Insurance Companies Insist that Bad Faith Cases Against Them Be Filed Immediately

The Bizzarro world of dealing with insurance companies has gotten even weirder in Nebraska. Insurance companies have now taken to moving to dismiss bad faith cases that are not filed contemporaneously with the filing of an underinsured or uninsured motorist case. These cases are breach of contract cases tried as torts. The insurance industry opines that a breach of the duty to act in good faith cause of action occurs when company initially refuses to pay benefits to their customers.

There is at least one decision in federal court that dismissed a bad faith case because it was not filed until after the underlying underinsured case was resolved by a jury trial. See Koch v. Liberty Mutual Fire Ins. Co., 639 F. Supp. 3d 895 (D. Neb. 2022) (applying Nebraska claim preclusion rules in dismissing complaint with prejudice because its first-party insurance bad faith claim for nonpayment of underinsured motorist benefits could have been raised in prior case awarding the UIM limit plus attorney’s fees but was not raised in prior case).

My suggestion is when you file any underinsured or uninsured motorist case, if you suspect that the company has not acted in good faith, you file a second cause of action for bad faith. It has been my practice to usually wait to determine what discovery revealed in the underinsurance or uninsured case to determine if there were facts sufficient to prosecute a bad faith case. However, the insurance companies in Nebraska think otherwise. You do not want to defend a Motion to Dismiss because you waited too long to sue your client’s company. Here is their argument in a nutshell:

“The bad faith allegations in the present case arise from the same operative facts involved in the prior case’s allegations of breach of contract. In prosecuting the prior case, the Plaintiff had knowledge of the facts and possible remedies, and nothing prevented him from joining her claims in one action.” This argument is from the Koch case:

It’s apparent from the plaintiff’s complaint that the operative facts and evidence supporting her bad faith claim also underlaid her breach of contract claim. Under Nebraska law, a first-party bad faith cause of action is based upon allegations that the insurer, in bad faith, refuses to settle with its own policyholder insured, who thereby suffers some type of direct loss. LeRette v. Am. Med. Sec., Inc., 705 N.W.2d 41, 47 (Neb. 2005). The tort springs from the breach of the covenant of good faith and fair dealing. Id. So, to establish a claim for bad faith, a plaintiff must show an absence of a reasonable basis for denying the benefits of the insurance policy and the insurer’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. Id. at 48.

Here, the plaintiff did not sue Liberty Mutual on the coverage claim until over three years after the accident, and nearly a year-and-a-half after Liberty Mutual denied the plaintiff’s documented demand for her policy benefits. Filing 16 at 4-5. Her bad faith claim had accrued, yet she did not pursue it in the ongoing litigation she had initiated.

And the essential operative fact-the denial of coverage for, the plaintiff alleges, no good reason-is the basis for both claims.” Koch, at 902.

While it is short-sighted for an insurance company to put forth a policy that mandates to the lawyers in Nebraska that if you have an underinsured or uninsured case, you must file a bad faith case simultaneously even if you are not in possession of all the necessary underlying facts to prove the claim of bad faith. If you do not file immediately and then discover facts that support a bad faith claim, a Court may dismiss your bad faith case because you did not file the cause of action when you filed the underinsured or uninsured case.

It may be that when you file the bad faith claim, it will be an attempt to bifurcate the causes of action upon a Motion by the defendant. I’m not so sure that bifurcation is a solution now given that the insurance companies insist that the case must be filed at the same time as the underinsurance claim. It seems contradictory for the insurance industry to assert that the breach of contract case requires that the bad faith case be filed immediately, but the case cannot proceed and must be bifurcated. The Court should allow discovery in the bad faith case since the defendant company says the cause of action has accrued. After all, the insurance companies position is that their preference is to defend the bad faith case immediately, so tee up the 30b(6) deposition after filing the case.

In other words, sue the insurance company every time you have an underinsurance or uninsured case with a hint that the company has not acted in good faith. Otherwise, you will be defending a motion to dismiss because you mistakenly thought that an insurance company would prefer there be facts upon which to base a claim before filing suit. The facts that can be gained through discovery which may lead to a bad faith case still have to be obtained to get past a Motion for Summary Judgment but be warned that if you wait to file the bad faith case, there will be a motion to dismiss filed because it is not timely. Sue the company immediately or else a Motion to Dismiss could be granted because you waited, even when the underlying case has liability issues and/or damages issues.

Who are we to disappoint the insurance industry? And more importantly you do not want to be the lawyer arguing the case on timeliness before the Nebraska Supreme Court.

On a personal note, I want to express my very deep gratitude to NATA for the unexpected but much appreciated NATA Lifetime Achievement Award bestowed upon me at the Summer meeting. I was stunned and honored that 13 colleagues nominated me for the award. Thank you, to be recognized by your peers is the best compliment one can ever receive.