Life Insurance Attorneys need to read this case to see how one court handled allegations of bad faith in a life insurance situation. This is a 2023, opinion from the Southern District of Texas, Houston Division. The opinion is styled, Sue Williams v. Minnesota Life Insurance Company.
Williams sued Minnesota Life alleging it fraudulently represented that the policy would cover a death resulting from accidental asphyxiation.
Minnesota filed a Rule 12(b)(6) motion asking the Court to dismiss Williams claims for bad faith in it’s handling of her claim for life insurance benefits.
The Court granted their motion.
Minnesota Life argues that Williams’s bad faith claims should be dismissed because they allege no actions other than the breach of the insurance contract, which cannot give rise to an action for bad faith. Minnesota Life also argues that Williams has failed to allege it conducted an insufficient or unreasonable investigation of her claim. To support its position, Minnesota Life points to Williams-Few’s death certificate, provided by Williams, which states that the cause of death was “natural” and not “accidental.”
An insurer breaches its common-law duty of good faith when it knew or should have known that it was reasonably clear that the claim was covered. So long as a bona fide coverage dispute exists, the insurer has complied with its duty of good faith and fair dealing even if the insurer’s reasonable basis for denying the claim is determined to be erroneous. An insurer must reasonably investigate a claim, and will not absolve itself of its bad faith by conducting an investigation designed to find a pre-textual basis for denial.
Under the Texas Insurance Code, Section 541.060(7), an insurer may not refuse to pay a claim without conducting a reasonable investigation with respect to the claim. The Insurance Code provides for a private damages action for violations of Section 541.060. This is found in Section 541.151(2).
The second amended complaint alleges that Minnesota Life “performed an outcome- oriented investigation of Plaintiff’s claim,” but provides no allegations regarding what made Minnesota Life’s investigation “outcome-oriented.” Williams does not allege what information she provided to the insurer, what steps the insurer took to investigate her claim, or why it was “reasonably clear” that the claim was covered.
The bad faith claims are dismissed without prejudice.