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Birmingham Bar Association Spring 2014

appeal pursuant to Rule 5, Ala. R. App. P., the trial court further observed that “it appears to be settled law that for a plaintiff to survive a motion for summary judgment on a ‘normal’ bad faith claim, his underlying breach of contract claim must be so strong that he would be entitled to a preverdict judgment as a matter of law.” Id.1 The trial court denied summary judgment on the “abnormal” bad faith failure to investigate claim stating, in part, as follows: “The Court cannot say with a reasonable degree of certainty, based on the record before it, that State Farm has carried its burden to make a prima facie showing that it marshaled all the facts necessary for it to make a good faith coverage determination as to Brechbill’s interior damage claim . . . .” Id. In the order denying State Farm’s request for permissive appeal, the trial court elaborated on the “distinction between the predicates for getting a ‘normal’ versus an ‘abnormal’ bad faith claim to a jury” and concluded “in ‘abnormal bad faith’ cases, however, the predicate of a preverdict judgment as a matter of law on the plaintiff ’s breach of contract claim is not required.” Id. at *7. 2 At trial, the jury returned a verdict for Brechbill and awarded him $150,000 on the breach of contract claim and $150,000 on the”abnormal” bad faith failure to investigate claim. State Farm’s post-verdict motions were denied, and State Farm appealed the adverse judgment on the “abnormal” bad faith claim. Id. The Alabama Supreme Court reversed the judgment on the “abnormal” bad faith failure to investigate claim. Id. at *11. On Friday, January 17, 2014, the Alabama Supreme Court overruled the application for rehearing. The Alabama Supreme Court’s Analysis The Alabama Supreme Court framed the issue on appeal as follows: “Whether the trial court, after finding that State Farm had a reasonably legitimate or arguable reason for refusing to pay Brechbill’s claim at the time of the August 7, 2008 denial, erroneously denied State Farm’s motion for a judgment as a matter of law on Brechbill’s claim of “abnormal” bad faith failure to investigate . . . .” Id. at *8. The Supreme Court first addressed whether there was a single tort of bad faith or whether there were two separate torts – one for bad faith refusal to pay and one for bad faith refusal to investigate. The Brechbill court held that “there is only one tort of bad-faith refusal to pay a claim, not two ‘types’ of bad faith or two separate torts.” Id. at *9 (emphasis in original). In its ruling in this regard, the Court traced the tort of bad faith to its root in Chavers v. National SEC Fire & Cas. Co., 405 So. 2d 1 (Ala. 1981). The Supreme Court reaffirmed the elements of this single tort: This tort has four elements plus a conditional fifth element, as follows: (a) an insurance contract between the parties and a breach thereof by the defendant; (b) an intentional refusal to pay the insured’s claim; (c) the absence of any reasonably legitimate or arguable reason for that refusal (the absence of a debatable reason); (d) the insurer’s actual knowledge of the absence of any legitimate or arguable reason; TOrt Law (e) if the intentional failure to determine the existence of a lawful basis is relied upon, the plaintiff must prove the insurer’s intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim. Id.3 In addition to finding that there is only one tort of bad faith, the Court also held that “regardless of whether the claim is a bad faith refusal to pay or a bad faith failure to investigate, the tort of bad faith requires proof of the third element, absence of a legitimate reason for denial . . . .” Id. at 9.4 The Court specifically held that “the existence of an insurer’s lawful basis for denying a claim is a sufficient condition for defeating a claim that relies upon the fifth element of the insurer’s intentional or reckless failure to investigate.” Id. at *10 (emphasis in original).5 The Alabama Supreme Court distinguished the Jones case upon which the trial court had relied.6 In Jones, as the trial court had done in Brechbill, the Supreme Court affirmed summary judgment on the bad faith refusal to pay claim but found that there was a jury question on the bad faith refusal to investigate claim. The Brechbill court held that, in Jones, “evidence for the insurer’s denial was gathered after the denial was made, whereas here a debatable reason for State Farm’s denials existed at the time of the denials.” Id. at *11 (emphasis in original). Recognizing Brechbill’s complaints regarding the sufficiency of State Farm’s investigation, the Court stated that “perfection is not the standard here. ‘Alabama law is clear: . . . regardless of the imperfections of the insurer’s investigation, the existence of a debatable reason for denying the claim at the time the claim was denied defeats a bad faith failure to pay the claim.’” Id. (emphasis in original).7 Birmingham Bar Bulletin/ Spring 2014 23


Birmingham Bar Association Spring 2014
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