Many people fail to realize that, at its core, auto insurance is a contract. Like any contract, each party undertakes certain obligations in exchange for certain benefits. When insuring an individual, the insurance company promises to cover policyholders for certain events, should they occur, in exchange for payment of monthly premiums.
In addition to providing coverage, the auto insurance company must also not engage in behavior that jeopardizes their insured’s financial interest. This can happen if an insurance company fails to settle a meritorious claim for the policy limits prior to jury trial, and a subsequent verdict for an amount greater than the policy limits is rendered by the jury. Should this happen, the insured would be personally responsible for all amounts not covered by the policy.
If the insurance company had good reason to not settle the case prior to trial, they will not be subject to a bad faith claim. However, if they failed to perform any of a number obligations to their insured in an effort to pay less money, the insurance company may be sued for bad faith for failure to settle a claim. The existence of bad faith is determined by the trier of fact on a case by case basis.
Bad Faith is "the intentional disregard of the financial interest of an insured in the hope of Carrier escaping the responsibility imposed upon by its policy." Scottsdale Ins. Co. v. Addison Ins. Co., 448 S.W.3d 818, 828 (Mo. 2014). In other words, this is when an insurance company puts their own financial interest before their insured’s. This failure is one that results in the insured being exposed to financial liability that they would have not otherwise been had the insurance company simply settled the claim within the policy limits.
The tort of bad faith failure to settle creates a way of compensating an insured when “ an insured has been wrongly subjected to an excess judgment and to deter (insurance carriers) from failing to fulfill fiduciary duties to their Insureds.” Shobe v. Kelly, 279 S.W.3d 203, 279 (Mo. Ct. App. 2009)
Some of the obligations an insurer owes to its insured include a duty to act in good faith in settling a claim and a duty to not “take a gamble on getting a favorable verdict rather than to make a settlement within the limits of a policy.” Truck Ins. Exch. v. Prairie Framing, LLC, 162 S.W.3d 64, 95 (Mo. Ct. App. 2005).
In defending a claim, the insurance company cannot protect its own interests to the detriment of an insured’s interests. In fact the “[Carrier] must sacrifice its interests in favor of the [Insured’s].” Id.
To prove a bad faith claim, the following three elements need to be shown:
I. That the liability insurer has assumed control over negotiation, settlement, and legal proceedings brought against the insured;
How Met: The first element is typically satisfied when a plaintiff files a claim
against the insurance company. The carrier handles all negotiations from that point forward.
II. That the insured has demanded that the insurer settle the claim brought against the insured;
How Met: The second element can be met in two different ways.
a.) Submitting Written Demand Into Evidence: The most straightforward way is to submit into court the written demand package sent to the insurance company made to the insurance company as evidence. The requirements needed to meet the evidentiary standard changed in 2017, when the Missouri legislature passed RSMO 537.058. This enacted new evidentiary rules that exclude evidence of a time-limited demand in a bad faith case unless the demand meets all the requirements of RSMO 537.058. A demand that does not meet these requirements “shall not be considered as a reasonable opportunity to settle for the insurer” and “shall not be admissible” in any lawsuit seeking extracontractual damages. Essentially you will not be able to any demand into evidence, and will not be able to meet the burden, unless it complies with RSMO 537.058.
So what does RSMO 537.058 require? Any time-limited demand to settle sent from a plaintiff’s lawyer must be transmitted to the liability insurer in writing by certified mail, and must reference the statute. The time-limited demand must be left open for “not less than 90 days” from receipt by the insurer. It must specify a dollar amount or “applicable policy limits, indicating who is to be released if accepted. There are also requirements that a list of all healthcare providers is provided along with HIPAA-compliant medical authorization, wage loss, claim numbers, and must reference that demand is being sent according to RSMO 537.058.
b.) The carrier fails to inform the insured of settlement offers and status of
negotiations: If the insurance company fails to inform the insured of
settlement offers and negotiations, the second requirement that the insured
make a demand for the insurer settle claim is no longer necessary to prove bad
faith.
This is why many successful plaintiff’s lawyers send “settlement opportunity letters” to the insurance carrier containing language specifically requesting that all demands are shared with their insured. They are laying the foundation for a later bad faith claim and potentially "opening up" the policy limits so that their client can obtain a higher recovery.
III. The insurer refuses to settle the claim within the liability limits of the
policy; and in so refusing, the insurer acts in bad faith, rather than negligently.
How Met: The final prong can be satisfied by showing the insurance carrier’s
conduct after they received the demand. This can be proven by emails, letters, phone conversations, etc. “Bad faith is [a state of mind] indicated by the Carrier's acts and circumstances and can be proven by circumstantial and direct evidence.”
Johnson v. Allstate Ins. Co., 262 S.W.3d 655, 662 (Mo. Ct. App. 2008)
Examples of Conduct Showing Bad Faith:
While by no means an exclusive list, here are some examples of conduct that has been found to have shown bad faith:
1.) Not fully investigating and evaluating a third-party claimant’s injuries;
2.) Not recognizing the severity of a third-party claimant’s injuries and the
probability that a verdict would exceed policy limits;
3.) Refusing to consider a settlement offer;
4.) Not advising an insured of the potential excess judgment possibility;
5.) Failing to properly communicate with their insured;
6.) Failing to keep insured apprised of settlement offers;
For a lawyer to obtain a bad faith case against an insurance company in a third-party claim, they must typically get a verdict over the policy limit. This is usually needed before the insured would have a bad faith claim against the insurance company. The insured can then assign this bad faith claim over to the plaintiff’s lawyer, allowing them to recover against the insurance company the full amount of the judgment, standing in the place of the third-party insured and collecting the excess on their behalf. However “an insurer's ultimate settlement for its policy limits does not negate the insurer's earlier bad faith refusal to settle and that an excess judgment is not essential to a bad faith refusal to settle action” Scottsdale Ins. Co. v. Addison Ins. Co., 448 S.W.3d 818, 821 (2014).
