The landmark bad faith verdict noted in Whopping Bad Faith Verdict Caused By Insurers Hiring the Policyholder’s Expert, has been upheld by the trial judge. The court’s opinion involving Indiana GRQ, LLC and seven insurance companies, delved into the intricacies of insurance law, particularly the concept of bad faith under Indiana law. 1 This case, arising from flood-induced damages to a commercial facility in South Bend, highlights significant legal principles and provides an exemplary case study on the application and consequences of bad faith conduct during a commercial property insurance loss.
Indiana GRQ is the owner of a commercially leased tenant and warehouse space. It faced a catastrophic event when its facility was significantly damaged by flooding, setting a new record for rainfall in South Bend. The initial response by the insurers involved payments of approximately $2.68 million against the owner’s claims, which exceeded $24 million. However, the insurers eventually denied further coverage, leading to a legal battle over the claims and the nature of the insurers’ conduct during the claims process.
After an eight-day trial, the jury delivered a verdict that found all seven insurance companies—American Guarantee and Liability Insurance Company, Starr Surplus Lines Insurance Company, Chubb Custom Insurance Company, General Security Indemnity Company of Arizona, Axis Surplus Insurance Company, Ironshore Specialty Insurance Company, and Interstate Fire & Casualty Company—liable for breaching their insurance policies. More critically, the jury found that all the insurers had acted in bad faith, leading to an award of over $112 million.
The court’s findings referenced several aspects of bad faith, which included:
Systematic Understaffing: The insurers were found to have deliberately understaffed their claims processing departments, significantly delaying the handling and resolution of claims. This tactic not only hindered the prompt assessment and payment of claims but also placed undue stress on the insured, contravening the insurers’ duty to handle claims with good faith and fair dealing.
Misrepresentation and Information Withholding: Throughout the claims process, the insurers misrepresented the extent of damages and necessary remediation. They also withheld critical information that could have influenced the outcome of the claim resolution, particularly regarding the environmental impact and contamination assessments.
Manipulation of Expert Opinions: This was the highlight of the misconduct. The insurers manipulated and co-opted expert opinions, particularly that of Jeff Pope, a consultant initially representing Indiana GRQ. Over time, insurers influenced Pope to align with their interests, which significantly undermined the insured’s position and ability to claim objectively assessed damages.
Inadequate Investigation: The insurers failed to conduct a proper and timely investigation of the claim, a fundamental duty in insurance practice. This failure not only delayed the claims process but also contributed to the inaccurate assessment of damages, further violating the principle of good faith.
Failure to Settle Fairly: Despite clear evidence supporting the insured’s claims, the insurers employed strategies designed to minimize payouts and coerce the insured into accepting less favorable settlements, a direct breach of the duty of good faith and fair dealing.
The punitive damages awarded were based on the systemic and intentional nature of the insurer’s bad faith actions, aimed at protecting their financial interests at the cost of fulfilling their contractual and legal obligations to the insured. The court’s opinion stated in part:
The conduct of these insurers vis-à-vis Jeff Pope was disturbing, and the jury reasonably viewed it just so in awarding punitive damages against each insurer. At the close of IRG’s case-in-chief, all insurers sought judgment as a matter of law under Rule 50(a), arguing that the evidence did not support the company’s bad faith claim. The court denied the motion, summarizing the evidence and concluding that IRG presented more than enough evidence for a reasonable jury to find bad faith….
… Indiana law has long recognized a legal duty, implied in all insurance contracts, for the insurer to deal in good faith with its insured. IRG was required to prove by clear and convincing evidence (1) that there was no legitimate basis for an insurer’s conduct, (2) that the insurer acted with dishonest purpose, furtive design, or ill will, and (3) that the insurer’s conduct was a responsible cause of damages to IRG. See WellPoint, Inc. v. Nat’l Union Fire Ins. Co., 29 N.E.3d 716, 727 (Ind. 2015)…
A reasonable jury could find that something by way of a furtive design or dishonest purpose occurred soon thereafter by the insurers in early 2017 when they used him as their counter-agent, and later culminated in Mr. Pope becoming a turncoat consultant to work with the insurers by November 2018 (when he signed a contract with them about this same project), and reasonably without Mr. Pope seeing that his allegiances had been so turned. Despite elevated PCB levels, Mr. Pope’s proposed plan to IRG was ‘presumed to be PCB-impacted, non-TSCA waste (below 50 mg/kg) and shall be managed accordingly until it can be properly characterized for disposal’. The burning question is why.
Just a month after his proposed remediation plan, on April 27, 2017, McLarens submitted another report to the insurers (No. 5)—this time surreptitiously listing Mr. Pope as part of the adjustment team rather than as a representative of the insured. On July 25, Mr. Thoman emailed Mr. Pope about his ‘concern[] with separating pumping in the tunnels due to PCB issues vs. pumping due to PCB issues in the ground water’. He asked Mr. Pope to be ‘very clear to keep these separate’ in his upcoming meeting with the Indiana Department of Environmental Management (IDEM). He also said he expected that IDEM would ‘continue[] to insist on pumping due to ground water even when the tunnels are clean’ and that ‘we need to move fast to distance ourselves from it and protect the insurers’ The insurers offered no innocent explanation for why their representative was directing the conduct and strategy of a consultant retained to act on behalf of IRG. Notably, no one from IRG was copied on this communication.
… The insurers offered no innocent explanation, not one a reasonable jury had to accept, for their furtive conduct. No evidence was presented that this direction or strategy for IRG’s retained consultant was communicated with IRG, much less approved.
…
On this record, a reasonable jury could find that directing IRG’s consultant to work against the company’s interests on remediation during the course of adjustment and when his interests were supposed to align with IRG, but also later hiring that very consultant who once worked for IRG on this same issue of remediation now to undermine the company’s efforts for additional remediation or coverage, were in bad faith—an exercise of an unfair advantage over the insured with a furtive or dishonest design to protect the insurers (not the insured), pressure the insured toward a settlement, to elude TSCA-related decontamination obligations, and ultimately to deny coverage.
It should be noted that McLarens was the independent adjusting firm working for the insurers. McLarens was founded in Scotland as McLaren Dick & Co. Ltd. in 1932. McLarens website notes the following:
McLarens is a global claims and professional technical services provider that helps our clients achieve timely and equitable claims resolution. Headquartered in Atlanta, Georgia, USA, McLarens has over 230 offices around the world with more than 2,100 full-time employees.
Absent a settlement, this case is certain to be appealed. The outcome of the trial and the judge’s opinion should have profound implications for the insurance claims industry. It serves as a stern warning about the legal repercussions of failing to act in good faith. It emphasizes the need for insurers to adhere strictly to ethical claims standards and to always put the interests of the policyholder before their own. Perhaps those insurers and adjusters should contemplate the claims handling rules of the road noted in What Are the Good Faith Claims Handling Rules Insurance Companies Must Follow? Adjusters Must Do These or Be Guilty of Bad Faith.
Thought For The Day
You must take personal responsibility. You cannot change the circumstances, the seasons, or the wind, but you can change yourself. That is something you have charge of.
—John C. Maxwell
1 Indiana GRQ, LLC v. American Guarantee and Liability Ins. Co., No. 3:21-cv-227 (N.D. Ind. Mar. 22, 2024).
