Insurer May Be Liable for Bad Faith in Connection With its Subrogation Investigation -- Despite Paying Policy Limits to Insured
September, 2004
Plaintiff’s allegations that its property insurer misrepresented that it was pursuing a subrogation investigation against the manufacturer of a clothes dryer believed to be the cause of a fire in the insured’s home, when in fact the insurer had stopped its investigation ten days after the fire, presented a triable issue of fact regarding the insurer’s liability for tortious bad faith, the New Hampshire Supreme Court recently held.
Facts
In Bennett v. ITT Hartford Group, Inc., 846 S.E.2d 560 (N.H. 2004), the insured’s home and personal belongings were destroyed by fire. The insurer paid its $1 million policy limits for damage to the home, $700,000 for loss of personal property and $200,000 for additional living expenses. The insured also sustained large uninsured losses because a collection of antique automobiles and motorcycles was lost in the fire.
Immediately after the fire, Hartford’s investigators conducted a “limited” fire scene investigation, focusing on the insured’s General Electric clothes dryer as the probable cause of the fire.
The investigator did not conduct any further investigation and did not make any effort to contact GE. The dryer was taken into evidence storage.
The insured eventually brought a suit against General Electric, which was settled.
The insured brought an action against Hartford for contract and tort claims alleging misrepresentation, spoliation of evidence, negligence and breach of the covenant of good faith and fair dealing. At the heart of the complaint was an allegation that Hartford told the insured for three years that it was conducting an active investigation of the cause of the fire and pursuing subrogation against GE, and forbade the insured from conducting any investigation of its own, when in fact it was not.
Analysis
The trial court granted Hartford’s motion for summary judgment, finding that Hartford “completely fulfilled its obligations” under the terms of the insurance policy when it paid the claim. On appeal, the New Hampshire Supreme Court reversed, finding that under certain circumstances, full payment of the policy limits does not satisfy the contractual obligation of good faith; and, the damages recoverable for an insurer’s breach of good faith and fair dealing may exceed the amount the insurer would have had to pay in the performance of the contract. If, as alleged, Hartford did not exercise reasonable care in its investigation of the GE dryer and its relationship to the fire, it could injure the insured by hindering his ability to gather evidence and pursue an independent claim against GE, the Court held.
If it is proved that Hartford maintained for three years that it was pursuing subrogation and told its insured it could not investigate, when in fact Hartford had abandoned its subrogation investigation, Hartford breached a duty of good faith owed to its insured separate from any duty of good faith owed under the contract, the Court said.
Learning Point:
An insurer that undertakes a subrogation investigation after a loss, and tells its insured it cannot investigate on his own, should advise its insured if it subsequently decides to drop the investigation, particularly if the abandonment is shortly after the loss. Otherwise, the insurer may be liable for bad faith for having impaired the insured’s ability to gather evidence and pursue an independent action against the party allegedly responsible for the loss.
Back to CM Report of Recent Decisions (2004v3) 2004 Volume 3 Table of Contents
