The Missouri Supreme Court recently issued an opinion clarifying Missouri law on claims by an insured for bad faith refusal to settle against an insurer. Previously, many attorneys (and insurers) assumed that bad faith refusal to settle claims only arose if an insurer received a demand to settle a third-party claim within the insured’s policy limits, in bad faith refused to settle the claim within the policy limits, and the insured subsequently suffered an adverse verdict in excess of the policy limits thereby exposing the insured’s personal assets. Not exactly, according to the Court’s opinion in Scottsdale Ins. Co., et al. v. Addison Ins. Co. et al.
The Court noted that “an insurer’s obligation to act in good faith when settling a third-party claim is part of what the insured pays for with its premiums. . . . When the insurer refuses to settle, the insured loses the benefit of an important obligation owed by the insurer. This loss is suffered regardless of whether there is an excess judgment or settlement. Therefore, an excess judgment is not required to maintain an action against an insurer for bad faith refusal to settle. ” (Citations omitted, emphasis added).
This decision emphasizes that insurers have an important, and actionable, duty to handle third-party claims with good faith. Even if the claim ultimately is resolved without payment by the insured, an insurer can still violate this duty and expose itself to suit. Under this scenario, what are the insured’s damages? This case involved the Supreme Court reversing a grant of summary judgment in favor of the insurer and, therefore, does not discuss with specificity what damages are sustained by an insured if an insurer engages in bad faith, but ultimately resolves the case without payment by the insured. Some or all the premiums may be recoverable as well as any consequential and punitive damages.
Also of note in this decision is the fact that the insured had an excess insurer involved. The excess insurer ultimately paid under its policy when the primary insurer had an opportunity to resolve the claim under its policy with no payment by the excess insurer. In addition to the insured, the excess insurer was also pursuing the claim for bad faith based, in part, on assignment of the claim from the insured to the excess insurer. The Court found that the excess insurer could pursue the claim for bad faith pursuant to the assignment as well as through conventional subrogation and equitable subrogation. Thus, in cases where there is excess coverage, the primary insurer may expose itself to claims from both the insured and the excess insurer if the the primary insurer engages in bad faith.