“Bad Faith” attorneys need to read this 2020 opinion from the Western District of Texas, San Antonio Division. The opinion is styled, Macklin Keller v. State Farm Lloyds.
Keller had property insurance with State Farm. Keller made a claim for hail storm damage. Keller sued State Farm alleging, among other things, improper handling of the claim and for allegations of bad faith and statutory violations of the Texas Insurance Code. State Farm filed a motion for summary judgment on the bad faith and statutory violations.
An insurer holds a duty to deal fairly and in good faith with its insureds. An insurer breaches this duty and will be liable if it knew or should have known that it was reasonably clear that the claim was covered. Consequently, under this reasonably-clear standard for determination of liability, an insurer breaches its duty of good faith and fair dealing by denying a claim when the insurer’s liability has become reasonably clear.
As long as the insurer has a reasonable basis to deny or delay payment of a claim, even if that basis is eventually determined by the fact finder to be erroneous, the insurer is not liable for the tort of bad faith. This determination of bad faith does not focus on whether the insured’s coverage claim was valid, but, instead, on the reasonableness of the insurer’s conduct in rejecting the claim. Facts and evidence that show only a bona fide coverage dispute do not rise to the level of bad faith to impose liability.
Similarly, an insurer is obligated to adequately investigate a claim before denying it. An insurer will not escape liability merely by failing to investigate a claim so that it can contend that liability was never reasonably clear. Instead, we reaffirm that an insurance company may also breach its duty of good faith and fair dealing by failing to reasonably investigate a claim. The scope of the appropriate investigation will vary with the claim’s nature and value and the complexity of the factual issues involved. If an insurer fails to conduct a reasonable investigation, it cannot assert that a bona fide coverage dispute exists. An insurer fails to reasonably investigate a claim if the investigation is conducted as a pretext for denying the claim, was conducted with an outcome oriented approach, or an expert’s report was not objectively prepared.
Although the issue whether an insurer acted in bad faith, or the reasonableness of the insurer’s conduct, is usually a question of fact for the jury, a court may determine as a matter of law that undisputed record evidence establishes an insurer had a reasonable basis for denying or delaying a claim payment. If the insurer satisfies this summary judgment burden, the burden shifts to the insured, and a court then must determine whether the insured failed to present evidence sufficient to support a bad faith claim.
The above is the standard the Court should use.