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State ex rel. AIG Domestic Claims, Inc. v. Starcher

State ex rel. AIG Domestic Claims, Inc. v. Starcher

Case No. 
13-1048
Opinion Date: 
2/21/2014
Opinion Author: 
Memorandum Opinion
Decision 
Affirmed
Vote: 
4-1
Facts 

The plaintiffs were Candy and Mark George, as parents and next friends of their son, Kyle.  Kyle fell on a school playground and received injuries.  The plaintiffs sued the school board alleging negligence.  In addition, the plaintiffs sued the school board’s insurer, AIG, alleging that it violated the Unfair Trade Practices Act, W.Va. Code 33-11-1 et seq. (hereafter “UTPA”) and otherwise acted in bad faith in handling Kyle’s personal injury claim.

The complaint was filed on June 30, 2005.  Eight days later, i.e., on July 8, W.Va. Code 33-11-4a took effect.  This new legislation prohibited the filing of “third party” bad faith claims.  Third party claims are those brought by someone other than the policyholder.  W.Va. Code 33-11-4a provides that all third party claims must be resolved through administrative proceedings with the insurance commissioner.

In 2009, the plaintiffs settled the negligence claims against the school board and served discovery relating to the bad faith claims.  AIG moved for a protective order preventing discovery of any bad faith conduct occurring after July 8, 2005.  The trial court denied AIG’s motion.  The trial court found that W.Va. Code 33-11-4a only prevents the filing of bad faith cases after July 8.  It does not, however, prevent the plaintiff from discovering and potentially introducing proof of an insurer’s bad faith occurring after that date.

In the wake of the trial court’s order, AIG filed an original petition in the Supreme Court requesting a writ of prohibition.

Issue 

The issue here is whether conduct occurring after the effective date of W.Va. Code 33-11-4a, i.e., July 8, 2005, is discoverable and admissible in a third-party bad faith claim that was filed before July 8, 2005.

Analysis 

This case appeared on the Rule 20 docket meaning that, at least initially, the Supreme Court believed it could produce a new syllabus point.  Instead, a memorandum opinion was issued.  Under the Rules of Appellate Procedure, a memorandum opinion is citable but has limited precedential value.

The Supreme Court rejected AIG’s argument that bad faith conduct occurring after July 8, 2005 was irrelevant.  Indeed, the Court found that conduct in violation of the UTPA remains illegal, even after the July 8 effective date.  The new legislation only related to the “filing” of bad faith claims:

"The UTPA, W.Va. Code §33-11-4 [2002], was last amended in 2002 and prohibits a long list of activities by insurance companies….These activities are prohibited, regardless of whether the insurance company is dealing with a first-party insured or a third-party to an insurance policy.

More importantly, nothing in W.Va. Code §33-11-4a (that was adopted in 2005) altered the list of prohibited activities contained in W.Va. Code §33-11-4.  All that the 2005 statute changed was to proscribe third-party plaintiffs from filing lawsuits based on insurance company claim settlement misconduct.  Third-party plaintiffs must now file an administrative complaint with the insurance commissioner.  First-party plaintiffs, however, may continue to bring lawsuits for violations of the UTPA."

Furthermore, the Supreme Court noted that to establish a claim under the UTPA the plaintiff must prove that the insurer’s violations were so persuasive as to constitute a “general business practice.”  Discovery of bad faith conduct by AIG would, therefore, be appropriate regardless of whether the conduct predated or post dated the July 8 effective date.  Consequently, AIG’s writ was denied.

AIG also requested a writ compelling the trial court to make an immediate ruling on the admissibility of any post-July 8 acts.  The Supreme Court also denied this request, finding that it was improper to “force” a trial court to make an admissibility ruling “before the parties have even conducted discovery.”

Justice Benjamin dissented.  It was his belief that the legislature’s directive in W.Va. Code 33-11-4a was expressed in “clear, direct and precise terms.”  The majority, he claims, has “judicially rewritten the statutory law to circumvent the plain intention of the legislature."

Commentary 

Because this case was decided by memorandum opinion, it will have little impact.  However, as to those cases remaining “in the pipeline” that were filed before the July 8 effective date, the Supreme Court has sent a clear signal that acts of bad faith occurring after July 8 will be both discoverable and admissible.

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