Missouri Insurance Lawyer Blog

In a 7-0 decision written by Judge Richard B. Teitelman, the Supreme Court of Missouri confirms that an insurance company must promptly investigate a claim and its failure to do so is unreasonable and vexatious. D.R. Sherry Construction, Ltd. V. American Family Mutual Insurance Company, Case No. SC90442.

Sherry, a general contractor engaged in the business of building homes, filed suit against his commercial general liability insurer, American Family Mutual Insurance Company after the insurance company refused to investigate and pay a claim. Sherry made a claim on his insurance policy after a house that he built and sold, incurred structural damages caused by continuous and repeated exposure of the foundation to poor soil conditions.

Subsequent to the sale of the home, the new homeowners contacted Sherry and notified him that the foundation and drywall were cracking. Mr. Sherry inspected the house and confirmed the existence of the cracks. The homeowners threatened a lawsuit against the contractor. Mr. Sherry submitted a claim to his insurer, but American Family advised Sherry that it would not undertake further investigation of the claim until the homeowners actually filed a lawsuit. At that time, Sherry entered into an agreement with the homeowners to repurchase the home.

Sherry then filed this lawsuit against American Family asserting claims of breach of contract and vexatious refusal to pay. American Family claimed that that policy had expired at the time of making the claim, and that they did not owe anything under the policy.

The court found (1) that the damage to the house began during the policy period and was progressive from that point forward, and therefore was covered by the policy at issue; (2) the interpretation of an insurance contract is a question of law to be determined by the judge and only becomes a jury question when the court determines that the contract is ambiguous and there exists a genuine factual issue to be decided by the jury; and (3) American Family's delay and then refusal to investigate the contractor's claim was sufficient basis for concluding that the insurance company unreasonably and vexatiously refused to pay a valid claim for property damage.

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Every contract has an implied covenant or promise of good faith and fair dealing. Insurance policies are merely contracts between the insurance company and the person who purchased the insurance and people who qualify for insurance benefits under the terms of the contract. Thus, every insurance policy in the United States has a promise imposed by law upon an insurance company to act fairly towards its policy holder and the beneficiaries in the performance of the contract. This is true whether or not such a clause is specifically include in the policy, because courts will read such covenant into the policy as a matter of contract law.
Insurance carriers must therefore meet the objective reasonable expectations of the policy holders and insurers must give equal consideration to the financial interest of its insurer as it does its own interest. Thus, when an insurance company does not have to put its interests behind that of its insured, it cannot protect itself while abandoning its policy holder.

In cases, commonly referred to as bad faith cases, the essential question is whether or not the insurance carrier met its duty of good faith and fair dealing in the situation presented by the performance of its contract obligations. Examples of bad faith include delaying payments, paying less than what is owned, denying benefits or coverage, or failing to settle claims within the policy limits. The insurance companies also have obligations imposed upon them including the duty to promptly investigate all claims, and where appropriate to defend their insured under the terms of the policy. Bad faith action insurance companies policies, practices, and customs will be at issue to show how the insurance company acted, to show its motive, intent, plan and knowledge concerning the particular facts of the case. It is not necessary to show that a insurer acted intentionally to cause harm. Bad faith is a state of mind and may be evidenced by both acts and circumstances on the part of the insurer, but amounts to more than a mistake.
Specific facts that may indicate bad faith on the part of the insurer include demand that the insurer contribute to the settlement, ignoring settlement advice, not disclosing policy limits to a claimant, failing to foresee probable excess verdicts, taking and employing hard line settlement tactics, and properly investigating a claim and properly evaluation a claim, failing to litigate a claim, failing to provide a proper defense, failing to consider settlement, ignoring setting advice, failing to communicate with the insured about the case, or failing to advice the insured about the potential of excess judgments, failing to advise the insured about the policy coverage, failing to advise the insured about existence of settlement offers, acting on behalf of one insured to the detriment of another insured.

It is clear that when people buy an insurance policy that they are seeking protection from the risks insured. If the insurer fails to satisfy their obligations to the policy holder, the policy holder will face the financial risks for which they had purchased protection, as well as the emotional distress as a result of the breach of the policy agreement. Policy holders and beneficiaries are obviously in a vulnerable position when they must rely on their insurance carrier to protect their interest, particularly if the insurance company does not share information, or take appropriate actions to protect the insured's interests, because an insurance company generally has superior knowledge concerning the facts and law, and in all cases where the insured is the wrongdoer, the insurance company is in control of the defense. Therefore, bad faith lawsuits promote not only compensation by injured policy holders and beneficiaries, but provide deterrence from insurance companies acting oppressively towards their customers.

California's Real Death Panels: Insurers Deny 21% of Claims .

Another story about the high rate of insurance claims denial in health care. Further investigation is needed in to this high rate of denials and whether or not they are the product of bad faith insurance company practices or not.