In Virginia, An Error of Judgment, or Even Negligence, Does Not Show Bad Faith By Insurer

In Goldstein v. National Casualty Company, 2008 U.S. Dist. Lexis 58129 (W.D. Va. July 28, 2008), Judge Kiser granted the insurer's motion for summary judgment on an insurance bad faith claim.

The claim arose from an excess judgment. The insured was a truck driver who was involved in an accident as he was attempting to pull out of a lot and onto a major road. The other driver was killed, and his family brought suit for twenty-five million dollars. Liability was contested. The insurer sent the truck driver a reservation of rights letter, pointing out that the insurer would not be responsible payment of any amount in excess of the policy limits.

Defense counsel's assessment of the case was that there was a 55{ae673c0578537ac673c9bacf7e54c8adb105b1f3845655c2906dcf184a4e074c} chance of a defense verdict, and that a potential verdict range of $1,000,000 to $1,500,000 if plaintiff prevailed. There was a future loss of income claim of $884,000. However, defense counsel only recommended a settlement offer of $100,000. Prior to trial, the plaintiffs made a demand for policy limits of $1,000,000. This offer was rejected. Later, during trial, the plaintiffs reduced their demand to $925,000. The insurer did not make any increased offer.

The jury returned a verdict for $2.5 million. The insurer paid its $1,000,000 policy limits. Plaintiffs then offered to release the insured truck driver from his debt in exchange for his assignment to them of a bad faith claim against the insurer. The truck driver rejected the offer. After trying to settle the debt of $1.5 million with an offer of $7,000, the truck driver was forced to declare bankruptcy.

The truck driver's bankruptcy trustee then filed the action alleging bad faith by the insurer. The truck driver's deposition was favorable to the insurer, and included testimony that the truck driver told the insurer that it should not pay the policy limits and that the insurer did not owe the plaintiffs anything. He testified that he did not think there was any bad faith.

The Court granted the insurer's motion for summary judgment. The Court stated the applicable law as follows:

In Virginia, "an insured, in order to recover for an excess judgment on the ground that the insurer failed to take advantage of an opportunity to settle within the policy limits, is required to show that the insurer acted in furtherance of its own interest, with intentional disregard of the financial interest of the insured." State Farm Mut. Auto. Ins. Co. v. Floyd, 235 Va. 136, 366 S.E.2d 93, 97 (1988). Further, because bad faith requires proving more than simply negligence and because there is a presumption of good faith, the insured must make the necessary demonstration by clear and convincing evidence. Id. at 98.

The Court noted that the insurer did not make a settlement offer above $100,000 and did not accept an offer of $925,000 when the defense counsel suggested offering $100,000 -- even though she determined that there was a 45{ae673c0578537ac673c9bacf7e54c8adb105b1f3845655c2906dcf184a4e074c} chance of a verdict between $1,000,000 and $1,500,000. The Court found that this did not constitute clear and convincing evidence that the insurer acted in its own interest with intentional disregard of the insured's financial interest. The $100,000 offer seemed low given defense counsel's assessment, but the insurer was responsible for the next $900,000 and there was no certainty that the insurer would go beyond that. The Court concluded that in retrospect, the insurer's settlement offer "seems to have been an error of judgment, maybe even negligence. But it does not demonstrate bad faith."

John H. Carstens, Esq. of Jordan Coyne & Savits, LLP was lead counsel for the defense.
Categories: Insurance, Virginia