Case Briefs

Absence of a Viable Breach Of Contract Claim Bars a Bad Faith Claim

In insurance coverage litigation, plaintiffs often include a claim for bad faith in order to increase their potential recovery, as well as for added leverage. A recent decision of the Connecticut Appellate Court confirms that in Connecticut, in the absence of any supportable claim that a term of the insurance contract has been breached, a plaintiff may not pursue a bad faith claim against the insurer. Heyse v. William Case et al., Docket No. AC 29289 (Conn. App. Ct., June 2, 2009).

In the underlying dispute, the plaintiff, a property holder in a common interest community, sought to prevent other property holders in the community from subdividing their lots. Accordingly, she submitted a claim to her title insurer seeking the provision of legal counsel and indemnity in connection with a lawsuit against the other property holders, on the basis that the proposed subdivision was adverse to her title. However, the title insurer denied the claim. The plaintiff then sued her title insurer, seeking a declaratory judgment with respect to the coverage issue. She also asserted a claim against the title insurer for bad faith. The trial court granted summary judgment to the title insurer on both counts, and the plaintiff appealed.

The appellate court found that an exclusion in the title insurance policy barred coverage for the plaintiff's lawsuit against the other property owners. The exclusion in question specifically excluded loss or damage arising by reason of the terms and conditions of a certain declaration recorded in the relevant land records. The court found that the other property owners had sought to subdivide their lots pursuant to the declaration addressed by the exclusion.

Having affirmed summary judgment in the title insurer's favor on the plaintiff's claim for declaratory relief, the appellate court turned its attention to the bad faith claim. The plaintiff's bad faith claim alleged that the insurer exercised its discretion to afford broad coverage to the defendant property holders (whom, it is presumed, the insurer was defending in the trial court action); and that by failing to also exercise its discretion not to enforce the exclusion against the plaintiff, the insurer was showing preferential treatment to the other property holders in bad faith. The bad faith claim also alleged that the insurer had disclosed confidential information about the insured to other insureds. However, the appellate court rejected the plaintiff's bad faith theories, citing to the Connecticut Supreme Court's decision in Renaissance Management Co. v. Connecticut Housing Finance Authority, 281 Conn. 227, 240 (2007) for the proposition that to constitute bad faith, the acts complained of must impede the plaintiff's right to receive benefits she expected under the contract. Because the plaintiff did not have any right to receive coverage under the contract for her dispute with the other property holders, and in the absence of any other allegation that her right to receive some benefit under the insurance contract had been impeded, the plaintiff could not maintain a claim that the insurer acted in bad faith. Therefore, the appellate court upheld the trial court's grant of summary judgment in the insurer's favor on the bad faith count.

Navigating the Safe Harbor

On Oct. 19, 2009, the Supreme Court of Georgia reversed the decision in Fortner v. Grange Mut. Ins. Co., 669 S.E.2d 658 (Ga. App. 2008), on the grounds that the Court of Appeals misinterpreted the “safe harbor” afforded insurers in Cotton States Mut. Ins. Co. v. Brightman, 580 S.E.2d 519 (Ga. 2003).

The Brightman safe harbor allows an insurer to offer its policy limits in response to a settlement offer and avoid a claim for bad faith failure to settle even where the settlement demanded by the plaintiff contains a condition beyond the control of the insurer. The condition in both Brightman and Fortner was a settlement contribution by a second insurer. The Brightman court upheld the jury's determination that the first insurer acted in bad faith by failing to offer its policy limits, but also stated an insurer can create “a safe harbor from liability from an insured's bad faith claim ' by meeting the portion of the demand over which it has control. '” Brightman, 580 S.E.2d at 523, as quoted in Fortner, No. 509G0492 slip op. at 4.

In Fortner, the plaintiff was injured in a car accident caused by Alan Arnsdorff. Arnsdorff had a $50,000 personal auto policy from Grange Mutual, and his plumbing business had a $1 million policy with Auto Owners Insurance Company. Plaintiff offered to settle all claims for the $50,000 Grange policy limits as well as $750,000 from Auto Owners. Auto Owners did not respond to the demand. Grange offered to pay $50,000 if plaintiff signed a release and indemnity and dismissed with prejudice his claims against Arnsdorff. If accepted, plaintiff would have been barred from collecting from the significantly larger Auto Owners policy.

Plaintiff considered Grange's response a rejection and subsequently won a $7 million verdict against Arnsdorff. Then, pursuant to an assignment, plaintiff brought a bad faith claim against Grange. The jury ruled in favor of Grange, and plaintiff appealed based upon the following jury charge:

In responding to a settlement demand, which demand is conditional upon the response of another insurance company, an insurance company can offer its policy limits in response to the demand and then let the plaintiff negotiate with the remaining insurers. In that situation, the insurance company would have given equal consideration to its insured's financial interest and fulfilled its duty to him. And you would return your verdict in favor of the defendant.

The Court of Appeals held this jury charge was consistent with the Brightman safe harbor. The Supreme Court reversed the decision because of the conditions contained in Grange's response to the settlement demand:

Here, the trial court's charge precluded the jury's consideration of the conditions added by Grange, as the court instructed the jury that it must return a verdict for Grange based solely on the fact that the insurance company tendered its policy limits, without regard to whether the conditions it added were a reasonable response to the settlement offer.

Id. at 6.

The court expressly withheld any opinion as to the reasonableness of Grange's conditions, leaving open the question of how a court may rule if the policy limits were reversed and plaintiff could have settled for $750,000 if he foregoes $50,000.

Absence of a Viable Breach Of Contract Claim Bars a Bad Faith Claim

In insurance coverage litigation, plaintiffs often include a claim for bad faith in order to increase their potential recovery, as well as for added leverage. A recent decision of the Connecticut Appellate Court confirms that in Connecticut, in the absence of any supportable claim that a term of the insurance contract has been breached, a plaintiff may not pursue a bad faith claim against the insurer. Heyse v. William Case et al., Docket No. AC 29289 (Conn. App. Ct., June 2, 2009).

In the underlying dispute, the plaintiff, a property holder in a common interest community, sought to prevent other property holders in the community from subdividing their lots. Accordingly, she submitted a claim to her title insurer seeking the provision of legal counsel and indemnity in connection with a lawsuit against the other property holders, on the basis that the proposed subdivision was adverse to her title. However, the title insurer denied the claim. The plaintiff then sued her title insurer, seeking a declaratory judgment with respect to the coverage issue. She also asserted a claim against the title insurer for bad faith. The trial court granted summary judgment to the title insurer on both counts, and the plaintiff appealed.

The appellate court found that an exclusion in the title insurance policy barred coverage for the plaintiff's lawsuit against the other property owners. The exclusion in question specifically excluded loss or damage arising by reason of the terms and conditions of a certain declaration recorded in the relevant land records. The court found that the other property owners had sought to subdivide their lots pursuant to the declaration addressed by the exclusion.

Having affirmed summary judgment in the title insurer's favor on the plaintiff's claim for declaratory relief, the appellate court turned its attention to the bad faith claim. The plaintiff's bad faith claim alleged that the insurer exercised its discretion to afford broad coverage to the defendant property holders (whom, it is presumed, the insurer was defending in the trial court action); and that by failing to also exercise its discretion not to enforce the exclusion against the plaintiff, the insurer was showing preferential treatment to the other property holders in bad faith. The bad faith claim also alleged that the insurer had disclosed confidential information about the insured to other insureds. However, the appellate court rejected the plaintiff's bad faith theories, citing to the Connecticut Supreme Court's decision in Renaissance Management Co. v. Connecticut Housing Finance Authority, 281 Conn. 227, 240 (2007) for the proposition that to constitute bad faith, the acts complained of must impede the plaintiff's right to receive benefits she expected under the contract. Because the plaintiff did not have any right to receive coverage under the contract for her dispute with the other property holders, and in the absence of any other allegation that her right to receive some benefit under the insurance contract had been impeded, the plaintiff could not maintain a claim that the insurer acted in bad faith. Therefore, the appellate court upheld the trial court's grant of summary judgment in the insurer's favor on the bad faith count.

Navigating the Safe Harbor

On Oct. 19, 2009, the Supreme Court of Georgia reversed the decision in Fortner v. Grange Mut. Ins. Co. , 669 S.E.2d 658 (Ga. App. 2008), on the grounds that the Court of Appeals misinterpreted the “safe harbor” afforded insurers in Cotton States Mut. Ins. Co. v. Brightman , 580 S.E.2d 519 (Ga. 2003).

The Brightman safe harbor allows an insurer to offer its policy limits in response to a settlement offer and avoid a claim for bad faith failure to settle even where the settlement demanded by the plaintiff contains a condition beyond the control of the insurer. The condition in both Brightman and Fortner was a settlement contribution by a second insurer. The Brightman court upheld the jury's determination that the first insurer acted in bad faith by failing to offer its policy limits, but also stated an insurer can create “a safe harbor from liability from an insured's bad faith claim ' by meeting the portion of the demand over which it has control. '” Brightman, 580 S.E.2d at 523, as quoted in Fortner, No. 509G0492 slip op. at 4.

In Fortner, the plaintiff was injured in a car accident caused by Alan Arnsdorff. Arnsdorff had a $50,000 personal auto policy from Grange Mutual, and his plumbing business had a $1 million policy with Auto Owners Insurance Company. Plaintiff offered to settle all claims for the $50,000 Grange policy limits as well as $750,000 from Auto Owners. Auto Owners did not respond to the demand. Grange offered to pay $50,000 if plaintiff signed a release and indemnity and dismissed with prejudice his claims against Arnsdorff. If accepted, plaintiff would have been barred from collecting from the significantly larger Auto Owners policy.

Plaintiff considered Grange's response a rejection and subsequently won a $7 million verdict against Arnsdorff. Then, pursuant to an assignment, plaintiff brought a bad faith claim against Grange. The jury ruled in favor of Grange, and plaintiff appealed based upon the following jury charge:

In responding to a settlement demand, which demand is conditional upon the response of another insurance company, an insurance company can offer its policy limits in response to the demand and then let the plaintiff negotiate with the remaining insurers. In that situation, the insurance company would have given equal consideration to its insured's financial interest and fulfilled its duty to him. And you would return your verdict in favor of the defendant.

The Court of Appeals held this jury charge was consistent with the Brightman safe harbor. The Supreme Court reversed the decision because of the conditions contained in Grange's response to the settlement demand:

Here, the trial court's charge precluded the jury's consideration of the conditions added by Grange, as the court instructed the jury that it must return a verdict for Grange based solely on the fact that the insurance company tendered its policy limits, without regard to whether the conditions it added were a reasonable response to the settlement offer.

Id. at 6.

The court expressly withheld any opinion as to the reasonableness of Grange's conditions, leaving open the question of how a court may rule if the policy limits were reversed and plaintiff could have settled for $750,000 if he foregoes $50,000.