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Jury's Award Proves Fatal to Plaintiff's Bad Faith Claim

The Eighth Circuit recently affirmed an Arkansas District Court’s dismissal of Plaintiff’s first-party bad faith claim against her insurance company after the insurer prevailed in its motion for summary judgment.

Tilghman v. Allstate Prop. & Cas. Ins. Co., __ F.4th __, 2022 WL 18977 (8th Cir. 2022), arose out of an Arkansas motor vehicle accident. Plaintiff brought a state court action against Defendant Lott claiming over $30,000 in past medical expenses, at least $46,000 in future medical expenses, and a loss of future earnings of between $440,000 and $1,000,000. After failing to recover from the Defendant, Plaintiff filed an uninsured motorist claim with her automobile policy insurance provider, Allstate, on her policy which provided uninsured motorist bodily injury coverage up to $50,000 per person per accident.   

Allstate ultimately offered $40,000 to settle Plaintiff’s claims before suit. Plaintiff rejected the settlement offer and added Allstate to her ongoing state court action bringing claims against Allstate under the theories of breach of contract and first-party bad faith. Allstate removed the case to federal court.

During litigation, Plaintiff served discovery on Allstate, requesting various categories of documents to support her bad faith claim, including the unredacted claim file, claims handling and training materials, personnel files of Allstate employees who were involved in Plaintiff’s claim, and Allstate’s financial information and structures. Allstate objected to the production of these materials on the basis they were overly broad and violated the work product and attorney-client privileges. Plaintiff filed a motion to compel the documents, which the District Court denied, finding that the discovery request was overly broad and out of proportion to the needs of the case. 

After the District Court’s denial of Plaintiff’s bad faith discovery requests, Allstate moved for summary judgment on Plaintiff’s bad faith claim, contending that Plaintiff did not provide sufficient evident demonstrating Allstate affirmatively engaged in dishonest, malicious, or oppressive conduct, which the District Court granted.

At trial, on Plaintiff’s remaining breach of contract claim, a jury awarded Plaintiff $12,000 in damages. Plaintiff appealed the District Court’s ruling denying her motion to compel production of the bad faith related documents. Plaintiff argued that the denial of her motion to compel directly led to the District Courts improper granting of summary judgment on her bad faith claim against Allstate.

The Eighth Circuit noted that, under Arkansas law, first-party bad faith exists if the insurer “engaged in affirmative misconduct that was dishonest, malicious, or oppressive,”(quoting Unum Life Ins. Co. of Am. V. Edwards, 210 S.W.3d 84, 87 (Ark. 2005)), “in an attempt to avoid its liability under an insurance policy.” (quoting Aetna Cas. & Sur. Co. v. Broadway Arms Corp., 664 S.W.2d 463, 465 (Ark. 1984). Furthermore, the Court stated “an insured cannot maintain a bad faith claim for an insurer’s valuation where the insurer was reasonable in its valuation and justified in refusing to pay more. Tilghman at *6.

Allstate argued that the merits of the District Court’s ruling on the motion to compel is irrelevant in light of the jury’s award of $12,000 on Plaintiff’s breach of contract claim. Allstate contended that because its final offer was $40,000, which is $28,000 more than the jury ultimately awarded, Allstate necessarily did not act in bad faith when valuing Plaintiff’s claim. Therefore, Plaintiff could not have been prejudiced by an improper ruling from the District Court relating to Plaintiff’s bad faith discovery.

The Eighth Circuit agreed with Allstate determining that it did not need to reach a decision on the merits of the District Court’s denial of Plaintiff’s discovery requests. The fact that the jury found the value of Plaintiff’s claim to be $12,000 meant that Allstate indeed overvalued the case when it offered $40,000 to settle the matter before suit. Allstate necessarily acted reasonable in its valuation and justified in not offering the policy limits of $50,000.  

The Eighth Circuit was also not swayed by Plaintiff’s argument that the amount of the jury’s award is irrelevant because bad faith claims allow for recovery of damages that fit in distinct categories from the damages available under a breach of contract claim. The Eighth Circuit countered that the categories of compensation available under bad faith claims is a separate issue from whether an insurer actually acted in bad faith. 

The Eighth Circuit Court emphasized that the jury’s award, being significantly less than the amount offered by Allstate before suit, was fatal to Plaintiff’s claim that Allstate acted in bad faith in its valuation of her claim. As such, the District Court got it right in denying Plaintiff’s bad faith claim.