Bad Faith Blog

The Court of Appeals of Indiana held legal malpractice claims are not assignable and affirmed dismissal of a claim against an insurer for vicarious liability for the alleged negligence of retained defense counsel. The Court additionally held when an insurer does not owe a duty to defend or indemnify, it cannot be held liable for a breach of the duty to defend if it voluntarily and gratuitously provided a defense anyway. 

Automobile liability insurer brought action against its insured, an injured third-party claimant and claimant’s parents for declaratory judgment that it had no obligation to pay sums beyond the policy limits. Third-party claimant and his parents counterclaimed for declaratory relief. The Superior Court entered judgment in favor of the insurer.  After appeal, the Rhode Island Supreme Court held the insurer owed no duty to third-party claimant and his parents to act in a reasonable manner and in good faith in settling claim. 

Summary: The seller of a home was insured under a Homeowner’s Policy and a Renter’s Policy issued by United Services Automobile Association (USAA). Past basement problems, including flooding, were not disclosed by the seller. The basement flooded after the buyer took possession, and buyer sued the seller. After USAA denied coverage, the parties reached a settlement wherein a consent judgment was entered for $300,000 in favor of Huckins in the underlying case and Huckins then filed suit against USAA for breach of the duty to defend Van Sickle, breach of contract, common law and statutory bad faith, and punitive damages. The District Court held that USAA had not breached its duty to defend, as the claim was not an “occurrence,” and the buyer appealed. The Montana Supreme Court reversed and held USAA had a duty to defend under the renter’s policy.

Injured logger, as an assignee of claims by a timber lessee and land owner, brought an action against his employer’s liability insurer to recover a consent judgment for the $1M policy limits. After the trial court entered summary judgment in favor of the logger, the employer’s insurer appealed. The Supreme Court of Appeals of West Virginia found the consent judgment was not binding on the insurer because it was not a party to the underlying suit and the settlement and assignment were void for fraud and collusion.

Franklin Kropilak was badly injured when Collins made a left hand turn in front of his motorcycle. The insured was cited by a police officer just after the accident. 21st Century had the police report within in one week and within in two weeks knew that the hospital lien was $33,888. The policy for Collins provided for a liability limit of $10,000 for the crash. Thirty-seven days after the accident the insurer mailed to the attorney for the plaintiff a check for the policy limits. The plaintiff never accepted the policy limits. He did not cash the check. More than a year later in March the plaintiff proposed a settlement whereby consent judgment would be entered against Collins for $150,000 but Kropilak would agree to pursue only the insurance company for the amount in excess of her coverage. 21st Century did not agree to this proposed settlement, which the parties referred to as a Cunningham agreement.