IN MISSOURI, WHAT ARE COMMON WAYS TO DEMONSTRATE “BAD FAITH” BY AN INSURER?

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.

Hensley v. Shelter Mutual Insurance Co., 210 S.W.3d 455 (Mo. Ct. App. 2007).

This case addresses the following issue:

What are common ways to demonstrate bad faith by an insurer?

In this case, the court was asked to decide if sufficient evidence existed to support a jury’s finding that the Defendant acted in bad faith. Id. at 457. The court noted that several circumstances present in this case “have been recognized as indicative of a vexatious and recalcitrant attitude” required for a vexatious refusal claim. Id. at 465. These facts were sufficient in this case to support the finding that Defendant had acted with bad faith. Id. at 477.

This case involves a homeowners’ policy and a fire that destroyed a home. Id. at 457. The fire was ultimately determined to be unintentional. Id. at 461. Defendant conducted a very limited investigation, and, in fact, never asked the investigator to determine whom he believed to have started the fire if he even found the fire to have been intentionally started. Id. at 459. Plaintiff followed up with the insurance company, and was told “you might as well get a lawyer because [Defendant is] not going to pay.” Id. at 461.

The court outlined the elements of a vexatious refusal to pay claim, including the statutory penalty imposed by Section 375.420. Id. at 464. Such a claim is valid so long as (1) a policy covering exists; (2) the insurance company refuses to pay; and (3) the refusal is “without reasonable cause or excuse.” Id. To determine if such bad faith exists, the court noted that several common circumstances exist. Id. at 466. First, a delay or outright refusal to pay on a clear cut claim. Id. Second, denying liability “without stating any ground for denial.” Id. Third, an inadequate or otherwise lacking investigation of the claim. Id. Fourth, a poor or nonsensical explanation “given by the insurer for denying the claim.” Id. Finally, any “disparate treatment of co-insureds” would also be relevant, though not at issue here. Id.

Looking to the facts of this case, the court found most of these circumstances to exist. Id. The investigation performed by Defendant was lacking, and no reason was given for outright refusing the claim, including the results of the investigation. Id. These facts supported a finding that the Defendant acted in bad faith denying the claim. Id.