denied coverage, the policyholder should be free to retain counsel of its choosing and to control the defense going forward, even if the insurer later agrees to defend. At a minimum, the decision gives the policyholder a good argument that the insurer should agree to fund the defense through the insured’s choice of counsel, rather than insisting on the insurer’s own panel counsel.