NOVEMBER 2013 BAD FAITH CASES: COURT HOLDS “EXTREME DELAY” IN PROCESSING OF CLAIM AND TENDER OF PAYMENT CAN CONSTITUTE BAD FAITH UNDER THE STATUTE; ENTERS $2M JUDGMENT AGAINST INSURER, INCLUDING PUNITIVE DAMAGES AND ATTORNEYS’ FEES (Lackawanna County)
Plaintiffs brought suit against the insurer alleging breach of contract and bad faith for the insurer’s failure to settle its claim under a title insurance policy for five years. Plaintiffs owned a parcel of land on which they intended to build townhomes. When they applied for the appropriate zoning and construction permits, it became obvious that the parcel of land was actually part of a neighboring title due to service defect in an earlier quiet title action.
The insurer took two years to investigate the claim and accept coverage, despite the plaintiffs’ consistent inquiries as to the status of their claim. After an additional year, plaintiffs filed suit, but a settlement was not reached for two more years, resulting in a total of five years from the date of filing of the claim and the settlement.
The court found that the insurer had consistently delayed the claims review and adjustment process, and found no reasonable basis for resolution of the claim to require five years. First, the insurer took 20 months to complete its investigation and notify plaintiffs the claim was covered. Then, it took another three years for the insurer to tender what the court viewed as an inadequate offer, and such a tender was only made after suit was filed. Furthermore, the insurer was unresponsive to plaintiffs’ consistent inquiries regarding the status of their claim.
The court found the insurer knew of and was recklessly indifferent to its lack of a reasonable basis for failing to resolve plaintiffs’ claim. Although the insurer argued a lack of ill will as required by the bad faith statute, the court found the insurer’s inquiry into the true landowner’s finances and ability to defend against a meritless quiet title action, rather than settling the claim with plaintiffs, sufficient to establish ill will, improper motive, dishonesty, and self-interest.
Therefore, the court held “such an extreme delay” constituted bad faith under the statute because the insurer’s actions were outrageous and recklessly indifferent to the rights of its insured. The court also found evidence of bad faith through the insurer’s failure to: make a timely offer of settlement, manage and supervise the handling of plaintiffs’ claim, elevating its own interest above that of its insured and its failure to follow its own internal claims handling guidelines, and through violations of the UIPA.
Plaintiffs were awarded $393,227.21 in compensatory damages for their breach of contract claim, as well as $1,572,909.24 in punitive damages under the bad faith statute. Plaintiff was also awarded $168,467.00 in legal fees and $96,610.04 in interest, both of which are permitted by the bad faith statute. This resulted in a total judgment of $2,062,746.59.