Heavy-Handed Litigation Tactics in Coverage Defense Are Not Bad Faith
Here's news of a federal case from the District of Arizona demonstrating the pains that an insured may go through en route to getting their insurance company to actually pay. A corporate officer was criminally accused of a $550 million fraud that bankrupted the corporation. The officer successfully defended himself against the criminal charges, then sought reimbursement from his D&O insurer. After (some presumably contentious) litigation, the corporate officer won a $2.5 million judgment against the insurer. After apparently three years of litigation, the insurer paid the $2.5 million judgment and settled with respect to appellate fees and costs.
Then, the insured filed a federal lawsuit against the insurer based on its tactics in the coverage dispute. The insured sued the insurer under both abuse of process and bad faith theories. The District Judge dismissed all counts, saying that the insurer's litigation tactics were not sufficient to support the insured's claims, even if partially based on an ulterior motive of delaying the plaintiff's ultimate recovery. "Rather, the process must be used primarily to accomplish a purpose for which [it] was not designed.'" The claimant must show that the use of process 'could not logically be explained without reference to ยทยทยท improper motives.'" "Where a lawful end is pursued by appropriate process, incidental motives of spite or greed are not actionable."
A tough victory in the underlying case for the insured.