Brad Pistotnik Law
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Discussion of Bad Faith of Insurance Carriers in Kansas

Auto accident attorneys should understand that the law in the State of Kansas has always been a unique area when it comes to the evaluation of whether or not an insurance company has violated the duty or covenant of good faith. The term bad faith is somewhat of a misnomer in Kansas due to the way the appellate courts have interpreted the duty or covenant of good faith. The covenant of good faith requires that insurance carriers act in good faith to the people that they insure. This simply means that the insurance carrier who insures a driver who acts negligently or carelessly must consider duties it owes to the person that purchased insurance from that particular insurance carrier. When a plaintiff’s attorney submits a bad faith demand against a tortfeasor or driver who has acted negligently and injured another person, the insurance company must step into the shoes of the individual that committed the acts of wrongdoing and evaluate the offer from the lawyer as if the offer had been made to the insurance carrier and treat their insured customer in the same manner they would like to be treated if they had been sued. The insurance carriers rarely follow this rule. The insurance carrier has a duty to communicate with its insured. The insurance carrier has a duty to evaluate all offers of settlement provided by an injured person or their attorney. The insurance company has a duty to investigate accidents when an accident occurs. The insurance company has a duty to attempt to settle in good faith. When the insurance company fails to settle a policy limits offer they may commit an act of negligence or an act of intentional conduct (which I call bad faith) that causes injury, damage and harm to the person that they insured. When an attorney achieves a positive verdict in excess of the policy limits of insurance then the plaintiff may go to the defendants that caused the suit to be filed against the defendant and ask for an assignment of the defendant’s rights to sue their insurance company. A subsequent action, called a garnishment action, is filed to attempt to obtain more insurance coverage than the defendant originally purchased. An example would be the case where a defendant causes an accident and only purchased $100,000 of insurance. Where the person that the defendant injured had significant catastrophic injuries the amount of damages will likely exceed the policy limits. When the attorney offers to settle for policy limits and the insurance carrier fails to offer the policy limits causing the attorney for the plaintiff to sue the defendant it may lead to a bad faith excess verdict. If the insurance carrier has not acted in good faith by communicating the offer of settlement to the insured, then in certain limited circumstances, the injured plaintiff may be able to actually obtain an excess verdict higher than the insurance coverage of the defendant and go after the insurance carrier for the excess amount. These are known as bad faith cases. Very few lawyers handle bad faith cases even though they actually advertise for them. These cases may take several years to conclude and take specialized expertise. Brad Pistotnik Law, P.A. handles these types of cases. The following provides a partial list of Kansas case law which have held that an insurance company must give equal consideration to the interest of the insured, as to its own interest, and the failure to settle for policy limits in a factual situation such as presented by this case would be negligence and bad faith: Levier v. Koppenheffer, 19 Kan.App.2d 971, 879 P.2d 40 (1994); Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502 (1969); Glenn v. Fleming, 247 Kan.296, 799 P.2d 79 (1990); Smith v. Blackwell, 14 Kan.App.2d 158, 791 P.2d 1343 (1990); George R. Winchell, Inc. v. Norris, 6 Kan.App. 725, 633 P.2d 1174, rev. denied 230 Kan. 817 (1981); Spencer v. Aetna Life & Casualty Insurance Co., 227 Kan. 914, 611 P.2d 149 (1980); Covill v. Phillips, 452 F. Supp. 224, 226 (D.Kan. 1978); Farmers Insurance Exchange v. Schropp, 222 Kan. 612, 567 P.2d 1359 (1977); Coleman v. Holecek, 542 F.2d 532 (10th Cir. 1976); Rector v. Husted, 214 Kan. 230, 519 P.2d 634 (1974); Sloan v. Employers Casualty Insurance Co., 214 Kan. 443, 521 P.2d 249 (1974); Brown v. Continental Casualty Co., 209 Kan. 632, 498 P.2d 26 (1972); Gilley v. Farmer, 207 Kan. 536, 485 P.2d 1284 (1971); Koch Administratrix v. Prudential Insurance Co., 205 Kan. 561, 470 P.2d 756 (1970); Bennett v. Conrady, 180 Kan. 485, 305 P.2d 823 (1957); Anderson v. Surety Co., 107 Kan. 375, 191 Pac. 583 (1920); B. & M. R. Rld. Co. v. Thompson, 31 Kan. 180, 196, 1 Pac. 622 (1884). The case of Bollinger v. Nuss, 202 Kan. 326, 449 P.2d 502 (1969) sets forth an excellent discussion of the duties imposed on an insurance company. One of those duties is to communicate to your insured. I frequently find that insurance companies pay no attention to this duty imposed under Kansas law. The Bollinger case held,

Syllabus 1. In defending and settling claims against its insured, the insurer of a liability or indemnity policy owes to the insured the duty to act in good faith and without negligence; failure to do so will result in the insurer being held liable for the full amount of the insured's resulting loss, even if that amount exceeds policy limits.

Syllabus 2. In this jurisdiction a liability insurer may be held liable in excess of its undertaking under the policy if it acts negligently or in bad faith when considering offers to compromise the claim against the insured for an amount within policy limits.

Syllabus 3. Whether the conduct of an insurer who rejects a settlement offer within the limits of its policy is measured by the good faith test or negligence test, the real question is the degree of consideration which an insurer must give to those interests of the insured which conflict with its own.

Syllabus 4. The rule in this jurisdiction is that in acting on offers of settlement within policy limits, the insurer may properly give consideration to its own interests, but it must also give at least equal consideration to the interests of the insured. This means that the insurer must evaluate the claim without looking at the policy limits and as though it alone would be responsible for the entire amount of any judgment rendered on the claim. Thus, under the negligence test the insurer must conduct itself with that degree of care which would be used be an ordinarily prudent person in the management of his own business, with no policy limits applicable to the claim. Likewise, under the good faith test, the insurer must in good faith view the situation as it would if there were no applicable policy limits.

Syllabus 5. Under either the negligence test or the good faith test much the same factors may be relied on in determining whether or not an insurer is liable for failing to accept an offer of compromise within policy limits. In the final analysis the question of liability depends upon the circumstances of the particular case and must be determined by taking into account various factors discussed in the opinion.

Syllabus 6. A duty is imposed on the insurer to communicate to the insured the results of any investigation indicating liability in excess of policy limits and any offers of settlement, so that the insured may take proper steps to protect his own interests. These cases clearly indicate that an insurance carrier must consider all offers of settlement as though there were no policy limits involved. If you have this type of potential bad faith case you should call the law office of Brad Pistotnik Law, P.A.

© Bradley A. Pistotnik, 2015