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The Term In Review: Insurance

The Term In Review: Insurance

The West Virginia Supreme Court of Appeals recently adjourned sine die, ending the Spring 2016 term without any significant gains being made by insurance companies to further restrict the rights of insureds and immunize themselves from liability for claims handling misconduct.  For the most part, the Supreme Court stayed true to existing law and clarified some procedural issues.

The most significant decision from an insured’s perspective came in the form of a memorandum opinion, which has limited precedential value but gave some insight into the viability of arguments we see insurers making more and more often.   Looking for additional ways to avoid extra-contractual liability to their insureds, insurers are increasingly attempting to characterize first-party claims brought by insureds as, in reality, third party bad faith claims.  In State ex rel. State Auto Property & Casualty Insurance Company v. Stucky, No. 15-1178I, the Supreme Court rejected an insurer’s request for relief from a circuit court order refusing to dismiss an insured’s claims of breach of contract and bad faith.  The insured’s claims arose from an allegation that the insurer mishandled claims asserted against the insured.  The insurer sought to avoid liability by arguing that the insured was effectively asserting third party claims arising from the insurer’s alleged bad faith in failing to settle the claimant’s claims against the insured--claims no longer recognized in the State of West Virginia.

In a 3-2 decision, the Supreme Court rejected the insurer’s argument that an insured may only assert a first party bad faith claim arising from the insurer’s conduct in dealing with a claim presented against the insured where the third-party claimant obtains an excess verdict (a verdict which exceeds available liability coverage) against the insured.  The majority also rejected the insurer’s argument that the Legislature’s elimination of a third party’s right to bring a statutory bad faith claim also eliminated an insured’s statutory claim arising from the insurer’s handling of a claim made against the insured.  Unfortunately, two justices dissented and would have taken this opportunity to further restrict the rights of insureds and further immunize insurers from liability for claim handling misconduct.   With the composition of the Supreme Court changing on January 1, 2017, we can expect that insurers will become even more aggressive with similar arguments in the hopes of taking another bite at the apple and obtaining a different result in 2017.

The remaining insurance-related decisions were not major departures from existing law but, instead, were opportunities to clarify procedural issues or application of substantive law.   For example, in Old Republic Insurance Company v. O’Neal, No. 15-0012, the Supreme Court found that a workers compensation insurer who did not receive a copy of an order granting summary judgment against it was entitled to relief under Rule 60(b) of the West Virginia Rules of Civil Procedure where application of the provisions of Rule 77 would have barred the insurer’s appeal.   However, the Supreme Court then applied long-standing subrogation law to reject the insurer’s substantive claim, holding that the insurer did not possess a statutory subrogation claim where the workers compensation claim was resolved within the insured’s self-insured retention and the insurer had not paid any benefits to the claimant.

The Supreme Court’s decisions in Doe v. Pak, No. 15-0013, and White v. Erie Insurance Property & Casualty Company, No. 15-0521, were also not surprising as both involved application of established substantive law to new factual situations.  In Doe v. Pak, the Supreme Court ruled that a first-party insurer was entitled to a credit against the ultimate judgment for pre-judgment payments it made at a time when damages were in still dispute.  This fairly unremarkable decision may ultimately turn into another weapon in an insurance company’s arsenal against bad faith claims to the extent that insurers use clearly inadequate advance payments not only as excuses to delay full and fair resolution of the claim, but also as evidence of “good faith” in an effort to defeat bad faith claims arising from their delay.

Likewise, in White, the Supreme Court used established principles of policy interpretation to find that the adult child of a policyholder who lived out of state with her other parent and visited the policyholder once a year at Christmas did not qualify for underinsured motorist coverage as a resident relative, even though the child was still attending school full-time.  In this memorandum decision the Court emphasized its ruling was based upon the specific facts presented, facts which could not reasonably be interpreted to support a finding the adult child “lived with” the policyholder.  White is likely to have limited future impact.

The biggest disappointment of the Spring 2016 term was the Supreme Court’s refusal to take the opportunity presented in State ex rel. State Farm Mutual Automobile Insurance Company v. Cramer, No. 15-1101, to streamline discovery of general business practice evidence in bad faith cases.  In bad faith cases, an insured is required to prove that the insurer has a general business practice of acting in the same manner it did with the insured.  Insurers fight disclosing such evidence with every weapon in their already large arsenals.  The bad faith claim in Cramer stemmed from an allegation that the form utilized by the insurer to offer higher limits of uninsured and underinsured motorist coverage was insufficient under West Virginia law, resulting in the insurer routinely underpaying claims.  The insured argued that individuals who had presented similar uninsured claims where the uninsured limits were less than the policy’s liability limits were fact witnesses known to the insurer and, therefore, were required to be disclosed under established rules for discovery.  In Cramer, the Supreme Court chose not to address the insured’s argument that the individuals constituted fact witnesses and, instead, accepted with little analysis the insurer’s argument that, under prior judicial decisions, an insurer was not required to disclose the identity of other insureds.  Instead, the insured was entitled to discover only the underlying data (the type of selection/rejection forms State Farm had used with this those individuals and whether State Farm had paid, either with or without litigation, additional uninsured motorist coverage to resolve claims) with the individual’s name and identifying information redacted.  The prior decisions relied upon by the insurer and the Supreme Court did not address the fact witness argument presented in Cramer and the Supreme Court sidestepped this issue to the detriment of West Virginia insureds.

Insurance companies have made it their mission to continue to restrict the rights of their insureds in West Virginia, minimize claim payments and immunize themselves from liability for claim handling misconduct.  Insurance companies appear willing to devote whatever funds and resources are necessary to accomplish this mission.  Fortunately, even in this hostile climate, West Virginia insureds escaped the Spring 2016 term relatively unscathed.

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