CAN AN INSURED SIGN OVER A “BAD FAITH” CLAIM TO A THIRD-PARTY?

Sometimes the black letter law passed by the legislature is unclear. The legislature can’t anticipate every possible fact scenario when they pass a law, so it lay to the courts to interpret the law and give guidance to what it means. This interpretation is called case law. When the court decides a certain meeting to the law it essentially answers a legal question. Lawyers and other courts then can rely on that ruling when they have a similar issue in their case. The following case answers the question above.

Glenn v. Fleming, 247 Kan. 296, 799 P.2d 79 (1990).

This case addresses the following issue:

Can an insured assign a bad-faith failure to settle claim to a third-party?

In this case, the court was asked to revisit an issue that had been decided only a year earlier. Id. at 297-98. The issue dealt with an assignment of a claim, which is a process by which a party which is entitled to bring suit “signs over” its right to bring that claim to another party. Id. at 317. The precise issue was whether a plaintiff that sues an insured-defendant and obtains a judgment in excess of the policy limits can then bring a suit against the insurance company for bad-faith failure to settle pursuant to an assignment of that claim. Id. at 298. The court determined that such an assignment was proper, reversing its prior decision from just a year earlier. Id. at 319.

The underlying claim was based upon an explosion of a propane tank that had just been filled. Id. at 298. Plaintiff filed suit against Defendant, the attendant that had been filling the propane tank, and several others. Id. Plaintiff offered to accept the policy limits of Defendant’s insurance, but the insurance company rejected that offer without fully investigating the claim. Id. A jury ultimately awarded Plaintiff over $1 million in damages. Id. at 302. Defendant agreed to assign its claim for bad faith against his insurer to Plaintiff in exchange for Plaintiff promising not to execute on the judgment. Id. at 302-03. After this assignment occurred, the Kansas Supreme Court ruled that such assignments were invalid. Id.

The court noted that the circumstances of the decision in which the anti-assignment rule was decided were quite different from the circumstances of this case. Id. at 315. That case had contained very shady dealings between the insured and assignee. Id. Here, the facts were much more consistent with a normal, non-fraudulent assignment. Id. Many other jurisdictions allow such assignments for bad-faith claims. Id. at 317. Looking at these factors and facts, the court decided that its prior decision had been incorrect as far as universally applying to prohibit assignments. Id. at 318. So long as there is no collusion between the insured and the assignee, such an assignment is valid and allows the assignee to bring a bad-faith claim. Id. at 318-19.