The insureds submitted an insurance claim after their house, garage and barn allegedly sustained damages during a hurricane. Specifically, the insureds claimed that the hurricane caused damage to the interior drywall and ceiling, the mortar of the exterior brick veneer and the roof of the house and one or more metal trusses on the barn. The insurer paid $350 for damage to the barn and concluded that the remaining damage was unrelated to the hurricane and caused by settlement of the foundation.
The insureds sued their insurer for, among other things, “normal” and “abnormal” bad faith. Under Alabama law, “normal” bad faith requires a showing that the insurer had no “reasonably legitimate or arguable reason for denial of a claim;” the underlying breach of contract claim must be so strong that the insured would be entitled to a pre-verdict judgment as a matter of law. “Abnormal” bad faith, on the other hand, requires a showing of “1) intentional or reckless failure to investigate a claim, 2) intentional or reckless failure to properly subject a claim to a cognitive evaluation or review, 3) the manufacture of a debatable reason to deny a claim, or 4) reliance on an ambiguous portion of a policy as a purportedly lawful basis for denying a claim. The trial court dismissed both bad faith claims on summary judgment.
On appeal, the supreme court found that plaintiff had failed to offer evidence sufficient to support “normal” bad faith. However, the court further concluded that the following facts, taken as a whole, created a jury question as to whether the insurer properly marshaled all relevant evidence in making a coverage decision: (1) the insurer never contacted a realtor who had visited the insureds’ house three days before the hurricane regarding the condition of the house; (2) the insurer never asked the insureds if anyone else had seen their house before the hurricane and never attempted to interview anyone who might have visited the house before the hurricane; (3) the insurer never considered its own inspection of the insureds’ house three months before the hurricane, which included photographs of the exterior of the house; (4) the insurer never inquired of its own employee who inspected the house three months prior to the hurricane as to whether he recalled seeing any cracks in the interior or exterior walls of the house when he conducted the inspection. Therefore, the court affirmed summary judgment on the “normal” bad faith claim, but reversed summary judgment with regard to the “abnormal” bad faith claim.
For a copy of the opinion, please click here.