BAD FAITH INSURANCE ALERT: Louisiana Courts Weigh In on Bad Faith Claims Involving Suspicious Thefts
Insureds do not present fraudulent claims and then simply admit to it during the claim adjustment. Thus, insurers often find themselves in the uncomfortable dilemma of denying payment on a suspicious claim and risking bad faith penalties, or paying a questionable claim in order to avoid bad faith. Two courts in Louisiana offer encouraging news with decisions in auto theft cases that hold unless the facts suggest a “clear cut theft or loss” and the insurer lacks a reasonable basis to investigate and defend the claim, there is no bad faith on the part of the insurer.
David Strauss and Brent Burns, who handled both of the cases in question for Louisiana’s largest insurer, say the key to their successful motions for summary judgment was showing that the decision to investigate/deny the claims was supported by facts. Facts that can aid in this line of argument may include:
- Expert reports
- Inconsistent statements
- Lack of forced entry evidence
- Financial motive
- Insured’s resistance of cooperation
In Johnson v. State Farm Mutual Automobile Insurance Company, 2012 WL 1745497 (E.D.La. 2012), the United States District Court for the Eastern District of Louisiana held that bad faith damages are not recoverable in auto theft claim cases unless the facts suggest a “clear cut theft or loss of a vehicle,” and that the plaintiffs must come forward with specific facts showing the insurer lacked a reasonable basis to investigate and defend against the auto theft claim rather than to “simply pay the claim without question.” Significantly, in granting summary dismissal in this case, the court noted that State Farm had based its decision on the following facts which as a matter of law demonstrated the claim denial was reasonable:
The BMW was discovered burned in a rural area shortly after it was reported stolen and it was not stripped of any major component parts other than the wheels. Plaintiffs allegedly provided inconsistent statements with respect to the facts and circumstances before and after the alleged theft. ARC Forensics’ expert examination of the vehicle further revealed that the vehicle could only move under its own power with a properly programmed key and plaintiffs confirmed that they had the only two properly programmed keys for the vehicle. There was no evidence of forced entry and plaintiffs denied hearing any car alarms, breaking glass, squealing tires, or tow trucks despite the fact that the vehicle was stolen from just outside of their bedroom window.
Likewise, in the unpublished opinion Jefferey v. State Farm (Case No. 687343, Division N, 24th Judicial District Court for the Parish of Jefferson), the state district court granted a similar motion and dismissed an insured’s bad faith claims due to many of the same sort of suspicious circumstances. In this case:
- The plaintiff and plaintiff’s daughter provided inconsistent stories as to who discovered the purported theft
- The forensic report noted no forced entry and a vehicle fire intentionally set using flammable liquid gasoline
- The police report indicated the vehicle was not stripped of any component parts – why steal a vehicle just to drive it to a remote location and burn it?
- The insured claimed she did not hear any vehicle alarm despite a state-of-the-art anti-theft security system
- It was impossible the vehicle was last operated by anything other than the use of the factory keys, and the insured was in possession of those keys at all times before and after the purported theft, and provided those keys to the insurer
In addition to the above facts, Strauss and Burns argued on behalf of State Farm that the plaintiff’s refusal to submit to a timely requested examination under oath prior to filing the lawsuit as provided for by the terms of the insuring agreement was an independent reasonable basis to investigate and defend against the claim rather than to “simply pay the claim without question.” The court agreed that State Farm’s decision to investigate the claim was not arbitrary and capricious and therefore cannot, as a matter of law, support a claim for bad faith.
Insurance professionals should take care to be sure that decisions to investigate and/or deny claims are supported by facts such as expert reports, inconsistent statements, financial motive, and/or the insured’s resistance to cooperation. When these facts can be proven in a Louisiana court, summary dismissal of the bad faith claim is warranted unless the plaintiff comes forward with competent evidence to the contrary.