Insured Must Treat the Insurer With Good Faith & Fair Dealing

Federal Court Will Not Recognize a Fake Attempt at Defeating Diversity

When I was a young lawyer plaintiff’s bad faith lawyers wanted to avoid federal jurisdiction because California state courts were more likely to return a verdict in favor of the insured. As a result, every bad faith lawsuit would name an insurance adjuster or the insurance company’s lawyer as a defendant. As a result I was named as a defendant in dozens of bad faith lawsuits only to get them dismissed by my sworn testimony that “I am not now, nor have I ever been, an insurance company.” The court’s decision, however, came late and diversity was defeated. Eventually, the California Supreme Court put an end to the attempts by making it clear that a person not a party to the insurance contract cannot be sued for breach or bad faith.

In Joseph J. Broadway v. State Farm Mutual Automobile Insurance Company, United States Court of Appeals, Eleventh Circuit, 2017 WL 1149095, No. 16-13363 (March 28, 2017), applying Alabama law, dealt with the appeal of Joseph Broadway of the denial of his motion to remand to state court based on his fraud allegations against his insurance agent; the denial of his motion for leave to file an amended complaint; and the grant of summary judgment in favor of Plaintiff’s insurer, State Farm Mutual Automobile Insurance Company (“State Farm”).

FACTS

After a car collision where the car driven by Broadway was struck by a negligent driver. That the other driver was at fault and that Broadway suffered serious injuries as a result of the accident are undisputed. On the day of the accident, Broadway’s car was insured under an automobile insurance policy (“Policy”) issued by State Farm, which included uninsured motorist (“UIM”) benefits. Broadway recovered $25,000 from the at-fault driver’s automobile insurance company for his coverage limit. Broadway then filed a claim for UIM benefits under his Policy with State Farm. Broadway contended that his damages exceeded the amount recovered from the at-fault driver’s insurance. Plaintiff sought to recover the full coverage amount of his UIM benefits under the Policy – $25,000 but State Farm offered Plaintiff only $5,000 in satisfaction of his claim.

Attempt to Defeat Diversity

When a defendant removes a case to federal court on diversity grounds, a court must remand the matter back to state court if any of the properly joined parties in interest are citizens of the state in which the suit was filed. If, however, a plaintiff names a non-diverse defendant solely to defeat federal diversity jurisdiction, the district court must ignore the presence of the non-diverse defendant and deny any motion to remand the matter back to state court.  In pertinent part, a defendant seeking to prove a non-diverse co-defendant was joined fraudulently must show — by clear and convincing evidence — that there is no possibility the plaintiff can establish a cause of action against the resident defendant.

In his complaint, Broadway alleged that Anderson committed fraud by representing falsely to him — through State Farm’s advertising slogan — that State Farm would treat Plaintiff like a “Good Neighbor.” The district court concluded that State Farm’s advertising slogan was “mere opinion or puffery” and, thus, constituted no statement of material fact.

Under the circumstances of this case and viewed in the light most favorable to Broadway the Eleventh Circuit could not say that State Farm’s advertising slogan — “like a good neighbor, State Farm is there” — is a representation of a material fact. The advertising slogan, instead, constitutes nothing more than a statement of opinion or “puffery.” Given the lack of a viable claim against Anderson, federal diversity jurisdiction existed; and the district court committed no error in denying Plaintiff’s motion to remand.

The district court also abused no discretion in determining that Plaintiff failed to state a claim for negligent procurement of insurance. Broadway alleged that Anderson failed to advise Plaintiff to purchase an insurance policy with higher coverage limits for UIM benefits. Once the parties agree on the insurance to be procured, the insurance agent is under a duty to “exercise reasonable skill, care, and diligence in effecting coverage,” and may be held liable for negligence if he fails to fulfill that duty.

SUMMARY JUDGMENT

Absent a preexisting determination about the extent of a plaintiff’s damages, a claim for breach of contract or for bad-faith is filed prematurely and must be dismissed, without prejudice, for lack of subject-matter jurisdiction. The record establishes the existence of a dispute between Broadway and State Farm about the extent of his damages.  Based on information provided by Broadway’s counsel State Farm valued Plaintiff’s entire claim against the at-fault driver as being worth between $20,000 and $30,000.

State Farm sent Plaintiff a letter in which State Farm acknowledged that the parties had been unable to agree on an amount of damages; and State Farm made an “initial offer” of $5000. Plaintiff cashed the $5000 check but engaged in no further negotiations nor submitted additional documentation of his damages.

Where the evidence of the extent of damages is disputed, the insured has not proved that he is legally entitled to collect for purposes of proving a claim for breach of contract or for bad faith. Because undisputed evidence in the record establishes that the amount of Broadway’s damages was still in controversy when the suit was filed, Broadway’s claims for breach of contract and for bad faith — as a matter of Alabama law — were filed prematurely and were subject to dismissal without prejudice for lack of subject-matter jurisdiction.

ZALMA OPINION

This entire action was based on false allegations that the suit against the agent who allegedly did not treat Broadway as a “Good Neighbor” did not fly as a tort and the agent was joined fraudulently. The UIM case could have been negotiated to settlement but, rather than negotiate, Broadway took the offer and then sued rather than provide evidence to support a higher settlement from State Farm. People making claims must treat the insurer with good faith and deal fairly. Broadway did not. The courts must insist that insureds treat the insurer as fairly as it requires insurers to treat the insured.

ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

Mr. Zalma is the first recipient of theLEGEND-TROPHY-2 first annual Claims Magazine/ACE Legend Award.

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Legal Disclaimer:

The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

 

 

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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One Response to Insured Must Treat the Insurer With Good Faith & Fair Dealing

  1. Daniel Kelly says:

    Great suggestions! Having the insurance company waive that $1000 deductible for being a loyal customer is a great idea.

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