Bad faith is the unreasonable failure of an insurance company to honor the terms of an insurance policy and deal with a policyholder in good faith. Insurance companies who are found to have acted in bad faith can be liable for punitive damages in addition to contract damages. Some states have bad faith statutes called "Unfair Insurance Claims Practices Acts."
ACE Group Insurer Sues Zurich American, Claims it Negligently Handled Lawsuit Defense
The suit, filed in U.S. District Court in Chicago, seeks more than $700,000 as a result of what it called wrongful conduct by Zurich American. It said the defendant did not properly control the defense of, and settlement negotiations for, a lawsuit brought against Zurich American client F.H. Paschen Inc., a general contractor that also held an umbrella policy with the ACE Group unit Westchester.
The underlying suit was filed in 2008 by Los Angeles-area schoolteacher William Kelly, who sustained head and back injuries when his head struck the bottom of an overhanging stairwell he was descending. He claimed that Chicago-based Paschen, which oversaw construction of the stairs, allowed it to be built with too short a clearance.
At the time, Paschen owned a commercial general liability policy issued by Zurich American and an excess coverage umbrella policy from Westchester that kicked in after $1 million in damages.
Westchester said that Kelly made offers to settle below the $1 million, but that through missteps by the defendant, those overtures were not properly answered. In January, 2011, a California state court jury awarded the teacher $1.641 million in damages, of which $1.310 million was assigned to Paschen.
Cross complaints by subcontractors resulted in $411,848 more in damages, resulting in a total bill to Westchester of $727,820, plus select fees and costs.
Westchester said that Zurich American negligently controlled the defense of the teacher’s lawsuit and failed to respond to or accept settlement demands, including mediator’s proposals, in a timely fashion.
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