Oklahoma’s bad faith law is quite simple and, at the same time, very complex. Doesn’t that just sound like a lawyer, talking out of both sides of his mouth at the same time? You aren’t finished with the first paragraph and it already sounds like double-talk!
Okahoma Bad Faith Law Is Simple
Let’s go over the simple part of bad faith law. Bad faith is shorthand for “breach of the implied duty of good faith and fair dealing”. The Oklahoma Supreme Court has said every insurance contract has an implied clause. This means the insurance policy has a term and condition for the insurance company to act in good faith and with fair dealing. The contract may not spell it out where it can be read, but it is built-in as though written in the policy.
This implied clause says that when an insurance company gets a claim, there are rules that apply. Now it’s really important to note that these rules only apply to first-party claims. That’s just lawyer talk for who paid the premiums to purchase the coverage.
In a first-party claim, the policyholder is the one paying the premiums. In contrast, if the other guy rear-ends you at the stoplight, that’s a third-party claim. The person that ran into you is paying the premiums for the liability coverage. Bad faith doesn’t apply to third-party claims in Oklahoma.
Therefore, if the policyholder is making a claim, then the implied duty to act fairly and in good faith applies to the claim. Observe, the obligation is imposed when there is a claim. The duty is not so broad as to cover underwriting, sale of the policy, or other non-claim related activities.
The rules are essentially threefold:
Duty to Investigate
The insurance company is required to perform an investigation into the claim that is reasonable to the circumstances. If you’re an insurer, you can’t just sit back to see what’s going to happen. You are duty-bound to gather the facts, information, and find out the details. The investigation must be timely. You can’t wait around for a while, then start looking into the loss.
Duty to Evaluate
The second rule is that the insurance company must make an evaluation of the claim. This evaluation means the company is required to decide (1) how much is the loss, and (2) what is covered. If you’re an insurer, you don’t have to evaluate the aspects of the loss that are not covered. But, as a practical matter, some losses may wind up with you doing so.
You may have to evaluate the whole loss. After the total amount is determined, you then will have to apply the exclusions, etc., to see what is left to pay, if anything.
Just like the duty to investigate, you are expected to make the evaluation in a prompt and timely fashion. Once you have the facts, then you need to make a decision.
The decision must be reasonable. So as an insurance adjuster, you don’t always have to make the exactly correct determination. However, you had better make the evaluation based upon all of the facts and giving fair consideration to your insured or policyholder.
Duty to Pay
The third part of the implied clause in the insurance policy is the duty to pay the claim. Like the previous two rules, the duty to pay carries an obligation to pay in a timely manner. Once again, “timely” is based upon circumstances of the claim.
Also, like the earlier rules, the duty to pay implies that the amount will be fair and reasonable. The underpayment of a claim can get you into hot water from a bad faith viewpoint. You have to be fair.
Oklahoma Bad Faith Law Is Complex
The difficult part of bad faith cases is there aren’t a lot of hard fast rules of what is or is not “bad faith”. If you’re an adjuster, then you know it’s bad faith to lie and try to deliberately cheat the policyholder out of money that is due. You can’t lie, cheat, and steal – those are “no no’s!”
Some areas are subject to disagreement over what is or is not bad faith. If there is any real question, then it’s up to a jury. So when the facts are disputed and a jury could go either way, then there’s going to be a trial.
Insurers tend to move for summary judgment in bad faith litigation. A summary judgment motion tells the court there aren’t any facts in dispute. The judge is asked to look at the law and give a ruling. Clearly, such a motion by an insurance company asks the judge to determine there is no bad faith so the insurer wins the lawsuit.
Summary judgment motions are (and should be) granted if the facts are not disputed and no bad faith exists. When the law clearly shows there is no bad faith, then the insurance company should not be put on trial.
Once the motion is filed, then the policyholder’s attorney had better be ready to show the facts that challenge the motion. The judge is going to look at the facts and evidence to see if there is any support for the bad faith claim. If evidence exists, the motion will be denied.
This area of law is also complicated because Oklahoma law considers many, many factors in the duty of good faith — far too many to write in one blog post. Suffice it to say that bad faith law demands knowledge and experience to properly litigate.
Our office has been handling bad faith cases for over 35 years. So we like to think that maybe we know just a little bit about the field of insurance bad faith in Oklahoma. Give us a call or set up an appointment online if you want to talk more!