Working RE Magazine: Home Inspector Edition reports on KJD's Missoula jury verdict against a Montana home inspection service.
Bad Faith: Misrepresentation & Failure to Investigate Claims Under the Montana Unfair Trade Practices Act.
“The essence of a claim under § 33-18-201, MCA, is that an insurer, given information available to it, has acted unreasonably in adjusting a claim, perhaps by failing to investigate, failing to communicate or failing to negotiate in good faith.” Peterson v. Doctors’ Co., 2007 MT 264, ¶ 43, 339 Mont. 354, 170 P.3d 459. The relevant issue is “almost universally” how the insurer acted given the information available to it at the time. Id.
a. Subsection (1) Claims.
Subsection (1) of § 33-18-201 forbids the misrepresentation of “pertinent facts or insurance policy provisions relating to coverages at issue.” Lorang, ¶ 125. Though subsection (1) references “coverages,” it also forbids the misrepresentation of facts relating to the “claim” at issue. Jacobsen v. Allstate Ins. Co., 2009 MT 248, ¶ 47, 351 Mont. 464, 215 P.3d 649. Further, it does not require a showing of intent but rather categorically forbids misrepresentations: “[A] claim of misrepresentation under the UTPA is determined by an objective analysis of the substance of the representation at issue, without regard to whether it resulted from an intentional effort to mislead[.]” Lorang, ¶¶ 125-127.
b. Subsection (4) and (6) Claims.
Subsection (4) of § 33-18-201 prohibits an insurer from “refus[ing] to pay claims without conducting a reasonable investigation based upon all available information.” McVey v. USAA Cas. Ins. Co., 2013 MT 346, ¶ 17, 372 Mont. 511, 313 P.3d 191 (quoting subsection (4)). “[T]he sole issue in a claim under § 33-18-201(4), MCA, is whether the investigation itself was objectively reasonable.” Lorang v. Fortis Ins. Co., 2008 MT 252, ¶ 145, 345 Mont. 12, 192 P.3d 186. It is an independent cause of action solely for an unreasonable investigation and does not require proof that reasonably clear liability existed for the underlying claim. Id. at ¶ 146. The
sole issue under (4) is “whether the investigation itself was objectively reasonable.” Id. at ¶ 148.
Subsection (6) forbids any insurer from “neglect[ing] to attempt in good faith to effectuate prompt, fair, and equitable settlement of claims in which liability has become reasonably clear.” Lorang, ¶ 169. Whether an insurer violated its duty to act in good faith to effectuate prompt settlement is typically a factual issue. Id. (citing Precision Theatrical Effects, Inc. v. United States, N.A., 2006 MT 236, ¶ 23, 333 Mont. 505, 143 P.3d 442).
Insurers frequently claim that their claims handling guidelines are not “reasonably calculated to lead to the discovery of admissible evidence.” This is contrary to law.
Where a plaintiff asserts bad faith claims against an insurer, requests to produce claims handling manuals and guidelines “unquestionably seek information relevant to her bad faith claims.” Trotsky v. Travelers Indemnity Co., 2013 WL 12116153, *3 (W.D. Wash. 2013); see also White Mountain Communities Hosp. Inc. v. Hartford Cas. Ins. Co., 2014 WL 6885828, *2 (D. Ariz. 2014)(recognizing that claims handling guidelines are relevant to breach of contract and bad faith claims against an insurer); Stokes v. Life Ins. Of N. America, 2008 WL 2704564, *1 (D. Idaho 2008) (noting that an insurer’s claims handling guidelines and procedures “clearly qualif[y] as discoverable” under Rule 26(b)(1)). The United States District Court for the District of Montana has likewise previously ruled that claims handling materials are relevant to bad faith claims under Montana law. See Moe v. System Transport, Inc., 270 F.R.D. 613, 631 (D. Mont. 2010).
Whether and to what extent the insurer complied with its own guidelines and policies in the adjustment of the underlying claim speaks to the reasonableness of its investigation and is therefore appropriate fodder for discovery in bad faith litigation.
The standard boilerplate objections we typically see in written discovery -- "vague and ambiguous," "oppressive," "undue burden," etc. -- are more easily raised than sustained. Today we briefly dissect the "vague and ambiguous" objection, which requires the objecting party to demonstrate why terms are vague or ambiguous. Bryant v. Armstrong, 285 F.R.D. 596, 606 (S.D. Cal. 2012). “The responding party should exercise common sense and attribute ordinary definitions to terms in discovery requests.” Id.; see also Thomas v. Cate, 715 F.Supp.2d 1012, 1030 (E.D. Cal. 2012)(recognizing that the burden to demonstrate vagueness or ambiguity requires a showing “that more tools beyond mere reason and common sense are necessary to attribute ordinary definitions to terms and phrases.”).
That's right, folks, it's never enough to merely claim that something is "vague" or "ambiguous"; the Rules require that the objecting party explain why the request cannot be answered. And, the responding party has to try to understand the question in context. Further, “if necessary to clarify its answers, the responding party may include any reasonable definition of the term or phrase at issue.” Beach v. City of Olafe, Kansas, 203 F.R.D. 489, 498 (D. Kan. 2001). It's never enough to object and refuse to respond. Rather, the objecting party must attempt to reasonably respond notwithstanding a "vague and ambiguous" objection.