Bad Faith: Partial Payments

No Bad Faith For A Partial Payment

It is not considered bad faith for a partial payment when amount of the claim is reasonably questioned. In Shaffer v. State Farm Mut. Auto. Ins. Co., the insured was injured in an automobile accident. The insured’s automobile policy provided for payment of reasonable medical expenses incurred as a result of automobile accidents. After the accident, the insured was transported by ambulance and treated. The insurer paid the ambulance and hospital costs. The next day, the insured saw an internist who referred her for physical therapy. The insurer paid the internist’s bill but retained the services of an independent physician to determine if the physical therapy bill was excessive. The physician concluded that certain bills were excessive and that the records did not indicate the necessity of physical therapy. The physician recommended partial payment of $1,185.81, which the insurer tendered. The insured filed suit for the balance, alleging bad faith. The trial court granted partial summary judgment to the insurer on the bad-faith claim, finding the refusal to pay reasonable as a matter of law because of the advice of the independent physician.

The Court of Appeals affirmed, citing Jones v. State Farm Mut. Auto. Ins. Co., which held as follows:

The advice of an independent medical examiner that the treatment furnished a claimant is not in fact necessary treatment for injuries arising from the accident covered by the insurance policy, unless patently wrong based on facts timely brought to the insurer’s attention, provides a reasonable basis for an insurer’s denial of a claim for payment of such treatment.

No Bad Faith And Insurance Paying Less Than Demanded

 No bad faith where insured recovers substantially less than demanded, but insurance company acknowledges coverage. Where the verdict in a suit on an insurance policy is for substantially less than the amount claimed in the proof of loss and less than the amount demanded in the petition, no recovery for bad-faith damages and attorney’s fees is authorized. In Georgia Farm Bur. Mut. Ins. Co. v. Boney, the insured purchased a new car for $2,400 and rolled it five days later. The insured submitted a proof of loss for $2,350, the cost of the car less the $50 deductible. The insurance company acknowledged coverage but refused to pay the amount sought. Rather, the insurance company offered to

(1) have the car repaired by the insured’s choice of dealer

(2) pay $800. The insured rejected the offer, sent a 60-day demand for $1,400 and filed suit. The jury awarded $1,000 for the loss as well as a bad-faith penalty. The Court of Appeals reversed the bad-faith award, ruling that there can be no bad faith as a matter of law where the proof of loss seeks $2,350, the insured seeks $1,400 in its petition, and the jury awards $1,000. The court found it significant that the insurance company had gathered several estimates “from reputable people engaged in the repairing of automobiles.” In addition, the insured refused to produce the damaged car or meaningfully cooperate with the appraisal process called for in the policy.

Bad faith even though insured recovers less than demanded, but insurance company had denied all coverage.

In Hendley v. Am. Nat’l Fire Ins. Co., the insured’s home was damaged by a storm. The insurer denied all coverage, asserting that the insured had failed to give timely notice or make repairs to protect her property from additional damage immediately after the storm. The insured sought approximately $117,000 in damages but recovered much less. The issue on appeal was whether the issue of bad faith should have gone to the jury “where the jury awarded only 59% of the damages which [the insured] requested.”The Eleventh Circuit distinguished between, on the one hand, cases where the insured recovered substantially less than the amount demanded but the insurer had acknowledged coverage with, on the other hand, cases where the insured recovered less than the amount demanded but the insurer had denied coverage. In the former, the insurance company can escape bad faith as a matter of law if it shows good cause for the dispute. In the latter, the issue of bad faith is for the jury.

In addition, the Eleventh Circuit noted that “[t]he fact that the parties have a dispute as to liability will not preclude liability for bad faith penalties.”Although acknowledging that the insurance company’s defenses “provided a genuine dispute,” the Eleventh Circuit refused to find that there could be no bad faith as a matter of law. “Only a very finely-drawn distinction separates the insufficient defense from the one which as a matter of law raises a reasonable question of law or a reasonable issue of fact.

Other cases have found that if the insurer has completely denied any liability, the insured’s failure to recover the full amount sued for will not preclude an insured from recovering a penalty and attorneys’ fees for bad faith.