SNR Denton, US, LLP on Nease v. State Farm Mutual Automobile Insurance Co.: Liability Insurer May Have Duty to Hire Counsel to Advise Insured Whether to Give Statement to Claimant’s Counsel

SNR Denton, US, LLP on Nease v. State Farm Mutual Automobile Insurance Co.: Liability Insurer May Have Duty to Hire Counsel to Advise Insured Whether to Give Statement to Claimant’s Counsel

William Barker and Ronald Kent   By William T. Barker & Ronald D. Kent, Partners, SNR Denton

In Nease v. State Farm Mutual Automobile Insurance Co., an excess insurance case, State Farm promptly tendered its $25,000 limits.  The claimant's attorney requested a statement regarding other possible sources of recovery. The adjuster relayed that request to Nease, the insured, who declined.  In the ensuing bad faith litigation, the U.S. District Court for the Eastern District of Oklahoma denied State Farm summary judgment, in part because a jury might find it should have hired counsel to advise Nease on the request.  This commentary criticizes that result.

Nease built on the Oklahoma Supreme Court's decision in Badillo v. Mid Century Insurance Co., where a $2.2 million bad faith judgment was affirmed, based on the insurer's failure to consult its insured before rejecting a request for a statement.  There, the court reasoned:

The statement request ... implicated the extent to which insurers were required to consult, communicate with and inform their insured regarding that request and its potential impact on settlement negotiations/discussions insurers were involved in, as it was insured's assets and his potential bankruptcy (i.e., his financial future) at issue if the matter did not settle for the policy limits. Surely, a rational jury could conclude based on the evidence that insurers failed in their communicative/consultative duty. A rational jury could also conclude that insured was entitled to reasonable information concerning the statement request and settlement implications thereof in order for him to have necessary input concerning the request so that an informed decision as to how best to respond could be formulated, giving due consideration to his input and desires in such regard. In that it was insured's financial health implicated above the $ 10,000.00 policy limits, it could be found it was incumbent on insurers to consult with him on the matter.

A central question here is whether someone who was on a personal errand, who was not drinking and who clearly did not have assets or the financial wherewithal to satisfy the claim being made by Smith (in light of her extensive injuries and medical bills), would have acquiesced in a statement or taken affirmative steps to attempt to work out some solution with Smith's lawyers in lieu of such a statement, rather than following the course insurers followed. We believe a rational juror could view insurers' conduct as almost daring Smith's lawyers to file suit against insured, without even informing him a statement (or something in lieu thereof) might result in a quick settlement of the matter within the policy limits. Such act(s) and/or omission(s) of insurers were sufficient to create jury questions as to the reasonableness of insurers' conduct and as to breach of the duty of good faith and fair dealing.

In Nease, one ground for denial of summary judgment was a question whether Nease had been told enough to make an intelligent decision.  The commentary reviews the law on the duty to inform and concludes that this point was correct:

the duty of good faith and fair dealing requires an insurer to advise and inform its insured so that the insured will have sufficient information to make intelligent decisions to protect his own interests.  So, on the facts in Nease, the bad faith claim would not be defeated unless Nease was adequately informed.  The factual question on that point properly defeated summary judgment.

But the commentary criticizes the conclusion that there was a jury issue whether State Farm ought to have hired a lawyer to advise Nease whether to give a statement.

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.

Ronald D. Kent heads the Litigation Department in SNR Denton LLP's Los Angeles office. He is also Co-Chair of the Firm's National Insurance Litigation and Coverage Practice and is a member of the firm-wide Policy & Planning (Management) Committee. Since 2005, he has been named each year as a leading trial lawyer nationally and in California, based on peer and client evaluations, by Chambers USA: America's Leading Lawyers, the highly respected independent attorney rating organization. Mr. Kent has extensive experience representing major insurance companies on a wide variety of matters, including fraud and bad faith actions, class action and multiple plaintiff litigation, defense of toxic tort and other environmental claims, insurance coverage actions and general business disputes. Mr. Kent has tried matters in state and federal courts throughout California, and in other states, and has successfully handled in excess of 70 arbitrations to final resolution. In addition, he has briefed and argued numerous appellate matters in the California Supreme Court, nearly all California district courts of appeal and the Ninth Circuit Court of Appeals. Mr. Kent is the co-author of the second edition of New Appleman Insurance Bad Faith Litigation.

Sign in with your Lexis.com ID to access the full text of this commentary, SNR Denton, US, LLP on Nease v. State Farm Mutual Automobile Insurance Co.: Liability Insurer May Have Duty to Hire Counsel to Advise Insured Whether to Give Statement to Claimant's Counsel. Additional fees may be incurred. (approx. 6 pages)

If you do not have a lexis.com ID, you can purchase the full text of this commentary on the LexisNexis Store or you can access this commentary and additional Insurance Law Emerging Issues Commentaries on the Store.

Attorney and Client on Courthouse Steps

Sign in with your Lexis.com ID to access the Lexis enhanced version of the Nease v. State Farm Mut. Auto. Ins. Co., 2012 U.S. Dist. LEXIS 26204 (E.D. Okla. Feb. 29, 2012) decision with core terms, case law links, and Shepard's.

Download a free copy of the unenhanced version of the decision in Nease v. State Farm Mut. Auto. Ins. Co., 2012 U.S. Dist. LEXIS 26204 (E.D. Okla. Feb. 29, 2012).

Sign in with your Lexis.com ID to access the Lexis enhanced version of the Badillo v. Mid Century Ins. Co., 121 P.3d 1080 (Okla. 2005) decision with summary, headnotes, and Shepard's.

Sign in with your Lexis.com ID to access the complete set of Emerging Issues Analysis for Insurance Law.

For more information about LexisNexis products and solutions connect with us through our corporate site.