Recent court decision expands insurers’ bad faith exposure, leaving them vulnerable to lawsuits


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.

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