Most people have a rough idea of what the term “bad faith” means. It brings to mind the notion of playing “dirty pool.” In maritime lawsuits, this can mean handling insurance claims in a manner which is not professional. I’ll provide a few examples, since this can cover a wide range of conduct. This issue of bad faith was raised in a recent case in Alabama.
The matter arose from the towing of a spud barge. The barge owner claimed damages against the towing company, based on negligence. The barge owner argued that refusal to pay the claim and delays with the claim were “unreasonable, negligent and/or in bad faith.”
The court denied the spud barge owner’s bad faith claim. This was because the barge owner was bringing a third-party claim against the towing company’s insurer/underwriter without first having obtained a judgment against them — something required under local law (Alabama Code § 27- 23-2). I won’t go into the relationships between everyone in the case because I want this brief discussion to be something of practical value to readers.
So, let’s get into the nuts and bolts. Here are a few examples of the type of conduct that could result in a bad faith claim: (1) Not honoring the terms of an insurance policy, (2) Unreasonably stalling the claims process, (3) Making unnecessarily burdensome requests for information, (4) Denying straightforward claims for no justifiable reason, (5) Making extreme lowball offers, (6) Not properly investigating a claim, (7) Deceit, in terms of not being honest about the policy, and (8) Intimidation, such as threats of bringing legal action, filing formal complaints, or launching unjustified investigations.
It's important to keep in mind that bad faith doesn’t mean the insurance carrier can’t play hardball. They often do, which explains why disputes make their way into federal court. The insurance carrier doesn’t have to act like a friend, nor is there an obligation for it to be generous. In all fairness to the insurance industry, human nature being what it is requires insurance carriers to treat claims as suspect until all facts are verified. It’s just that bad faith means going beyond acceptable cautionary measures.
Ref: River Assets, LLC, v. Knight Towing, U.S. Specialty Insurance Company and CULL, LLC; 1:23-cv-00106-TFM-C, 01-11-2024
