Respond to Claims in Good Faith Issue Where Ratio Notes The duty Whiten Insurer owes a reciprocal obligation of good faith: Mutual reliance and vulnerability Insured particularly vulnerable at time of loos/claims Insurer to further purpose of insurance—peace of mind Timely response to claims Duty of good faith response broader than duty to pay Insurer is not to exploit the insured’s vulnerability. Triggered Fidler The duty of good faith is triggered as Distinguish duty to pay: satisfactory proof of soon as insurer advances claim under loss, compliance with post-loss obligations. contract, regardless of whether K provides coverage for the loss claimed. Either or both duties triggered in a particular situation Standard of Duty Fidler KEY: Act reasonably. If unreasonable, At a minimum, insured must: will be in breach. Investigate and asses the claim objectively and on proper grounds Denial of benefits not necessarily a Act with reasonable diligence breach of the duty of good faith during each step of the claims response process to see claim resolved in Denial of benefits must be timely way; and reasonable If no reasonable grounds for Balance and reasonable denying coverage or payment assessment of merits of claim exists, pay the claim on a timely Insurer not to strategically basis. exploit insured’s vulnerability Refusal based on reasonable interpretation of insured’s contractual duties Insurer need not be correct re decision to dispute or deny payment Denial of claim that ultimately succeeds per se not bad faith Depends on circumstances May be liable EVEN IF denial of coverage is correct Consequences of Whiten Pay claim if denial of coverage incorrect. breach of good faith Punitive Damages Example: Blanco duty Unfounded allegation of arson; Unreasonable denial of disability manipulation of evidence benefits for 10 years, with Good faith duty breached knowledge of insured’s financial Breach constitutes and emotional vulnerability independently actionable Punitive damages awarded against wrong for punitive damages insurer for same agent’s conduct before, yet no change in behavior 4.5 million punitive award Even if no breach of Fidler Possibility of aggravated/ mental Here: pure contract principles good faith duty, distress damages: Insured bargains for “peace of there may be Requires reasonable mind”, part of the consideration the consequences foreseeability of mental distress insured gives in exchange for the at time of K premium
Respond to Claims in Good Faith Issue Where Ratio Notes The duty Whiten Insurer owes a reciprocal obligation of good faith: Mutual reliance and vulnerability Insured particularly vulnerable at time of loos/claims Insurer to further purpose of insurance—peace of mind Timely response to claims Duty of good faith response broader than duty to pay Insurer is not to exploit the insured’s vulnerability. Triggered Fidler The duty of good faith is triggered as soon as insurer advances claim under contract, regardless of whether K provides coverage for the loss claimed. Distinguish duty to pay: satisfactory proof of loss, compliance with post-loss obligations. Either or both duties triggered in a particular situation Standard of Duty Fidler KEY: Act reasonably. If unreasonable, will be in breach. Denial of benefits not necessarily a breach of the duty of good faith response Denial of benefits must be reasonable Balance and reasonable assessment of merits of claim Insurer not to strategically exploit insured’s vulnerability Refusal based on reasonable interpretation of insured’s contractual duties Insurer need not be correct re decision to dispute or deny payment Denial of claim that ultimately succeeds per se not bad faith Depends on circumstances May be liable EVEN IF denial of coverage is correct At a minimum, insured must: Investigate and asses the claim objectively and on proper grounds Act with reasonable diligence during each step of the claims process to see claim resolved in timely way; and If no reasonable grounds for denying coverage or payment exists, pay the claim on a timely basis. Consequences of breach of good faith duty Whiten Pay claim if denial of coverage incorrect. Punitive Damages Unfounded allegation of arson; manipulation of evidence Good faith duty breached Breach constitutes independently actionable wrong for punitive damages Example: Blanco Unreasonable denial of disability benefits for 10 years, with knowledge of insured’s financial and emotional vulnerability Punitive damages awarded against insurer for same agent’s conduct before, yet no change in behavior 4.5 million punitive award Even if no breach of good faith duty, there may be consequences Fidler Possibility of aggravated/ mental distress damages: Requires reasonable foreseeability of mental distress at time of K Here: pure contract principles Insured bargains for “peace of mind”, part of the consideration the insured gives in exchange for the premium
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