In what was a major decision by the
Alabama Supreme Court, the tort of bad-faith has almost been cut to the bone in
Alabama. The case is State Farm Fire & Cas. Co. v. Brechbill, No. 111117 (Ala. Sept. 27, 2013), and the holding will
adversely affect bad-faith-failure-to-investigate claims when the insurer
obtained a report from an engineer prior to its denial of the claim. They
basically have given every insurance company a plausible denial defense.
The facts of the case are as such: Brechbill
claimed that his home suffered interior damage due to a windstorm event. State Farm’s retained engineer generated
reports stating that the interior damage was due to other non-covered causes,
for example, settling and poor construction.
Brechbill sued State Farm claiming both normal bad faith and abnormal
bad faith. When State Farm sought a
summary judgment as to the normal bad-faith claim, Brechbill offered no
“serious” opposition and the trial court granted the requested summary judgment
because there was “no genuine issue of material fact about whether or not State
Farm had a reasonably legitimate or arguable reason for refusing to pay the
claim.” The trial court denied State
Farm’s request for a summary judgment as to the abnormal bad-faith claim, as
well as, State Farm’s JML motions during the trial. The jury found abnormal bad faith and awarded
Brechbill $150,000 as to that claim.
On
appeal, the Alabama Supreme Court held that, if the insured could not prove
“the absence of any reasonably legitimate or arguable reason for that refusal
(the absence of a debatable reason),” then, the insured cannot prevail on a
failure-to-properly-investigate claim.
“State Farm may or may not have perfectly investigated (or
reinvestigated) Brechbill’s claim to his satisfaction, but perfection is not
the standard here. ‘Alabama law is
clear: … regardless of the
imperfections of the insurer’s investigation, the existence of a debatable
reason for denying the claim at the time the claim was denied defeats a bad
faith failure to pay the claim.’”
A
failure-to-investigate claim is apparently limited to situations where the
insurer conducts no investigation prior to its denial of the claim. An insurer cannot create a debatable reason
post-denial.
