As a policyholder who has experienced a loss, you might think it goes without saying that an insurance company must tell you all the coverages in place under your policy that might apply to your claim.  While insurance companies often do so, it is certainly not unheard of for an applicable coverage to be “overlooked.”  You might be surprised that sometimes a policyholder’s coverage under a policy is not disclosed, leading to a policyholder being harmed by not receiving all the policy benefits they paid premium for.  A bad faith case might ensue.

There is a statute in Oklahoma called the Unfair Claims Settlement Practices Act which outlines actions by an insurance company which are considered to be unfair to policyholders.  That law states it is an “unfair claim settlement practice” for an insurance company to fail to “fully disclose to first party claimants, benefits, coverages, or other provisions of any insurance policy or insurance contract when the benefits, coverages or other provisions are pertinent to a claim.”

Insurance companies know better than the vast majority of their policyholders what coverages the policyholder’s insurance policy contains. This is especially true with regard to coverages that are lesser known among the public.

For instance, if a policyholder is involved in a motor vehicle accident it is common for a layperson not to understand how and when uninsured/underinsured motorist (“UM”) coverage applies.  Sometimes the policyholder doesn’t even realize they have paid for UM coverage.  Many people think that only if the other party in the accident has no coverage whatsoever does UM coverage kick in.  This isn’t true. If the other party involved in an automobile accident has coverage, but not enough to compensate the policyholder for her damages, UM coverage kicks in.  Insurance adjusters know this fact very well. If a policyholder is involved in an accident and UM coverage even might apply, the adjuster must disclose that coverage to the policyholder. Sometimes this does not happen.

Another example is when a policyholder suffers a homeowners insurance loss and needs move out of his home for a time until it can be repaired. Most homeowners insurance policies contain what is called “Additional Living Expense” or “ALE” coverage. Under this coverage, the insurance company will pay for lodging (a hotel room, an apartment, even to lease a house under certain circumstances) for the policyholder and his family while the repairs are done. It sometimes happens that an insurance adjuster (who knows good and well that ALE coverage exists under the policy) will simply not mention it to the policyholder, which leaves the policyholder to either come out of pocket for expenses that should be covered under the policy or, if that is not an option for them, to live in a house that is not fit to be inhabited.

Insurance adjusters have tools at their disposal (including the powerful computer systems of the insurance companies they work for) to quickly and easily identify all coverages available to a policyholder that are potentially applicable to a claim. In order to meet the duty of good faith and fair dealing and avoid violating the Unfair Claims Settlement Practices Act, they must err on the side of informing the policyholder of all the coverages the policyholder may be able to take advantage of in a claim. This is only fair seeing is how the company understands how the policy works better than the policyholder and the policyholder has paid their hard-earned dollars in premium for every coverage the policy allows.

 

Remember the awful accident the “Saturday Night Live” and “30 Rock” comedian involving Tracy Morgan?  As you might imagine, it led to high-stakes lawsuits by the people injured, but what you might not know is it also led to insurance bad faith litigation between Wal-Mart and its insurance companies.

The accident happened on a highway in New Jersey back in June, 2014.  Morgan was riding in a “limo van” with friends and associates when the van was rear-ended at high speed by a Wal-Mart truck.  Six vehicles and twenty-one people were involved in the accident.  A comedian friend of Morgan’s was killed, and Morgan suffered severe injuries, including being in a coma for a few weeks, a brain injury and a number of broken bones.  The NTSB investigated the accident and ultimately concluded the Wal-Mart truck driver was traveling 20 mph over the speed limit, was seriously fatigued after having driven much more on the day of the accident than was allowed with far too little sleep.  The driver was charged with vehicular homicide and later pled guilty.

Morgan and his deceased friend’s family brought lawsuits against Wal-Mart.  Those suits implicated insurance coverage Wal-Mart had in place with Liberty Mutual and its subsidiary company, Ohio Casualty.  Wal-Mart settled the cases brought against it out of its pocket (the amounts of the settlements are confidential and have not been disclosed, but media reports indicate they may have been in excess of $90 million), then sought to be reimbursed by its insurance companies for the amounts it paid the claimants.  Apparently, Wal-Mart says it put the insurance companies on notice of the settlement negotiations with Morgan and the others, the insurance companies disagreed with the amounts of the settlements, and Wal-Mart went ahead and paid the money itself to settle.

According to media reports, the insurance companies took issue with reimbursing Wal-Mart because they claimed Wal-Mart paid too much money to settle with the claimants.  It appears the insurance companies pointed out that Morgan had been seen on television hosting and making guest appearances on TV shows within a year after the accident, indicating he wasn’t injured as bad as he said.  Morgan stated publicly he thought the settlement was fair.

Wal-Mart and Liberty Mutual/Ohio Casualty sued each other.  Wal-Mart claimed the insurance companies acted in bad faith by not consenting to the settlements and not paying the settlement amounts.  A Wal-Mart spokesman was quoted as saying:

This is no different than any individual who holds an insurance policy, makes a claim for a covered loss, and then is told by the insurance company that despite the existence of coverage, they don’t intend to pay.”

The insurance companies claimed Wal-Mart paid too much to settle the cases in an attempt to force the insurance companies to pay the full freight of the liability, when in fact much of the exposure to Wal-Mart was for punitive damages, which were not covered under Wal-Mart’s policy with the insurance companies.  The insurance companies were seeking to question Morgan and another injured person, presumably to attempt to show they were not injured badly enough to justify the size of the settlements paid by Wal-Mart.

Last month, the lawsuits back and forth between Wal-Mart and the insurance companies were settled and dismissed.  The terms of that settlement are also confidential.

This story goes to show even an entity as big and powerful as Wal-Mart can be the victim of what it believes as unfair treatment by an insurance company.  Wal-Mart’s insurance companies owe it a duty of good faith just like a normal person’s insurance companies do.