What is the burden of proof?
In most jurisdictions that allow such a claim, the case resounds in tort. Thus, the standard burden of proof applies: duty, breach of duty, causation and damages. Today we will focus on the third element – causation.
How is this proven? Courts differ in specifics, but all agree that an excess carrier must show that the claimed damages are proximately caused by the primary’s bad faith acts. Westchester Fire Ins. Co. v. Mid-Continent Cas. Co., 13-12932, 2014 WL 2766764 (11th Cir. June 19, 2014). A bad faith plaintiff must be able to show that the insurer caused it to lose the opportunity to settle the case for an amount within the primary policy’s limits or for a reasonable amount less than the ultimate verdict or settlement. See, e.g. Scottsdale Ins. Co. v. Indian Harbor Ins. Co., 12 CIV. 2632 PAE, 2014 WL 185597 (S.D.N.Y. Jan. 16, 2014).
What does this mean? We can look to case law for further direction. In Westchester, supra, for example, the 11th Circuit very recently overturned a district court decision which found originally that the primary insurer did act in bad faith for failing to consider reasonable settlement offers both before and during trial on the underlying claim. The district court awarded damages to the excess carrier in the amount that the excess carrier would have saved if the primary carrier had accepted the post-verdict settlement offer.
The 11th Circuit disagreed. It found that there was no evidence that the excess carrier did, or even would have, encouraged the primary to accept ANY settlement offer. In other words, absent proof that the excess carrier demanded that the settlement be had, and that this refusal to settle was indeed bad faith, there is no proof of causation in order to recover on a bad faith claim.
The Scottsdale case is also illustrative. There, the court did find that there was sufficient evidence of causation. The primary insurer disregarded the excess insurer’s express demand that the case be settled for an explicit sum. So instead of just demanding settlement, the excess carrier demanded that it be settled for a specific amount – which we will see ultimately helped their case. As a result, the court found sufficient evidence of bad faith.
In opposition, the insurance company argued that there was inconclusive proof that the underlying plaintiff would have even accepted the initial settlement. Such evidence, it argued, is rank speculation. The court disagreed. It stated that a “plaintiff’s expressed willingness to settle for the policy limits is one way, but not the only way, to show that an actual opportunity to
settle existed.” The totality of circumstances in the lawsuit and the actions of the insurance company is also relevant to show causation. Id.
An excess insurer must prove causation in order to recover on a bad faith claim.
Proof should consist of an express demand made to the primary carrier.
The demand should include a specific, recommended sum for settlement, and support for why that sum is a reasonable amount.