Important Clarification Regarding Bad Faith Claims
John Day posted this morning on an important case just decided by the Tennessee Supreme Court. The case, Johnson v. Tennessee Farmers Mutual Insurance Company, No. E2004-00250-SC-R11-CV (August 28, 2006), involves the standard for proving bad faith claims brought against insurance carriers. In overturning the decision of the Court of Appeals, the TSC ruled, among other things, that the trial court did not err in giving the following charge:
[a] mere mistake in judgment by the insurance company does not constitute quote “bad faith” end quote. Quote “bad faith” by the insurance company is, one, failure to investigate a claim to such an extent that it would be in a position to exercise honest judgment as to whether a claim should be settled, or two, failure to fairly consider the facts relative to the accident and a claimant’s injuries known to it whether they are the actual facts or not and deciding whether the insured should or should not settle, or three, failure of the insured [sic] with the right to control the litigation and settlement to fairly consider the rights and interest of the insured as compared to the interest of the insurance company.
This opinion is a must read for those attorneys whose practice involves insurance law (which, at one time or another, is basically everyone). Find the full opinion here and John Day's commentary here.