One state is seeing increasing bad faith claims in UM/UIM complaints
Some Connecticut courts have begun applying a less stringent standard for pleading bad faith in insurance cases.
As we enter a new year, insurers should be aware of increasing claims for breach of the covenant of good faith and fair dealing (“common law bad faith”) for uninsured/underinsured motorist insurance coverage in Connecticut.
Connecticut courts generally have not been receptive, often striking such claims at the pleading stage, especially where they merely describe a dispute over coverage. This is noteworthy given that more recently, some Connecticut courts also have begun applying a less stringent standard for pleading bad faith.
Here we discuss this trend and Connecticut courts’ treatment of these claims at the pleading stage, demonstrating that carriers are best positioned to avoid common law bad faith claims in the uninsured/underinsured motorist context by employing procedures that ensure timely and thorough investigation and documentation of claims and timely, clear and direct communication with claimants regarding the bases for the insurer’s coverage position.
Bad faith trend emerging in Connecticut
In Connecticut, bad faith requires actual or constructive fraud, a design to mislead or deceive, or a neglect or refusal to fulfill some duty or contractual obligation, not prompted by an honest mistake but by interested or sinister motive. A bad faith claimant must plead three essential elements, as ruled in Tarabek v. Hartford Ins. Co.: (1) plaintiff and defendant were parties to a contract under which plaintiff reasonably expected to receive certain benefits; (2) defendant engaged in conduct that injured plaintiff’s right to receive some or all of those benefits; and (3) defendant acted in bad faith.
A split of authority exists at the Connecticut trial court level as to factual allegations sufficient to state the third Tarabek element. The majority view requires specific allegations of dishonest purpose or malice, but a growing minority holds that facts from which bad faith may be reasonably inferred suffice. Even under the less stringent standard, a claimant must allege an insurer acted purposefully, not negligently.
Hill v. State Farm Mut. Automobile Ins. Co. illustrates the described trend and contains useful signposts for carriers seeking to avoid such claims. In Hill, the Court granted State Farm’s motion to strike a common law bad faith claim in an underinsured motorist coverage complaint. Hill alleged that State Farm “refused and/or failed despite several repeated requests to make payment in accordance with [the policy],” and that it “acted unreasonably and in bad faith and/or in violation of general business practices in refusing to make a reasonable offer of settlement under the underinsured motorist portion of the Plaintiff’s policy.”
The Court recognized that claims for common law bad faith increasingly are pled in conjunction with uninsured/underinsured motorist claims and the split of authority regarding how to sufficiently plead the third Tarabek element. The Court concluded that Hill’s allegations failed to state a claim for common law bad faith under either pleading standard because Hill did not specifically allege that State Farm acted with a dishonest purpose, that it engaged in a pattern of misconduct rising to the level of bad faith, or other facts from which bad faith could be reasonably inferred. Thus, the Court concluded that “a reasonable inference of sinister motive or dishonest purpose would be attenuated.”
Most common law bad faith claims are asserted in underinsured, not uninsured motorist cases, reflecting the dearth of uninsured motorist claim cases generally, likely due to Connecticut’s compulsory motor vehicle insurance laws. Courts may be disinclined to strike bad faith claims in the uninsured motorist context because of the complete lack of tortfeasor coverage, in contrast to a mere disagreement over the extent to which underinsured coverage should respond to close a gap in coverage.
Courts strike common law bad faith claims raised with underinsured motorist claims under the less stringent pleading standard where the claims were based on the insurer’s alleged mishandling of the claim, including valuation of it.
In contrast, common law bad faith claims are more likely to survive a motion to strike where they describe, with particularity, a pattern of misconduct, including an insurer’s refusal to consider presented information.
Carriers can reduce the risk of bad faith claims being asserted by ensuring that their investigations into uninsured/underinsured motorist coverage claims are completed promptly and are well-documented, including consideration of all information presented. Timely and detailed communication to the claimant regarding the carrier’s position is critical, including recitation of the facts on which the insurer relied and the policy language bases for any denial of coverage.
Editor’s Note: Watch for part two of this article that will discuss increasing bad faith claims in other states across the country.
Melicent Thompson is a partner with the law firm of Gfeller Laurie, LLP. She has broad litigation experience in state and federal courts spanning close to 25 years. Her insurance coverage law practice encompasses all areas of coverage advice in both the first- and third- party contexts and related litigation services, including declaratory judgment actions, defense of bad faith claims and reinsurance matters. She may be reached at mthompson@gllawgroup.com.
Elizabeth O. Hoff is an associate with Gfeller Laurie, LLP. She has extensive experience as a litigator and counselor to insurers and broad insurance coverage experience, which includes counseling clients in first- and third-party contexts as well as all associated litigation, including declaratory judgment actions and defense of bad faith claims. She may be reached at ehoff@gllawgroup.com.
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