The standard for establishing bad faith by insurers was set nearly three decades ago when the Ohio Supreme Court ruled in Zoppo v. Homestead Insurance Co. The high court set the “reasonable justification” standard in that 1994 ruling, which declared that bad faith was evident if there was no reasonable justification for an insurer to adjust or deny a claim.
While the standard has remained unchanged all these years later, challenges to insurer adjustments and denials remain an everyday occurrence. These bad faith claims can be a headache for insurance companies, but there are several recommended best practices that can help when a claim is filed.
First, insurers and their lawyers can ask the trial court to bifurcate and stay the bad faith claim. Many times, bad faith claims accompany a lawsuit filed seeking declaratory judgment or breach of contract claiming the insurer owes coverage that was wrongfully denied. By asking for these claims to be split and for the court to stay the bad faith claim, we can get the court to first rule on whether the insurer’s coverage decision was correct.
Just as important, insurers should consider the plaintiff’s timing and/or access to files kept by the insurer and/or its lawyers. Why should a plaintiff be provided broader access if the insurer’s decision was correct? This timeout can potentially head off that broader access.
If that strategy doesn’t work, the plaintiff’s lawyers likely will proceed with a broader discovery request that includes things such as the insurer’s claim files, and the files of the insurance company’s lawyers. These files are typically considered prepared in anticipation of litigation, work product and/or privileged because they may include the mental impressions of counsel and other sensitive information.
Insurers aren’t entirely defenseless here. In Ohio, there is precedent for only allowing discovery of attorney-client records from before the date the lawsuit was filed. So, even if the court allows a lookback, the filing date is the absolute cutoff mark for discovery.
Even those records open to discovery can be challenged if it can be shown they fall under the attorney-client or work product privileges. This can be done by asking the court to perform an in-camera inspection of the records in question so it can determine if they are protected under the shield of privilege. Under privilege law, the court may order certain pages to be redacted, and a log to be provided to show what records were held back.
These steps are critical in attempting to push back against the plaintiff’s narrative that the insurance company did not have reasonable justification to deny the claim. They want to establish that the outcome was predetermined or that the decision was made in haste without proper support. They’ll be looking for records showing what facts the insurer relied upon, whom they interviewed, and what the advice of counsel was.
Good record-keeping and communication also are important once a bad faith claim is filed. Files should be documented, there should be communication between the insurer and its insured a minimum of every two weeks, and the company and its adjusters should be aware of Ohio’s unfair claims settlement practices. Rule 3901-1-54 of the Ohio Administrative Code sets the baseline for the investigation and disposition of property and casualty claims arising under insurance contracts or certificates issued to residents of Ohio.
Ultimately, if an insurer can show it has followed a consistent process in assessing claims, that uniformity will go a long way in demonstrating they are operating in good – and not bad – faith.
Written by Isaac Wiles partner Sam Pipino, who chairs the firm’s litigation practice group.