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Failure to inform insured of offer found to be bad faith (pt.1)

The Louisiana Supreme Court recently addressed two questions involving an insurer's bad faith liability to an insured in the state. The issue arose from two certified questions sent to the Court from the federal Fifth Circuit Court of Appeal.

Certified questions occur when a federal court needs a specific interpretation of a state law question and asks the relevant court for an answer. This means the state Supreme Court does not apply the rule to the facts of the federal case, but merely answers the question for the federal court, which then uses the answer to decide their case.

The first question involved whether language in a Louisiana statute pertained only to issues involving coverage of an insurance policy or to any matter related to the policy. In the facts of the case, the insured was involved in an accident. The insurer failed to inform the policyholder that they had received an offer in January, where the injury victim would release the insured for the $25,000 policy limit.

The insurer failed to let the insured know of this, and two months later, it offered  the injury victim the $25,000. But as often happens in personal injury cases, an offer that is good in January is no longer acceptable in March. It was rejected and the injury victim sued and obtained a $175,000 judgment.

Now, the policyholder sued his insurer for bad faith in failing to inform him of the settlement offer and failing to settle when they received the first offer. In this litigation, the federal court required guidance on the interpretation of the state bad faith statute.

We will discuss that interpretation next time.

Source: insurancejournal.com, "Bad Faith Liability and an Insurer’s Refusal to Settle," Robert Redfearn, Jr., July 22, 2015

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