Bad Faith Insurance Law Overview, Oregon Alaska Idaho Montana

Bad Faith Law In the Pacific NorthwestOregon, Alaska, Idaho, Montana

Seth H. RowParsons Farnell & Grein, LLP

Daniel E. ThenellThenell Law Group PC

Oregon - Third-Party Claims

• Two-Part Requirement:• Existence of a “special relationship”• Exists when carrier has undertaken defense of an

insured. Strader v. Grange Mut. Ins. Co., 179 Or. App. 329, 333, 39 P.3d 903 (2002). • Often, but not always, described as a fiduciary

relationship• Complained-of conduct must violate SOC not

explicitly or implicitly a part of the contractual obligation. Strader v. Grange Mut. Ins. Co., 179 Or. App. 329, 333, 39 P.3d 903 (2002).

Oregon - Standard of Care

• Insurers are held to SOC that exists independent of the terms of the contract. Georgetown Realty v. Home Ins. Co., 313 Or. 97, 110–111, 831 P.2d 7 (1992).• Potential liability if insurer fails to use such care

as would have been exercised by an ordinarily prudent insurer with no policy limit applicable to the claim. Santilli v. State Farm Life Ins. Co., 278 Or. 53, 61–62, 562 P.2d 965 (1977). • E.g., unreasonable failure to settle

Oregon - Denial of Defense

• Carrier position: no bad faith where carrier has not assumed defense in a third party case. Farris v. United States Fidelity & Guaranty. Co., 284 Or. 453, 587 P.2d 1015 (1978).• Farris vulnerable to challenge???• Farris limits arrows in policyholder’s quiver to,

e.g., attorney fees (provided by statute, ORS 742.061)

Oregon - First-Party Claims• Might be able to bring action for tort of

outrageous conduct or tort of intentional interference with economic relations against insurance company • Example of outrageous conduct: Green v. State

Farm Fire & Casualty Co., 667 F.2d 22, 24 (9th Cir. 1982). • A difference of opinion as to meaning and

application of contract terms will “rarely, if ever” amount to outrageous conduct. State Farm Mut. Auto. Ins. Co. v. Berg, 70 Or. App. 410, 418, 689 P.2d 959 (1984).

Oregon - Negligence Per Se

• Applies in the absence of a special relationship • Requirements:• defendants violated a statute or rule;• plaintiff was injured as a result of that violation;• plaintiff was a member of the class of persons

meant to be protected by the statute or rule; and• the injury plaintiff suffered is of a type that the

statute or rule was enacted to prevent.• Carrier position: violations limited to proving

element of breach claim

Oregon – Potential LegislationHouse Bill 3160 – Insurers included in state’s Unlawful Trade Practices Act.

Proposed language, “Real estate, goods or services” means [those] real estate, goods or services, including insurance, that are or may be obtained primarily for personal, family or household purposes, that with respect to insurance, are or may be obtained for purposes other than personal, family or household purposes . . .

What does that mean?

Insurance companies can be sued for possible fraud by its insured and/or third-party tort claims for money it owes.

Oregon – SB 814

Amends Oregon environmental insurance claims law to add IFCA-type bad faith cause of action

Sets out “environmental unfair claims handling practices”

Treble damages, punitive damages Also imposes other requirements on

environmental claims handling including Cumis-type requirement

Alaska

Every insurance policy contains an implied duty of Fair Dealing and Good Faith.

Alaska’s Unfair Claims Settlement Act applies to all persons transacting a business of insurance who participate in the investigation, adjustment, negotiation or settlement of a claim under all types of insurance.

Alaska

Alaska recognizes bad faith in First-Party Claims.

See Jackson v. American Equity Ins. Co., 90 P.3d 136 (2004) (breach of the covenant of good faith and fair dealing exposes the insurer to a claim of bad faith).

Alaska

Alaska does not recognize a cause of action for bad faith in Third-Party Claims.

See O.K. Lumber Co., Inc. v. Providence Wash Ins. Co., 759 P.2d 523 (1988) (the duty of good faith and fair dealing is a product of the fiduciary relationship created by the contract between the insurer and the insured).

Alaska

The Insurer’s standard for investigating claims?

Alaska

Pursuant to ACC § 26.040 for a First-Party Claim, an Insurer must:

Within 10 working days after receipt of notification of a claim, give written acknowledgement to the first-party claim identifying the person handling the claim.

Upon receipt of notification of a claim, promptly provide necessary claim forms, instructions, and assistance so that the first-party claimant is able to comply with legal, policy, or contract provisions and other reasonable requirements.

Alaska Pursuant to ACC § 26.040 for a Third-Party Claim, an Insurer must:

Within 10 working days after notification of the claim fro ma third-party claimant, give written acknowledgement to the third-party claimant.

Upon receipt of notification of a claim from a third-party, promptly provide necessary claim forms, instructions and assistance that is reasonable so that the third-party claimant is able to comply with any reasonable requirements.

Alaska

Pursuant to ACC § 26.050 an insurer:

Shall promptly undertake the investigation of a claim after notification of the claim is received, and shall complete the investigation within 30 working days, unless the investigation cannot reasonably be completed using due diligence.

The person transacting the business of insurance shall give written notification to the claimant that specifically states the need and reasons for additional investigative time and also specifies the additional time required to complete the investigation. Notification must be given no later than 30 days after receiving claim.

Alaska Pursuant to ACC § 26.070 an Insurer:

Shall advise a first-party claimant in writing of the acceptance or denial of the claim within 15 working days after receipt of a properly executed statement of claim, proof of loss, or other acceptable evidence of loss unless another time limit is specified in the insurance policy, insurance contract, or other coverage document.

If additional time is needed, however, written notice can be given to the insured stating the reasons for the additional time.

The insurer must pay within 30 days after receipt of a properly executed statement of claim, proof of loss, or other acceptable evidence of loss, for part of claim not in dispute.

Alaska

Pursuant to ACC § 26.070(c)

At least 60 calendar days before expiration of the applicable statute of limitations, an insurer must notify the claimant, in writing, and its effect upon the claim.

IdahoA claim for bad faith exists where “(1) the insurer intentionally and unreasonably denied or withheld payment, (2) the claim was not fairly debatable, (3) the denial or failure to pay was not the result of a good faith mistake, and (4) the resulting harm is not fully compensable by contract damages.” Lakeland True Value Hardware, LLC v. Hartford Fire Ins. Co., 153 Idaho 716, 721, 291 P.3d 399, 404 (2012)

Idaho, cont’d Insurer may be liable even if conduct was merely

negligent. McKinley v. Guar. Nat. Ins. Co., 144 Idaho 247, 251, 159 P.3d 884, 888 (2007).

“[T]he insured has the burden of showing that the claim was not fairly debatable.” Robinson v. State Farm Mut. Auto. Ins. Co., 137 Idaho 173, 176, 45 P.3d 829, 832 (2002).

No coverage by estoppel. Robinson v. State Farm Mut. Automobile Ins. Co., 137 Idaho 173, 178, 45 P.3d 829 (2002).

“Third-parties cannot maintain a bad faith cause of action against another’s insurer.” Selkirk Seed Co. v. State Ins. Fund, 135 Idaho 649, 654, 22 P.2d 1028 (2000).

Damages: compensatory damages including emotional distress, punitive damages

Attorney fees: I.C. 41-1839

Montana Generally, common-law claims replaced by claim under

Unfair Claims Settlement Practices Act, MCA ' 33-18-201 et seq.

Common-law claims by insureds for claims handling violations are abrogated. MCA § 33–18–242(3).

But claims for breach of duty to defend not covered. Watters v. Guaranty Nat’l Ins. Co., 3 P.3d 626, 638 (Mont. 1999).

Third-parties may still bring tort claim. Brewington v. Employers Fire Ins. Co., 992 P.2d 243, 247-48 (Mont. 1999).

No need to prove pattern as to many of the enumerated prohibited practices. MCA § 33–18–242(2).

Coverage by estoppel. Farmers Union Mutual Ins. Co. v. Staples, 90 P.3d 381, 387 (Mont. 2010).

Damages: compensatory, punitive damages – attorney fees

Seth H. Row503.222.1812

[email protected]

@sethrow@orinsurancelaw

nwpolicyholder.blogspot.com

Daniel E. Thenell 503.892.3936

[email protected]