Nat’l Sur. Corp. v. Hartford Cas. Ins. Co.
U.S. Ct. Apps., 6th Cir., October 9, 2012
An excess insurer sought reversal of the district court’s grant of summary judgment in favor of the underlying insurer on its bad faith claims. The underlying action involved a weed trimmer head made by the insured that allegedly shattered during use and severely lacerated the leg of the underlying plaintiff. The insurer refused to settle the claim for its policy limit, $1 million. When negotiations fell through, the insurer notified its insured of the potential for excess exposure at trial. The insured had a $10 million excess policy that included a provision requiring notice of any claims or suits filed, or any occurrence that could precipitate a claim. Despite this “excess notice,” albeit less than a month before trial, the insured did not notify the excess insurer.
The jury in the underlying personal injury action returned a verdict for $5,783,816.09. The excess insurer paid the excess amount above the underlying $1 million limits and then commenced an action against the underlying insurer for bad faith. The allegations were that the underlying insurer acted in bad faith by exposing its insured to an unreasonable risk of an excess verdict. The evidence presented demonstrated that the insurer had “(1) failed to consider information in its own files, (2) failed to conduct a diligent investigation, (3) failed to properly respond to Cook’s $1 million demand during settlement negotiations, (4) failed to timely notify [the insured] that a verdict may exceed [its] policy limits, (5) relied to heavily on defense counsel, (6) failed to account for the possibility of a punitive damage award, and (7) made only ‘lowball’ offers during settlement talks with [plaintiff].”
The Sixth Circuit upheld the district court’s finding of no bad faith citing to Kentucky’s exacting bad faith standards. The court stated that neither mere negligence nor gross negligence was sufficient to prove bad faith, but that instead “malice or flagrant misfeasance must be shown.” (emphasis in original). In reaching its decision the court found that the insurer’s actions constituted at best, mere negligence, inadvertence, sloppiness, or tardiness. It stated that while the arguments suggest that the insurer should have handled the claim differently, it did not show that the insurer acted with a consciousness of wrongdoing or reckless disregard toward its insured.