‘Bama Bad Faith – An Alabama Case Evaluates a Number of Bad Faith Issues, Part 3

In my post three weeks ago, I addressed the factual background in the Supreme Court of Alabama’s opinion on the bad faith case Jones v. Alfa Mutual Ins. Co., 1 So.3d 23 (2008). Last week  I wrote about the issue of whether the Insureds timely filed their Complaint. This week, I am writing about whether there was a genuine issue of material fact regarding the basis for the Insureds’ bad-faith claims.

The Insureds’ Complaint against Alfa contained a “normal” bad-faith claim and an “abnormal” bad-faith claim. The Alabama Supreme Court relied upon its definition of both “normal” and “abnormal” bad faith in the following manner:

In the “normal” bad-faith case, the plaintiff must show the absence of any reasonably legitimate or arguable reason for denial of a claim [citation omitted]. In the “abnormal” case, bad faith can consist of: 1) intentional or reckless failure to investigate a claim, 2) intentional or reckless failure to properly subject a claim to a cognitive evaluation or review, 3) the manufacture of a debatable reason to deny a claim, or 4) reliance on an ambiguous portion of a policy as a lawful basis for denying a claim.

Bad faith … is not simply bad judgment or negligence. It imports a dishonest purpose and means a breach of a known duty, i.e., good faith and fair dealing, through some motive of self-interest or ill will.

In order to recover on a “normal” bad-faith claim, the plaintiff must prove:

(1) the existence of an insurance contract; (2) an intentional refusal to pay the claim; and (3) the absence of any lawful basis for refusal and the insurer’s knowledge of that fact or the insurer’s intentional failure to determine whether there is any lawful basis for its refusal. [citation omitted] For a ‘normal’ bad-faith claim to be submitted to the jury, the underlying contract claim must be so strong that the plaintiff would be entitled to a preverdict judgment as a matter of law.

The Alabama Supreme Court distinguished “abnormal” cases as those that dispensed with the predicate of a pre-verdict judgment as a matter of law for the plaintiff on a contract claim if the insurer recklessly or intentionally failed to properly investigate a claim or subject the results of its investigation to a cognitive evaluation.

The Court went on to analyze if and how “normal” and “abnormal” bad faith claims played a role in Jones v. Alfa Mutual Insurance Company. I will write about those issues next week.

Please tune in next week for a continued evaluation of this case.