Alabama Recognizes Insurance Bad Faith Claims Under Two Theories
Alabama courts recognize that there are two different methods of proof for proving insurance bad faith claims. The basic concepts of insurance bad faith was recently revisited by the Alabama Supreme Court in State Farm Fire and Casualty Company v. Brechbill, ____ So.3d ___, 2013 WL 5394444, released on September 27, 2013. In this case, the homeowner purchased a house in 2007. At the time of the purchase, the homeowner and State Farm both inspected the house and did not see any damage to the structure of the house other than the normal wear and tear of an older home.
About a year later, the house fell victim to a violent windstorm. During the windstorm the wind reached almost 60 miles per hour. As a result, the house was racked and suffered structural damage resulting in cracked and buckling interior walls and roof damage. The homeowner submitted a claim to State Farm. State Farm owned up to the roof repairs. However, instead of paying the claim for the damages to the walls of the house, State Farm hired an engineering firm to conduct an “inspection.” Despite the fact that the engineering firm only conducted a visual inspection of the house, its report suggested that the damage was from wear and tear and long term settlement of the house. Thereafter, despite having its prior report from the time the house was purchased, State Farm denied the claim.
The issue in this appeal illustrates the main issue in all bad faith claims against insurance companies; whether State Farm had a reasonably legitimate or arguable reason for refusing to pay the claim at the time of the denial. Alabama has recognized a tort of “bad faith” since 1981, when the Supreme Court of Alabama adopted the tort of bad faith in regard to the failure to pay an insurance claim. The Court held:
An actionable tort arises for an insurer’s intentional refusal to settle a direct claim where there is either (1) no lawful basis for the refusal coupled with actual knowledge of that fact or (2) intentional failure to determine whether or not there was any lawful basis for such refusal. Chavers v. Nat. Sec. Fire & Casualty Co., 405 So.2d 1, (Ala.1981).