Hot Topics From a Hotbed of Bad Insurance Litigation

Timothy M. Strong Partner Steptoe & Johnson LLP Road Map

1. Institutional bad faith – lessons from Nardelli v. Metropolitan, 230 Ariz. 592 (Ct. App. 2012)

2. Strategies for defeating class certification regarding institutional policies and procedures

3. Expanding “bad faith”: aiding and abetting Topic 1

Institutional Bad Faith:

Lessons From Nardelli v. Metropolitan Nardelli

. 2002 Ford Explorer . Retail price (brand new) = $35,750 . Stolen on September 3, 2002 . Found in Mexico on September 18

Repair Or Total?

. ACV = $24,475

. Multiple assessments of initial cost to repair, highest of which was $11,009

. Insurer issued check for $10,759 to Nardellis

. Final repair cost $14,815

Bad Faith?

“An insurer acts in bad faith when it unreasonably investigates, evaluates, or processes a claim (an ‘objective’ test), and either knows it is acting unreasonably or acts with such reckless disregard that such knowledge may be imputed to it (a ‘subjective’ test).” - Nardelli at 597-98. Bad faith claims are based on the insurer’s lack of reasonableness, which is generally a question of fact.

– “An analysis of what is reasonable is almost always de facto a question for the jury.”

Tran v. State Farm Mut. Auto. Ins. Co., 999 F. Supp. 1369, 1372 (D. Haw. 1998)

Objective Reasonableness

Show that “reasonable” people agreed with you.

(probably not your client’s own lawyers) Subjective Reasonableness Punitive Damages? Punitive damages are recoverable in a bad faith tort action,

“when, and only when, the facts establish that defendant’s conduct was aggravated, outrageous, malicious or fraudulent. Indifference to the facts or failure to investigate are sufficient to establish the tort of bad faith but may not rise to the level required by the punitive damage rule...... When defendant’s motives are shown to be so improper, or its conduct so oppressive, outrageous or intolerable that such an ‘evil ’ may be inferred, punitive damages may be awarded.”

–Rawlings v. Apodaca, 151 Ariz. 149, 162-63 (1986) Profit Motive = Evil Mind?

. MetLife goal of $155 million profit

. Claims department “expected to contribute” to meeting the $155 million target

. Profit goal was “common knowledge” “. . . the jury could reasonably find the decisions MetLife made in adjusting the Nardelli’s claim . . . were driven by financial self interest and not by the merits of their claim or the terms of their MetLife policy and therefore, MetLife acted outrageously and with the requisite evil mind.” “[T]he Nardellis presented evidence MetLife had, first, by November 2001, instituted an aggressive company-wide profit goal for 2002 (the year of the [insureds’] claim; second, assigned to the claims department a significant role in achieving that goal; third, aggressively communicated this goal to the claims department (including the office and employees handling the Nardellis’ claim); fourth, tied the benefits of claims offices and individuals to, among other things, the average amount paid on claims; and fifth, implemented these actions without taking steps to ensure its efforts to drive up its corporate profits would not affect whether it treated its insureds fairly.” Other Evidence Of Bad Faith

“Further, although Proctor’s $11,009 estimate included the cost of an engine he described as ‘new’ for $3,330, [the repair shop] had advised MetLife a new engine would cost between $4,000 and $5,000, that is, between $700 and $1,700 more than MetLife had estimated. In addition ... Proctor’s estimate used a labor rate of $40-per- hour for all repairs, but Earnhardt charged approximately $73- per-hour for mechanical work, and Proctor acknowledged he knew MetLife would have to pay the higher labor rate if Earn