Disciplined in Sophisticated Defense and Insurance Litigation

October 24, 2000 | Publication| Raising the Coverage Defense in the Bad Faith Case

Kathy J. Maus

This is one of a series of articles under the by line "Butler on Bad Faith" originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 14, #12, p. 24 (October 24, 2000). © Copyright Butler 2000.

 

In representing insurers in bad faith litigation, from time to time one will find a coverage issue that was not raised in the underlying litigation. The question to be addressed in this article is whether the coverage issue may be raised for the first time as a defense to the bad faith litigation.

Plaintiff's counsel will normally attempt to allege waiver or estoppel to bar forfeiture of coverage. What happens if the insurer simply overlooked or disregarded a potential coverage issue? When is it too late to raise a coverage issue which may have thwarted coverage and done away with the underlying claim when that claim reaches the level of bad faith litigation? Will providing a defense to an insured in the underlying claim or paying an insured benefits under the subject policy bar an insurer from raising a coverage defense in a bad faith action?

I. THE 'MISSED' COVERAGE DEFENSE

Several reasons may exist as to why a coverage defense was missed. It could be as a result of a "late" found misrepresentation in the application for insurance. Alternatively, an insurer may not have known, at the time, that the insured was making misstatements during the course of the investigation of the claim. Similarly, facts giving rise to an exclusion may not have been disclosed. The reasons for missing a coverage defense are numerous.

The initial question to be analyzed by counsel for the insurer is whether the potential coverage defense would constitute a complete bar to recovery under the policy. If such a defense exists, the next question is what actions were taken by the insurer once it received actual or constructive notice of the facts which would support the potential coverage defense, which actions might ultimately result in an estoppel or waiver.

II. THE DOCTRINES OF WAIVER AND ESTOPPEL - TOOLS TO DEFEAT A COVERAGE DEFENSE

A split of authority among jurisdictions exists as to whether an insurer has the right to contest coverage after it acts in a manner which would normally indicate the existence of coverage. Some jurisdictions indicate "the application of waiver and estoppel is limited, and usually, the doctrines will not be applied to broaden the coverage of a policy to protect the insured against risks that were not included in the policy or that were expressly excluded from the policy." Kirschner v. Process Design Assoc. Inc., 592 N.W.2d 707 (Mich. 1999); Doe v. Allstate Insur. Co., 653 So. 2d 371 (Fla. 1995); Broderick v. Detroit Life Ins. Co., 177 N.W. 242 (Mich. 1920). This is based upon the reasoning that an insurance company should not be required to pay for a loss for which it has not charged a premium. Applying the doctrine of waiver and estoppel to broaden the coverage of a policy would force an insurer to cover a loss never covered by the policy's terms.

Some jurisdictions generally hold that the doctrine of waiver may not be applied to extend insurance coverage beyond that contracted by the parties; however, under the appropriate circumstances, the doctrine of estoppel may be so applied. Potesta v. United States Fidelity & Guarantee Co., 504 S.E.2d 135 (W.V. 1998). Other jurisdictions find that an exception to the general rule exists, (1) when the insurer provides a defense to the insured without reserving its rights under the policy for such a period of time as to prejudice the insured, or (2) when the insurer or its agents misrepresent the extent of coverage the insured is purchasing. See, Turner Liquidating Co. v. St. Paul's Surplus Alliance Insur. Co., 638 N.E.2d 174 (Ohio Ct. App. 1994); Britton v. Smythe, Cramer Co. et al., 2000 Ohio App. Lexis 4288 (Sept. 21, 2000).

Estoppel and waiver are two distinct doctrines. State Farm's Lloyds, Inc. v. Williams, 960 S.W.2d 781 (Tex. Ct. App. 1997). Waiver requires the voluntary surrender of a known right. Basco v. McNeil Insur. Agency, 2000 Tex. App. Lexis 4788 (Tex. July 20, 2000). The most frequent and generally accepted definition of the term "waiver" is the intentional relinquishment of a known right, the voluntary relinquishment of a known right, or conduct which warrants an inference of the relinquishment of a known right. 92 C.J.S. Waiver, Page 1041. When a waiver is implied from conduct, the acts, conduct, or circumstances relied upon to show waiver must make out a clear case. Gilman v. Butzloff, 22 So. 2d 263 (Fla. 1945); Fireman's Fund Insur. Co. v. Vogel, 195 So. 2d 20 (Fla. 2d DCA 1967). There can be no waiver unless the party against whom the waiver is evoked was in possession of all the material facts. 92 C.J.S. Waiver, Page 1059. See, Fireman's Fund Insur. Co. v. Vogel, supra.

As a general rule, the estoppel doctrine will not create insurance coverage where none exists under the terms of the policy. Texas Farmers Insur. Co. v. McGuire, 744 S.W.2d 601, 602-03 (Tex. 1988); Minnesota Mutual Life Insur. Co. v. Morse, 487 S.W.2d 317, 320 (Tex. 1972); Doe v. Allstate, supra. Furthermore, unlike waiver, estoppel requires a showing that the insured was prejudiced by the insurer's conduct. See, Employers Casualty Co. v. Tilley, 496 S.W.2d 552, 560 (Tex. 1973).

The burden of proving estoppel rests with the party evoking it, and every fact essential to an estoppel in pias must be clearly and satisfactorily proved. Ennis v. Warm Mineral Springs Inc., 203 So. 2d 514 (Fla. 2d DCA 1967). As stated in 31 C.J.S. Estoppel Section 87, beginning on Page 485:

Mere silence of itself, will not raise an estoppel. To make the silence of a party operate as an estoppel the circumstances must have been such to render it his duty to speak, and there has been an opportunity to speak. It is essential that one claimed to be estopped should have the knowledge of the facts, and that the adverse party should have been ignorant of the truth, and have been mislead into doing that which he would not have done but for such silence. Silence will not support an estoppel unless the party claiming an estoppel justifiably relied on the silence to its prejudice, and such conduct and reliance must be intended or reasonably anticipated by the one who remained silent. One cannot claim an estoppel based on silence where he had actual knowledge of the facts or the means of acquiring knowledge. One may not fail to avail himself of readily accessible sources of information and rely on the silence of another who has been guilty of no act calculated to induce the party claiming ignorance to refrain from investigating.

In some jurisdictions, estoppel based upon the conduct of the insurer does not operate to bring within the coverage of a policy risks not covered by its terms or risks expressly excluded therefrom, 43 Am. Jur. 2d Insurance Section 465; 31 Fla. Jur. 2d Insurance Section 670. Further, estoppel may not be used to affirmatively create or extend insurance coverage beyond that set forth in the policy. Criterian Leasing Group v. Gulf Coast Plastering & Drywall, 582 So. 2d 799, 800 (Fla. 1st DCA 1991).

Payment under the policy, by itself, is not fatal to assertion of a coverage defense in all jurisdictions. In the case of Trade Winds Construction v. Aetna Life & Casualty Co., 606 So. 2d 708 (Fla. 1st DCA 1992), a Florida Court of Appeals reversed a determination that the carrier was estopped from denying coverage in a workers' compensation case because it had been paying the claim for over two years without raising a coverage defense. The court held the claimant was not prejudiced thereby.

Many states hold that defenses are waived if a carrier defends without notifying the insured of a reservation of rights. Britton v. Smyth Kramer Co., supra. The Washington Supreme Court has previously held that in third-party cases, a bad faith action could be maintained under a theory of presumptive prejudice even when coverage was ultimately found to be non-existent. Coventry Assoc. v. American States Insur. Co., 961 P.2d 933 (Wash. 1998). In Coventry, the Washington Supreme Court reversed its Court of Appeals and held that a bad faith action is permissible against an insurer in either a first-party or third-party case, regardless of whether the insurer was ultimately correct in determining the absence of coverage. Still, the court declined to apply the doctrine of presumptive prejudice to first-party cases, restricting its use to third-party cases. See, Id. at 938-939. In the absence of presumptive prejudice, the court also declined to apply the doctrine of coverage by estoppel. Id. at 940.

Similarly, the assumption of the defense of its insured or a continuation of the defense of an insured by an insurer after gaining knowledge of facts indicating non-coverage, without issuing a reservation of rights, may cause a waiver or the insurer may be estopped from raising the coverage defense. Basco v. McNeill Insur. Agency, 2000 Tex. App. Lexis 4788 (Tex. Ct. App. July 20, 2000). See also, Farmers Tex County Mutual Insur. Co. v. Wilkinson, 601 S.W.2d 520 (Tex. Ct. App. 1980).

In Michigan, while the law requires an insurer to notify its insured of its potential coverage defenses and defend such a case under a reservation of rights, no additional duty exists which requires an insurer that is not a party to the lawsuit to notify a plaintiff about a potential lack of coverage. Kirschner v. Process Design Assoc. Inc., supra. A simple assignment of the insured to the plaintiff of the insured's rights against an insurer for potential bad faith only allows the Plaintiff to step into the shoes of the insured. If the insured cannot apply the doctrine of waiver or estoppel to extend coverage beyond the terms of the policy, neither can the insured's assignee. Kirschner, supra. As stated by the court in Kirschner, in describing why the assignee's claim failed, "plaintiffs did not simply want to stand in Process Design's shoes, but rather wanted new shoes."

In Heritage Mutual Insur. Co. v. Wisconsin Plating Works, 570 N.W.2d 252 (Wis. Ct. App. 1997), the court held that when a coverage dispute exists, the failure to immediately seek a determination of coverage did not, in and of itself, waive the right to contest coverage. The court held that an insurer may reject the tender of defense and permit the insured to pursue its own defense outside the insurer's control. While this course of action was the most risky of available options, in the end the insurer "is not liable to the insured unless there is, in fact, coverage under the policy or coverage is determined to be fairly debatable." Production Stamping Corp. v. Maryland Casualty Co., 544 N.W.2d 584, 586 (Wis. Ct. App. 1996).

III. RAISING THE COVERAGE DEFENSE IN THE BAD FAITH CLAIM

When a misrepresentation in the application or a misrepresentation during the claims investigation by the insured is not discovered until after the bad faith claim is filed, in some jurisdictions it may be possible to raise the coverage defense for the first time in the bad faith litigation. The threshold question at this juncture, in an effort to get the coverage defense before the court, would be when did the insurer find and fully discover all the facts comprising the coverage defense. Secondly, one must then determine what, if anything, the insurer did which may constitute waiver or estoppel.

In Florida, several interesting cases exist which, through their interplay, provide a possibility to raise a later discovered coverage defense. The case of Johnson v. Life Insur. Co. of Georgia, 52 So. 2d (Fla. 1951), held that an insurer who had constructive knowledge of a potential coverage defense prior to the event of the loss resulted in a waiver of the coverage defense. Similarly, in Wimberg v. Chandler, 986 F.Supp. 1447 (M.D. Fla. 1997), it was determined that enough information existed to place the insurer on notice of the applicability of a complete coverage defense. In Wimberg, as in Johnson, the insurer's agent discovered information concerning a potential exclusion prior to the loss. Despite the insurer not learning of the information until after the loss, the constructive knowledge of its agent prior to the loss was imputed to the insurer.

Conversely, in the case of United Services Automobile Association v. Clarke, 957 So. 2d 554 (Fla. 4th DCA 2000), USAA discovered after a loss that its insured had materially misrepresented his military status which was a requirement to be considered for coverage. The trial court agreed that Clarke was guilty of making material misrepresentations on his application but relied on Johnson, supra, and held that USAA waived its right to rescind the policy because USAA had constructive knowledge of the misrepresentation. The trial court further found that USAA failed to follow its own internal procedures in verifying Clarke's military status and failed to cancel the policy when such verification was not received. In Clarke, the insurer did not assert misrepresentation as a defense until after it allowed Clarke to accept the tortfeasor's policy limits in exchange for a full release. In this uninsured motorist case, this terminated any further recovery by its insured but for the uninsured motorist coverage availability. In overturning the trial court, the appellate court stated:

Unlike in Johnson, however, in this case no insurance agent had actual knowledge of the false information furnished by the insured and there were no circumstances which sufficiently put USAA on notice of the true facts such that it could be charged with knowledge of those facts. Here there was no deliberate disregard of information sufficient to excite attention and call for inquiry as to the existence of facts by reason of which a forfeiture should be declared.

Id. at 815. (Emphasis added.) As such, the court held that an age discrepancy which could have revealed the misrepresentation was not readily apparent and did not call attention to any situation requiring further inquiry. USAA did not discover the misrepresentation until it was conducting discovery in a civil suit initiated by Clarke years later.

Johnson, supra, is the seminal case in Florida regarding waiver of a coverage defense by "pre-loss" actual or constructive knowledge by the insurer. There, Florida's Supreme Court held that when an insurer has knowledge of the existence of facts which would justify a forfeiture of the policy, any unequivocal act which recognizes the continued existence of the policy or which is wholly inconsistent with a forfeiture, will constitute a waiver. In Johnson, instead of making further inquiry based upon the agent's knowledge of a misrepresentation in the application, the insurer continued to bill the insured for its policy premiums and then, after the loss, raised a coverage defense. The court in Clarke held the Johnson decision to be inapposite.

Similarly, in the case of Leonardo v. State Farm Fire & Casualty Co., 675 So. 2d 176 (Fla. 4th DCA 1996), the court stated:

Of even greater significance to this appeal is whether State Farm waived its right to avoid Leonardo's policy by continuing to bill him and accept payments of premium for a considerable period of time after denying his claim and after notifying him of its intent to void the policy. The elements of waiver are (1) the existence at the time of the waiver of a right, privilege, advantage, or benefit which may be waived; (2) the actual or constructive knowledge of the rights; and, (3) the intention to relinquish the right.

The court found that although a right, privilege, advantage, or benefit which could be waived existed as well as actual or constructive knowledge of the right, disputed material issues of fact existed regarding whether State Farm intended through its continued billing and acceptance of premiums to waive its recission of Leonardo's policy.

The court in Vega v. Independent Fire Insur. Co., 651 So. 2d 743 (Fla. 5th DCA 1995), also interpreted the Johnson case as requiring a deliberate disregard of suspicious information which was the legal equivalent of knowledge. The court in Independent Fire Insur. Co. v. Arvidson, 604 So. 2d 854 (Fla. 4th DCA 1992), held that because the accident (which would have given rise to coverage) occurred prior to the events that appellees contended demonstrated waiver, what took place after the accident was irrelevant to the issue of waiver.

Florida is not the only jurisdiction that has case law which can be used to assist in asserting a missed coverage defense. In Goldberg v. Commercial Union Insurance Co., 188 A.2d 188 (N.J. App. Div. 1963), the court rejected the insured's contention that the insurer had waived the policy provision limiting theft coverage to property of persons living in the same household as the named insured. The court stated, "On this aspect of the case, the predominant view is that a loss which is not within the coverage of a policy cannot be brought within such coverage by invoking the principles of waiver or estoppel."

In Reserve Life Ins. Co. v. Howell, 357 P.2d 400 (Or. 1960), a waiver was not implied where the insurer's employee with no knowledge of the decision to rescind, through some clerical error, sent notice of and collected premiums for a period of ten months. The court held that waiver required a voluntarily intentional relinquishment of a known right and that the requisite intent could not be established where payment of premiums was accepted through negligence or mistake and thereafter returned when the mistake was discovered.

A similar result was also reached in the case of Ryder v. State Farm Mutual Automobile Insurance Company, 187 N.W.2d 176 (Wisc.1971), where the court held that the decision of an underwriting agent in regard to renewal of the insurance contract without knowledge of the facts giving rise to a right to rescind the policy on the ground of misrepresentation, did not constitute a waiver of the right to rescind.

In the case of Nations Title Insurance Co. v. Rosen, 56 Cal. App. 4th 1489 (Cal. Ct. App. 1997), the insurer was sued for bad faith refusal to defend plaintiffs. The court stated, "it is axiomatic that if Nations had no duty to defend, there was no breach of contract. The bad faith claim is also dependent on the existence of a duty to defend. Absent such a contractual duty, the cause of action cannot stand." (Emphasis added.) The Nations court in essence held that if there was no coverage for the claimed contractual breach, there could not be bad faith. As such, estoppel or waiver would not and could not affect a lack of coverage.

In the case of Florida International Indemnity Company v. Osgood, 503 S.E.2d 371 (Ga. App. 1998), an insurer denied coverage due to a material misrepresentation in an application for insurance. The court held that although, with regard to liability under the policy, FIIC waived its defense the policy was void, it did not waive its defense against the bad faith claim that the reason it did not pay was Osgood's fraud. These were held to be two separate defenses to two separate claims. The court stated that a waiver of the right to deny a breach of contract does not automatically preclude the showing of reasonable grounds for the breach so as to avoid a finding of bad faith. The Osgood court held the trial court:

. . . .did not err in allowing FIIC to present evidence on this point. Osgood's argument, that the court's order disallowing this evidence to defend against the policy claim collaterally disallowed evidence to defend against the bad faith claim, fails for two reasons. It is illogical and "[a] final judgment is required before any possibility of application of the doctrines of res judicata or collateral estoppel may arise." There was no final judgment when the court permitted the evidence.

Finally, in the case of Home Insurance Co. v. Campbell Motor Co., 150 So. 486, 489 (Ala. 1933), the court held that if the loss was not within the coverage of the policy contract, it cannot be brought within that coverage by invoking the principle of waiver or estoppel. The Campbell Motor Company court appropriately stated:

Waiver or estoppel can only have a field of operation when the subject-matter is within the terms of the contract. No one, we assume, would argue that a policy of insurance, which protected one against loss by fire, could be extended or broadened, by the application of the principle of waiver or estoppel, to cover loss by cyclone. The effect, in such a case, would be to create a new contract, without a new consideration.

(Emphasis added.)

SUMMARY

Many jurisdictions have cases which may permit an insurer to assert a previously "over looked" coverage defense. The use of these arguments to overcome waiver and estoppel arguments could potentially save insurers from losing a coverage defense and from ultimately being defrauded. Waiver and estoppel are available to plaintiffs in coverage disputes both in the underlying cases and in bad faith claims to avoid coverage defenses. However, in some instances, there are situations when waiver and estoppel simply do not apply. Both sides, given the right factual scenario, have compelling arguments to make as to why a coverage defense should or should not be applicable. It may be, under the right circumstances and in the right jurisdiction, an insurer will not lose the right to assert, in a bad faith case, a coverage defense overlooked in the underlying case. However, it is best to analyze the claim carefully, before the bad faith claim is made to determine whether any coverage defenses are applicable. Most critically, the argument which should prevail is that the insured should not benefit in a bad faith action, when he or she should not have had coverage in the first place.

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Are all attorney-client communications contained in such claim files that were thought to be confidential now discoverable because the insurer lost the underlying first-party claim, litigation, or appeal

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July 26, 2012 PublicationThe Vanishing Right To Federal Jurisdiction In Bad Faith Claims In Florida

On April 25, 2012, the United StatesDistrict Court for the Southern District of Florida issued its opinion in Moultrop v. GEICO General Ins. Co., remanding a bad faith claim to state court pursuant to the one-year ‘‘repose'' provision of 28 U.S.C. § 1446(b). The Moultrop decision is one more in a growing line of cases which refuse insurers access to a federal forum based on the repose provision, under the anomalous reasoning that the right to removal expired before the cause of action for bad faith accrued. Unfortunately for the insurers, 28 U.S.C. section 1447(d) precludes appellate review of an order granting a motion to remand.

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June 28, 2012 PublicationChalfonte: The Supreme Court of Florida Addresses Insurance ‘Bad Faith'

In October 2008 we asked the question, ‘‘Is there common law insurance ‘bad-faith' in Florida?'' The response was that in ‘‘first-party, as opposed to third party excess judgment cases, [the answer] has always been ‘no.' "

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May 24, 2012 PublicationProtecting Confidential Communications: Application Of The Attorney-Client Privilege In First-Party Insurance Bad-Faith Cases

Discovery of the insurance company's entire claim file—including confidential communications between the insurer and its attorney—is often the first target on the insured's agenda in a first-party bad-faith lawsuit. In any other context, a party's request for discovery of the opposing party's confidential attorney-client communications would be viewed by courts as a brazen and inappropriate attempt to obtain information obviously protected by the attorney-client privilege; however, in the context of bad-faith litigation, this type of request has been dignified by courts who often look for ways to permit discovery of the insurer's attorney-client communications.

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April 26, 2012 PublicationCreative Methods Used To Set-Up ‘Bad Faith' Claims — Use Of Multiple Coverage Demands

In the past decade, the bad-faith environment has rapidly shifted from a useful tool used by consumers to protect themselves from arguably egregious actions to an elaborate trap set by personal injury plaintiff attorneys to reap outrageous awards from seemingly innocent conduct by claims professionals. Insurance companies now fear multi-million dollar verdicts based on policies written for insureds who did not want more than the absolute minimum coverage allowed. Based on technicalities, clever plaintiff attorneys attempt to convince courts to rewrite insurance policies, allowing for unlimited recoveries.

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March 22, 2012 PublicationA Liability Insurer's (Almost Absolute) Right To Settle Claims Without The Insured's Consent

Many cases hold that a liability insurer can settle a claim against its insured without the insured’s consent because the policy language gives an insurer the right to settle even when an insured may not want to settle.1 For the most part, courts in California, Florida, and Louisiana allow insurers to settle claims without the insured’s consent where the policy gives the insurer the right to settle as it deems expedient. However, courts may nonetheless consider whether a settlement may have adversely impacted the insured to determine whether an insurer acted in good faith.

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February 23, 2012 PublicationBullock v. Philip Morris USA, Inc.: Where ‘Reprehensibility' As An Exception To Constitutional Protections And the Ratio Guidepost Includes The Wealth Of The Defendant

On November 30, 2011, the California Supreme Court exercised its discretion and let stand a $13.8 million punitive damage award that was more than 16 times the compensatory damages awarded by the jury. The case, Bullock v. Philip Morris, 1 (Bullock) involved a smoker diagnosed with lung cancer who filed suit against the cigarette manufacturer, seeking damages based on products liability, fraud, and other theories.

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January 26, 2012 PublicationWho Killed Reverse Bad Faith? And Why It Could Make A Comeback

In every state in the union an insured can seek some form of compensation for an insurer’s ‘‘bad faith’’ in adjusting a claim.Yet only one state, Tennessee, currently allows an insurance company to recover damages caused by the insured’s bad faith.This imbalance has allowed ‘‘bad faith’’ litigation to become big business.The tendency of courts to treat insureds like a disadvantaged class has created an uneven playing field for insurance companies in claims adjustment.

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December 22, 2011 PublicationA Wolf In Sheep's Clothing (Insurers Should Be Vigilant In Florida)
[ Editors note: Alan J. Nisberg, Esq., is a partner with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate attorney, specializing in extra-contractual, class action and complex coverage litigation. This commentary, other than the quoted material, expresses the authors opinions -  not the opinions of Butler or Mealey's. Copyright © 2011 by the author. Responses are welcome. ] 
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November 23, 2011 PublicationProximate Causation In Third-Party Bad Faith: Not Every Bad Decision Is A Bad-Faith Suit

James Michael Shaw Jr. is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He practices in the firm's Extra-Contractual, Third-Party Coverage and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2011 by James Michael Shaw Jr. Responses are welcome.

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October 27, 2011 PublicationRecent Application Of State Farm v. Campbell In Bad-Faith Cases

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 25, #10 (September, 2011). © 2011 

[ Julie A. Simonson is an associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. She is active in the firm's Extra-Contractual and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2011 by Julie A. Simonson. Responses are welcome. ]

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August 25, 2011 PublicationApplying The Litigation Privilege In Bad-Faith Cases

[BrianD.Webb,Esq.,is a partner with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate attorney specializing in extra-contractual and complex coverage litigation. This commentary expresses the author's opinions–not the opinions of Butler or Mealey's. Copyright#2011 by Brian D. Webb. Responses are welcome.] 

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July 28, 2011 PublicationThe Insurer's Bill Of Rights (A Balance Of Power)
[Editor's Note: Alan J. Nisberg is a partner in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial attorney and appellate lawyer, specializing in extra-contractual, class action, and complex coverage litigation. This commentary, other than the quoted material, expresses the author's opinions - not the opinions of Butler or Mealey's. Copyright#2011 by the author. Responses are welcome.] 
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June 23, 2011 PublicationChoice-Of-Law Principles Affecting Insurance Bad-Faith Claims

[R. Steven Rawls is a partner and Ryan K. Hilton is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP, which has offices in Tampa, Chicago, Charlotte, Mobile, Tallahassee, and Miami. This commentary expresses the author's opinions–not the opinions of Butler or Mealey's. Copyright © 2011 by R. Steven Rawls and Ryan K. Hilton. Responses are welcome.] 

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February 24, 2011 PublicationThe Duty to Initiate Settlement Negotiations: Where Does it Begin and How Far Does it Go

Editor's Note: James Michael Shaw, Jr., is a senior associate with the law  firm of Butler Weihmuller Katz Craig LLP with offices in Charlotte, Chicago, Miami, Mobile, Tallahassee,and Tampa. Mr. Shaw practices in the firm's Extra-Contractual,Third-Party Coverage,and Liability Departments. Mr.Shaw is also an adjunct professor at St.Petersburg College, teaching legal research and writing. Copyright 2011 by James Michael Shaw Jr. Responses are welcome

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January 27, 2011 PublicationThe Doctrine Of ‘Substantial Compliance': An Erroneous Application

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #18 (January 27, 2011). © 2011  

[Editor's Note: John J.  is with the law firm of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. He is an experienced trial and appellate lawyer in the firm's Coverage and Extra-Contractual Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2011 by John J. . Responses are welcome.] 

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December 23, 2010 PublicationDoes Policy Reformation Create A Retroactive Bad-Faith Claim?

[Editor's Note: Laura A. Turbe-Capaz is a senior associate in the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee, and Miami. She is an experienced trial attorney in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Copyright#2011 by Laura A. Turbe-Capaz. Responses are welcome.] 

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December 09, 2010 PublicationSplitting The Baby: The Insurer's Duty To Notify The Insured Of The Need For An Allocated Verdict

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #15 (December 9, 2010). © 2010  

[Editor's Note: Fay E. Ryan is a partner the Tampa office of Butler Weihmuller Katz Craig LLP, which also has offices in Chicago, Charlotte, Mobile, Tallahassee and Miami. She is an experienced trial attorney in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Kimberly N. Gorak is a senior associate in the Tampa office of Butler , also practicing in the firm's Extra-Contractual, Third-Party Coverage, and Liability Departments. Any commentary or opinions do not reflect the opinions of Butler or Mealey's. Copyright © 2010 by Fay E. Ryan and Kimberly N. Gorak. Responses are welcome .]

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November 24, 2010 PublicationPitfalls For The Unwary: The Use Of Releases To Preserve Or Extinguish Any Potential Bad-Faith Claims Between The Primary And Excess Insurance Carriers

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #14 (November 24, 2010). © 2010 

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September 23, 2010 PublicationWe Said What We Meant And We Meant What We Said! — Enforcing Contract Language Despite Assertions Of Bad Faith And Insurer 'Misconduct' During The Adjustment Of The Claim

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #10 (September 23, 2010). © 2010  

[Editor's Note: John V. Garaffa is a Partner and Jason M. Seitz is an associate with the law firm of Butler Weihmuller Katz Craig LLP in Tampa, Florida.  Any commentary or opinions do not reflect the opinions of Butler or Mealey's Publications. Copyright © 2010 by Jason M. Seitz and John V. Garaffa. Responses are welcome.]

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August 26, 2010 PublicationChinese-Drywall Cases And Their Impact On Liability-Insurance Carriers In Settling Multiple Claims In Good Faith Against Their Insureds In Certain State Courts

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #8 (August 26, 2010). © 2010  

[Editor's Note: Steve Rawls is a partner and Ryan K. Hilton is a senior associate with the law firm of Butler Weihmuller Katz Craig LLP in Tampa, Florida. Any commentary or opinions do not reflect the opinions of Butler or Mealey's Publications. Copyright © 2010 by R. Steve Rawls and Ryan K. Hilton. Responses are welcome.]

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July 29, 2010 PublicationBad Faith - Variations On A Theme

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #6 (July 29, 2010). © 2010  

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May 27, 2010 PublicationBad Faith and Beyond: A Business Law Primer For Insurers

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #2 (May 27, 2010). © 2010  

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May 13, 2010 Publication(Almost) Twenty Years After Powell: Case Studies On A Liability Insurer's Duty To Initiate Settlement Negotiations

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 24, #1 (May 13, 2010). © 2010 

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March 25, 2010 PublicationBreaking Down Privileges: Discovery of the Claim File In Florida Bad-Faith Actions

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #22 (March 25, 2010). © 2010  

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February 25, 2010 PublicationExtracontractual Recovery Without Bad Faith

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #20 (Feburary 25, 2010). © 2010  

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January 28, 2010 PublicationA Look Back At Some Of 2009s Significant Bad Faith Decisions

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 23, #18 (January 28, 2010). © 2010

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December 24, 2009 PublicationThe Mediation

I met Bob for breakfast at his hotel about ninety minutes before the mediation was scheduled to commence. Although we had been doing business together for the past twenty-five years, I hadn't seen him for some time. He was a very competent and sophisticated first-party insurance property general adjuster; one of those dinosaurs who had been working for the same insurance company his entire career. It was a pleasure to meet up with him again.

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October 22, 2009 PublicationDoes An Insured Owe A Duty Of Good Faith To Its Insurer When The Insured Is Responsible For Defense Costs In A Self-Insured Retention?

Many businesses are increasingly utilizing insurance policies with large self-insured retention endorsements in order to exercise better control over the defense of claims. In these circumstances, an issue may arise regarding whether an insured who is responsible for defense costs under a self-insured retention ("SIR") owes a duty of good faith to its insurer.

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August 27, 2009 PublicationFairly Debatable?

On August 5, 2009, the South Dakota supreme court joined an exceedingly small minority of courts in the United States that have imposed a duty to conduct a reasonable investigation into first-party claims in order to avoid "bad-faith" liability.2 As they say, the road to Hell is paved with good intentions. This decision certainly affirms the truth of that old saw

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July 30, 2009 PublicationWrit Of Certiorari Dismissed As Improvidently Granted -- The Ambiguous End To Philip Morris USA, Inc. v. Williams

On March 31, 2009, the United States Supreme Court dismissed, as improvidently granted, a writ of certiorari in Philip Morris USA, Inc. v. Williams. While the reason for the court's action remains a mystery, it seemed to signal an end to the court's interest in the central constitutional issue in the case: punitive damages. Unfortunately, the court's decision to abandon the issue leaves both the litigants and observers wondering what, if anything, had been gained by years of decisions, reversals and remands.

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May 29, 2009 PublicationPreparation For Deposition

The deposition of the designated corporate representative of the insurance company defendant is, often, the tipping point of the case. Preparation is paramount to success. It isn't easy, and it isn't fun. The designated representative usually is a company executive with many responsibilities and pressures. But there is no substitute for time and effort. There is no other way. Here is a case in point.

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April 23, 2009 PublicationArbitrary and Capricious

In Grilletta v. Lexington Insurance Company,8 the United States Court of Appeals for the Fifth Circuit reviewed the insurer's handling of a Hurricane Katrina property claim.9 Mr. Xavier Grilletta and Mr. Randy Lauman owned a vacation lakehouse on the southeastern shore of Lake Pontchartrain, a lake bordering New Orleans to the north. 

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March 26, 2009 PublicationFlorida's Bad Faith Quagmire: Is Summary Judgment Ever Available?

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 22, #22 (March 26, 2009).

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March 01, 2009 PublicationThe Wheels On The Bus Go Round

You want answers? I think I'm entitled. You want answers?! I want the truth! You can't handle the truth!

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February 26, 2009 PublicationIs Abnormal Becoming The New Normal In Alabama?

This is one of a series of articles originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 22, #20 (February 26, 2009).

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November 25, 2008 PublicationUnreasonable Consent Judgments; What Next?

The scene is all too familiar: an insured, disenchanted with its insurer's refusal to defend an action the insured believes is within coverage, decides to enter into a "consent judgment" with the plaintiff, in return for which, the plaintiff agrees only to pursue satisfaction of the "judgment" against the insurer. 

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October 30, 2008 PublicationIs There Common Law Insurance Bad-Faith In Florida?

Is there common law insurance "bad-faith" in Florida? Having practiced law in Florida for twenty-six years the answer, in first-party as opposed to third-party excess judgment cases, has always been "No." Recently some have argued otherwise.

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September 25, 2008 PublicationBaffled

I have been hearing the mantra for over twenty-six years. At first it was rare, but it has increased over the years, almost to the point where it's a given. The advocate of the mantra is usually a judge, or a mediator, who was once a judge. The following is the typical mantra, exposed by a not so typical response.

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August 28, 2008 PublicationTorts for Tots (Bad Faith And Other Independent Torts)
The responsibility of caring for a child is not one to be taken lightly. Our society demands vigilance from those who bring new life into rld, and rightly so. We are held to a higher standard in dealing with our offspring than with others. The special relationship between a parent and a child is built upon trust and an expectation that one (the parent) will give security tothe other (the child). So too is the bond between insurer and insured.
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July 15, 2008 PublicationExxon Shipping Co. v. Baker: Sailing Into The Confluence Of Common Law And Constitutional Standards For Punitive Damages

On June 25, 2008, the United States Supreme Court issued its much anticipated opinion in Exxon Shipping Co. v. Baker. The Supreme Court reduced the punitive damage award from $2.5 billion dollars to $507 million dollars, an amount approximately equal to the jury's award of compensatory damages. While the decision certainly warmed the hearts of Exxon's previously discomfitted stockholders, the Court's opinion provides only limited encouragement to defendants involved in the current punitive damage lottery.

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June 17, 2008 PublicationConsequential Damages Under the Insurance Contract -- The New "Bad Faith?"

The ability of an insured to recover consequential damages under an insurance contract allegedly caused by failure or delays in the insurer making payments has traditionally been controversial. Jurisdictions have been divided in their approach as noted in the following annotation cited by the district court in Indiana

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May 20, 2008 PublicationThe Begrudged "Insurance Bad-Faith-Suit" Exception to the Attorney-Client Privilege

What constitutes the insurance claim file? If an insurer has a continuing duty to review and pay valid claims even after it is sued, does the claim file continue through the litigation?1 Does it continue through the appeal? Are all attorney-client communications contained in such claim files that were thought to be confidential now discoverable because the insurer lost the underlying first-party claim, litigation, or appeal?

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January 22, 2008 PublicationRipe for Campbell Review: A Florida Uninsured Motorist Claimant's Statutory Right to Recover Excess Verdict Damages in a Bad Faith Action

In many jurisdictions, jurors can award punitive damages to punish or penalize an insurer for improper claims handling, in addition to any compensatory damages caused by an insurer’s bad faith. Such jury awards of punitive damages now are subject to scrutiny under State Farm Mutual Automobile Insurance Company v. Campbell.1 As a result of Campbell, insurers have one final check against excessive punitive damages awards by juries.

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December 18, 2007 PublicationPunitive Damages - the Rationale of Ratios

Since the Supreme Court’s decision in State Farm Mutual Automobile Insurance Company v. Campbell,1 courts have struggled to define when the Campbell court’s presumptive limit of 9 to 1ratio of punitive damages to compensatory damages is appropriate.2 The Supreme Court stated that the "most important indicium of the reasonableness of a punitive damages award" was the highly subjective measure of the "degree of reprehensibility."3 Wrestling with such an amorphous concept trial courts and appellate courts have sought to justify various punitive damage awards on the basis of a sliding scale, doing little more than subjectively comparing the "reprehensibility" in the case being reviewed, to other recent cases decided before it. The result is a marked disparity from one court to the next as to what constitutes behavior falling within the five (5) factors of reprehensibility discussed in Campbell.

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July 24, 2007 PublicationOxymoronic ("Tortious Breach of Contract")

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 21, #6, p. 32 (July 24, 2007).

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June 19, 2007 PublicationWilliams v. Philip Morris Inc. II – The Fog of Legal Rationale

On February 20, 2007, the United States Supreme Court issued its much-anticipated second opinion in the negligence and fraud suit brought by the widow of Jesse Williams against Philip Morris. Mrs. Williams had asserted that the company had purposefully taken actions to obscure the dangers of smoking and, as a result, her husband was deceived into believing smoking was not harmful, a 47 year delusion that ultimately led to his illness and death.

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May 15, 2007 PublicationThe Death of Indemnity

A cornerstone of avoiding insurance “bad-faith” is for an insurer to timely pay what it owes its insured. Therefore, adjusters must know what their insurance contracts cover so they may determine how much to pay their insured.

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March 20, 2007 PublicationCaveat Insuror

On December 21, 2006, the Florida Supreme Court released its opinion in Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co.[FN1] In Dadeland, a bare majority of the high Court, led by Justice Lewis, held that an obligee under a performance bond qualifies as an "insured" within the meaning of section 624.155, Florida Statutes (1999). The Court's decision resulted from the following question certified to it by the Eleventh Circuit Court of Appeals:

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February 20, 2007 PublicationA State In Crisis

Florida is a litigious state. Its more than seventeen million residents comprise this most diverse social, ethnic and cultural state in America. Within this labyrinth of a melting pot is a steel ladle of many aggressive and well financed lawyers who specialize in suing insurance companies.

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September 19, 2006 PublicationRemanded in Light of State Farm v. Campbell: The Opportunity For Further Illumination Presented by Williams v. Philip Morris Inc.

On May 30, 2006, the U.S. Supreme Court again granted a petition for writ of certiorari in the ongoing dispute between Philip Morris and the widow of Jesse Williams, an Oregon resident who died of lung cancer after smoking cigarettes for about 47 years.

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June 15, 2006 PublicationSelected Third-Party Bad Faith Liability Standards Governing Failure to Settle Cases

Under liability insurance policies, insurance companies assume the obligation of defending their insureds. In so doing, carriers can settle and foreclose their insured's exposure or refuse to settle, leaving the insured potentially exposed to damages that exceed the policy limits.  Most courts find that this obligation places insurers and insureds in a fiduciary (or fiduciary-type) relationship.  Accordingly, courts recognize that an insurer owes a duty to the insured to refrain from acting solely on the basis of the insurer's own interests in settlement. This duty extends to situations where an insurer has an opportunity to settle a third-party liability claim against its insured within policy limits and requires an insurer to pay an excess judgement against an insured, where the carrier in good faith should have settled.
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May 17, 2006 PublicationSo You've Decided to Commit "Bad-Faith"

There are many ways for an insurer to find itself in what ultimately develops into a “bad-faith” dilemma. Sometimes an insurer makes a single decision that in retrospect turns out to be a terrible mistake that can be characterized as “bad-faith” conduct:

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April 18, 2006 PublicationAchilles' Heel: First-Party Property "Bad-Faith" Damages

Insurance "bad-faith" is recognized throughout the United States. In the setting of first-party property insurance, the relationship between the insured and insurer commences contractually. However, that contractual relationship can also provide exposure for tort damages in a first-party "bad-faith" action. Indeed, the threat of facing a first-party property "bad-faith" tort action commonly influences insurers to resolve litigation out of fear, rather than for substantive purposes based on the merits. One of the "Achilles' Heels" of such causes of action is the inability of the insured to prove any measurable "bad-faith" damages. The identification and measurement of "damages" in first-party property "bad-faith" actions varies greatly depending on the jurisdiction. This commentary will discuss certain jurisdictional differences relating to damages in first-party "bad-faith" actions, exclusive of punitive damages.[FN1]

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March 21, 2006 PublicationBad Faith Should Be Difficult To Prove

Ten years ago, Roger C. Henderson wrote in his seminal article The Tort of Bad-Faith in First-Party Insurance Transactions After Two Decades, 45 Defense Law Journal 611 (1996):

The tort of bad-faith for breach of an insurer's obligation in the area of first-party insurance was first recognized by a court of last resort in 1973 in Gruenberg v. Aetna Ins. Co. In doing so, the Supreme Court of California created an entirely new cause of action against insurer's against first-party coverages. Prior to this time, the courts followed the common law rule that damages for breach of contract were, with rare exception, limited to those in the contemplation of the parties at the time the bargain was struck. As a general rule, consequential damages were more exclusively within the realm of tort law than that of contract, and it was no tort for a party to breach a contract, even when the breach was intentional. Now, some twenty-two years later, the law regarding the obligation of an insurer in first-party situations is still evolving as more and more courts embrace the new tort. In a steadily growing number of jurisdictions, insurers not only are exposed to consequential damages for economic loss and emotional distress for failing to deal with their insured's fairly and in good faith, but they also may be subject to substantial awards of punitive damages.

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February 21, 2006 PublicationThe Implied Covenant of Good Faith and Fair Dealing

Until the 20th Century, insurance contracts were treated the same as any other contract, with recovery generally limited to the damages contemplated by the parties when they entered into the contract. Insurance contracts, like any other, were enforced by their explicit terms, and courts were reluctant to substitute their own judgment for the terms upon which the parties agreed absent some independent tort or injustice. By the end of the 19th Century, however, the judiciary in the United States began to recognize a general obligation of good faith performance implied in every contract.  By the 1930s, the implied covenant of good faith became a standard doctrine. This duty of good faith and fair dealing originated to resolve disputes over agreements that were not explicit on pivotal contract terms, or left discretionary power in the hands of one of the contracting parties.
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December 20, 2005 PublicationThe Horror: Adjuster Under Oath

This is one of a series of articles under the by line “Butler on Bad Faith” originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 19, #16 (December 20, 2005). © Copyright Butler 2005.

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June 07, 2005 PublicationAn Insurer's Liability For Punitive Damages In An Excess Judgment

Ging v. American Liberty Insurance Company, 423 F.2d 115 (5th Cir. 1970) is a case often cited for the proposition that third party insurers who act in bad faith could be held liable for punitive damages awarded against their insureds. However, the strength of this proposition appears to depend upon the extent to which a jurisdiction would permit the insurability of punitive damages. Those jurisdictions that permit coverage for punitive damages would also likely permit recovery of those damages later as a result of the carrier's bad faith. Jurisdictions whose public policy precludes insuring against punitive damage awards, may be more reluctant to permit recovery in a later bad faith action, depending upon the nature of the liability giving rise to the punitive damage award.

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April 19, 2005 PublicationDetours: Campbell Stops At The Willow Inn

Dealing with punitive damage claims is like driving down a road that is constantly under repair. The road is dangerous, uncomfortable, and full of detours. Although the United States Supreme Court has issued a rather clear and accurate map to help us through this rocky road, in some respects the map is already outdated, just as the road darkens and your interior auto light dims.

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March 22, 2005 PublicationThe Timely Demise of Excess Judgments (Probate Nonclaim Statutes)

Imagine your insured is at fault in an accident that kills her and causes devastating injury to another individual. You (the insurer) fail to meet a settlement demand within policy limits. Liability is clear and excess exposure is inevitable. The claimant files a civil lawsuit naming the "estate" of the insured as the defendant. However, the estate of the insured is not set up yet. Having no entity to actually serve with the complaint, the claimant petitions the probate court for administration of the decedent's estate, has a personal representative appointed, and immediately serves legal process on that representative. A multi-million dollar excess judgment is obtained in the civil action.

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January 18, 2005 PublicationPiece Of Mind: The Utah Supreme Court's Response To Campbell

Given that the Utah Supreme Court (“Utah”) previously reinstated a $145 million punitive damages award in favor of the Campbells, it is not surprising that on remand from the U.S. Supreme Court, this same state high court goes to great lengths to justify the largest punitive damages award it believes could possibly survive further constitutional review.

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November 16, 2004 PublicationHospital Lien Laws and Personal Injury Settlements

Many jurisdictions have hospital lien laws. These laws ensure payment to hospitals for the beneficial services they provide. Some jurisdictions liberally interpret these laws so that technical deficiencies in establishing or seeking enforcement do not defeat payment to the hospitals. Other jurisdictions are less likely to ignore such deficiencies.

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September 07, 2004 PublicationPunitive Damages And Hip-Hop

When the gun blows, and the shots fall
When the smoke clears, we'll be right here
Screamin' murder – know it's murder
Murder – we'll be right here
When the gun blows, and the shots fall
When the smoke clears, we'll be right here
Screamin' murder – know it's murder
Murder – we'll be right here – cause it's. . .  MURDER!!!!(1)

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August 17, 2004 PublicationChecklist Charley

On Friday the 13th, twelve years since Hurricane Andrew devastated South Florida, Hurricane Charley detonated Captiva Island, destroyed Punta Gorda, demolished Arcadia, and downed much of Orlando. Damages are presently estimated to exceed $15 billion. The author of this commentary suspects that this is an underestimation in that Florida law has changed since 1992. This commentary attempts to provide notice to all property insurers, adjusters, independent adjusters, and third-party administrators of the essential Florida law that may substantially impact the claims “tail” and reserves of Hurricane Charley.

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July 07, 2004 PublicationThe Continuing Need for De Novo Review of Punitive Damage Awards -- Liggett Group, Inc. v. Engle

In Liggett Group Inc. v. Engle, the Florida's Third District Court of Appeal reversed the largest punitive damage award in history. The circumstances of the award indicate it would have bankrupted the defendants and was, in essence, a civil death sentence. If that were the only error, Engle would merely mark another notch in the continued upward spiral of American jury awards. However, the compounded procedural and constitutional errors in Engle make it particularly useful for those who wish to examine the pros and cons of the current system of punitive damages. 

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January 21, 2004 PublicationDo Liability Insurers Have A Duty To Make An Offer Where There Is No Claim Against The Insured?

A liability insurer has a duty to handle and settle claims made against its insured in good faith. Courts have grappled with whether this duty requires an insurer to make a settlement offer when there is no claim against the insured.

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October 15, 2003 PublicationJuggling Multiple Claims With Inadequate Limits

Everyone knows that an insurer has to act in good faith to its insured when settling claims with third parties. However, when an insurer is faced with multiple claims exceeding the limits of coverage, the insurer is faced with tough choices. Insurers are frequently called upon to defend these choices in “bad-faith” actions. Can an insurer get summary judgment on the issue of “bad-faith” in multiple claimant/inadequate limits cases? Will the insurer be forced to litigate the “bad-faith” issue through a trial? This article attempts to answer these questions and provide guidance to insurers on meeting their duty of good faith when met with multiple claims, the sum total of which exceed policy limits.

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September 17, 2003 PublicationA Conversation With A Capitalist

Like most things, it began with a phone call.

“John?”

“Hello.”

“Hi, John. This is Ralph.”

“Hi, Ralph. How ya doin'?”

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August 13, 2003 PublicationReflections – Thirty Years After Gruenberg v. Aetna Ins. Co.

It has long been accepted that parties to an insurance contract have an obligation to deal with each other fairly and in good faith. As early as 1914, this obligation was found to be grounded within an implied covenant within the contract between the insurer and its insured.  If a denial of benefits under the policy was ultimately resolved by a suit on the contract of insurance, a policyholder who prevailed would receive the amount due plus interest. The recognition of a cause of action for the tortious breach of the duty of good faith and fair dealing in the context of the first-party contract of insurance is relatively recent.

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July 16, 2003 PublicationWhat is a "Reasonable" Settlement When There Are Multiple Claimants?

Sometimes several people sustain injuries in an accident. This article addresses a recent decision of Florida's Fourth District Court of Appeal, Farinas v. Florida Farm Bureau General Insurance Company, that discusses what liability insurers should do when several people sustain injuries in an accident caused by the insured and the value of most, if not all, of each individual claim exceeds policy limits. This article discusses the basis for the Farinas holding and identifies some questions raised by Farinas.

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June 18, 2003 PublicationAppraising Windstorm Claims

Once again the annual “hold-your-breath” season is upon us. In Hartford, New York, and London weather channels are beating “sitcoms” on the “Nielson” ratings. Internet strikes on weather.com are out-numbering those for kournikova.com – well, maybe this is a slight exaggeration. But the point remains; that is, CAT losses, especially windstorm, commonly called Hurricanes, make or break a property insurer's profitability, not just in the year of the occurrence, but typically with a two to three year tail.

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April 16, 2003 PublicationThe Current State of Comparative Bad Faith

In most every jurisdiction, the basis for a claim of insurer bad faith is the recognition of a duty of good faith and fair dealing inherent in any contract of insurance. See, e.g., Boston Old Colony v. Gutierrez, 386 So. 2d 783 (Fla. 1980). The focus in such cases is usually the question of whether or not the insurer has violated that duty. Inevitably, the question arises as to whether or not the actions of the insured can be considered bad faith and, if so, whether such actions can be raised as an affirmative defense to a claim of insurer bad faith. 

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March 19, 2003 Publication"Advice of Counsel" – Defense or Defeat

The involvement of legal counsel to provide advice concerning the settlement of property and liability claims has become increasingly commonplace. This is primarily due to the general proliferation of litigation and specifically "bad-faith" claims. As the involvement of legal counsel becomes more prevalent, so does the "defense" of "advice of counsel." This commentary will address this so-called "defense" in the context of "bad-faith" cases.

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February 19, 2003 PublicationInstitutional Bad Faith: Individual Or Class Action Litigation (All For One? - Or - One For All?)
In 1844, Alexandre Dumas, one of the most famous French writers of the nineteenth century, shared his vision of comradery and unified ambition. In his classic, The Three Musketeers, set under the seventeenth century rule of Louis XIII, a small association of elite combatants swore their allegiance to a common purpose . . . and to each other: All for one, and one for all! Is this sense of nobility and uniformity present in the battle cry of plaintiff lawyers brandishing their swords in modern day litigation against the insurance industry?
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January 22, 2003 PublicationAnger And Punishment

Horace once wrote: “Anger is a brief madness.” Such human condition apparently has not changed in over 2000 years.

USA Today's January 9, 2003 editorial page began with the topic sentence: “Horror stories abound about huge damage awards turning courts into lotteries, transforming plaintiffs and their lawyers into instant winners.” In addressing a recent Ohio Supreme Court decision, the editorial stated

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December 18, 2002 PublicationCan It Be 'Bad Faith' For An Insurer To File A Declaratory Action?

In recent months, insurance company clients of the author have faced allegations that the filing of a declaratory action, by an insurer, to determine or cut off coverage, is bad faith. This is a somewhat novel and, as it turns out, disfavored cause of action. To begin with, a “declaratory judgment action is the preferred manner of deciding a dispute between an insured and insurer over the construction and effect of the terms of the insurance contract.”

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October 23, 2002 PublicationTime Bombs

Insurers find nothing more frustrating than paying for unearned indemnification dollars. In a first-party context this may result from unreported values causing a deflated premium. In other words, the insurer's actual exposures require more premium than charged -- usually over many policy years. In a third-party context this unearned protection is the result of an excess judgment that the liability carrier is required to pay. In most jurisdictions this is the consequence of the liability insurer's failure to settle within policy limits when it had the opportunity to do so. 

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September 18, 2002 PublicationSpoliation As Bad Faith

What happens when an insurer's employee, insured, adjuster or attorney alters or destroys critical evidence? Can spoliation of evidence also constitute bad faith? Although there is no published decision directly on point, it appears that some courts may be willing to extend an insurer's exposure to include extra-contractual damages for such conduct

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April 17, 2002 PublicationSeventh Circuit Court Of Appeals Finds "Independent" Insurance Broker To Be Intermediary Of Insured, Barring Coverage And Bad Faith Claims

The Seventh Circuit recently addressed the question of whether an independent insurance broker, who provided clients to the insured, was their intermediary, thus barring coverage and bad faith claims. (First Insurance Funding Corporation v. Federal Insurance Company, No. 01-2855 (7th Cir. March 28, 2002)).

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January 23, 2002 PublicationOops!

The advent of the “information highway” and evermore aggressive and well financed litigants and litigators have placed overwhelming pressures upon an insurer's infrastructure. Coupled with the past decade of “downsizing” and the commensurate loss of “corporate memory,” the “Oops!” Syndrome has become more than a “pop” lyric. Unfortunately, it has become an all too common part of our bureaucratic culture.

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November 21, 2001 PublicationRecognizing Subtle Exposures To Avoid Bad Faith Claims

“The insurer does not . . . insure the entire range of an insured's wellbeing outside the scope of and unrelated to the insurance policy, with respect to paying third party claims. It is an insurer, not a guardian angel.”

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October 17, 2001 PublicationJustices: Please Take This Case!

Two recent state court decisions jeopardize the right of insurers to consult legal counsel when considering whether to pay or deny the claim of a policyholder. The Arizona and Ohio state supreme courts have issued opinions eroding, even abrogating, the attorney client and work product privileges. In one of these decisions, Boone v. Vanliner, 744 N.E.2d 154 (Ohio 2001), the insurer has petitioned the United States Supreme Court to issue the writ of certiorari, hear the case and reverse the Ohio Supreme Court. The undersigned urges the United States Supreme Court to take the Vanliner case for the reasons stated below.

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September 19, 2001 PublicationAdditional Insured Coverage And Bad Faith

Coverage determinations regarding the nature of policy duties that liability insurers owe to additional insureds may create bad faith exposure for the unwary insurer. Bad faith liability frequently arises when an insurer fails to recognize the scope of defense and indemnification obligations it owes to an additional insured. Issues also arise when additional insureds compete with named insureds for limited policy proceeds which cannot adequately protect the interests of both. This article highlights the source of the dilemma – the scope of the coverage afforded to an additional insured – and provides illustrations of bad faith exposure in the wake of claims asserted against additional insureds.

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April 18, 2001 PublicationResolution of the Underlying Claim as a Prerequisite to Bad Faith

In every jurisdiction that has considered the issue, a claim for bad faith does not accrue until there has been a final determination of the underlying claim for insurance benefits or third party damages. Taylor v. State Farm Mutual Automobile Ins. Co., 913 P.2d 1092 (Ariz. 1996); Blanchard v. State Farm Mutual Automobile Ins. Co., 575 So. 2d 1289 (Fla. 1991). Thus, before a plaintiff can sue an insurance company for bad faith, he must first finally resolve the claim which he contends the insurance company failed to settle in good faith. What constitutes a resolution of that claim varies with the type of claim asserted and the jurisdiction in which it is brought, but it can generally be broken down into three categories: excess judgment, settlement of the underlying claim, and judgment below policy limits.

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March 21, 2001 PublicationDiminished Value In Auto Damage Claims

We have seen, in recent years, a spate of actions for bad faith, and class actions, on the issue of so-called diminished value. These suits claim payment by the insurance company of the actual cash value of a property loss - or the cost to repair a loss - does not make the insured whole. This is because of some intangible quality in the property that cannot be restored by repair. Before the loss it was pristine or original. Afterward it is corrupted or compromised. It is worth less in the market.

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February 21, 2001 PublicationPossible Bad Faith In The Allocation Of Coverage For Third Party Continuous Loss Claims

An insured causes damage or injury that results in a third party claim for continuous loss spanning three years. The third party makes a claim under the policy in effect at the time of the loss. The policy covers the same three years as the loss and provides $300,000.00 for each year. In other words, the policy provides a total of $900,000.00 aggregate coverage over three years. We will assume the claim is settled for $300,000.00.

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August 22, 2000 PublicationIs It Bad Faith to Settle Covered Claims Only?

It is beyond dispute that the duty to defend, under liability insurance, is contractual, and is broader than the duty to indemnify. National Grange Mut. Ins. Co. v. Continental Cas. Ins. Co., 650 F. Supp. 1404 (S.D.N.Y. 1986). Even if some allegations of the complaint clearly are outside the scope of coverage, the insurance company is obligated to defend the entire suit. Id. See also, Aerojet-General Corp. v. Transport Indemnity Co., 948 P.2d 909 (Cal. 1997).

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July 25, 2000 PublicationLevel The Playing Field: Abate Or Stay The Bad Faith Action Pending Resolution Of The Underlying Liability Or Coverage Case
Before resolution of a first-party action for coverage or a third-party action to establish an insured's liability, a plaintiff will often initiate an action for bad faith. By doing so, the plaintiff attempts to gain an unfair advantage in discovery and at trial. This article outlines some of the reasons why the bad faith action should be abated in its entirety or, at the very least, stayed pending resolution of the underlying claim.
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June 20, 2000 PublicationThe Public Adjuster's Perspective

Mr. Lesser is a prominent public adjuster. His business office is located in Miami Beach, Florida. The views and opinions stated by Mr. Lesser in this interview are his own. Neither Mr. Craig, nor Butler , necessarily approve or agree with any of them.

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May 19, 2000 PublicationContractors' Bonds: Who Can Sue The Surety For Bad Faith?

A contractor's performance and payment bond creates rights and obligations among three parties ­ the principal, the obligee and the surety. The principal may be the general contractor or a subcontractor. The obligee (under a performance bond) usually is the owner of the project or (under a payment bond) the subcontractors, materialmen and equipment suppliers. The surety most often is an insurance company or financial institution engaged, among other things, in the business of issuing performance and payment bonds.

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April 18, 2000 PublicationThree Reasons Why Loss Reserves Ought Not Be Admissible In A Bad Faith Case

In the trial of a bad faith case, plaintiff often tries to put into evidence the reserves the insurance company set for the claim. This article contends that evidence ought not be admissible. It will outline three reasons why not.

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March 21, 2000 PublicationReimbursement of Defense Costs

In 1997, the California Supreme Court acknowledged that an insurer could recoup defense costs expended by a carrier, provided the carrier proved the costs were expended exclusively defending a non-covered claim. Not surprisingly, insurer's efforts to enforce this right have met with resistance. Insureds assert that the reservation of the right to seek reimbursement creates a conflict between insurer and insured and obligates an insurer to pay for independent counsel. This article examines the parameters pursuant to which reimbursement can be obtained and whether assertion of the right to reimbursement can lead to extra-contractual exposure.

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March 01, 2000 PublicationIssue Revisited: Who Can Sue The Surety For Bad Faith Under A Construction Bond?

In this journal, in May 2000, the author discussed the then recent decision in Ginn Construction Co. v. Reliance Insurance Co., 51 F. Supp. 2d 1347 (S.D. Fla. 1999). He argued that, contrary to a suggestion in Ginn, an obligee under a general contractor's performance bond ought not be allowed to sue the surety for bad faith. This article will look at some decisions handed down since. The trend is toward no bad faith liability by a surety to either an obligee or a principal under a surety bond.

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February 15, 2000 PublicationPerfunctory Defense

per-func-to-ry   per-fúngk'te­re   adj.   Done or acting routinely andwith little interest or care. The American Heritage Dictionary, NewSecond College Edition (1983).

The Scenario

Consider a common scenario. An insurance company issues a liability policy. The policyholder does something, or fails to do something, as a result of which a partyis injured. The injured party becomes the plaintiff, and the policyholder the defendant,in a tort action. The insurance company reviews the tort action and sees right awaythat probably it is not covered. It retains a defense attorney to handle the tort action butsends a reservation of rights letter to the policyholder and files a separate declaratoryaction to determine coverage. So far so good. See, e.g., Insurance Co. of the West v.Haralambos Beverage Co., 195 Cal. App. 3d 1308, 1319 (1987).

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December 21, 1999 PublicationMalicious Defense

This is one of a series of articles under the by line "Butler on Bad Faith" originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 13, #16, p. 25 (December 21, 1999). © Copyright Butler 1999.

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November 16, 1999 PublicationWhy A First Party Insurer Is Not A Fiduciary

Courts, commentators, lawyers and others have applied the word "fiduciary" to insurance companies and insurance claims in a loose manner. The result has been bad law and confusion over if and when an insurer is a fiduciary. This article will argue that an insurer does not, and ought not, owe a fiduciary duty to an insured who has presented a first party claim.

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October 19, 1999 PublicationThe Duty of Good Faith: Continuing Into Litigation

First-party bad faith cases are typically based on conduct or events (e.g., settlement offers, investigations and evaluations) occurring during the time period after a claim is made but before any litigation is commenced. Once a breach of contract or declaratory action is filed, it is generally understood that the insured and insurer stand in an adversarial relationship which presumably entitles each party to zealously pursue its litigation tactics and strategy. Thus, courts generally will not permit an insurer's litigation conduct to be admitted as evidence of bad faith. Over the years, however, a significant number of courts have held an insurer owes a continuing duty of good faith to an insured throughout the litigation process and, therefore, an insurer's post-filing conduct may be admitted as evidence of bad faith. This article is a brief review of some of the leading cases addressing the continuing duty of good faith and its ramifications affecting insurance companies and defense counsel.

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September 21, 1999 PublicationGood Faith Settlement of Claims in Excess of Policy Limits Against Multiple Insureds

Introduction

Insurers and insureds alike may find themselves in the dark when claims against multiple insureds exceed policy limits. Only a few jurisdictions explicitly have addressed how policy proceeds should be allocated in this situation. The jurisdictions that have addressed the issue have split into two general camps. Some hold that carriers must allocate proceeds proportionately among all insureds. Other jurisdictions hold that a carrier need only act in "good faith" and may settle on behalf of fewer than all insureds. The manner of proportional allocation and the characteristics of a "good faith" settlement under such circumstances are not well described in the case law.

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August 17, 1999 PublicationMultiple Claims Exceeding the Policy Limits

When courts and state legislatures expand the duties owed by liability insurers to insureds there is a commensurate expansion of the grounds for extracontractual claims. One area of expansion has been in cases involving multiple third-party claimants - with liability clear and damages exceeding the policy limits. These cases make difficult issues for claims professionals.

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July 20, 1999 PublicationAdvice of Counsel: Insurance Companies' First and Last Line of Defense / Mealey's Litigation Reports: Bad Faith
The dynamic nature of bad faith law throughout the country practically mandates that insurers have ongoing legal advice to protect the interests of the company, the shareholders and all insureds. Such advice can prevent unwitting misconduct by the insurer. The "advice of counsel defense" in the context of insurance bad faith litigation issimply an insurer asserting, as proof that it did not act in bad faith, that it reasonably relied on the advice given by its legal advisors.
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July 01, 1999 PublicationStandard of Care in First Party Bad Faith Actions: Is "Fairly Debatable" Fair?

Since the early 1970s, when first-party bad faith actions came into being, a considerable body of law has developed on the standard of care for insurers to avoid liability. In creating and defining such standards, courts have struggled to balance the interests of insureds and insurers. This article is a general review of those decisions and standards.

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March 16, 1999 PublicationStatute of Limitations in a Bad Faith Action: Which One Applies and When Does It Accrue?

Determining which statute of limitations governs a cause of action against an insurer for bad faith is complicated. It depends on whether the action is a first or third party action. It depends also on whether the controlling jurisdiction deems the action to be one sounding in tort or contract.

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January 19, 1999 PublicationDuty of Insurers to Advise Insureds of Policy Benefits

This article considers whether an insurer has a duty to advise an insured of policy benefits not claimed. Some courts require insurers to protect an insured's interests affirmatively by informing the insured of available benefits. Other courts have refused to impose this duty upon insurers. Recent cases suggest a trend toward imposing this duty.

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December 15, 1998 PublicationFederal Preemption of Extracontractual Claims Under Flood Insurance Policies

During the past year, numerous areas in the United States have experienced severe and, at times, unprecedented flooding. Whether the flooding occurred as a result of the active Atlantic hurricane season or the effect of "El Nino" on national weather patterns, the result for insurers is the same: an increase in the number of claims under flood insurance policies. With this comes a corresponding increase in the likelihood of extracontractual or bad faith claims.

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December 14, 1998 PublicationSupplement to Federal Preemption of Extracontractual Claims Under Flood Insurance Policies

This is a supplement to the December 1998 article published in Mealey's Litigation Reports: Bad Faith on "Federal Preemption of Extracontractual Claims Under Flood Insurance Policies" following the U.S. Third Circuit Court of Appeals reversal of its decision on rehearing in Van Holt v. Liberty Mutual Fire Insurance Co. This supplement was originally published in Mealey's Litigation Report: Bad Faith, Vol. 12, #18, p. 27 (Jan. 19, 1999). Copyright Butler 1999.

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November 17, 1998 PublicationThe Expanding Scope of Discovery in Bad Faith Cases

Bad faith litigation is complex and the stakes are high. In such cases, the discoveryprocess has become critical as litigants struggle for advantage. The litigation often raisesissues outside the facts of the particular case or claim. The conduct of the insurancecompany as a whole sometimes is placed on trial.

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October 20, 1998 PublicationDoes a Liability Insurer Have a Duty to Initiate Settlement Negotiations?

Liability insurance policies typically provide the insurer with complete control over thedefense and settlement of third-party claims against the insured. This control imposesupon the insurer a duty to exercise good faith in settling claims. When the claimant makesa reasonably prudent offer to settle within the policy limits, courts generally agree the good-faith duty owed an insurer will require the insurer to settle the case. 

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August 18, 1998 PublicationChoice of Law in Bad Faith Cases

The substantive law of bad faith is not uniform from state to state. Some states treat bad faith as a breach of contract; some as a tort. In some states, punitive damages are available. In others, they are not. Some allow claims for emotional distress, while others reject them.

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July 21, 1998 PublicationRecovery of Damages for Emotional Distress in Tort, Contract and Statutory Bad Faith Actions

Emotional distress damages may be the most significant aspect of any bad faith action in jurisdictions that allow them. This article outlines the several theories that justify the recovery of such damages. It discusses also the impact of a recent Florida Supreme Court decision which authorized recovery for emotional distress under that state's bad faith statute.

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Key Points