{"id":893580,"date":"2018-02-07T11:34:19","date_gmt":"2018-02-07T18:34:19","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=893580"},"modified":"2018-02-07T11:34:19","modified_gmt":"2018-02-07T18:34:19","slug":"not-every-refusal-provide-coverage-equals-bad-faith","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/not-every-refusal-provide-coverage-equals-bad-faith\/","title":{"rendered":"Not Every Refusal to Provide Coverage Equals Bad Faith"},"content":{"rendered":"<p>Cheryl D. Shoun | <a href=\"http:\/\/www.nexsenpruet.com\/insights\/not-every-refusal-to-provide-coverage-equals-bad-faith\" target=\"_blank\">Nexsen Pruet<\/a> | January 30, 2018<\/p>\n<p>A complicated and interesting factual history, along with a number of actions, including an earlier one for declaratory judgment, resulted in a thoughtful and reasoned opinion of the United States District Court for South Carolina.\u00a0<em>Agape Senior Primary Care, Inc. v. Evanston Insurance Company<\/em>\u00a02018 WL 490386 (January 19, 2018).<\/p>\n<p>Briefly, Agape, a conglomerate of nursing homes in the state, hired an individual it believed to be a licensed physician. Turns out, Agape was duped; the employee had fraudulently assumed the identity of a licensed physician. When the scam surfaced, Agape was faced with a number of claims and looked to Evanston to defend and indemnify pursuant to a policy it issued to several of Agape\u2019s health care providers, including the pseudo doctor. Upon learning of the situation, Evanston initiated a declaratory judgment action seeking a ruling that the policy in question was void\u00a0<em>ab initio<\/em>\u00a0because of the \u201cdoctor\u2019s\u201d fraudulent conduct. In a split decision, the court found the policy was not void as to all of Agape\u2019s providers, but certain claims were not covered because of the \u201cdoctor\u2019s\u201d misconduct. The Fourth Circuit affirmed. Now, the parties are back before the court on cross motions for summary judgment arising from Agape\u2019s claims against Evanston resulting from Evanston\u2019s conduct on several underlying tort claims, addressed below.<\/p>\n<h2>The\u00a0<em>Watts<\/em>\u00a0Litigation<\/h2>\n<p>An action brought by the estate of a former patient, Evanston continued to defend Agape through the Fourth Circuit\u2018s affirmation of the court\u2019s ruling on critical coverage issues. Following affirmation, Evanston discontinued the defense, asserting the claims were not covered pursuant to the court\u2019s earlier ruling. Agape disagreed and raised claims for breach of contract, including bad faith.<\/p>\n<p>After sorting through what the court described as an inartfully drafted mishmash of allegations, it concluded Evanston breached the contract by refusing to continue to defend Agape and by refusing to indemnify for the settlement it reached in\u00a0<em>Watts<\/em>. That breach, however, did not mean Evanston acted in bad faith. Sorting through the underlying complaint was a challenge even for the court. Recognizing there are cases that present extremely close calls on coverage, the court found not every refusal to provide coverage rises to the level of bad faith. Bad faith requires a showing of no reasonable basis for the insurer\u2019s decision to deny coverage. A decision that is merely incorrect, but reasonably based, will not result in bad faith.<\/p>\n<h2>Changing Defense Firms<\/h2>\n<p>After litigation had been pending for some time, Evanston discontinued the services of the defense firm it originally hired and retained other counsel. This change resulted in substantial additional costs. The relevant policy language clearly provided Evanston had the option to choose the attorneys it deemed most qualified and thereby the contractual right to change law firms, at its discretion. Because, however, the policy in question was one of declining coverage, wherein defense costs were deducted from the limits, Agape argued the change in counsel and resulting additional costs resulted in damage. Specifically, the policy limits could have been depleted sooner because of the additional costs associated with the change of defense firms.<\/p>\n<p>Evanston argued it had the unilateral right to change firms and pointed out it agreed not to deduct the additional costs from the policy limit. Responding that Evanston did not make that concession until the onset of this litigation, Agape sought to recover its attorneys\u2019 fees in bringing this suit that it argued was the catalyst for Evanston\u2019s agreement. Because both parties acknowledged that policy limits had not been exhausted, the court declined to rule on this question.<\/p>\n<h2>Evanston\u2019s Participation in Mediation<\/h2>\n<p>The underlying claims were subject to mandatory state court mediation. The lead attorney seeking disposition of coverage issues on behalf of Evanston attended the mediation, which Agape argued equated to meaninglessly \u201cchecking the box\u201d and therefore bad faith. As many as six underlying claims were mediated over a span of two days, one of which resolved.<\/p>\n<p>Agape\u2019s criticism of the attorney who attended mediation necessarily included the insinuation that some other attorney could have attended. However, because Evanston was defending Agape under a reservation of rights and litigating coverage issues at the same time, a common scenario created by state court mediation rules, any attorney employed by Evanston would have struggled under the same conflict of interest cloud.<\/p>\n<p>Additionally, in order to sustain a bad faith claim the insured must prove, among other things, damages from the alleged wrongful conduct. In the context of sending the \u201cwrong\u201d attorney to mediation, the insured would have to prove attendance by the insurer\u2019s counsel somehow adversely affected an otherwise favorable settlement, which would almost always rest on speculation.<\/p>\n<p>Agape did not direct the court to any South Carolina authority establishing a bad faith claim arising from these or similar facts. Moreover, the court viewed any suggestion of conflict created by participation in mediation as largely the responsibility of state court mediation rules. Also noting that one of the mediated claims resolved, the court concluded Evanston acted well within its rights as to mediation.<\/p>\n<p><strong>There are two significant messages provided to insurers by\u00a0<em>Agape.<\/em>\u00a0The first \u2013 exercise careful consideration of the underlying complaint, upon which a determination will be made as to whether coverage is triggered. A carefully reasoned decision made in the context of a close coverage issue will not result in bad faith. Next \u2013 the insurer must necessarily participate in mediation through an attorney in its employ. Despite the resulting appearance of a potential conflict, created by state court mediation rules, the court will examine all factors, including the insurer\u2019s meaningful participation.\u00a0<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Cheryl D. Shoun | Nexsen Pruet | January 30, 2018 A complicated and interesting factual history, along with a number of actions, including an earlier one for declaratory judgment, resulted in a thoughtful and reasoned opinion of the United States District Court for South Carolina.\u00a0Agape Senior Primary Care, Inc. v. Evanston Insurance Company\u00a02018 WL 490386&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/not-every-refusal-provide-coverage-equals-bad-faith\/\">Continue reading <span class=\"screen-reader-text\">Not Every Refusal to Provide Coverage Equals Bad Faith<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[140,9914],"tags":[9895,140,23],"class_list":["post-893580","post","type-post","status-publish","format-standard","hentry","category-bad-faith","category-insurance-coverage","tag-advise-consult","tag-bad-faith","tag-insurance-coverage","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Not Every Refusal to Provide Coverage Equals Bad Faith - Advise &amp; 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