LAW NOTES from the Law Offices of
Kay & Andersen, LLC
July, 2010
What Every Insurer Should Know . . . . . . . . . . . . . . .
ABOUT BAD FAITH EXPOSURE FOR JUDGMENTS UNDER POLICY LIMITS
Kay & Andersen, LLC
July, 2010
What Every Insurer Should Know . . . . . . . . . . . . . . .
ABOUT BAD FAITH EXPOSURE FOR JUDGMENTS UNDER POLICY LIMITS
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Wisconsin courts have recognized that an insurance company can be liable for the tort of bad faith if insurer conduct results in an unnecessary verdict in excess of a policy limit against the insured. The Wisconsin Supreme Court recently expanded an insurer’s potential exposure for bad faith claims to cases that do not involve excess verdicts beyond a policy limit. In Roehl Transport, Inc. v. Reilly, Appeal No. 2008 AP 1303 (June 22, 2010), found at http://www.wicourts.gov/sc/opinion/DisplayDocument. html?content=html&seqNo=51282, Arthur Groth pursued a personal injury claim against trucking company Roehl Transport, Inc., which was insured by Liberty Mutual Insurance Company. Roehl’s policy had a deductible of $500,000 per occurrence. The underlying lawsuit was tried to a jury and resulted in a verdict of $830,400 against Roehl, consuming the entire deductible. Roehl then filed a bad faith action against Liberty Mutual, alleging that Liberty missed an opportunity to settle the Groth claim for less than the full amount of Roehl’s deductible. Roehl argued that the Groth claim should have settled for $100,000 in 2001, which would not have consumed the entire deductible. The bad faith claim was tried to a jury, which found bad faith by Liberty Mutual and awarded Roehl $127,000 in compensatory damages. The circuit court upheld the jury verdict and an appeal followed.
The Supreme Court held that just as an insurer can be liable for the tort of bad faith when it fails to act in good faith and thereby exposes its insured to liability over policy limits, an insurer may also be liable by failing to act in good faith and exposing an insured to liability for sums within the deductible amount. Id, ¶57. The Court stated that just as in traditional third-party excess judgment cases, an insured with a high deductible needs the protection of a bad faith cause of action to guard against the risk that an insurance company’s exercise of control over a claim might favor its own financial interests over those of the insured. Id, ¶54. The Supreme Court rejected arguments that the case lacked credible evidence for a finding of bad faith and that judicial public policy considerations bar a bad faith claim based on speculative expert testimony as to the potential settlement value for the underlying claim. The Supreme Court determined that in addition to compensatory damages, Roehl was also entitled to a post-verdict determination of attorneys’ fees by the circuit court, which “has been an acceptable procedure” in bad faith cases. Id, ¶184.
This case has significant ramifications for insurers which do business in Wisconsin. They may no longer assume that they are immune from allegations of bad faith if a settlement or verdict does not exceed the insured’s policy limit. It remains to be seen whether this decision will dramatically increase the number of bad faith claims filed against insurers in Wisconsin, and its holding may well be limited to cases involving large deductibles. Regardless, this case serves as a reminder to insurers that Wisconsin courts will recognize and enforce an insurer’s duty of good faith in the handling of claims where insureds have tendered control of the defense to the insurer.
Law Offices of Kay & Andersen, LLC is recognized for securing favorable verdicts and settlements for insurance companies and their insureds and has received an AV rating from Martindale-Hubbell. We are also proud to be listed in Best’s Directory of Recommended Insurance Attorneys and Adjusters. Feel free to contact us with any of your insurance defense needs.
The Supreme Court held that just as an insurer can be liable for the tort of bad faith when it fails to act in good faith and thereby exposes its insured to liability over policy limits, an insurer may also be liable by failing to act in good faith and exposing an insured to liability for sums within the deductible amount. Id, ¶57. The Court stated that just as in traditional third-party excess judgment cases, an insured with a high deductible needs the protection of a bad faith cause of action to guard against the risk that an insurance company’s exercise of control over a claim might favor its own financial interests over those of the insured. Id, ¶54. The Supreme Court rejected arguments that the case lacked credible evidence for a finding of bad faith and that judicial public policy considerations bar a bad faith claim based on speculative expert testimony as to the potential settlement value for the underlying claim. The Supreme Court determined that in addition to compensatory damages, Roehl was also entitled to a post-verdict determination of attorneys’ fees by the circuit court, which “has been an acceptable procedure” in bad faith cases. Id, ¶184.
This case has significant ramifications for insurers which do business in Wisconsin. They may no longer assume that they are immune from allegations of bad faith if a settlement or verdict does not exceed the insured’s policy limit. It remains to be seen whether this decision will dramatically increase the number of bad faith claims filed against insurers in Wisconsin, and its holding may well be limited to cases involving large deductibles. Regardless, this case serves as a reminder to insurers that Wisconsin courts will recognize and enforce an insurer’s duty of good faith in the handling of claims where insureds have tendered control of the defense to the insurer.
Law Offices of Kay & Andersen, LLC is recognized for securing favorable verdicts and settlements for insurance companies and their insureds and has received an AV rating from Martindale-Hubbell. We are also proud to be listed in Best’s Directory of Recommended Insurance Attorneys and Adjusters. Feel free to contact us with any of your insurance defense needs.