This blog has previously discussed various aspects of an insurer’s duty of good faith to a policyholder. This legal obligation imposed on insurers is rooted in the quasi-fiduciary relationship between an insurance company and policyholders. Since policyholders are paying for the promise that an insurer will provide security against future losses from covered perils, insurance companies generally have a legal duty to give as much consideration to the interests of policyholders as their own interest.
There is little dispute that homeowner’s insurance carriers owe this duty because of the quasi-fiduciary nature of the relationship between the parties to an insurance contract. However, a recent decision from another jurisdiction addresses the impact of litigation on the obligation on an insurer to act in good faith. In the Tennessee case of Am. Nat. Property and Cas. Co. v. Stutte, the insurance company denied a homeowner’s claim based on an investigation that found fire damage was the result of arson. The insurer filed a motion for declaratory judgment finding that the claim was not covered while the insurer filed a counterclaim alleging breach of contract and fraud by the insurer. The basis of the insured’s claim was that the insurance company ignored evidence indicating the policyholder had no role in starting the fire.
The analysis of the court began by observing that the duty of good faith owed by an insurer to its policyholders is not severed by the filing of a lawsuit or ongoing litigation. The court considered decisions from a number of other states, including Arizona, California, Georgia, Montana, and Kentucky that all ruled that an insurer’s duty to handle a claim in good faith does not end with the initiation of litigation between the parties.
After reviewing decisions ruling on this issue from other states, the court agreed that an insurer must consider new evidence and information that supports the legitimacy of a claim and/or the value of the claim during pending litigation. The court determined that the insurance company failed to consider information revealing the policyholders did not destroy their own home.
Interestingly, the insurance company argued that the information produced during litigation could not be considered because it did not fall within a 60 day period to cure bad faith claims. The court noted this 60 day period was intended as a grace period to allow an insurer to investigate the bad faith claim and avoid unnecessary litigation. The court also observed that the function of the 60 day period was not to provide a point after which no more investigation by the insurer was necessary. The time limit was not designed to insulate carriers from liability based on new evidence, according to the court. Rather, the function of the law was to prevent insurers from dragging their feet when handling claims.
You can reach Miami Insurance Claims Lawyer J.P. Gonzalez-Sirgo by dialing his direct number at (786) 272-5841, calling the main office at (305) 461-1095, or Toll Free at 1 (866) 71-CLAIM or email Attorney Gonzalez-Sirgo directly at [email protected].