"bad faith" or just flat stupid – the issue at the heart of McIntosh

While some, with no room to talk I might add, have made light of my comment about there being another side to the story of the surprising Motion to dismiss the extra-contractual claims in McIntosh.  There definitely is another side as no one folded and slipped away, at least not in McIntosh.

Judge Senter’s order made it official and Merlin himself has confirmed what reader Beau suggested and Sop defined in terms of Fifth Circuit’s decision in Broussard – the contractual claim remains. Anita Lee had that story, of course.

Pre-trial investigation, the McIntoshes’ attorneys now say, shows State Farm “had a reasonable basis for taking the position it did regarding coverage.” The only issue remaining is whether State Farm breached its contract with the McIntoshes by failing to pay what was owed under the policy and any damages that would be owed as a result.

Merlin also told Lee he would be very hesitant for people outside the lawsuit to try to read too much into what it means when parties dismiss causes of action or take other actions within this lawsuit. Of course, that hasn’t discouraged commenters declaring the McIntosh motion an all out victory for State Farm and kiss of death for other cases.  Thankgod for those like researcher in the blogosphere – else we slabbies, as the gabbies call us, would have to go it alone.

…stopped following the case once Scruggs and friends were out of it, but a lot of motions and rulings have narrowed the focus of the case. Senter had already ruled that the acceptance of the flood payment by the McIntoshes constitutes an admission of at least $250k/$100k flood damage, so that part of the motion is just acknowledging the record in the case. Previously the Rigsbys and any evidence that came from them had been disqualified, and almost any other possible evidence except the contractual dispute would not be allowed. There really was nothing left in play except the dispute over how much wind damage there had been. (emphasis mine)

Sop, an early bird to my night owl lifestyle, missed all last night’s excitement; but, put his CPA reasoning on it first thing this morning and came up with a total pointing to the Fifth Circuit’s decision in Broussard given all the exclusions we’ve been reporting on SLABBED.

First, for all you condescending-Katy-read-your-policy thinking folks, the policy State Farm issued to McIntosh was a pretty easy read.  The Complaint filed in the case summarizes the coverage they purchased.

• This broad “all risk” coverage includes coverage for loss proximately and efficiently caused by hurricane wind as well as for objects driven by the hurricane wind.

• In the late 1990’s, State Farm…charged…an increased premium to ensure insurance coverage for any and all damage to his insured dwelling and other property caused by a hurricane.

• The subject policy also provides coverage for “accidental direct physical loss” to Plaintiffs’ “Personal Property” proximately and efficiently caused by hurricane wind, stating as…when the direct force of wind or hail damages the building causing an opening in a roof or wall and the rain, snow, sleet, sand or dust enters through the opening.

McIntosh trusted State Farm coverage to protect their investment of $1,146, 260 in the home and personal property.  Using the information State Farm comissioned Haag Engineering to provide as guidance for adjusting wind/water claims to allcoate wind/water damage, State Farm attributed $36,288.67 to wind damage – a whopping 3% of the insured value due.

The adjuster was Kerri Rigsby who has been excluded as a witness although she has given testimony that she adjusted the claim before she discovered the fraud in claims handling alleged in the qui tam complaint and the two different engineering reports that were an element in the alleged fraud.

Adding an insurmountable problem with the extra-contractual claim in light of the restrictions placed and/or granted by Judge Senter was the Fifth Circuit’s decision in Broussard.

To recover punitive damages for bad faith denial of their insurance claim, the Broussards “must show that the insurer denied the claim (1) without an arguable or legitimate basis, either in fact or law, and (2) with malice or gross negligence in disregard of the insured’s rights.”

State Farm had an arguable basis for denying their claim based on the observations of its adjuster… Although it is a much closer question, we also hold that State Farm is not liable for punitive damages for continuing to withhold payment under the policy after its expert opined that some covered wind damage likely occurred prior to the arrival of the storm surge.

In other words, under Broussard, the payment of a pittance on an adjusted claim is enough to escape punitive damage and McIntosh had no choice but to drop the extra-contractual claims.

One noted insurance lawyer commenting on the Broussard decision expressed concern about the effect of improperly reasoned decisions on future events.

At trial, the policy holder merely proves that an all risk policy existed, physical damage occurred, and give evidence of a dollar amount of damage to prove a prima facie case of entitlement to benefits. The insurer then has the sole responsibility to prove that the loss was caused by something excluded…

Faced with the dilemma of paying for hundreds, if not thousands, of “slab” homes, upper management of State Farm made a new claims standard known as the “wind/water protocol.” In short, it stated that in absence of physical evidence demonstrating wind damage, the claim should be denied. Since slab cases had no physical evidence remaining, the entirety of those claims were denied.

Unfortunately for many along the Mississippi Gulf Coast, other insurers, but not all, followed the example of the industry leader. State Farm and many other carriers started denying claims en masse approximately six weeks after the storm.

Many of these denials were based on simple and quick field observations by the claims representatives following “marching orders” from home office executives. Indeed, since many engineering reports undermined the analytical basis for complete denial, many companies ordered engineering investigations stopped.

The noted insurance lawyer commenting on Broussard was Chip Merlin who, unlike others, doesn’t let his opinion of Scruggs color his understanding of the law when the case is McIntosh and not Broussard – quoted by Sop back in April here on Slabbed.

Bottom line. At some point, if not the McIntosh case, a jury will decide whether State Farm acts in bad faith when it pays a pittance of what its legally obligated to pay in order to circumvent claims of punitive damage and whether it constitutes fraud; or, if the company is just too flat stupid to read and honor the policies it sells.