(USA Herald) - As reporter for the USA Herald, Samuel Lopez delves into the recent developments in the world of insurance bad faith and what it means for insurers. In the case of Security National Ins. Co. v. Construction Associates of Spokane, a Washington federal court found that an insurer had breached its duty to defend a party as an additional insured and that its conduct amounted to bad faith.

The court pointed out that the adjuster had not considered a relatively recent Washington Supreme Court opinion that dictated that a defense was, in fact, owed. In T-Mobile USA, Inc. v. Selective Ins. Co. of Am., the court held that the insurer was bound by the representation of its authorized agent in a Certificate of Insurance that an organization was an additional insured, even though the Certificate said that it could not be used to expand coverage beyond that provided in the insurance policy. Before this decision, case law dictated that a Certificate of Insurance could not expand coverage provided by the insurance policy. The court characterized the overlooked decision as a “blockbuster” for coverage law.

In its defense, the insurer argued that the adjuster could not be expected to know the law and perform legal research. However, the court disagreed, stating that this argument was not enough for it to excuse the lack of a reasonable investigation. The court added that insurance companies must undertake what in practice are reasonably small steps to ensure adjusters are equipped to make reasonable coverage and defense determinations.

This was not the only case that recently expanded an insurer’s bad faith exposure. In Erika McNamara vs. GEICO, the U.S. 11th Circuit Court of Appeals found that its 2019 opinion in Cawthorn vs. Auto-Owners Insurance Co. relied on by the lower federal court and state courts to bar some bad-faith claims was in error. The court held that Cawthorn misinterpreted Florida law and that a consent judgment can, in fact, qualify for excess judgment status.

These cases are a wake-up call for insurance companies to ensure that their adjusters are equipped to make reasonable coverage and defense determinations, or else face potential bad faith exposure. Insurers should also anticipate an increase of litigation generated by the “New Jersey Insurance Fair Conduct Act” (“IFCA”) which creates a statutory, individual cause of action for insurance bad faith in the handling and payment of claims for uninsured motorist/under-insured motorist ("UM/UIM") benefits.

The bottom line is that insurance companies must be proactive in ensuring they are up-to-date with the latest legal developments to avoid bad faith exposures and potential lawsuits.