SNR Denton on Kartman v. State Farm: Claim Handling Class Actions and Bad Faith Without Coverage Take Another Hit

SNR Denton on Kartman v. State Farm: Claim Handling Class Actions and Bad Faith Without Coverage Take Another Hit

William Barker   By William T. Barker, Partner, SNR Denton

In Kartman v. State Farm Mutual Automobile Insurance Co. [1], the Seventh Circuit reversed certification of a class action for allegedly improper adjustment of claims for hailstorm damage to insureds' roofs.  In the process, it added weight to the already heavy majority rule that there ordinarily can be no bad faith liability unless some benefits were actually due and were improperly delayed or denied.  This commentary examines the case and its implications.

A severe hailstorm in central Indiana produced thousands of claims by homeowners to State Farm Fire & Casualty Co. for damage to their roofs.  While State Farm paid millions for these claims, some policyholders were dissatisfied, and several brought this putative class action against several State Farm companies, alleging breach of contract, bad faith, and unjust enrichment.  State Farm removed the case to federal court.

The district court declined to certify a damages class, holding that each claim of underpayment required an individualized inquiry on the merits.  But it concluded that a class claim for injunctive relief could proceed with respect to whether State Farm should be required to reinspect policyholders' roofs pursuant to some "uniform and objective standard."  State Farm appealed and the Seventh Circuit reversed.

For purposes of this commentary, the critical point was that

State Farm had no independent duty-whether sounding in contract or tort-to use a particular method to evaluate hail-damage claims. State Farm's alleged underpayment of the plaintiffs' hail-damage claims is a cognizable wrong in both contract and tort, but the method it uses to adjust claims is not independently actionable.

This commentary notes that

Most jurisdictions hold that a valid claim for policy benefits is a necessary predicate for a bad faith claim, though there is a possible narrow exception to that rule.  A few jurisdictions do hold that there can be bad faith liability even though there is no covered claim.  Kartman adds weight to the already clear majority in favor of requiring improper denial or delay of benefits actually due, but the court treated the issue summarily.  Other courts have examined the issue in more depth.

This commentary collects authorities on that point and explains the reasoning supporting that conclusion.

[1] Kartman v. State Farm Mutual Automobile Insurance Co., 634 F.3d 883 (7th Cir.). 

William T. Barker is a member of SNR Denton's Insurance Litigation & Coverage Practice Group and practices in the firm's Chicago office.  He has a nationwide practice in the area of complex commercial insurance litigation, including coverage, claim practices, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is the co-author, with Ronald D. Kent of THE NEW APPLEMAN INSURANCE BAD FAITH LITIGATION, SECOND EDITION and with Charles Silver of the forthcoming PROFESSIONAL RESPONSIBILITIES OF INSURANCE DEFENSE COUNSEL; he has written over 100 published articles on insurance and litigation subjects.  He has been described as "[t]he leading lawyer commentator" on the relationships between insurance and civil procedure.  Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 & n.4 (1995).  He is an Adviser to the American Law Institute project on Principles of the Law of Liability Insurance.  He is a member of the EDITORIAL BOARD OF THE NEW APPLEMAN ON INSURANCE LAW LIBRARY EDITION and THE NEW APPLEMAN INSURANCE LAW PRACTICE GUIDE.  He is Editorial Board Director and Senior Contributing Editor of INSURANCE LITIGATION REPORTER and a member of the Board of Editors of DEFENSE COUNSEL JOURNAL.

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Golf Ball Size Hail Stones

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