Bad Faith Insurance And The Fight

Insurance lawyers in the Dallas and Fort Worth areas who are honest and straight forward with their clients, will let them know up front that winning a case on allegations of “bad faith” are an up hill fight. The Texas Supreme Court and the various appellant courts look negatively on bad faith claims. This is illustrated in the 1993 case, State Farm Lloyd’s v. Nicolau. It is important to realize there are still cases wherein bad faith allegations can win, but it is equally important that the facts of each case have to be carefully scrutinized and discussed before one should believe they can prevail on a bad faith claim.
Here is a little about the Nicolau case. The part from the dissent has to be calculated in discussing a case.
This is a suit against a homeowner’s insurer alleging malicious bad faith, etc., for refusing to pay the full amount of a claim. A jury found for Mr. and Mrs. Nicolau on various contractual, tort and statutory theories, also finding actual and punitive damages. The trial court rendered judgment n.o.v. on all claims except breach of contract. On appeal, the 13th Court of Appeals in Corpus Christi reinstated the jury’s findings and rendered judgment against State Farm (including punitive damages). Held: judgment of Court of Appeals reversed in part and judgment rendered striking the exemplary damages (because there was no legally sufficient evidence of malice); judgment of was affirmed insofar as it awarded Mr. and Mrs. Nicolau actual damages for State Farm’s bad faith.
Evidence established that State Farm relied upon a report prepared by Haag Engineering Company in determining that the Nicolaus’ foundation damage had been caused by excluded perils. Nevertheless, the majority determined there was “more than a scintilla of evidence from which the jury could logically infer that State Farm did not reasonably rely on Haag’s report to deny the Nicolaus’ claim.” Rejecting the dissent’s arguments, the majority explained: “Were we the trier of fact in this case, we may well have concluded that State Farm did not act in bad faith. This determination is not ours to make, however. Instead, the Constitution allocates that task to the jury and prohibits us from reweighing the evidence, as the dissent does.
The majority went on to hold that: (1) there was no evidence supporting the jury’s finding of “malice”, (2) there was no evidence supporting the jury’s finding that State Farm acted unconscionably, for its requirement of “gross” advantage taken or disparity in value that is “glaringly noticeable, flagrant, complete and unmitigated”; (3) the trial court did not err or abuse its discretion by refusing to submit State Farm’s tendered jury instructions about the specific terms of the insurance contract (which was in evidence and the jury apparently understood); and (4) the trial court did not commit reversible error by refusing either to stay the proceedings or declare a mistrial in order to permit State Farm to do additional testing.
Justice Hecht filed an angry dissent, joined by Chief Justice Phillips and Justices Gonzalez and Owen. Judge Hecht’s dissent includes the following remarks:
. . . For plaintiffs, bad faith is more like Hollywood television’s Wheel of Fortune, or closer to home, like the Texas lottery: it costs almost nothing to play, you can play whenever you want, and if you win you hit the jackpot — tens, maybe hundreds, of thousands of dollars for that awful mental anguish that invariably seems to accompany denial of even the smallest insurance claim, and millions in punitive damages. And like the lottery, bad faith liability is paid ultimately by the public. Insurance companies have not been authorized to print their own currency; the money to pay successful plaintiffs and their attorneys comes from policyholders, and they obtain the money to pay premiums from wages or sales. In effect, bad faith is a levy on everyone to benefit a few — what some have called a tort tax.