Ohio recognizes that an insurance company may be responsible for its misconduct. The standard of bad faith in Ohio is as follows:
[A]n the insurer fails to exercise good faith in the processing of a claim from its insured where its refusal to pay the claim is not due to circumstances that give reasonable justification for it.1
We listed six years ago in What constitutes “bad faith” insurance in Ohio?:
[W]are examples of claims handling not reasonably justified? One can see the case of Zoppo v. Homestead Insurance Company. IN Zoppo, the insured made a claim for fire loss to his bar. From the very beginning, the insurance company focused its investigation primarily on the insured. The investigation did not examine any evidence that other people ̵1; ie customers – had threatened to burn down the bar. Three weeks earlier, there was an attempted arson in which the perpetrators publicly boasted that they were responsible for the fire and would be back “to complete the job.” The insurance company did not bother to locate key suspects, verify the insured’s alibi or follow up on various witnesses. While the insurance company claimed that the insured had a financial motive to fire, in fact, all evidence pointed to the opposite.
The above shows that the insurance company’s investigation was insufficient and therefore had no “reasonable justification” to reject the claim.
An excellent article from 2010, Bad Faith in Ohio, noted that the insurance company’s failure to act in good faith does not require an intentional act. The article further explained that results-oriented investigations are not in good faith:
Perhaps the most damaging evidence of Homestead’s denial was the fact that several individuals who had previously been expelled from the bar by Mr Zoppo just weeks before the fire had threatened to burn down the bar. The further complication was that an earlier attempt was made to actually set fire to the pole, which only resulted in much less damage.
Two of the men as Mr. Zoppo had thrown out of the bar boasted after the first fire, and before the second fire they were responsible for the fire attempt and a witness even testified that one of the two people who were thrown out of the bar said “he would come back to finish the job . ‘ Further evidence was presented at the trial that after the second fire, one of the men who was evicted from the bar by Zoppo told a group of visitors at another bar that he was responsible for setting the fire that destroyed the Zoppo property.
Homestead, at the trial, presented no evidence to disprove any of this information and, in fact, their investigators admitted that the primary focus of the investigation was initially focused solely on Mr Zoppo. One of the most crucial lessons to be learned from this aspect of the case is that all evidence must be considered and all reasonable clues should be sought. A thorough investigation should not be an attempt to prove that the insured has committed an error, but instead to acquit the insured. These are crucial aspects of any investigation which, at least according to the evidence presented at the trial, Homestead failed to follow in the Zoppo case.
A Federal District Scheme 20182 suggested it Zoppo is still a good team:
The appropriate test for determining whether an insurance company has breached its fiduciary duty by rejecting an insured’s claim under the insurance policy is the standard for “reasonable justification” …Zoppo v. Ins. Co., 71 Ohio St.3d 552, 554, 1994- Ohio 461, 644 NE2d 397 (1994) (found that for the past forty years the Supreme Court of Ohio has consistently applied the standard of “reasonable justification” to cases of bad faith)). It is important that an insured person lacks reasonable justification only when he acts in an arbitrary and capricious manner … According to the reasonable justification standard, the decisive examination is whether “the decision to refuse benefits was arbitrary or capricious, and there was a reasonable justification for the refusal, ‘ not if the insurance company’s decision to deny benefits was correct.
The court’s decision provided citing examples that, if proven, could make an argument for bad faith in Ohio:
• ‘The defendant failed to properly investigate the claims. The defendant led the plaintiff to believe that it adjusted the claim, while the defendant in fact erred in intending to deny the claim from the outset. “…
• ‘Defendant did not properly analyze the cause of the loss or applicable coverage. For example, when provided with the GEI Engineer’s Report, the defendant made no effort to review the analysis and evidence, nor could it have done so because it issued a written refusal for the loss less than four working hours after receiving the GEI report. …
“On information and conviction, the defendant has never made an estimate of damages for the collapsed wall portion of the claim because the plaintiff never received an estimate for such losses. Such failure is an indication of the intent to reject the claim from the outset.” …
The defendant further refused the Plaintiff’s reasonable request for information, including, without limitation, a request for a copy of the insurance policy, until the Plaintiff engaged his counsel. Even then, a certified copy of the insurance was not provided until it was attached to the defendant’s reply on 30 June 2017, despite the fact that such a request was made by e-mail on 7 April 2017 and before that orally. ‘
Today, many insurance companies seem to arbitrarily dismiss all expert opinions other than the opinion of the expert they hired. In Ohio, it may be feasible. When reading Ohio’s law, bad faith is defined as a failure to act in good faith, which equates to an honest and fairly balanced study that looks at all the facts.
Justice is what justice really is.
– Potter Stewart
1 Zoppo v. Homestead Ins. Co.71 Ohio St.3d 552, 644 NE2d 397 (Ohio 1994).
2 Winter Enterprises v. West Bend Mut. Ins. Co.No. 1:17-cv-00360 (SD Ohio March 18, 2018).