COMMON BAD FAITH CLAIMS

Paul T. Boudreaux

  1. THE BASICS

    1. First-Party Claims

      First-party insurance is that which is purchased for the financial protection of the insured and can include the insured’s health, life, automobile, or home. Liability insurance is termed third-party insurance, as the insured’s liability to others is involved. In either situation, when one contracts for insurance, the insured has the reasonable expectation of payment for a legitimate claim.

      At one time, the insured’s only remedy for nonpayment of a claim was for breach of contract. This resulted in a lack of incentive on the part of the insurer to pay the claims, since the insurance company would be required to pay only the amount due under the contract if it lost a law suit. Therefore, courts eventually extended the cause of action to breach of the duty of good faith and fair dealing (bad faith) by allowing extra-contractual damages. The basis for the claim is that in every contract, there is an implied covenant of good faith and fair dealing, and that the breach of this implied covenant constitutes a tort. The insurer’s responsibility arises both in contract and in tort.

    2. Third-Party Claims

      The liability insurer must consider the insured’s interests in accepting or rejecting a compromise offer. A liability insurer, having assumed control of the right to settlement of claims against the insured, may become liable in excess of its policy provisions and limits if it fails to exercise good faith in considering offers to compromise the claim for an amount within the policy limits. Such was the case in Badillo v. Mid Century Ins. Co., 2004 OK 42, with Badillo v. Mid Century Inc. Co., 2005 OK 48 (June 21, 2005). The Oklahoma Supreme Court, in response to much debate within the legal profession and insurance community, reversed an earlier decision. The Badillo suit involved a third-party claim against Badillo. The insurer could have settled the case for policy limits, had it convinced the injured party’s lawyers that no other source of payment was available. However, in order to settle, it was necessary to allow the third party to take the insured’s statement. Unfortunately, the insurer refused to permit the insured’s statement to be taken and did not inform the insured that a statement had been requested. Consequently, the insured then risked a judgment exceeding policy limits, which is exactly what occurred. The insured then sued the insurer for bad faith and obtained a judgment in his favor. Both appealed.

      Because the judgment was supported by competent evidence and there was no reversible error, the appellate court affirmed the judgment. Concerning the trial court’s failure to direct a verdict for the insurer on the issue of bad faith, the Court noted that the essence of an action for breach of the duty of good faith and fair dealing is the insurer’s unreasonable, bad-faith conduct, and if there is conflicting evidence regarding the reasonableness of the insurer’s conduct, then a jury question exists.

      Significantly, the Court stated that to the extent a prior decision “may have implied that a simple negligence standard was approved or adopted as to the level of culpability necessary to be shown for liability to attach to an insurer for breach of the duty of good faith and fair dealing in relation to the handling of a third-party claim made against the insured, i.e., the situation involved here, that case is expressly overruled.” Interpreting prior decisions, the Court said that more than simple negligence is required for a bad faith claim, stating that, “In our view, under Christian and later cases, the minimum level of culpability necessary for liability against an insurer to attach is more than simple negligence, but less than the reckless conduct necessary to sanction a punitive damage award against said insurer....” The Court rejected the insurer’s contention that a tender of policy limits to a third party was a complete defense to a claim for breach of the duty of good faith and fair dealing and relieved the insurer of the obligation to safeguard the interests of its insured. The insurer tendered the policy limits, but when a statement from the insured was demanded, Mid Century refused and directed the third-party claimant to return the $10,000 policy limits if she no longer desired to settle the case. There was never a settlement agreement. However, the duty of good faith and fair dealing required the insurer to reasonably respond to reasonable requests from the injured party’s lawyer in an effort to settle the case for the protection of the insured. Whether it did so was a jury question.

      The Supreme Court, in Badillo, affirmed the duty of an insurer to conduct an investigation reasonably appropriate under the circumstances. However, the Court also upheld a directed verdict in favor of the insurer on the issue of punitive damages. The trial court record did not contain competent evidence from which a reasonable jury could find reckless disregard, sufficient to support an inference of evil intent and malice. In sum, more than simple negligence is required to submit to the jury the issue of bad faith, but the same level of intent is not sufficient to submit the issue of punitive damages to the jury.

      Sometimes the insurer refuses to settle. The insured then settles on his own initiative, and sues to recover from the insurer. Such recovery is allowed even though the policy provides that the insurer should be liable only in the event of a judgment against the insured, or that the insured should have no right to recover where he settles without the insurer’s consent. Furthermore, an action against the insurance company is allowed event if the insured has paid or can pay that portion of the judgment which is in excess of the policy limits.

    3. Exploring Related Causes of Action

      Characterizing a bad faith lawsuit as a tort or a breach of contract may have numerous ramifications. These can include: the damages that are available, the applicable statute of limitations, restrictions upon who can sue, and the availability of various defenses. If characterized as a tort action, most states, including Oklahoma, permit a broader range of damages for the individual bringing the lawsuit. Naturally, insureds and third-parties will almost always prefer tort actions because the damages can exceed the policy limits of coverage.

  2. TYPICAL THEMES IN BAD FAITH CASES

    A cause of action for insurance bad faith arises from a breach by the insurer of its obligation, inherent with in the insurance contract, to act in the best interests of its insured, consistent with the terms of the insurance policy and the intent of the parties. The insurer’s obligation to act in good faith is based upon a covenant which is implied by law in every insurance policy to deal honestly and fairly with the insured. Insurance bad faith, a distinctive species of tort law, has as a primary basis the existence of a special relationship between the insurer and the insured. This is an inherently unbalanced relationship, which is heavily weighted in the insurer’s favor. Some areas which give rise to liability are as follows:

    • Failure to promptly investigate a claim.
    • Failure to properly, thoroughly and reasonably evaluate a claim as to liability and damages, if any.
    • Failure to offer settlement within a reasonable time after investigation and evaluation in favor of its insured, if such occurs.
    • Requiring an insured to pursue a claim against another party before offering settlement, where settlement is required.
    • Delay in payment in order to await settlement with a third-party insurer.
    • Requiring an insured to exhaust the policy limits of a third-party prior to offering settlement of an underinsured motorist claim.
    • Delaying a denial which causes emotional distress.
    • Attempt to condition payment of an undisputed portion of a claim upon the favorable settlement of a separate, disputed portion.
    • Unreasonably refusing to waive the insurer’s right of subrogation so that the claimant cannot settle with the tortfeasor in an underinsured motorist claim.
    • Deception.
    • Intentional or reckless misreading or misconstruing of claims file documents or policy provisions.
    • Non-disclosure of information.
    • Failure to inform the insured of additional benefits that are due under the policy.
    • Impeding the insured by imposing burdensome documentation demands that are not required by the facts or the policy.
    • Interference with the recovery of that portion of the loss which is uninsured.
    • Fraudulent, intrusive or harassing investigative methods.
    • Attempts to “take something off the top.”
    • Unwarranted disputes concerning the value of a loss.
    • Unfounded accusations of arson.
    • Wrongful threats of non-payment of the claim.
    • Creating issues simply to compromise the duty to pay the full amount.
    • Designing a scheme to withhold benefits.
    • Failure to comply with industry standards.
    • Asserting a factual basis or legal principle that is not originally involved in the evaluation as the basis for the denial or delay.
    • Concealment of facts.
    • Use of oppression.
    • Treating of insureds who hire attorneys as the insurance company’s adversaries.
    • Failure to convey settlement demands of the adversary in liability cases.
    • Attempts to obtain contribution from the insured.
    • Biased investigation.
    • Failure to reasonably construe the law.
    • Dual representation by the same claims adjuster in conflicting claims.
    • Violating the normal procedures that are enumerated within claims manuals.
    • Attempting to shift the burden of investigation onto the lawyer or insured.
    • Suing the insured to recover amounts paid and taking affirmative steps to harm the insured.
    • Canceling the insured’s policies where the insured is not at fault.
    • Failure to settle a third party’s claims against an insured within the policy limits (if possible) thereby exposing the insured to “excess” liability.

    1. Breach of Contract

      The relationship between an insurer and an insured is contractual. Therefore, if an insurer fails to pay according to the terms of the policy, it is also appropriate to sue under a breach of contract theory of liability. The contract may afford a remedy when the statute of limitations has expired on tort-based causes of action. Additionally, an insurer may breach a contract by refusing to pay a covered loss, even though it has a good faith and reasonable basis for doing so. In such cases, there is no “bad faith” but there may be a remedy for breach of the contract.

      In considering whether a cause of action exists for breach of contract, it is important to remember that insurance policies in Oklahoma are issued pursuant to statutes. The provisions of those statutes are given full force and effect, as if they were actually written into the policy. Markham v. State Farm Insurance Co., 326 F. Supp. 39; rev’d 464 F.2d 703 (10th Cir.1972).

      Even though Oklahoma has statutory requirements for certain policies, the parties to an insurance contract may agree upon additional terms within the contract and may also limit or restrict an insurer’s liability. In this regard, the court will interpret an insurance policy in light of the statute, but will not rewrite the contract. American Iron and Machine Works Co. v. Insurance Company of North America, 375 P.2d 873 (Okla.1962); Wiley v. Travelers Insurance Co., 534 P.2d 1293 (Okla.1974).

      In addition to statutory requirements, a further limitation upon the freedom to contract is that of public policy. If an insurance contract contravenes public policy, it will not be enforced. Cothren v. Emacaso Ins. Co., 1976 OK 137, 555 P.2d 1037. Public policy arguments are most effective in statutorily mandated liability coverages. For example, Oklahoma requires that automobiles carry certain minimum amounts of liability coverage. In addition, when such policies are issued, uninsured motorist coverage must also be offered.

      An example of situations where an insurance policy offends public policy arises under Oklahoma’s Compulsory Insurance Law, 47 O.S.2001, §§ 7-600, et seq., Article VI of the Financial Responsibility Law, which mandates that all motor vehicle owners keep in force liability insurance or other security at not less than the minimum amount provided by § 7-204. The principal purpose of the Act and its compulsory liability insurance requirement is to protect the public from the financial hardship that may result from the use of automobiles by financially irresponsible people. Harkrider v. Posey, 2000 OK 94, ¶ 15, 24 P.3d at 829.

      The Oklahoma Supreme Court has declared void various policy exclusions which defeat the public policy that is embodied in the Compulsory Insurance Law. In Young v. Mid-Continent Casualty Co., 1987 OK 88, ¶ 16, 743 P.2d 1084, 1088, the court struck down an exclusion based upon the age of the driver (under age of 25 years). In Equity Mutual Insurance Co. v. Spring Valley Wholesale Nursery, Inc., 1987 OK 121, ¶ 5, 747 P.2s 947, 952, the court invalidated an exclusion based upon a geographical restriction (outside 200 mile radius). In Hartline v. Hartline, 2001 OK 15, 39 P.3d 765, the court ruled that family members must be covered either under the liability portion of an automobile policy or by uninsured motorist coverage. In Harkrider v. Posey, 2000 OK 94, 24 P.3d 821, the court refused to rescind coverage when the insured misrepresented within the application that there were no other persons of the age of fourteen years or older who were living with her. In O’Neill v. Long, 2002 OK 63, 54 P.3d 109, the court struck down a clause which limited coverage to those using a vehicle only within the scope of consent of the owner/insured. The important factor within the statutory omnibus provision is the use of the insured vehicle with express or implied permission. Once the named insured extends permission, either express or implied, the statutory provision does not provide for limitations on the scope of the permission which is granted.

      Because an insurance policy is a contract, basic rules of contract law apply to the determination of the rights and obligations of the parties. Under Oklahoma law, the interpretation of an insurance contract and whether it is ambiguous is determined by the court as a matter of law. Max True Plastering Co. v. United States Fidelity & Guar. Co., 1996 OK 28, 912 P.2d 861, 869; Dodson v. St. Paul Ins. Co., 1991 OK 24, 812 P.2d 372, 376. In interpreting an insurance contract, the terms of the contract, if unambiguous, are construed in their plain and ordinary sense. Littlefield v. State Farm Fire and Cas. Co., 1993 OK 102, 47 P.2d 65, 69. The court “will not make a better contract by altering a term for a party’s benefit.” Max True Plastering Co. v. United States Fidelity & Guar. Co., 1996 OK 28, 912 P.2d 861, 869. The court will “not indulge in forced or constrained interpretations to create and then to construe ambiguities,”id, “nor will any provision be taken out of context and narrowly focused upon to create and then construe an ambiguity so as to import a [more] favorable consideration to either party then that expressed in the contract.” State ex rel. Crawford v. Indemnity Underwriters Inc. Co., 1197 OK CIV APP 39, 943 P.2d 1099, 1101. However, “‘[if] the insurance policy language is doubtful and susceptible to two constructions, without resort to and following application of the rules of construction, then a genuine ambiguity exists, and the contract will be interpreted, consistent with the parties’ intentions, most favorably to the insured and against the insurance carrier.” American Cas. Co. of Reading, Penn. v. F.D.I.C., 958 F.2d 324, 326 (10th Cir. 1992) (quoting Dodson, 812 P.2d at 376-77 (footnotes omitted)).

      As noted, the duty to defend is contractual. An insurance company has a duty to defend its insured and settle claims in good faith. Christian v. American Home Assurance Co., 1977 OK 141, 577 P.2d 899. An insurer’s failure to defend the insured may give rise to an action against the insurer by the insured. Lewis v. Farmers Insurance Co., Inc., 1983 OK 100, 681 P.2d 67, 69.

    2. Fraud

      Fraud is used as a theory of liability in some cases where the policy does not afford coverage; that is, a plaintiff may argue under a promissory estoppel theory that the insurer is estopped to deny coverage. The essential elements of fraud are well settled. Varn v. Maloney, 516 P.2d 1328, 1332 (Okla. 1973). The person alleging fraud must show:

      • a material false representation,
      • made with knowledge of its falsity, or recklessly without knowledge of its falsity,
      • as a positive assertion,
      • with the intention that it be acted upon by another,
      • who does act in reliance thereon, to his injury.

      Id. As a general rule, for a false representation to be the basis of fraud, such representation must relate to facts which exist or which previously existed, and not to promises as to future acts. Citation Co. Realtors, Inc. v. Lyons, 610 P2d 788, 790 (Okla. 1980). An exception exists, however, where the promisee to act in the future is accompanied by an intention not to perform and the promise is made with the intent to deceive the promise into acting where he otherwise would not have done so. Id.

      Therefore,
      The gist of the rule is not the breach of promise by the fraudulent intent of the promisor at the time the pledge is made not to perform the promise so made and thereby deceive the promisee.
      Id. (Citation omitted; emphasis added).

      A claim of promissory fraud is based upon a promise by the defendant to act in the future where there is a present intention not to perform. Citation Co. Realtors, Inc. v. Lyons, 610 P.2d 788, 790 (Okla. 1990. As with any other claim of fraud, the plaintiff must prove the allegations of promissory fraud by clear and convincing evidence. Downtown Chevrolet Co. v. Niccum, 180 Okla. 616, 71 P.2d 957, 960 (1937) (“The law is well settled that fraud is never presumed, but must be proved by clear and convincing proof.”); Roberts v. Wells Fargo AG Credit Corp., 990 F.2d 1169, 1173 (10th Cir. 1993). Unless “facts are produced from which an irresistible deduction of fraud reasonably arises,” the claim may not be submitted to a jury. Silk v. Phillips Petroleum Co., 760 P.2d 174, 177 (Okla. 1988), quoting Johnson v. Caldwell, 180 Okla. 470, 71 P.2d 620, 623 (1937). If there is a choice in drawing inferences from the facts, the Court should not choose an imputation of fraud. Tyler v. Hartford Inc. Co., 195 Okla. 523, 159 P.2d 722 (1945) (“When a transaction is fairly susceptible of two constructions, the one which will free it from the imputation of fraud will be adopted.”); Weston v. Acme Tool Incorporated, 441 P.2d 959, 964 (Okla. 1968) (fraud cannot be inferred from facts which may be consistent with honesty of purpose).

      Despite the difficulties of establishing a cause of action based upon fraud, the courts have, in some circumstances, permitted a plaintiff to recover on the grounds of promissory estoppel. Estoppel cannot be used affirmatively to create coverage. Crown Life Ins. Co. v. McBride, 517 So.2d 660, 661 (Fla. 1987). However,, “promissory estoppel may be utilized to create insurance coverage when a refusal to do so would sanction fraud or other injustice, “ McBride at 662. “Such injustice may be found where the promisor reasonably should have expected that his affirmative representations would induce the promisee into action or forbearance, and where the promisee shoes that such reliance was to his detriment.” Emanuel v. United States Fidelity & Guaranty Co., 583 So.2d 1092, 1092 (Fla. 3d DCA 1991). See also, Crown Life Insurance Co. v. McBride, 517 So.2d 660, 662 (Fla. 1987) (promissory estoppel may be utilized to create insurance coverage in situations where refusing to do so would sanction fraud or other injustice).

      A clear and definite promise is a requisite element of promissory estoppel. A promise has been defined as a manifestation of intention to act or to refrain from action in a specific way which is made to justify a promisee in understanding that a commitment has been made. Restatement (Second) of Contracts § 2(1) (1981); see also 1 Richard A. Lord, Williston on contracts § 1:2 (4th ed.1990); 28 Am.Jur.2d Estoppel and Waiver § 55 (2000). Based upon the Restatement’s definition of promise, a “promise may be stated in words, either orally or in writing, or may be inferred wholly or partly from conduct....Both language and conduct are to be understood in the light of the circumstances.” State Bank of Standish v. Curry, 442 Mich. 76, 500 N.W.2d 104, 108 (1993) (citing Farber & Matheson, Beyond Promissory Estoppel: Contract law and the “Invisible Handshake,” 52 U. Chi. L.Rev. 903, 932 and n. 104 (1985)). Promissory estoppel provides relief for an “ ‘injury arising from actions or declarations which have been acted on in good faith and which would be inequitable to permit a party to retract.’ ” Davis v. Davis, 855 P.2d 342, 347-48 (Wyo.1993) (quoting Jankovsky v. Halladay Motors, 482 P.2d 129, 132 (Wyo.1971)). Conduct which is not specifically demonstrative of an intention respecting future conduct cannot serve as a foundation for a clear and definite promise. State Bank of Standish, 500 N.W.2d at 108.

      For example, in Doctors’ Company v. Insurance Corporation of America, 864 P.2d 1018 (Wyo.193), the insured successfully asserted promissory estoppel to preclude an insurer from denying coverage. The insurer’s retroactive coverage, without express exclusions, was an affirmative representation that coverage would be provided for the potential claim at issue. The insured, a doctor, had clearly and specifically informed the insurer, in his application for insurance coverage, of the circumstances surrounding a potential medical malpractice claim that could arise. The insurer subsequently issued a policy with retroactive coverage which did not exclude coverage for the potential claim. 864 P.2d at 1029-30. The claim was, therefore, covered under the theory of promissory estoppel.

      In some instances, it is an agent’s statements, at the time that the insurance coverage is purchased, which form the basis for a later claim of promissory estoppel. See, e.g., Fryar v. Employers Ins. Of Wausau, 94 N.M. 77, 81, 607 P.2d 615, 619 (1980) (apparently applying promissory estoppel to modify an insurance policy based upon the agent’s misrepresentations concerning the policy provisions).

      The Oklahoma Court of Appeals impliedly recognized a cause of action against an insurance agent for fraud in failing to procure insurance for a customer, in Swickey v. Silvey Companies, 979 P.2d 266(Okla. Civ. App. 1999), noting that “A fraud claim requires proof that: (1) that the defendant made a material representation; (2) that the representation was false; (3) that the representation was known to be false when it was made, or that it was made recklessly, as a positive assertion, without knowing whether it was true or false; (4) that the representation was made with the intention that it should be acted upon by the plaintiff; (5) that the plaintiff acted in reliance upon it; and (6) that plaintiff thereby suffered injury.” Porter v. Rott, 116 Okla. 3, 243 P. 160, 163 (1926), quoting from Wingare v. Render, 58 Okla. 656, 160 P. 614 syllabus (1916). The absence of any element is fatal. Id., see Cooper v. Gibson, 69 Okla. 195, 170 P. 220, 220 (1917).” Id. At ¶ 14. The evidence in Swickey, however, did not support a fraud-based cause of action.

    3. Negligence

      In the absence of a binding insurance contract, an insurer or its agent can be liable in some circumstances for the failure to procure insurance, or for obtaining a policy which did not cover the insured’s specific loss. The elements of a negligence claim have been described by the Oklahoma Supreme Court as follows: “(1) the existence of a duty of defendant’s part to protect plaintiff from injury; (2) violation of that duty; and (3) injury resulting therefrom.” Grover v. Superior Welding, Inc., 1995 OK 14, 893 P.2d 500, 502. Thus, “[t]he threshold question in any suit based on negligence is whether the defendant had a duty to the particular plaintiff alleged to have been harmed.” Id. [T]he existence of a duty depends upon the relationship between the parties and the general risks involved in the common undertaking. Whether a defendant stands in such relationship to a plaintiff that the law will impose upon the defendant an obligation of reasonable conduct for the benefit of the plaintiff is a question of law for the court. Wofford v. Eastern State Hosp., 1990 OK 77, 795 P.2d 516, 519. (Citation omitted).

      An insurance agent may be liable under either contract or tort theories for failure to obtain insurance. See A-OK Const., Inc. v. McEldowney, McWilliams, Deardeuff & Journey, Inc., 1992 OK CIV APP 66,¶ 7, 844 P.2d 182, 183-84, cert. denied. The court, in A-OK Construction, noted that the Supreme Court has recognized an agent’s potential liability for negligence in Dewees v. Cedarbaum, 1963 OK 54, 381 P.2d 830. The Court of Appeals has ruled that an insurance agent may be liable for breach of contract or in tort for failure to procure an insurance policy. Swickey v. Silvey Companies, 979 P.2d 266 (Okla. Civ. App. 1999):

      The contract theory of an insurance agent’s liability is often based on failure to obtain any insurance as promised, but may also consist of failure to obtain insurance as requested. In order to prevail on a claim for breach of contract to procure insurance, a plaintiff must show that the insurance agent agreed to procure insurance coverage effective as of a certain date and time, or of a certain breadth, and then failed to do so. See, e.g., Hause v. Schesel, 42 Wis.2d 628, 635, 167 N.W.2d 421, 424 (1969) (agent said coverage would be effective on certain date and time, but did not become effective until insurer received application and first premium two days later). The proposed insured’s agreement to pay premiums and accept delivery of the policy provides consideration in exchange for the agent’s promise to procure the insurance. Id.; see also Schuck v. Habicht, 672 So.2d 559, 562 (Fla.App.1996) (applicant’s agreement to accept a policy if issued is sufficient consideration for the contract since it carries with it the implied promise to pay whatever premium would be due thereon). The measure of damages for breach of contract to procure insurance is the amount which might have been recovered if the coverage had been procured as agreed. Mid-America Corp. v. Roach, 1966 OK 32, ¶ 8, 412 P.2d 188, 191.
      . . . .

      There remains, however, a duty on the part of Agency to exercise reasonable care and skill in performing its tasks, i.e. procuring insurance and making any necessary corrections or adjustments after a policy is issued. An agent has the duty to act in good faith and use reasonable care, skill and diligence in the procurement of insurance and an agent is liable to the insured if, by the agent’s fault, insurance is not procured as promised and the insured suffers a loss. Dewees v. Cedarbaum, supra; A-OK Consrtuction, supra; see also Coble v. Bowers, 1990 OK CIV APP 109, ¶ 12, 809 P.2d 69, 74, cert. denied (Brightmire, C.J., concurring in par, dissenting in part).
      Id. at ¶s 9, 13. The agent can be liable for negligence or for breach of contract as a result of his or her failure to procure insurance.

      The duty of an insurer in negligence and other types of cases arises from the fact that an insurer has a special relationship with its insured, because of the public nature of the insurance industry and the unequal bargaining powers of the parties, which gives rise to a legal requirement of good faith and fair dealing with its insureds. Christian v. American Home Assurance Co., 577 P.2d 899 (Okla. 1977). The insurer’s duties include an obligation not to unreasonably withhold payment of claims. Christian, 577 P.2d at 903. Insurance claims must be paid promptly unless the insurer has a reasonable belief that the claim is legally or factually insufficient. Buzzard v. Farmers Inc. Co., 824 P.2d 1105 (Okla. 1991). The decisive question is whether the insurer had a good-faith belief, at the time its performance was requested, that it had a justifiable reason for withholding payment under the policy. Id.

      Conversely, an insurer has the right not to pay a claim for which the insurer has a reasonable defense. Manis v. Hartford Fire Ins. Co., 681 P.2d 760, 761 (Okla. 1984). However, this reasonable defense may not be spun from thin air. Rather, the insurer is required to conduct an investigation reasonably appropriate under the circumstances. Buzzard, 824 P.2d at 1109. Excuses contrived after suit was filed are irrelevant. “The knowledge and belief of the insurer during the time period the claim is being reviewed is the focus of a bad-faith claim.” Id.

      A somewhat related theory in Oklahoma is the doctrine of “reasonable expectations.” Under the doctrine of reasonable expectations, if the insurer or its agent creates a reasonable expectation of coverage with the insured, which is not supported by policy language, the expectation will prevail over the language of the policy. Max True Plastering Co. v. USF&G, 1996 OK 28, 912 P.2d 861, 864. This theory applies in some cases where a policy is ambiguous and there are hidden exclusions masked by obscure or technical language, which the insurer uses to attempt to defeat coverage.

    4. Statutory Breach

      Oklahoma does not recognize a cause of action for violation of the insurance statutes. The Oklahoma Supreme Court has adopted the following three-pronged test for determining whether a public statute implies a private right of action. “First, the plaintiff must belong to that class for whose special benefit the statute was enacted and the class must be narrower than the public at large.” Walker v. Chouteau Lime Co., 849 P.2d 1085, 1086 (Okla. 1993) (quotations omitted). The determination of a special class is to be effected by a narrow construction. Second, the statute must either explicitly or implicitly give some indication that the legislature intended to create a private remedy rather than to deny one. This second prong is the central factor in the test; the other two prongs assist our search for the legislature’s intent. Finally, the private remedy must not be inconsistent with the underlying purposes of the legislative scheme. In Walker, the Supreme Court held there was no private right of action under Oklahoma Unfair Claim Settlement Practices Act, 36 O.S. §§ 1221-1228. This holding was affirmed in Gianfillippo v. Northland Cas. Co., 1993 OK 125, 861 P.2d 308.

    5. Damages to Consider

      1. Financial Losses
      2. Embarrassment and Loss of Reputation
      3. Mental Pain and Suffering
      4. Punitive Damages

      23 O.S. § 9.1 provides that a jury may award punitive damages if it finds, by clear and convincing evidence, that an insurer has recklessly disregarded its duty to deal fairly and act in good faith with its insured [§ 9.1(B)] or an insurer has intentionally and with malice breached said duty. § 9.1(C)(2). Punitive damages are only allowable under § 9.1 when, at a minimum, there is competent evidence of a reckless disregard by the defendant of the plaintiff’s rights from which malice and evil intent may be inferred.

  3. DEFENSES AVAILABLE

    1. Statute of Limitations

      A cause of action for breach of the duty of good faith and fair dealing (bad faith) is a tort. Therefore, the statute of limitations for such a cause of action is two (2) years from the date that the initial breach of that duty occurred. This defense is often not explained to clients, who present for depositions and through their own testimony, allow the insurance company to secure summary judgment based upon the statute of limitations.

    2. Legitimate Dispute

      If a legitimate dispute exists concerning the plaintiff’s claims, an insurance company cannot be liable for bad faith simply because a jury disagreed with the insurance company’s position, as long as the company’s defenses are legitimate. Manis v. Hartford Fire Ins. Co., 681 P.2d 760, 761 (Okla. 1984) However, if the court determines that sufficient facts were proven at trial that a reasonable person could differ as to whether the insurance company’s defenses were legitimate, a jury question will exist as to whether or not the insurance company breached its duty of good faith and fair dealing. Furthermore, the court may not allow an insurer to utilize defenses which it did not raise when it denied the claim, Buzzard v. Farmers Ins. Co. 824 P.2d 1105 (Okla. 1991).

    4. SUMMARY

    Bad faith litigation is not particularly complicated and is based upon the simple principals of fairness, which have been developed through case law, and specifically address the intricacies of various insurance claims and the manner in which those claims are adjusted by the insurance industry. However, experience in this area will best serve the needs of the insured when litigating against the experienced and well funded insurance industry.