Insurer in Bad Faith Due to Adjuster’s Failure to Keep Abreast of Case Law

Tred R. Eyerly | Insurance Law Hawaii

    The federal district court found that the insurer acted in bad faith when the claim was denied based on the adjuster’s lack of knowledge of recent case law in Washington. Sec. Nat’l Ins. Co. v. Constr. Assocs. of Spokane, 2022 U.S. Dist. LEXIS 53533 (E.D. Wash. March 24, 2022). 

    Construction Associates of Spokane was a general contractor hired for a project at the Paulsen Building in Spokane. Construction Association hired a subcontractor, Merit Electric, for whom Mark Wilson worked. Wilson was seriously injured on August 20, 2016. He sued the Construction Associates along with other defendants three years later.

     Construction Associates tendered to Merit Electric’s broker, Alliant Insurance Services, Inc. Alliant forward the tender to Security National. The tender letter included a certificate of insurance issued by Alliant to Contractor Associates on September 3, 2019 and the subcontract with Merit. The subcontract required Merit to maintain CGL coverage with limits of $1 million. Further, the subcontractor was to issue certificate of insurance to the Contractor.

    Merit’s policy for the 2016-17 period included an “Additional Insured” endorsement that conferred additional insured status to “any person for whom you are performing operations when you and such person have agreed that such person be added as an additional insured on your policy.”

    Contractor Associates requested from Merit’s broker the certificate of insurance for April 2, 2016 to April 2, 2017. Alliant provided a certificate, but it was issued for another project that Merit was working on. Alliant also provided a certificate of insurance for 2019 which was not project specific and purported to reflect blanket additional insured status for the period during which Wilson was injured. 

    Claim notes reflected that the adjuster felt it was necessary to consult with claims counsel to determine if the 2019 certificate of insurance would provide coverage for the Wilson accident, but this was not done. Instead, the claim was denied because no Additional Insured endorsement for the 2016 policy was found. The adjuster noted a Washington statute provided that “A certificate of insurance does not confer new or additional rights beyond what the referenced policy of insurance provides.”

    Counsel for Construction Associates spoke and emailed the adjuster to inform him of a recent decision issued by the Washington Supreme Court, T-Mobile USA Inc. v. Selective Ins. Co. of Am., 450 P.3d 150 (Wash. 2019). The decision held that an insurer was bound by the representations of its agent, such as when issuing a certificate of insurance.

    Security National then conducted a second investigation four months after the initial tender. A second denial was issued by Security National when it stated that Alliant had no authority to issue any certificate of insurance after the policy expired. Security National then filed a declaratory judgment action against Construction Associate and moved for partial summary judgment regarding the 2019 certificate of insurance. Construction Associates filed a motion for summary judgment on bad faith.

    The federal district court first relied on T- Mobile USA and found that the certificate of insured issued by Merit, Security National’s agent, provided coverage to Construction Associates for the Wilson accident. 

    The court then turned to Construction Associates’ motion. The court found that Security National acted in bad faith as a matter of law because its denial and determination that it neither had the duty to defend nor indemnify was based, initially, on an inadequate investigation and, later, on arguable readings of the policy and questionable interpretations of Washington law. The adjuster did little to no investigation regarding why the 2019 certificate of insurance was issued. Instead, the adjuster was content to rely on his own (erroneous) knowledge of the applicable law concerning certificates of insurance. Second, Security National filed to look for and account for published case law directly on point, which was especially troubling given the notations in the file that coverage counsel may be required. 

    An adjuster was not excused from having at least a baseline understanding of the relevant state’s law necessary to carry out their duties. Insurers were obligated to undertake the reasonably small steps to ensure adjustors were equipped to make reasonable coverage and defense determinations. Adjustors had to equip themselves or seek out those with the requisite tools and knowledge. 

    Therefore, Construction Associates’ motion for partial summary judgment was granted. 

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Statute of Limitations and Bad Faith Claims: Factors to Consider

Anastasiya Collins | Saxe Doernberger & Vita

How much time do our clients have to bring a bad faith action against an insurer? Although we are not frequently asked this question, it is one that we constantly analyze before asserting a bad faith claim.

To answer this question, we look to the statute of limitations, which is a law passed by a state legislative body that sets the maximum amount of time for a party to bring a claim based upon a particular cause of action. For policyholders, knowing which statute of limitations applies to their bad faith claim is critical because it indicates whether it is possible to initiate legal proceedings. In addition, it determines the amount in damages available in case of a successful resolution.

Statute of Limitations in Breach of Contract vs. Tort Claims
One key determinant of a statute of limitations for bad faith is whether the claim is brought as a tort or a breach of contract action. The consequence of framing bad faith as a tort is that a policyholder is not just limited to contract damages. The policyholder can also receive recourse for emotional distress, pain, suffering, punitive damages, attorney’s fees, and other damages that the court may consider appropriate. Unfortunately, however, not every jurisdiction allows plaintiffs to bring bad faith actions as tort claims. While, for example, courts in California, Colorado, and Connecticut allow bad faith claims sounding in tort, courts in jurisdictions such as Tennessee do not.

This background information is very important to keep in mind as different statutes of limitations may apply to common law bad faith claims sounding in tort as opposed to those sounding in contract. For example, if bad faith is brought as a breach of contract claim in California, plaintiffs have four years from the date they were denied in bad faith to bring action against the insurer. If, however, bad faith is brought as a tort claim, that opening narrows to two years. The length of these time periods and the moment when the statute of limitation in a bad faith claim starts to accrue, significantly vary across jurisdictions. However, the window on a contract claim tends to be longer than that of a tort claim.

Common Law vs. Statutory Bad Faith Claims
When pursuing a bad faith claim, it is also important to keep in mind any state laws that may be relevant. Bad faith claims can broadly be categorized as either: (1) common law bad faith claims; or (2) statutory bad faith claims. The first category stems from case law, while the second is based on laws enacted by state legislatures that deal with insurer bad faith. For example, many states have passed laws based on the National Association of Insurance Commissioners’ “Unfair Claims Practices Settlement Act.” While most states in the country have adopted versions of this act, including California, Connecticut, and Florida, some, like Mississippi, have not.

In states that allow for a private right of action based on a statute, the laws may specify a limitations period. For example, in Connecticut, while a common law breach of contract bad faith claim must be brought within six years, and claims based on the state’s Unfair Trade Practices Act must be brought within three.

Contractual Modification of a Limitations Period
Statutes of limitations for bad faith claims can also be context-dependent. Many courts across the country will allow for contract modification of a limitations period, but typically for purposes of shortening the permitted time period for bringing a claim. Some courts have allowed for a contractual lengthening of a statute of limitations. For example, a court in California has held that the three-year statute of limitations for tortious bad faith specified in a health insurance policy trumped the state’s two-year period prescribed by the California statute.1

Due Diligence for Statutes of Limitations
Bad faith litigation and applicable statutes of limitations are more complex and require more attention than other claims since they are dependent on the nature of the cause of action asserted. Because a bad faith claim may be brought either as a tort or as a breach of contract claim, and because state statutes may apply to give a right of action, policyholders must be mindful of the different deadlines and requirements that may be relevant to each type of claim. Any contractual modification of a statute of limitations may also be relevant. Thus, it is imperative, that policyholders work with an experienced attorney who can advise them on their jurisdiction’s unique rules if they have faced a bad faith handling of their claim.

1Blue Shield of California Life & Health Ins. Co. v. Superior Court, 120 Cal. Rptr. 3d 727, 729 (Cal. Ct. App. 2011).

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Arizona Appellate Court to Consider Standard for Aiding and Abetting Bad Faith Claims

Patrick Gorman | Jones, Skelton & Hochuli

Iglesia v. Brotherhood
Arizona Court of Appeals
April 12, 2022

In cases alleging bad faith against an insurance carriers, policyholders will often sue employee adjusters or contractors (independent adjusters, engineers, experts) of the insurance carrier to keep the case out of federal court. In a legal sense, policyholders sue the employee adjusters or contractors to defeat “diversity jurisdiction” necessary for the federal court to hear the case. The most common legal claim alleged against the employee adjuster or contractor is “aiding and abetting” the breach of the duty of good faith and fair dealing. In Iglesia v. Brotherhood[1], the Arizona Court of Appeals will address the standard to state a claim against the employee adjuster or contractor for aiding and abetting the breach of the duty of good faith and fair dealing.

Iglesia arises out of a hail loss at a church in Phoenix, Arizona. After the loss, the insurer retained an engineering firm to evaluate the damages. After the insurer denied the claim, Iglesia filed suit against the insurer for breach of contract and breach of the duty of good faith and fair dealing, and against the engineering firm for aiding and abetting the breach of the duty of good faith and fair dealing. The trial court granted the engineering firm’s Motion to Dismiss, finding that Iglesias failed to state a claim upon which relief could be granted. The church appealed.

On appeal, the engineering firm is not challenging the state of the law for aiding in abetting in Arizona, which was pronounced in the case Federico v. Maric[2]. According to Federico, aiding and abetting tortious conduct requires three elements: (1) the primary tortfeasor must commit a tort that causes injury to the plaintiff; (2) the defendant must know that the primary tortfeasor’s conduct constitutes a breach of duty; and (3) the defendant must substantially assist or encourage the primary tortfeasor in the achievement of the breach. Rather, in Iglesia, the Court of Appeals will address what is necessary under Arizona’s pleading rules to state a claim for aiding and abetting. In other words, what a plaintiff must allege in the complaint to defeat a motion to dismiss on an aiding and abetting claim.

Iglesia could prove to be an important case for insurance carriers, who typically prefer to litigate coverage and bad faith claims in federal court. If an employee adjuster or contractor is named in the suit, insurers often file motions to dismiss to remove that particular defendant, and if granted, remove the case to federal court. Iglesia will give both policyholders and insurance carriers better guidance on what claims can be dismissed, and consequently, what cases can be removed to federal court.

The Court of Appeals heard oral argument on April 12, 2022. (Watch oral argument here.) A decision is expected in the next several months.

[1] 1 CA-CV 20-0358
[2] 224 Ariz. 34, 226 P.3d 403 (App. 2010)

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

When an Insurer Fulfills its Promises There Can Never be “Bad Faith”

Barry Zalma | Zalma on Insurance

It is Contumacious to Sue an Insurer Who Fulfills all Promises Made by its Policy

An insurance contract is nothing more than mutual promises made by the insurer to the insured and from the insured to the insurer. When an insurer keeps all of the promises it made, settles a claim made against its insured before suit is filed, it has fulfilled all of the promises made by the policy.

In NL Corp., Inc. v. Seneca Specialty Insurance Company, Appellate Case No. 28927, 2021 Ohio 1610, Court Of Appeals Of Ohio Second Appellate District Montgomery County (May 7, 2021) NL sued its insurer for bad faith after it settled a wrongful death claim and obtained a release in favor of NL of all potential claims. Regardless, NL sued only to see Seneca obtain a summary judgment requiring NL to pay its deductible as it promised.

NL Corp., Inc. appealed from the judgment. NL contended that Seneca’s wrongful conduct in handling the matter required NL to retain an attorney, and that Seneca refused to reimburse NL for the attorney’s fees and costs. NL also appealed from the trial court’s granting summary judgment on Seneca’s counterclaim for the deductible owed under the insurance policy, which NL had refused to pay. Seneca contended that, because it paid the claim, NL was obligated to pay the deductible.

Factual Background

NL operates a nightclub in the Dayton area. On May 11, 2014, a patron at the club, Adam Bishop, fell in the parking lot after a confrontation with club security and struck his head on the pavement; he died several days later. The police took witness statements and prepared a police report, and the police were given surveillance video that had recorded Bishop’s fall.

Fearing criminal and civil liability, NL retained attorney Scott Jones. About a month after the incident, NL reported the incident to its insurance company, Seneca. NL, after months of delay and refusal to cooperate, finally gave Seneca the surveillance tape. Seneca advised its insured outlining its preliminary coverage position that it concluded the $250,000 assault-and-battery limit under the policy may apply to the claim and indicated that NL had not cooperated with Seneca’s investigation of the claim.

Seneca maintained that it had no obligation to pay for counsel for NL, because no suit had been filed. Nevertheless, at Jones’s insistence, Seneca appointed attorney David Ross to represent NL in the investigation. But NL was not satisfied. It wanted separate counsel, unbeholden to Seneca, because NL was concerned about a potential conflict of interest between it and Seneca in the event that the Bishop family brought a claim for an intentional tort or over-the-limit coverage questions arose.

Bishop was a resident of Missouri at the time of his death, and under Missouri law, a settlement of a wrongful-death claim had to be approved by a Missouri probate court. A probate case was opened, and on December 15, 2015, the Bishop family’s settlement agreement with Seneca was approved by the court. Seneca paid the family the agreed $250,000 under the policy’s coverage for assault and battery.

After the settlement NL sued Seneca, claiming that Seneca claiming it had breached the insurance policy by refusing to reimburse it for it’s independent counsel, Jones’s, fees and costs. Seneca counterclaimed that NL had refused to pay the $5,000 deductible that it owed under the policy after Seneca made the payment to the Bishop family.

Seneca moved for summary judgment on NL’s claims and on its counterclaim for payment of the deductible. The trial court sustained Seneca’s motion.


Other than its failure to mention the affidavit of NL’s expert there was no evidence suggesting that the trial court did not consider the affidavit. Regardless the court had good reason not to consider the expert’s opinion since an expert cannot properly give an opinion on the law that applies in a dispute.

Breach Of Contract, Bad Faith, And The Deductible

NL claimed that Seneca breached the insurance policy by not providing NL an adequate or continuing defense, not adequately and timely investigating the incident and coverage obligations, and refusing to reimburse NL for the attorney fees and costs that it incurred in using independent counsel to protect its interests.

Applying the contract language Seneca agreed to pay those amounts that NL became legally obligated to pay as damages because of Bishop’s injury. Seneca reserved the right and duty to defend NL against any “suit” seeking those damages. In many places, the insurance contract distinguishes between a “suit” and a “claim.” With respect to the Bishop occurrence, Seneca’s contractual duty to defend NL was never triggered because there was never a “suit.” There was only a claim made directly to Seneca by the Bishop family. The probate case in Missouri was a “civil proceeding,” but it did not seek damages, being merely a proceeding to approve the settlement. Therefore, Seneca was not obligated to appoint counsel for NL.

Seneca did not have a contractual duty to reimburse NL for the fees and costs that NL incurred by retaining Jones as its attorney before the occurrence was even reported to Seneca. Under the insurance contract, Seneca agreed to pay reasonable expenses incurred at its request. However, Seneca never asked NL to hire an attorney. The policy, by its terms, NL agreed that it would not voluntarily incur any expense “without our [Seneca’s] consent.” The insurance contract here did not require Seneca to provide NL a defense until there was a lawsuit for damages. While NL’s hiring of an attorney to investigate and prepare for potential litigation might have been a good idea, it was not something for which Seneca was obligated to pay.

A “suit” was needed to trigger Seneca’s obligation to assign counsel for a defense. There was no “suit.” Seneca had no contractual duty to defend NL and no contractual obligation to reimburse NL for the attorney that NL voluntarily retained.

Bad-Faith Claim

The Court of Appeal saw nothing unreasonable about Seneca’s refusal to provide a defense since there was no suit.  NL presented no evidence that anything Seneca did was arguably unreasonable, given the circumstances and undisputed terms of the contract.

The Deductible

As to Seneca’s counterclaim for the deductible that it said NL owed under the insurance contract, NL argued that Seneca’s failure to reimburse it for attorney fees and costs constituted a material breach that relieved NL from paying the deductible.

There was no dispute that an endorsement required NL to pay Seneca a $5,000 deductible. Seneca settled the Bishop family’s claim for the full amount available under the policy’s assault-and-battery coverage, triggering NL’s obligation to pay and protected NL from a judgment in excess of the policy limit. Since the Court of Appeal concluded that Seneca had no obligation to reimburse NL for its counsel’s fees the deductible was owed.

NL failed to produce summary judgment evidence to create a genuine issue of material fact as to whether Seneca breached the insurance contract, whether Seneca acted in bad faith, or that NL did not owe the deductible.  Seneca was not obligated to pay the fees and costs of the attorney that NL voluntarily retained. Further, Seneca did not act in bad faith in its handling of the matter. And, because Seneca paid the claim, NL is obligated to pay the required deductible.


An insurer that – with little assistance from its insured – kept all the promises made by it in the policy of insurance should be praised for its conduct not sued. But since no good deed goes unpunished it was sued for breach of contract and bad faith by the insured it protected. The Ohio Court properly refused to allow NL to bludgeon its insurer to pay for actions it did not agree to pay by making a claim of bad faith. It failed because the court actually read the policy and found that Seneca did exactly what it promised to do and should have been rewarded for its conduct not accused improperly of wrongdoing.

Can a Settlement Demand Above Policy Limits Fall within Limits? A Calif. Appellate Court Says Yes

Michael Melendez and Rebeka Shapiro | Cozen O’Connor

California law generally requires that an insurer reject a reasonable settlement demand within the policy limits before it can be liable for a bad faith failure to settle. See Samson v. Transamerica Ins. Co., 30 Cal.3d 220, 237 (1981). But a recent California Court of Appeal (4th Dist.) decision held that a pre-litigation demand exceeding the policy limits could — under the right circumstances — provide the factual basis to assert that an insurer missed the opportunity to settle. Planet Bingo LLC v. Burlington Ins. Co., E074759, 2021 WL 1034830 (Cal. Ct. App. Mar. 18, 2021).

Burlington Insurance Company’s insured, Planet Bingo LLC, designed and supplied electronic gaming devices. In 2008, a fire broke out in a bingo hall in the United Kingdom owned and operated by Beacon Bingo. Security camera footage showed that the fire originated in or very near the racks where Planet Bingo’s devices were stored. Beacon notified Burlington that Beacon’s estimated losses totaled $2.6 million.

Beacon and Burlington conducted lengthy investigations regarding the claim. Because Beacon did not provide information to Burlington, Burlington hired its own investigator. In 2010, Burlington’s investigator concluded that one of Planet Bingo’s devices was the most likely cause of the fire. Nevertheless, in September 2010, Burlington concluded that Planet Bingo was not liable; that there were “coverage issues” relating to the claim; and that neither the distributor of Planet Bingo’s devices, Leisure Electronics Ltd., nor Leisure’s insurer seemed to be pursuing the claim.

During the ensuing nine months, Burlington conducted little further investigation. Planet Bingo complained to Burlington that it was losing business because the unpaid claim was damaging its reputation. In 2011, Burlington informed Planet Bingo that because no one appeared to be pursuing Planet Bingo for the damages, Burlington was closing its file.

Three years later, Leisure’s insurer, AIG Europe Ltd., wrote to Planet Bingo advising that Leisure settled with Beacon for approximately $2.6 million. AIG demanded that amount from Planet Bingo, but stated that it would be willing to engage in alternative dispute resolution: “We are instructed to recover our client’s outlay …. With the objective of avoiding the costs of litigation, our client is prepared to enter into alternative forms of dispute resolution. … [T]he options available … are discussions and negotiations or mediation. Please confirm which option you agree to.” (Ellipses in original.)

The court noted that AIG’s $2.6 million demand was more than twice the Burlington policy’s limits. But Planet Bingo’s expert testified that Burlington should have considered the larger context. Namely, that such an excess demand in the subrogation context actually was an invitation to settle at policy limits. Specifically, that there was an “industry custom in such subrogation claims for accepting policy limits for a full release [o]f the insured.”

Burlington did not read between the lines of AIG’s demand. Instead, Burlington denied coverage on the grounds that the claim arose outside the coverage territory and no suit had been filed in the United States or Canada, as required for Burlington to have a duty to defend. Subsequently, AIG filed suit in California, and Burlington defended its insured. Nine months into the suit, Burlington settled for the policy limits.

After the settlement, Planet Bingo sued Burlington, claiming that Burlington’s failure to settle earlier harmed Planet Bingo. Burlington prevailed on summary judgment based on the argument that because a demand was never made at or below the policy limits, it did not have the opportunity to settle within the policy limits. (Burlington did not address the lack of an excess judgment against the insured.) The question before the appellate court was whether Planet Bingo could make a prima facia case against Burlington when Burlington did not receive a formal demand within the policy limits.

Burlington argued that the lack of such a demand was dispositive, citing Howard v. American National Fire Ins. Co., 187 Cal. App. 4th 498, 525 (2010) (“the opportunity to settle is typically shown by proof that the injured party made a reasonable settlement offer within the policy limits and the insurer rejected it”). But the court ruled that this was not the typical case. It relied heavily on Boicourt v. Amex Assurance Co., 78 Cal. App. 4th 1390 (2000). There, the claimant asked the insurer to disclose the policy limits prior to filing any suit. The Boicourt court held that the pre-suit request to disclose available coverage limits signaled a willingness to settle for the limits, and that an insurer could be liable for failing to act on the opportunity.

The Planet Bingo court ruled “that the existence of an opportunity to settle can be shown by evidence other than a formal settlement offer.” Planet Bingo’s expert testified that AIG’s excess demand to settle its subrogation claim actually signaled a willingness to settle for the limits. The court ruled that this testimony created a triable issue of material fact as to whether Planet Bingo had an earlier opportunity to settle the case within limits.

The takeaway from this decision is that where a settlement demand above limits is made on an insured, a liability insurer cannot merely assume that the demand is not an opportunity to settle within the policy limits. Especially in circumstances where the insured’s liability could exceed the policy limits, the insurer should explore whether the party making the demand is actually seeking to settle within the limits.