bad faith case developments - morrison sund

WHEN BAD FAITH HAPPENS TO GOOD INSURERS:

A FIVE-YEAR REVIEW

Minn. Stat. § 604.18

Bradley AyersStacy Kabele

Morrison Sund PLLC952-975-0050

[email protected]@morrisonsund.com

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1. The Andersen Decision2. An Overview of our Statutes3. Case Developments During the

Last Five Years: Property Damage & Personal Injury

4. Advice to Claims Professionals

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Anderson v. Continental Ins. Co.271 N.W.2d 368 (Wis. 1978)

On November 30, 1975, the Andersensdiscovered oil and smoke damage on walls, carpeting, furniture, draperies and clothes that was likely caused by a fire or an explosion of their furnace.

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The Andersen’s insurer, Continental, retained a restoration company to

repair and clean the fire-related damage.

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The Andersenswere not happy with the work –

they claimed that they had to re-

paint and clean as a result of the

work done by the restoration company.

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The Andersenssubmitted a claim for this follow-up work with Continental, and provided the requisite sworn proof of loss that detailed the inventory, the cost, and the value of each of the damaged items.

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Continental never responded.

The Andersens sued Continental, claiming that Continental acted willfully, fraudulently, and intentionally, for “the purpose of discouraging, avoiding, or reducing the payment due under the terms of the policy.”

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The Wisconsin Supreme Court recognized this new cause of action and defined bad faith on the part of an insurance company towards its insured as the absence of honest, intelligent action or consideration of its insured’s claim.

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The Andersen decision created a tort of bad faith that is separate and distinct from the tortious breach of contract out of which the claim for bad faith arises.

In every insurance contract there is an implied covenant of good faith and fair dealing. An insurer may be liable in tort for unreasonably and in bad faith withholding payment of an insured’s claim.

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For instance, in a UM lawsuit, the plaintiff is claiming that the insurer tortiouslybreached the contract.

It’s this breach of contract that may then give rise to the separate bad faith tort.

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Overview of Our Statute

Minn. Stat. § 604.18Signed into law by Governor Pawlenty

on April 18, 2008

For conduct occurring on or after August 1, 2008

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WHO MAY RECOVEROnly an “insured” may recover taxable costs, as defined by the policy:

– First-party property damage claims (like the Andersen case in Wisconsin)

– UM– UIM– PIP

This statute applies to any policy that obligates an insurer to pay proceeds directly to the insured.

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An insured must show two things:

(1) The absence of a reasonable basis for denying benefits; and

(2) That the insurer knew of a lack of a reasonable basis for denying the benefits or acted in reckless disregardof the lack thereof.

Exception: The insurer’s timely investigation of arson and fraud are excepted from this law. Morrison Sund PLLC

A claim for taxable costs arises out of the underlying tort claim.

• The plaintiff must seek leave of the Court to amend the Complaint to add a claim for taxable costs.

• The insured must present one or more affidavits to support her factual basis for the motion.

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• The insured must show prima facie evidenceof bad faith.

• The insurer may submit opposing affidavits.

• It is within the Court’s discretion whether to allow the plaintiff to amend her Complaint.

Note:Neither no-fault arbitration findings nor Department of Commerce administrative rulings are admissible.

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• The jury will hear the underlying claim – without evidence of the alleged bad faith – and reach a verdict.

• The statute states that after the jury returns its verdict in the underlying case, the judge will decide the bad faith claim.

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The insured recovers:

(1) Either ½ the proceeds awarded that exceed the insurer’s offer made 10 days or more before the start of trial or $250,000, whichever is less; and

(2) “Reasonable attorney’s fees” up to $100,000 attributable to efforts to establish the violation.

Notes: Punitive damages are not awardable.Damages are not awarded in claims resolved or confirmed by arbitration or appraisal.

Damages

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• Insurer’s Offer 10 Days Before Trial: $10,000

• Verdict: $150,000

• Recoverable Bad Faith Damages$140,000 x ½ = $70,000

• Total Damages: $220,000° Plus Attorney’s Fees (Not to Exceed $100,000)

° Plus Costs & Disbursements° Plus Pre-Judgment and Post Judgment Interest

Example:

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Note: There is no requirement that the claimed damages or net verdict exceed policy limits in order for the insurer to bring a claim for bad faith against the insurer.

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Notes: According to the statute the insurer must deny a claim before a cause of action arises, but there have been cases that have found that a delay in payment is tantamount to a denial.

The insurer may make an offer up to 10 days before trial.

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CASE DEVELOPMENTS:Property Damage

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Friedberg v. Chubb and Son, Inc., 800 F.Supp.2d 1020 (D. Minn. 2011)

• Moisture intrusion case against homeowner’s insurer.

• In December 2006, Friedberg’s discovered extensive water damage to their home after hiring a contractor to repair a small hole in the exterior of the home.

• Friedberg’s notified their homeowner’s insurer, Chubb, of the loss.

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• Chubb retained an expert who determined that the cause of the moisture intrusion was faulty workmanship and that the damage occurred over a long period of time.

• On August 7, 2007, Chubb denied Friedberg’s claim based on the faulty workmanship exclusion, among others.

• On December 3, 2008, Friedbergs filed suit and thereafter moved for partial summary judgment.

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• Court found that the Friedbergs established a prima facie case of coverage and that their losses were covered unless an excluded peril was an overriding cause. Remanded for jury trial.

• Friedbergs moved to amend their complaint to include a bad faith claim.

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COURT APPLIED A TWO PRONG ANALYSIS:

1. Objective standard: whether a reasonable insurer would have denied or delayed payment under facts and circumstances.

a. Was the claim properly investigated and whether the results of the investigation were subjected to a reasonable evaluation and review.

b. Whether an insurer has acted reasonably in good or bad faith is measured against what another reasonable insurer would have done in a similar situation.

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2. Subjective Standard: What insurer knew and when.

a. Knowledge or lack of reasonable basis may be inferred and imputed to insurer where there is a reckless indifference to facts or proofs submitted by the insured.

b. But when a claim is “fairly debatable,” the insurer is entitled to debate it, whether it concerns a matter of fact or law.

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• Whether a claim is “fairly debatable” implicates the question whether the facts necessary to evaluate the claim are properly investigated and developed or recklessly ignored and disregarded.

HELD: PLAINTIFFS HAVEN’T PROFFERED SUFFICIENT PRIMA FACIE EVIDENCE TO ALLEGE THAT CHUBB’S DENIAL WAS UNREASONABLE.

• Chubb did not shield itself from the facts or otherwise refuse to learn the true facts.

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• Chubb’s position that entire claim is excluded by faulty workmanship is not obviously unreasonable.(A jury could determine that overriding cause was poor construction.)

• “Bad faith does not arise where insurer is simply wrong about factual basis for its denial….” Chubb’s factual basis for denial is “fairly debatable.”

• Nor can bad faith be found simply because insurer’s construction of policy is found to be legally incorrect.

HELD: BECAUSE CHUBB’S DENIAL WAS REASONABLE - EVEN IF ULTIMATELY WRONG – IT NEED NOT ADDRESS 2ND PRONG OF TEST.Morrison Sund PLLC

Homestead Hills Homeowner Ass’n v. American Family Mut. Ins. Co., 2012 WL 5896829 (Minn. Ct.

App. Nov. 26, 2012)• Homestead sustained hail and wind damage its

condominium roofs in April 2009. Homestead alleged the storm dislodged shingle granules from the roofs.

• American Family determined that the shingle damage was caused by a manufacturing defect, not hail, and denied the claim.

• In November 2010, Homestead filed suit against American Family and thereafter moved to amend the complaint to include a bad faith claim.

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• Trial court granted American Family’s summary judgment motion finding that there was insufficient evidence to infer that Homestead’s roofs were damaged by hail and that American Family had established that certain policy exclusions applied to exclude the loss.

On Appeal: Court reversed, concluding there were genuine fact issues with respect to whether the roofs were damaged by hail based on conflicting expert opinions.

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Motion to Amend to Include Bad Faith Claim: Citing the “fairly debatable standard,” the Court held that in light of American Family’s finding that the roofs were damaged by a manufacturing defect as opposed to hail, Homestead failed to establish prima facie evidence in support of its motion for bad faith.

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N. Nat’l Bank v. N. Star Mut. Ins. Co., 2012 WL 4052835 (Minn. Ct. App. Sept. 17, 2012), rev. denied

(Minn. Nov. 27, 2012)

• Northern National Bank was a mortgagee that was claiming benefits under a homeowners policy for a fire loss to a home in Walker, Minnesota on January 10, 2008.

• The homeowner’s insurer, North Star, denied the Hanson’s claim but paid Northern the actual cash value loss.

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• Northern demanded an appraisal as to the remaining amount of the loss but North Star denied the request, claiming that the mortgage company was not a named insured and had no right to an appraisal under the policy.

• Northern filed suit on January 5, 2010, and thereafter moved to amend the complaint to add a claim of bad faith.

• Trial court ordered parties to appraisal and the panel rendered an award for the actual cash value loss of $147,931.06 and replacement cost loss of $213,091.16. Trial court also found that North Star acted in bad faith in not agreeing to the appraisal process and delaying payment.

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ON APPEAL: Court of Appeals reversed the trial court’s finding of bad faith.

1. North Star promptly adjusted the loss and tendered payment of $118,847.40.

2. Northern waited 2 years after the loss to advise that it was disputing the amount paid.

3. There was a legitimate dispute about whether Northern could appraise the loss.

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4. After the appraisal award, North Star paid the balance of the actual cash value loss into court.

5. Delay was occasioned by matters “unquestionably” out of North Star’s control.

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Davis v. Grinnell Mut. Reinsurance Co., 2010 WL 5464915 (D. Minn. Dec. 30, 2010)

• Hail damage claim to multiple buildings arising out of storm in Worthington, Minnesota on May 6, 2009.

• Grinnell’s initial adjuster told Davis the roofs were “totaled” and that Grinnell would replace the roofs.

• Grinnell then hired a roofing expert, who determined the roofs could be repaired but did not need replacement.

• Grinnell determined the cost to repair the damage was $16,636; Davis determined the damage was $205,000

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• Davis moved to amend his complaint to include a claim for bad faith, which was later granted by the Magistrate. Grinnell moved for summary judgment on the bad faith claim.

HELD: Court granted Grinnell’s motion dismissing the bad faith claim.

(1) Davis’ contention that adjuster had “threatened retaliation” when he expressed disagreement with proposed repairs was contradicted by Davis own deposition testimony and was not credible.

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(2) The most that can be gleaned from the record in the light most favorable to Davis is that the initial adjuster, who was inexperienced in hail damage assessment, thought the roofs needed replacement. An expert was later retained by Grinnell, who determined the roofs were repairable. This evidence does not allow the conclusion that an offer to repair the roofs lacked a reasonable basis.

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Jeremy Weber v. The Travelers Home & Marine Insurance Co.,

801 F. Supp. 2d 819 (Minn. 2011)

• On September 14, 2009, Weber’s home was damaged by fire.

• Weber submitted a claim to his insurer, Travelers, who effectively denied the claim by rejecting the Proof of Loss based on based on arson and failure to cooperate.

• On April 28, 2010, Weber filed suit alleging breach of contract and thereafter moved to amend the complaint to include a bad faith claim.

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Held: Motion to Amend Complaint to Include Bad Faith Claim Denied

• Weber’s motion is untimely because it was brought beyond the deadline set in the scheduling order. Weber has shown no “good cause” to modify the scheduling order.

While not part of holding, court discussed circumstances leading up to fire in great detail, indicating Travelers had a good faith basis to believe Weber set the fire.

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Hackbarth v. State Farm Fire and Cas. Co., 2013 WL 375543 (D. Minn. Jan. 31, 2013)

• This case arises out of a fire loss at the Hackbarth’shome on March 2, 2009

• State Farm paid Hackbarths $540,000 on the building loss, $127,000 on the personal property loss, and $23,000 in living expenses.

• Hackbarths filed suit, contending their home was a “total loss” and that they were entitled to the $680,000 policy limits.

• State Farm counterclaimed, contending Hackbarthscommitted fraud. Morrison Sund PLLC

On July 9, 2012, a jury found that the Hackbarth’s committed fraud. Hackbarths in turn moved for an award of attorneys fees under Minn. Stat. § 604.18 Hackbarths contended an award under the bad faith statute was not dependent on success of the breach of contract claim.

Held: No basis for a bad faith claim. State Farm had a reasonable basis to conclude that the home was less than a total loss. Based on the jury’s fraud finding, the Hackbarths are ordered to pay back to State Farm the $691,000 paid out on the claim.

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State District Court Decisions

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Bement v. American Family Ins. Group, No. 03-CV-08-1378 (Becker Cty. Dist. Ct. January 12, 2009)

• Bements sustained a fire loss at their home in Detroit Lakes, Minnesota, on 7/26/2006.

• American Family initially paid $17,000 on the claim but denied the balance based on evidence the fire was set by insureds.

• Bements filed suit and moved to amend complaint to assert a bad faith claim.

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HOLDING: Motion to amend complaint denied. American Family had a reasonable basis to deny benefits.

• Erin Bement began an online relationship with a man in Belgium before the fire;

• She instituted divorce proceedings before the fire;

• She purchased a one-way ticket to Belgium with her minor daughter and resided with the man for several weeks;

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• Bements’ older daughter told American Family that her father said he was “angry and was going to burn the house down.”

• Father said it would be easier “to start over without bills.”

• Father took family out of home the night of fire and stayed in motor home at a campsite; no advance notice.

• Bements’ dogs also stayed at the campsite.

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King’s Cove Marina, L.L.C. v. St. Paul Mercury Insurance Co., No. 19HA-CV-09-2118 (Dakota Cty.

Dist. Ct. June 2, 2009)

1. King’s Cove suffered significant damage to its marina due to a windstorm.

2. Insurers denied coverage for a large portion of the claims.

3. King’s Cove moved to amend its complaint to include a claim for bad faith.

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Two Basis for Claim:

1. Full Replacement/Held-Back Depreciation Costs

• King’s Cove claims St. Paul acted in bad faith by not paying difference between depreciated cost of replacing an overhead electrical system and the actual cost.

HELD: No basis for bad faith claim – payment of difference isn’t triggered until repairs completed and actual costs incurred.

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b. Debris Removal/Demolition Costs

• Adjuster told insured there was coverage for debris removal/demolition costs and that King’s Cove had to keep time and expense records for employees working on those tasks.

• Plaintiff kept records and gave them to adjuster totaling $24,807.92

• No payment was made because it appeared that some items may be covered and others not covered.

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• Adjuster thought issues would be clarified “through the discovery process in this lawsuit.”

HELD: Amendment to Add Bad Faith Claim Granted.• Insurer should have paid something given adjuster’s

representation.

“The mere statement that the pending lawsuit may clarify coverage issues does not strike the Court as a reasonable basis for the Defendants not paying a portion of those costs which are indeed covered and are not in dispute. These facts provide prima facie support for the Plaintiff’s allegation of bad faith, i.e., that there is no reasonable basis for denying payment, and that Defendants know it.” Morrison Sund PLLC

Construction Systems, Inc. v. General Cas. Co. of Wisconsin, No. 09-3697, 2011 WL 3625066 (D. Minn.

August 17, 2011)

• Construction Systems (“CSI”) manufactured steel support beams for large construction projects.

• CSI sustained damage to a punch/drill machine after a lightning strike on 7/13/2006.

• The support beams had to be manufactured with extreme precision and punch/drill machine was pivotal to this process.

• Cost to replace machine was $3.5 million.Morrison Sund PLLC

• CSI notified its insurer, General Casualty, of loss on August 8, 2006.

• From September 2006 to May 2008, CSI attempted to make repairs to the machine but provided no documentation to General Casualty of repairs costs and General Casualty made no payments.

• Between September and December 2008, General Casualty requested documentation for the work being done to repair the machine but received nothing.

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• On December 20, 2008, General Casualty sent CSI a proof of loss, which was completed on February 9, 2009, along with documentation claiming $20 million in losses.

• On December 23, 2009, CSI filed suit and later, by stipulation, amended its complaint to include a bad faith claim.

• General Casualty moved for summary judgment

HELD: Motion Granted in part, denied in part.

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1. Bad faith statute does not apply to conduct prior to August 1, 2008, and any claim based on conduct prior to that time cannot survive.

2. With respect to conduct after August 1, 2008, there is a question of fact as to whether lack of substantiation of CSI’s claim created a reasonable basis for General Casualty failing to pay the claim (thus making it “fairly debatable”) between August 1, 2008 and December 2009.

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Marxer v. American Family Insurance Co., No. 27-CV-11-12616 (Hennepin Cty. Dist. Ct. October 3,

2011)

• June 28, 2010 hail/wind storm damage claim

• August 6, 2010, American Family paid Marx $11,000 to repair roof.

• On August 25, 2010, the Marx demanded an appraisal.

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• On May 16, 20100, the appraisal panel awards Marx $82,227.79.

• On June 9, 2011, American Family paid the Marx pursuant to the appraisal award. Insurance Policy required American Family to tender payment within 5 days of entry of the award.

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Marx filed suit and moved to amend complaint to include bad faith claim. Two bases:

1. American Family failed to pay the appraisal award within the time limits required under policy.

2. American Family deducted a $2,500 deductible twice.

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HOLDING: Amendment to Include Bad Faith Granted.

1. Late payment of appraisal award: Withholding of benefits to which insureds were entitled, without reasonable justification for the delay, could constitute bad faith denial of benefits.

2. Deducting deductible twice: Accidentally deducting deductible twice would not rise to the level of bad faith. But after becoming aware of the error and doing nothing about it cannot be characterized as unintentional.

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Auto-Owners Ins. Co. v. Second Chance Investments, LLC, No. 27-CV-10-15620 (Hennepin Cty. Dist. Ct.

April 11, 2011) appealed on other grounds, 812 N.W.2d 194 (Minn. Ct. App. 2012) aff’d 827 N.W.2d

766 (Minn. 2013).

• 2nd Chance owned a residence in Minnetrista, MN that sustained a fire loss on 11/11/2008.

• 2nd Chance filed its claim with Auto-Owners in January 2009 claiming a “total loss” and seeking the $2 million policy limits.

• Auto-Owners disputed amount of loss and the forum to resolve dispute.

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• Auto-Owners moved to appraise the loss, 2nd Chance opposed, contending the court had the authority to determine whether their was total loss.

• Court held it had the authority to determine if there was a “total loss.” But because there were fact questions to resolve, the court ordered a jury trial.

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• 2nd Chance moved to amend its complaint to include a bad faith claim because of Auto-Owner’s delay in paying claim.

Auto-Owners had no reasonable basis to deny payment after receiving proof of loss.

Auto-Owners was reckless when it forced 2nd

Chance to incur expenses in connection with an appraisal.

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• Auto-Owners argued that bad faith applies only to “denials of claims” and not to “disputes over the amount of loss.” Plus, it had paid 80% of claim to date.

HELD: Amendment granted.

• Other courts outside Minnesota have found that a delay in payment is tantamount to a denial and can result in bad faith.

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• 2nd Chance originally submitted its claim on January 9, 2009. Auto-Owners rejected the proof of loss and requested more information. Auto-Owners paid the mortgage on March 20, 2009 and an additional payment to 2nd Chance on October 28, 2009 (10 months later).

• A jury could find that Auto-Owners had no reasonable basis for “denying” (delaying) 2nd

Chance’s claim and that it acted in reckless disregard for whether it had a reasonable basis to deny the claim.

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CASE STUDIES:Personal Injury

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Jennifer Crawford vs. State Farm Mut. Auto. Ins. Co.Minnesota Court of Appeals (Henn. Cty.)2012 WL 6554434 (December 17, 2012)

• Two accidents: January 14, 2003 and May 10, 2003

• The Insured settled with the January liability insurer for $40,000 of the $50,000 liability limits. There were $100,000 in UIM benefits for the January accident.

• The Insured sued State Farm for denying PIP benefits for both accidents and for denying UIM benefits for the January accident.

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Crawford vs. State Farm

• The jury awarded $200,678.78 in total damages for both accidents.

• The district court denied the Insured’s motion to amend, finding that the motion was untimely, that it was based on conduct that occurred prior to the effective date, and that there was insufficient evidence to support the claim.

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HOLDING:

1. “The district court correctly determined that the statute, by its plain language, is not retroactive.”

2. “[T]he relevant conduct is the insurer’s denial of benefits under the policy.”

Crawford vs. State Farm

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Walter Edward Fahey vs. R&L Carriers, Inc. and Protective Ins. Co.

First Judicial District, Dakota CountyThe Hon. Patrice K. Sutherland, August 7, 2009

• 1/13/06 car accident

• The Insured was driving a semi-truck while working.

• The other driver was uninsured.

• The Insured made repeated claims for UM benefits to the Insurer, but the Insurer either failed to respond or denied the demand

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Fahey vs. R&L Carriers

• The Insured also made several requests for information about the policy limits, but the Insurer gave inconsistent responses, and, ultimately, did not disclose its full policy for seven months.

• The Insured substantiated that his medical expenses exceeded the policy limits by more than four times, and the Insurer’s IME doctor attributed 40% of the medical expenses to the accident ($53,000).

• The Insurer did not make an offer to Insured until 3 ½ years after the accident.

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HOLDING:

1. “[R]egardless of whether taxable costs are ultimately awarded in this case, the Court concludes that [the Insured] has made the requisite prima facie showing to amend his complaint pursuant to Section 604.18.”


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Walter Edward Fahey vs. R&L Carriers, Inc. and Protective Ins. Co.

First Judicial District, Dakota CountyThe Hon. Robert R. King, Jr., October 13, 2010

• After Judge Sutherland’s decision, R&L removed the case to Federal Court (for the third time). The Federal Court remanded the case back to state court, finding that the amount in controversy did not exceed $75,000 and that “a serious doubt exists about whether [the Insured] can recover additional damages under §604.18.”

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HOLDING:

1. “One important defense that was not raised before Judge Sutherland is the issue of the timing of the events in relation to the timing of the effective date of Minn. Stat. § 604.18.”

2. “The statute does not provide for retroactivity.”

3. “Therefore, R&L’s pre-lawsuit denials of benefits cannot be the basis for an action under the new statute.”


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4. The Court was persuaded by Judge Blaeser in Hiner vs. Allstate Ins. Co. and Judge Sovis in Herbert vs. Kresel.

5. “It appears that the statute in question is meant to leave open negative consequences for insurers who act in bad faith in the handling of claims. Therefore, the behavior to be analyzed occurs within the context of the claims handling process. There is no indication in the statute that litigation strategy should be analyzed. There is a good reason for this. If the statute applies to behavior that occurs after the commencement of lawsuits, then all sorts of complications could arise.” (Emphasis original.)


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Patricia Herbert vs. State Farm Mut. Auto. Ins. Co.First Judicial District, Dakota County

The Hon. Michael V. Sovis, January 23, 2009

• Insured made UIM claim after settling with at-fault driver for full policy limits.

• Insured’s UIM claim had been tried, with the Court noting, “The theory with going ahead with trial before receiving a ruling on this motion is that the underlying issue here would need to be bifurcated out regardless.”

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HOLDING:

1. Insured’s claim barred because all conduct occurred before August 1, 2008.

2. “Plaintiff attempts to circumvent the August 1, 2008, timeline by alleging that [Insurer’s] denial of [Insured’s] claim is essentially continuing throughout this litigation and thus occurring after, as well as before, the Statute’s effective date.”

Herbert vs. State Farm

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3. The Court rejected Insured’s argument, holding, “The conduct governed by the Statute is an insurance company’s claims practices. Once a claim is denied and litigation begins any action taken thereafter by the insurance company, unless clearly unrelated to the litigation, is litigation strategy.”

4. “Minnesota Statute § 604.18 provides its own standard. *** If the Court finds prima facie evidence in support of the motion, the Court may grant Plaintiff permission to amend the pleadings.”


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5. “[The acts of looking at all the reports submitted to it by Plaintiff] alone clearly constitute a reasonable basis for denying [UIM] benefits.”

6. “[Whether Insurer knew of the lack of a reasonable basis for denying the benefits of the policy or acted in reckless disregard of the lack of a reasonable basis to do so] is a subjective test in which [Insured] must prove what very much resembles an intentional tort. *** [The Insured] offers little to no proof that [the Insurer] knew about or acted in disregard of a lack of a reasonable basis. *** There is no showing of [the Insurer’s intent.”


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Gloria Hiner vs. Allstate Ins. Co.Fourth Judicial District, Hennepin CountyThe Hon. Robert A. Blaeser, July 30, 2009

• The Insured brings a UIM claim against the Insurer after settling the underlying action with the liability insurer for $80,000 out of $100,000 liability limits.

• The Insured served discovery requests upon the Insurer, seeking the specific claims file and “information in [the Insurer’s] similar Minnesota claims files for the past five years.”

• “[The Insured] argues [her discovery requests are] relevant to determine whether a reasonable basis for denying [the Insured’s] UIM benefits exists.”

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HOLDING:

1. “[I]nformation in [the Insured’s] specific claims file may contain evidence tending to show [the Insurer] either held or lacked a reasonable basis for denying benefits under [the Insured’s] policy. Under Minnesota’s broad discovery rules, that is enough.”

2. “Evidence of [the Insurer’s] handling of other claims is neither relevant to the fact in [the Insured’s] circumstances nor the elements contained in section 604.18 subdivision 2.”

Hiner vs. Allstate

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Gloria Hiner vs. Allstate Ins. Co.Fourth Judicial District, Hennepin County

The Hon. Robert A. Blaeser, October 6, 2009

• The Insured now seeks to depose the claims adjuster and a corporate designee.

• The Insured’s attorney would like a corporate designee to testify about the documents the Insurers creates in the course of handling a UIM claim, which employees collect or analyze information related to a claimant’s UIM claim and the processes and procedures employed by the Insurer before reaching a conclusion on whether to honor UIM contracts.

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HOLDING:

1. The deposition of the claims adjuster is allowed, but limited to the following areas of inquiry: (a) the meaning of any shorthand in the claims file; (b) her knowledge of the Insured’s medical treatment, injuries, diagnosis, prognosis and IME report; (c) the basis for her decision to deny the UIM claim and the factors she considered; and (d) her understanding of any policies governing her decision-making process on the UIM claim and whether she followed the policies.

Hiner vs. Allstate

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2. The deposition of the corporate designee is allowed, but limited to the following areas of inquiry: (a) the policies or procedure for analyzing the Insured’s UIM claim; (b) the training of claims representatives to carry out the Insurer’s policies or procedures for decision-making; (c) whether the decision-making process changes based on a representative’s experience; and (d) the policies or procedures regarding the Insurer’s decision-making process as they relate to the Insured’s UIM claim.

Hiner vs. Allstate

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Gloria Hiner vs. Allstate Ins. Co.Fourth Judicial District, Hennepin County

The Hon. Robert A. Blaeser

Judge Blaeser denied the Insured’s motion to amend because nearly all of the conduct that the Insured complains of happened before the new statute became effective.

Judge Blaeser was not persuaded that the insurer had an obligation to continue to review the Insured’s file.

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Kathleen Bernstrom and Gordon Bernstrom vs. American Family Mut. Ins. Co.

Ninth Judicial District, Kittson CountyThe Hon. Donna K. Dixon, December 22, 2010

• December 16, 2003 motor vehicle accident• $50,000 in liability benefits (settled for $45,000) (also

insured by American Family)• $50,000 in UIM benefits• $20,000 / $20,000 PIP medical / wage loss benefits• The Insurer offered $15,000 to settle the UIM claim• The Insureds were allowed to amend their Complaint

to add a claim for bad faithMorrison Sund PLLC

Bernstrom vs. American Family

• Verdict for Kathleen Bernstrom:$100,000 for past pain and suffering$23,526.87 for past health care expenses$200,000 for future pain and suffering$125,000 for future health care expenses$2,176.84 for past wage loss$3,000 for future wage lossTotal: $453,703.71

• Plaintiff Gordon Bernstrom awarded $25,000 for loss of consortium

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HOLDING:

1. “[The Insured has]not shown by a preponderance of the evidence that [the Insurer] lacked a reasonable basis for denying the full policy benefits in this case.”- The presence of evidence of a pre-existing condition in the treating doctor’s report and in the IME doctor’s report- The conservative venue- The necessity of a large verdict before any recovery, due to offsets


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“There were many good reasons to pay the full benefit amount, as [the Insured] points out, and denying the benefits may have been a mistake in judgment, but Minn. Stat. § 604.18 does not force payment of benefits simply because good reasons exist, it prohibits very arbitrary or reckless denials.”


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“[The Insureds] have not shown by a preponderance of the evidence that [the Insurer] failed to conduct a reasonable investigation. [The Insurer’s] investigation could have been more thorough, for example by deposing both of [the Insureds] as part of the UIM lawsuit, by conducting a more substantial and updated claim review, and perhaps by attempting to obtain an IME within the UIM lawsuit itself. Its decision to offer only $15,000 was based on an evaluation of information obtained largely as part of the underlying liability suit. This was not a situation where the insurer willfully stalled or obstructed an investigation in order to avoid payment of benefits.”


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Sheila Greseth, as parent and natural guardian of Mackenzie G. Wetterling, minor vs. North Star Mut. Ins.

Co.Eighth Judicial District, Traverse County

The Hon. Gerald J. Seibel, October 20, 2009• A nine-year old minor was involved in a car accident

while riding her bicycle. “The facts of the underlying accident create an extremely close call with respect to liability.”

• For purposes of the hearing, the Parties stipulated that damages totaled $250,000.

• The third-party claim was settled for $75,000 out of $100,000 in liability limits.

• $30,000 PIP limits / $30,000 UIM limits• The Insurer offered $5,000.Morrison Sund PLLC

Greseth vs. North Star

• A claims adjuster from the Insurer’s homeowner’s department stated in a letter, “[The third-party] holds the majority of fault in this case.”

• The Insured put the Insurer on notice of a possible UIM claim, and served a Schmidt v. Clothier notice.

• The Insured’s attorney provided copies of medical records, discovery responses, deposition transcripts, and expert materials.

• The Insured demanded the $30,000 UIM policy limits.• On 4/17/08, the Insurer offered $10,000.

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• On 8/1/08, the Insured against demanded the $30,000 policy limits, and gave a 10-day time limit. The Insurer did not respond.

• On 4/9/09, the Insured made a Rule 68 Offer of Judgment / Settlement.

• On 4/28/09, the Insured filed a motion to amend her complaint to seek damages under Minn. Stat. § 604.18.

• On 5/14/09, the Court granted the motion to amend.• The Insurer then tendered an offer to settle the UIM

claim for the $30,000 policy limits.Morrison Sund PLLC

HOLDING:1. “[The Insurer] did little investigation of this accident

until more than two years after the accident when this present lawsuit was initiated.”

2. After this lawsuit, counsel for the Insurer spoke to the attorney who represented the third-party.

3. The Insured hired an expert, who specializes in personal injury cases with prior experience as an insurance claims adjuster. He opined that the Insurer’s investigation was deficient and that the facts and severity of the injury would justify a payment of the UIM policy limits.


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4. The Court found it noteworthy that no party elicited testimony about why the Insurer arrived at its decision prior to April 2009 not to pay its policy limits.

5. “The failure of [the Insurer] to conduct much investigation into the accident, while probably not prudent, does not, in this case, indicate a lack of reasonable basis to deny the policy limits demand in the UIM case. From all of the evidence in this case, it is apparent that the basis for [the Insurer’s] initial position in denying the UIM policy limits demand was that there was a significant question concerning the liability for the accident.”


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6. “Since the Court has found that [the Insurer] had a reasonable basis for initially denying the UIM policy limits demand, it need not address the issue of whether [the Insurer] knew of, or acted in reckless disregard of the knowledge of, such a reasonable basis.”


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Brenda Utke vs. American Family Mut. Ins. Co.Second Judicial District, Ramsey County

The Hon. John H. Guthmann, February 6, 2012

• The Insured settled with liability insurer for $75,000 of the $100,000 liability limits. There were $100,000 in UIM benefits for the January accident.

• Dr. Steven Moen performed an IME on May 6, 2008.

• There was a May 14, 2008 arthroscopy of the left knee.

• On August 18, 2010, the Insured demanded the $100,000 UIM policy limits. The demand letter included voluminous medical records, operative reports and narrative reports of Drs. Johnson and Bert.

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Utke vs. American Family

• The UIM adjuster left a voicemail on September 30, 2010, indicating that the claim was being questioned due to Dr. Moen’s IME.

• On November 9, 2010, the Insurer formally declined the Insured’s claim.

Morrison Sund PLLC

HOLDING:

1. “The Minnesota Supreme Court defines “prima facie case” to mean: “one that prevails in the absence of evidence invalidating it…. In other words, it is evidence which suffices to establish the facts unless rebutted, or until overcome, by other evidence.”” (Citation and quotation omitted.)


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2. “[The Insured] must show “the absence of a reasonable basis for denying the benefits of the insurance policy.” *** Under the fairly debatable standard, the Court asks whether a reasonable insurer would have denied or delayed payment under the same or similar circumstances.” (The Court noted that the Friedberg Court adopted Wisconsin’s “fairly debatable” standard.)


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3. “[The Insured] must [also] show that “the insurer knew of the lack of a reasonable basis for denying of the benefits of the insurance policy or acted in reckless disregard of the lack of a reasonable basis for denying the benefits of the insurance policy. The second inquiry focuses on the subjective question of what the insurer knew and when it came to know. ” (Citations omitted.)


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4. “Under the Anderson test, an insurer is entitled to debate a claim that is fairly debatable regardless of whether the debate involves a question of law or fact.” (Citation omitted.)


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5. “Permitting a first party good faith claim simply because an insurance company relied upon an outside medical opinion would open insurers to claims in most cases. *** [The Insured] provides no authority for the proposition that mere reliance upon an outside medical expert may constitute “the absence of a reasonable basis for denying” a claim. Indeed, procuring and relying upon an IME is usually [an Insurer’s] primary, if not only, basis for damages defense in personal injury cases. Thus, the IME in this case makes left knee causation fairly debatable as a matter of law.”


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The Insured argued that the Insurer was required to furnish the operative reports and subsequent medical records to the IME doctor for a supplemental opinion. The Court replied, “[The Insured’s] argument only has validity if [the IME doctor] actually changes his opinion based upon the submitted information. In fact, should medical information available to [the Insurer] prior to the August 18, 2010 demand letter subsequently cause [the IME doctor] to change his opinion, [the Insured] may indeed have grounds to amend the Complaint *** .”

The Court denied the Insured’s motion to amend.


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Marian Lobbins vs. Allstate Ins. Co.Fourth Judicial District, Hennepin County

The Hon. William R. Howard, December 30, 2008

• Plaintiff, age 76, was a passenger on a charter bus.

• Tarrell hit the bus with his pickup truck. Tarrell died at the scene.

• Tarrell’s BAC was .38. Tarrell was 100% at fault for the accident.

• Plaintiff was the second-most severely injured person on the bus. She suffered a broken leg, was hospitalized for surgery and later transferred to a rehabilitation facility.

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• Liability limits: $100,000 / $300,000Charter bus UIM limits: $25,000 per person / $50,000 per accidentAllstate PIP limits: $20,000Allstate UIM limits: $100,000

• A Special Master determined that Plaintiff was entitled to $48,000 from the liability coverage and $8,300 from the UIM coverage. The Special Master remarked that the available insurance dollars were “grossly inadequate to compensate the parties.”

Lobbins vs. Allstate

Morrison Sund PLLC

• Allstate paid $20,000 in no-fault benefits

• Allstate offered $40,000 in UIM benefits

• At first, Allstate refused to admit fault and refused to admit that Plaintiff met the $4,000 threshold. Allstate argued an offset in the amount of $25,000, rather than $8,300.


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HOLDING:

1. “[O]nly $8,300 was accessible to the Plaintiff by a court order *** .” (Emphasis added.)

2. “[T]he Court must consider more than “just the insurance company’s offer under its policy; the allowance of the submission of affidavits gives the Court authority to consider the facts surrounding the case and the course of conduct of the parties –in effect, the totality of the circumstances surrounding the claim.”


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The “totality of the circumstances” include:• Insurer refused to admit fault despite evidence• Insurer refused to admit that the Insured met the no-fault

threshold, despite paying $20,000 in PIP benefits• Both IMEs found a permanent injury and allowed

reasonable medical expenses• “Finally, [Insurer] first took the position that it was

entitled to a $25,000 offset of its UIM limits at mediation, after notifying [Insured] she was free to accept the settlement upon Plaintiff’s Schmidt v. Clothiernotice.”


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“[T]he Court makes no conclusive determination that [Insurer] has acted in bad faith; that determination [cannot] be made until a later proceeding, pursuant to the statute.”


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Linda L. Turner vs. American Family Mut. Ins. Co. and James Gary Anderson

Tenth Judicial District, Anoka CountyThe Hon. Stephen J. Askew, March 19, 2009

• The Insured incurred $61,000 in past medical bills.

• The Insured presented an Affidavit that future medical bills could total $267,000.

• The Insured settled for the $50,000 liability limits, and brings a claim for UIM benefits ($100,000).

• The Insurer offered $5,000.

• The Insurer disputed the legitimacy of the Insured’s medical treatments.

Morrison Sund PLLC

HOLDING:1. “Based on [the Insured’s attorney’s Affidavit], the

court finds that [the Insured] established prima facie evidence that [the Insurer] may have un-reasonably denied [the Insured’s] benefits and did so recklessly.

2. “[T]he courts have defined a prima facie case to mean “one that prevails in the absence of evidence invalidating it. . . It is evidence which suffices to establish the fact unless rebutted, or until overcome, by other evidence.”” (Citation omitted.)

3. [The Insured] does not have to make her case at this time.”

Turner vs. American Family

Morrison Sund PLLC

Koffi Agbegninou and Ayele Amavi vs. American Family Mut. Ins. Co.

Fourth Judicial District, Hennepin CountyThe Hon. Robert A. Blaeser, December 3, 2009

• The Insured made a claim for UIM benefits after settling with the underlying insurer for the $30,000 liability limits.

• The Insured’s medical specials are approximately $50,000.

• An October 16, 2008 IME indicated that the Insured’s injuries had resolved and that the symptoms following the accident were due to a temporary aggravation of a preexisting neck injury.Morrison Sund PLLC

Agbegninou vs. American Family

HOLDING:

“In this case, the Court cannot say the absence of a reasonable basis [for denying the benefits of the insurance policy] exists. With [the Insured’s] preexisting condition and potential offsets, [the Insured] would need a jury award at or in excess of $150,000 to reach his demand.”

• The Insured underwent surgery and a bone graft on October 29, 2008.

• The Insurer offered $65,000 for the UIM claim.

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Brady Jacob Gades vs. Allstate Prop. Cas. Srv., et al.Fourth Judicial District, Hennepin County

The Hon. Robert A. Blaeser, September 30, 2008

• Insured made a PIP claim about six months after an alleged July 2004 auto-related knee injury.

• Insurer denied the claim, claiming that the incident was not an accident and did not involve the use or maintenance of a motor vehicle.

• Insured brings a claim for taxable costs.

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HOLDING:

1. “After completing an investigation, [Insurer] could reasonably doubt that [Insured’s] injuries are the result of an accident, but are actually the result of [Insured’s] intentional actions.”

2. The judge decided that Insured failed to satisfy the statute’s two-pronged test: “Plaintiff has not shown a lack of reasonable basis for [Insurer] to deny the benefits and that [Insurer] knew of or acted in reckless disregard of a lack [of] reasonable basis to deny benefits.”

Gades vs. Allstate

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Adeline Marie Wind vs. AIG National Ins. Co., Inc.Fourth Judicial District, Hennepin County

The Hon. Denise R. Reilly, February 9, 2011• September 13, 2008 car accident• $30,000 UIM benefits• The Insured made a demand for $30,000 UIM benefits

to Susan Revoir on January 8, 2010. (Ms. Revoir received the letter on January 13, 2010.)

• Ms. Revoir transferred the Insured’s claim to Wendi Machen on January 20, 2010.

• Ms. Machen noted the file did not contain all of the medical bills and sent a letter to the Insured’s attorney on February 16, 2010, requesting a complete set of medical records and itemization of bills.Morrison Sund PLLC

Wind vs. AIG

• On March 16, 2010, a hospital bill in the amount of $106,118.10 was confirmed.

• On March 18, 2010, the Insurer sent the $30,000 UIM policy limits.

• The Insured filed the lawsuit on May 17, 2010.• The Court issued a Scheduling Order on July 27, 2010.• The Insured brought a motion to amend on November

15, 2010.

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HOLDING:

1. “[The Insured’s] motion to amend is untimely under the Court’s Scheduling Order of July 27, 2010.”

2. “[The Insured] has not demonstrated good cause for amendment of the Court’s Scheduling Order.”

Wind vs. AIG

Morrison Sund PLLC

“Here, [the Insured] has not set forth prima facie evidence of bad faith. The language of the statute clearly addresses a situation in which an insurer denies the benefits of an insurance policy. Here, [the Insurer] never denied insurance benefits to [the Insured]. Instead, the record before the Court reflects that [the Insurer] acted appropriately in its handling of [the Insured’s] claim.”

Wind vs. AIG

Morrison Sund PLLC

Kimberly Bergsten vs. American Family Mut. Ins. Co.First Judicial District, Dakota County

The Hon. Joseph T. Carter

• This came on for a jury trial on February 1, 2010 for the Insured’s UM claim.

• There were $100,000 UM policy limits.• The Insurer admitted liability.• Before trial, the Insured made a $55,000 Rule 68

settlement demand.• Before trial, the Insurer made a $35,000 Rule 68

settlement offer.• Plaintiff had reserved her right to bring a bad faith

claim.Morrison Sund PLLC

Bergsten vs. American Family

• Verdict:$25,000 for past pain and suffering$30,000 for future pain and suffering$55,000 for future health care expenses$2,545 for past wage loss$8,000 for future wage lossTotal: $120,545.00Net: $100,000 UM limits+ $10,513.68 in taxable expenses+ $9,142.67 for double taxation of costs (Rule 68)$1,282.32 in pre-judgment interestGross award: $120,938.67(The Insurer was allowed an offset for $942.80 in PIP wage loss benefits.)

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Advice to Claims Adjusters - -

Morrison Sund PLLC

BE RESPONSIVE*Err on the side of over-responsiveness

Dear Insured:Thank you for calling me about your claim today.

Dear Insured:It was nice to talk to you today. I write to you to give you information about your policy and the claims process.

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FOLLOW-UPDear Insured:• You’ll recall that I wrote to you a week ago

about the medical authorizations I need from you in order to complete American Family’s investigation.

• I write this letter after talking to you this morning to remind you about information that I need in order to process your claim.

• I write this letter to respond to follow-up on the voicemail I left for you this morning.

Morrison Sund PLLC

BE PRO-ACTIVEDear Insured:

• On April 18, 2008, we offered $4,000 to settle your UM claim. We have not heard from you. Please contact me at your earliest convenience so that we may discuss your claim.

• Last week, you told Ms. Claims Adjustor over the telephone that your neck and back were sore after the April 18, 2008 car accident. Have you been treating with a medical provider? If so, please remember to return the PIP application that we sent to you, along with a list of your medical providers and signed authorizations.

Morrison Sund PLLC

Dear Insured:

• If there is ever anything else you would like us to consider during the pendency of your claim that you feel may affect your claim, please contact me immediately.

(After denial of coverage or Reservation of Rights):• If any new facts come to light or if there are any

new developments, please contact us immediately so that we may re-consider its position on coverage.

Morrison Sund PLLC

DOCUMENT EVERYTHING

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BE CONSISTENT

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INVESTIGATE*Err on the side of too much investigation,

and always in a timely fashion

Morrison Sund PLLC

Thank you!Bradley AyersStacy Kabele

Morrison Sund PLLC5125 County Road 101

Suite 200Minnetonka, MN 55345

952‐975‐[email protected] [email protected]

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