Bad Faith Blog

Montana recognizes several equitable exceptions to the American Rule regarding attorney fees in the area of insurance. The Montana Supreme Court has previously recognized a first-party insured can recover attorney’s fees based on the insurer’s breach of the duty to defend. This limited exception was then expanded to include cases where the insurer disputed coverage and the first-party insured incurred attorney’s fees litigating the coverage dispute and was successful in so doing. Now, in this UIM case involving Tonya Mlekush, the court has further extended the allowance of attorney’s fees to UIM claimants who recover more at trial than the last offer made by the insurer.

James Demetre carried liability insurance on his vacant lot, which was previously a gas station. Demetre was notified that a family occupying a nearby residence was bringing environmental claims against him stemming from the alleged migration of petroleum from his property. Indiana Insurance Company provided a defense under a reservation of rights, sought declaratory judgment on its coverage dispute, and ultimately indemnified Demetre in relation to the final settlement. Nevertheless, Demetre sued Indiana Insurance for bad faith breach of his insurance contract. These claims went to trial and Demetre was awarded $925,000 in emotional distress damages and $2.5 million in punitive damages. The resultant question is: how is such a result possible?

The Tenth Circuit Court of Appeals affirmed the trial court’s grant of summary judgment in favor of the insurer, USAA, finding the insureds failed to establish damages to support their claim for breach of the implied covenant of good faith and fair dealing. Specifically, the court found the insureds failed to establish unusual emotional distress, recoverable attorneys’ fees, or recoverable diminution in value damages that could independently support the claim.

Summary: Insured’s judgment creditors brought action against liability insurer to recover for unfair insurance settlement practices in connection with claim for damage to plants from salt water drawn from well drilled by insured. The trial court, after a six-day bench trial, entered judgment in favor of creditors and awarded attorney fees and expenses. Parties filed cross appeals and Appeals Court affirmed in part, reversed in part, and remanded.

Summary: R & G sued American Family for breach of contract and statutory bad faith penalties after sustaining two separate property damage losses that were both denied under the vacancy exclusion and for R & G’s failure to cooperate in the investigations. On appeal the court found the trial court properly denied the insured’s motions for summary judgment, including on the issue of bad faith penalties.