The question asked in the title is a good question. However, it is a hard question to answer. A 2021, opinion from the Northern District of Texas, Fort Worth Division, lends some insight into how bad faith is analyzed by the courts. The opinion is styled, Cocanougher Asset No. 3, LLC v. Twin City Fire Insurance Company.
The facts of the case can be read in the opinion and will not be rehashed here.
Twin City filed a motion for summary judgement on the bad faith allegations of the plaintiff. In deciding the motion in favor of the plaintiff, the court explained how these situations are analyzed.
Pursuant to Federal Rule of Civil Procedure 56(a), a court may grant summary judgment where the pleadings and evidence show “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Summary judgment is not a disfavored procedural shortcut, but rather an integral part of the Federal Rules as a whole, which are designed to secure the just,
speedy and inexpensive determination of every action.
The substantive law will identify which facts are material. A genuine dispute as to any material fact exists if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. The movant must inform the court of the basis of its motion and demonstrate from the record that no genuine dispute as to any material fact exists. “The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his or her claim.” This was made clear in the 1998, 5th Circuit opinion styled, Ragas v. Tenn. Gas Pipeline Co.
When reviewing the evidence on a motion for summary judgment, courts must resolve all reasonable doubts and draw all reasonable inferences in the light most favorable to the non–movant. If there appears to be some support for disputed allegations, such that “reasonable minds could differ as to the import of the evidence,” the court must deny the motion.
Twin City argues that it has established as a matter of law that a bona–fide coverage dispute exists in this case, therefore, Plaintiff’s extra–contractual bad faith claims should be dismissed. Plaintiff argues that there is a fact issue regarding Twin City’s investigation, and whether such investigation was done in good faith. The question here is narrow – if a fact issue exists as to the reasonableness of Twin City’s investigation of the claim, then summary judgment must be denied. The Court is not deciding today whether Twin City breached the contract, whether Twin City acted in bad faith, or even whether Twin City acted unreasonably in its investigation. The Court is merely deciding whether Plaintiff produced sufficient evidence to raise a fact issue on whether Twin City’s
investigation was reasonable.
Under Texas law, an insurance carrier owes the insured a duty of good faith and fair dealing. The duty of good faith and Section 541.060 of the Texas Insurance Code require that a carrier reasonably investigate a claim and “attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer’s liability has become reasonably clear.”
Whether the insurer’s liability was reasonably clear when it denied the claim and whether the insurer denied the claim without conducting a reasonable investigation, i.e., whether the insurer knew or should have known the claim was covered, are questions for the fact–finder.” In making this determination, the jury must consider only the facts that were before the insurer at the time it denied the claim.
An insurance carrier does not commit bad faith as a matter of law if it denies coverage following a reasonable investigation of the claim where it relies on experts retained to assist in assessing the claim. Even if a coverage determination is proven incorrect, a carrier does not commit bad faith simply by denying coverage.
Further, conflicting opinions or expert reports as to coverage issues are insufficient to show bad faith and at most present a bona fide dispute as to coverage. Absent evidence that the insurer was unreasonable in relying on an expert’s report or that the report was not objectively prepared, a court may issue
summary judgment on an insured’s extra-contractual claims.
The Court then applied the above to the facts in this case. It is a good read.