If you want to win a bad faith case, it is better to hire lawyers who are challengers and not pretenders. Cases of bad faith are not easy, and the term is overused by those ignorant of the subject. Larry Bache told me a story about a relatively new attorney from another firm on the speaking circuit who had never tried a bad faith case, let alone a full insurance tort case, who brought up bad faith in an attempt to rain cases on his firm . There are pretenders.
The first bad faith trial I was in represented an adjuster who allegedly asked the local minister in a small town “where was the owner who burned down his store?” Forty years ago, when I started my career, I represented insurance companies. We won that case. My first mentor, Paul Butler, gave a closing statement that brought the jury to tears. The minister left the courtroom not to return for the verdict after all the evidence was fully disclosed.
I thought of these two memories as I read a recent verdict in a hailstorm case in Oklahoma where bad faith was alleged.1 The judge’s order recited the facts:
On April 14, 2021, Kyle Hubbell filed a claim for wind and hail damage to the house’s roof and a detached garage, as well as damage to gutters, screens and an outdoor fireplace. The storm that gave rise to the claim occurred on July 11, 2020. Johnny Gage, an independent insurance adjuster, was assigned to claim and he scheduled an inspection of the plaintiffs’ property for April 24, 2021. The plaintiffs were not present when the inspection took place, but Jordan Gray of Native Roof Co. was present on behalf of the plaintiff. Prior to the inspection, Gage reviewed an exterior photo of the property, the plaintiff’s insurance, and a weather report that verified a hail storm occurred on July 11, 2020. Gage found minor hail damage to the shingles on the roof of the home, but he found no evidence of wind damage to the shingles. There was evidence of “heavy foot traffic” and footfall on the front slope of the roof, but this had nothing to do with hail damage. Gage concluded that there was insufficient damage caused by hail to warrant full replacement of the house’s roof. Gage also inspected the roof of a detached garage and found evidence of hail on shingles, but he found that the amount of damage did not require replacement of the garage roof. Gage did not inspect the interior of the home or the garage, as plaintiffs made no claim for interior damage.
Gage provided an estimate for replacing some shingles on the roof of the house and garage, and he included damage to soft metal structures, window screens and light fixtures as part of the estimate. Gage contacted Holly Hubbell and notified her of the results of the inspection, and she made it clear to Gage that she was dissatisfied with the outcome of the claim. Gage advised Holly Hubbell that she had the right to request a second inspection. State Farm deducted the insurance deductibles and diminution amounts and issued the plaintiffs a payment of $1,174.69. (citations omitted)
It seems that many hail injury cases initially come to our law firm. The insurance company makes an assessment of damage that is smaller in scope. As a result, the price the insurer pays is much lower than the price the roofing contractor will do the work for.
The court noted that the policyholder alleged the following in the lawsuit:
Plaintiffs did not request a second inspection by State Farm, and they did not directly have any further communications with State Farm regarding their insurance claims. On July 12, 2021, plaintiffs filed a petition … alleging breach of contract and bad faith against State Farm, and State Farm removed the case to this court. The petition states that this case involves a “wind and hail loss” that occurred at the plaintiff’s home. The parties filed a joint status report and the plaintiffs stated that State Farm has failed to fully compensate the plaintiffs after “a severe storm caused wind and hail damage.” Plaintiffs have provided State Farm with a series of estimates for the cost of a new roof ranging from $41,194.25 to $76,922. In a sworn affidavit of loss signed by both plaintiffs, they specifically refer to “hail” as the cause of the damage giving rise to the need for a new roof.
State Farm contends that it acted reasonably in its investigation and settlement of plaintiffs’ insurance claims for wind and hail damage, and that State Farm has a legitimate basis for disputing the existence of coverage for plaintiffs’ claims. Plaintiffs respond that State Farm had a contractual duty to consider every cause of damage to plaintiff’s property, and they argue that State Farm acted in bad faith by focusing only on storm damage as the only possible cause of a covered loss under the policy.
I didn’t have to read any further to know what the federal judge was going to do with the bad faith case – throw it out. Based on the amount of evidence presented and allegations of bad faith, he was correct.
As stated in Do insurance companies pay too many claims?here is a basic duty that insurance companies should do to act in good faith:
Insurance companies have a duty to provide a sufficient number of competent and motivated adjusters to promptly and thoroughly investigate coverage, evaluate claims, and pay all benefits available for losses.
In the case cited above, the roofing contractor may be wrong and certainly has a motivation to charge as much as possible to do the work. So why didn’t the policyholder’s attorney get a second opinion before filing the lawsuit? Yes, there is no legal basis for doing so. But there is no telling why the investigation by the independent adjuster was done in bad faith or wrong. There was no indication that State Farm knew that the independent adjuster was not properly trained, acted out of any type of impermissible motivation, did not spend enough time investigating the loss, or anything other than looking for things that were not what the policyholder claimed caused the loss.
In addition to the basic duty above, I noted five examples that demonstrate a lack of good faith Good Faith (WKA Bad Faith) lawsuits do not always result in a policyholder’s trial victory:
- Late payment of agreed debts.
- Persistent violations of regulations.
- The insurance company claims targets to reduce claim payouts.
Oklahoma City-based Merlin Law Group attorney Drew Houghton participated in one of Oklahoma’s largest bad faith hail damage cases. He and I wrote about Oklahoma bad faith cases and quoted claims expert Steve Strzelec, who once worked for State Farm, regarding an insurer’s duty of good faith, in Wrongful denial or delay by your insurance company in Oklahoma? Insurance companies have obligations of good faith and can be held liable:
The duties of good faith and fair dealing are embedded in the industry and are taught and accepted as claims handling standards. These require that an insurer does nothing to prejudice the insured’s right to receive benefits under the policy. Knowing and following the underlying rules of claims work is critical to fair claims practices. For example, an insurer must:
1. Adopt and implement reasonable claims handling standards;
2. Assist the insured in making the claim;
3. Investigate a claim adequately and promptly;
4. Respond in time to letters and phone calls;
5. Adjust the claim (either pay it or deny it) within a reasonable time;
6. Attempt in good faith to effect a prompt, fair and equitable settlement of claims, where liability is reasonably clear;
7. Try to find a basis for paying the claim rather than finding a reason to deny;
8. Timely pay all undisputed amounts due under the policy;
9. Disclose all relevant coverages, conditions and restrictions under the policy;
10. Provide in writing a detailed reason for denying the claim and state each contractual term or provision it invokes.
Hiring truly qualified claims experts also helps with the explanation of claim errors and the presentation of a bad faith claim. In the cited case, the lawyer hired a contractor who was also trained as a public adjuster. While I love restoration contractors and public adjusters, that training alone does not make them the kind of qualified claims experts that most judges will find to be true experts in the area of insurers’ good faith obligations.
Many property insurance attorneys advertise anything to get hired. They simply do not know how to develop a legal theory showing how the insurance company improperly adjusted the loss because they do not study how and what an insurance company is supposed to do. The case cited in today’s post is a classic example of what not to do when representing a policyholder when alleging bad faith.
Regarding challengers, good luck to Merlin Law Group attorneys Mike Duffy and Christina Phillips, who are trying a case in Wisconsin this week.
There is a real company on Facebook and then many pretenders riding on their coattails.
1 Hubbell v. State Farm Fire & Cas. Co.No. 4:21-cv-00341 (ND Okla. Aug. 2, 2022).