An insured with a deductible for its liability coverage has a cognizable bad faith claim against its insurance company when the company has control over settlement of a third-party claim and engages in bad faith conduct toward the insured, even though the judgment does not exceed the policy limits.
"Under the circumstances of the present case in which the insured has a significant deductible, the insurance company's and the insured's interests might diverge, and the insurance company could make decisions in settling claims that favor its own interests over those of the insured. The insurance company might offer an unnecessarily high settlement within the deductible to avoid the expense of diligent investigation and adjustment. Or it might expend insufficient effort to investigate a claim unless or until the insurance company's own money is at risk when the value of the claim approaches or exceeds the deductible."
"The insurance company's apparent interest in settling claims below the deductible is to minimize its own costs, not necessarily to minimize the total payment to the claimant. Just as in traditional third-party excess judgment cases, the insured with a high deductible needs the protection of a bad faith cause of action to guard against the risk that an insurance company's exercise of control over a claim might favor its own financial interests over those of the insured. This possibility gives rise to a cause of action for bad faith."
Affirmed in part, and Reversed in part.
2008AP1303 Roehl Transport, Inc., v. Liberty Mutual Ins. Co.
Attorneys: For Appellant: King, Lawrence R., St. Paul, MN; Biegert, Matthew A., New Richmond; Solheim, Mark A., St. Paul, MN; For Respondent: Katt, William J., Milwaukee; Malloy, Mark D., Milwaukee