With hurricane season in full swing, policyholders should keep an eye on the Texas Supreme Court for a decision that may impact future recovery efforts. On Tuesday, October 11, 2016, the Texas Supreme Court heard oral argument in USAA Texas Lloyds Co. v. Gail Menchaca, Case No. 14-0721, regarding whether a jury’s award of damages for the insurer’s failure to conduct a reasonable investigation (in violation of the Texas Insurance Code) could stand despite the jury’s finding that the insurer did not breach the insurance policy.
In a July 5, 2016 opinion in Home Loan Inv. Co. v. St. Paul Mercury Ins. Co., the United States Court of Appeals for the Tenth Circuit addressed claims for bad faith delay or denial of coverage under Colorado law in connection with a fire loss under a foreclosed property protection policy. After a jury verdict in favor of the Insured on its breach of contract and statutory bad faith claims, the Insurer moved for judgment as a matter of law (JMOL) regarding the statutory bad faith claim. When its motion was denied, the Insurer appealed.
The Insurer argued in its JMOL and on appeal that because its coverage decision was “fairly debatable,” as a matter of law its coverage decision could not be unreasonable (as required for liability under the bad faith statute). The Insurer contended that denial of a fairly debatable claim is per se reasonable. However, the Tenth Circuit was persuaded by recent opinions from the Colorado Court of Appeals stating that “fair debatability is not a threshold inquiry that is outcome determinative as a matter of law; it is not necessarily sufficient, standing alone, to defeat a bad faith claim.” Accordingly, the Tenth Circuit upheld the district court’s denial of Insurer’s JMOL.
The Insurer also argued that the bad faith statutes applied only to claims-handling activities, and not underwriting activities. Relying on the purpose of the statutes and their broad language, the Tenth Circuit rejected the Insurer’s argument.
Finally, the Insurer contended that the district court erred in awarding damages for breach of contract plus the statutory penalty equal to two times the covered benefit. Relying on the plain language of the statute and Colorado appellate decisions, the Tenth Circuit affirmed the district court’s award of damages.
The decision in Home Loan Inv. Co. should serve as a reminder for policyholders that they may still be able to assert a claim for unreasonable denial of coverage even if an insurance company characterizes their claim as “fairly debatable.” Further, insureds may be able to challenge both the underwriting and claims-handling procedures of an insurer under state statutes. Consultation with experienced coverage counsel can help ensure that clients take advantage of all the statutory protections and remedies available.
Hunton & Williams LLP attorneys Mike Levine and Matt McLellan, along with Tim Monahan of Lockton Companies, LLC., presented to a group of risk managers and insurance professionals on Wednesday evening, February 17th, about strategies and pitfalls in the claim presentation process. The event was well-attended and the audience was lively with questions for the presenters. A copy of the PowerPoint can be downloaded here. Key points discussed with the group include:
Florida’s Third District Court of Appeals held on Wednesday that a general liability policy’s absolute employer’s liability provision did not preclude coverage for injuries sustained by an employee at a work event located on the property of an additional insured because of the policy’s separation of insureds provision. In Taylor v. Admiral Insurance Co., No. 3D14-720 (Fla. 3d DCA Feb. 10, 2016), Taylor, as assignee of Vizcaya Museum & Gardens, Villa Vizcaya and Miami-Dade County (collectively “Assignors”), appealed an award of summary judgment in favor of Admiral Insurance Co. (“Admiral”) on her claims of breach of contract and common law and statutory bad faith. Admiral cross-appealed the trial court’s finding that the Assignors are additional insureds under the policy.