As a young lawyer starting to work on bad faith cases, I was anxious to do the legal research necessary to find a list of acts by an insurance company that qualified as “bad faith.” I began looking in the law books (we didn’t use computerized research much back in the stone ages). I quickly learned there is no one place to find a laundry list of things the law deems to be acts of bad faith.
This was a little frustrating. I felt like there ought to be clear guidance to insurance companies, policyholders and lawyers handling bad faith cases as to what constitutes bad faith. While there are some Oklahoma court decisions that hold certain factual scenarios presented in individual cases either are or are not bad faith, there is no case that sets forth a comprehensive list.
As far as statutes go, Oklahoma has its version of the Unfair Claims Settlement Practices Act (the “UCSPA”). That statute provides some guidance by defining actions by insurers that are deemed “unfair claims settlement practices.” But the UCSPA does not allow for a “private cause of action” when an insurance company violates the Act. This means a policyholder can’t sue an insurance company and base her claim on a violation of the UCSPA. Certainly, the UCSPA helps define industry standard claim practices and it can be relevant in many ways in a bad faith case, but it is not exactly what I was looking for as a young lawyer. In reality, nobody with much experience in bad faith cases would believe it contains a comprehensive list of actions that constitute bad faith.
The answer to the question: “What is bad faith?,” like so many questions people pose about the law, is: “it depends on the facts of the case.” Perhaps the best way to understand this somewhat unsatisfying state of affairs is to refer to the seminal case of Badillo v. Mid-Century. The Oklahoma Supreme Court was called upon to define bad faith in that case, and along those lines stated:
“. . .[T]he minimum level of culpability necessary for [bad faith] liability against an insurer to attach is more than simple negligence, but less than the reckless conduct necessary to sanction a punitive damage award against said insurer.”
In effect, Oklahoma law requires an insurance company to do more than make an honest mistake in order to be held liable for bad faith. But, an insurance company does not have to engage in conduct that rises to the level of recklessness to be in bad faith either. So, in light of this, when people ask me what bad faith conduct is, I tell them it requires more than the equivalent of running a stop sign, but less than running a stop sign at 80 mph while driving drunk. There is a lot of space between simple negligence and recklessness and that is where the tort of bad faith begins. The facts of each case must be evaluated to determine if the insurer’s conduct arises to the level of bad faith.
The truth is, from a practical standpoint, bad faith is often best identified by the “smell test.” Later posts will address how this “test” is applied to real examples.