The key to every claim is a thorough investigation of the factsof the case. A claim denied before completing a thoroughinvestigation can be evidence of the tort of bad faith.

Uninsured Motorist (UM) and underinsured motorist (UIM)coverages place the insurer in the place of a third party thatwas uninsured, underinsured, or unknown who allegedly caused injuryto the insured. If the investigation shows the insured was liablefor the accident (rather than the uninsured orunderinsured motorist), then the insured cannot recover undera UM or UIM policy.

Juries, on occasion, will grant damages to an insured on a UM orUIM policy because of the seriousness of the injuries rather thanon evidence of negligence. The insurer, faced with such a judgment,which is based more on feelings than the law, is not without aremedy. It can ask the court to grant a judgment notwithstandingthe verdict because the judge agrees that the decision of the jurydoes not fit the fact proved at trial. In James Bannister v.State Farm Mutual Automobile Insurance Company, No. 11-6174 ,(10th Cir. 09/05/2012) Plaintiff James Bannister obtained ajudgment against State Farm only to have it taken away by the trialcourt. He appealed to the Tenth Circuit Court of Appeal.

The Facts

According to Bannister, he was forced to lay down and slide hismotorcycle at a high speed when a car in front of him brakedsuddenly, that car having been cut off by another car. Bannisterslammed into the wall of the freeway and suffered substantialinjuries. He did not collide with any other vehicle; neither of theaforementioned cars remained at the scene of the accident; and nowitnesses besides Bannister ever gave an account of the crash.

Bannister filed an insurance claim with his insurer, State FarmAutomobile Insurance Company (“State Farm”). State Farm deniedBannister's claim, finding him to be majority at fault in theaccident, which precluded recovery under his insurance policy.Bannister subsequently filed suit in Oklahoma state court, andState Farm removed the case to the Western District of Oklahoma. Bythe time the case went to trial, Bannister sought relief solely ona tort theory: that State Farm violated its duty of good faith andfair dealing in denying his claim.

The Jury's Verdict

In this instance, the jury found in favor of Bannister. Thedistrict court granted State Farm's motion for judgment as a matterof law (“JMOL”), ruling essentially that the evidence showed thatState Farm's denial of Bannister's claim was based on a reasonabledispute regarding whether Bannister was majority at fault, and thatno evidence suggested that further investigation would haveundermined the reasonableness of that dispute.

The Insurance Claim

The day after the crash, January 23, 2009, Bannister's wifereported the accident to State Farm.

At trial, the adjuster testified that she believed that based onthe facts related to her, Bannister would be at fault. She reasonedthat because of the fact that the car in front of Bannister wasable to stop without collision, Bannister, who was driving behindthat car, likewise should have been able to stop safely, ifBannister had been following at a reasonable distance per his dutyas a motorist.

Later, State Farm obtained a copy of the police report forBannister's accident. The entries in State Farm's logs indicatedthat the accident was a single-vehicle wreck, that Bannister hadbeen driving under the influence of alcohol, and that no secondvehicle was involved in any collision. Further, they concluded thatBannister was 100-percent at fault and that, accordingly, he wasnot entitled to UM coverage, to which an insured is not entitled ifthe insured is more than 50-percent at fault.

State Farm communicated to Bannister that his UM claim would bedenied. Later State Farm UM claims representative Dani Conover senta letter to Bannister's attorney stating thefollowing:

At this time, we have no evidence Mr. Bannister is legallyentitled to collect from an uninsured motorist. The police reportwe have indicates [Bannister's] vehicle left the roadway for anunknown reason, and notes an improper start from alcohol-DUI/DWI.If you are aware of any information that does support [thatBannister] is legally entitled to collect [on his UM policy],please let me know, and we will be happy to review it.

State Farm apparently did not receive a response to that letter,so on July 7, 2009—after Bannister had filed his complaint in thislawsuit—Conover sent another letter to Bannister's attorney to thesame effect.

The Lawsuit and Trial

A three-day trial occurred at the end of March 2011. Bannister'sattorney called seven witnesses to testify: Bannister's wife; fourState Farm claims representatives from various departments who insome way dealt with Bannister's claim; a corporate representativefrom State Farm; and Bannister himself. State Farm cross-examinedeach witness but did not call any witnesses of its own. At thatpoint, State Farm moved for JMOL arguing that the evidencepresented at trial did not provide a sufficient factual basis uponwhich the jury could find in favor of Bannister. The court took themotion under advisement and allowed the case to proceed. Juryinstructions and closing arguments followed.

The jury returned an award of $125,000 in compensatory damagesfor Bannister. Additionally, the jury also found that State Farmhad acted recklessly. That finding of recklessness triggeredconsideration of punitive damages, in line with Oklahoma's systemof bifurcated consideration of compensatory and punitive damages.The jury therefore then heard brief testimony relevant to punitivedamages.

The jury was subsequently instructed on punitive damages, withthe court explaining the bases on which they could award punitivedamages. While the jury was considering punitive damages State Farmrenewed its motion.

The court determined that the evidence showed that State Farmdenied Bannister's claim based on facts that reasonably supported alegitimate dispute as to whether Bannister was majority at fault inhis accident; and that no evidence suggested that furtherinvestigation would have undermined the State Farm's legitimatebasis for disputing the claim.

An Analysis

In determining whether the insurer had a good faith belief insome justifiable reason for denying payment at the time it made itsdecision on the insurance claim, the jury was instructed that itmay only consider evidence which the insurer had at the time itdecided to deny the claim.

An insurer's refusal to pay a claim is not bad faith when thereis a legitimate dispute concerning coverage; however, merelybecause there is a reasonable basis that an insurance company couldinvoke to deny a claim does not necessarily immunize the insurerfrom a bad faith claim if, in fact, it did not actually rely onthat asserted reasonable basis and instead took action in badfaith. The insurer is not required to show that its good faithbelief was correct. The jury may decide the issue is if there isevidence that the insurer failed to adequately investigate theclaim.

After reviewing all of the evidence the Tenth Circuit held thata reasonable jury could not find, based on the evidence produced inthe case that State Farm did not actually rely on a legitimatereason in disputing Bannister's insurance claim. Furthermore, thecourt could discern no evidence showing that State Farm failedadequately to evaluate or to investigate Bannister's insuranceclaim such that additional investigation would have materiallyaltered the legitimate factual basis on which State Farm disputedBannister's claim.

On the date of denial the facts known to State Farm includedthat Bannister had been involved with a single-vehicle accident inwhich Bannister was unable safely to stop when the car in front ofhim braked suddenly; that the police report showed that Bannisterhad been driving under the influence of alcohol; and that therewere no identified witnesses. These facts make State Farm's disputeof Bannister's eligibility for recovery reasonable. Additionally,the police report indicated that Bannister had been driving underthe influence of alcohol. While that fact did not dispositivelypreclude coverage under Bannister's policy, it certainly added tothe reasonableness of finding Bannister negligent.

Bannister put forth no evidence that State Farm arbitrarilyprejudged his claim or was otherwise engaged in systematicbad-faith denials of claims. To prove inadequate investigationBannister should have made a showing that material facts wereoverlooked or that a more thorough investigation would haveproduced relevant information that would show him not to be atfault.

Taking into account everything Bannister said at trial, StateFarm still would have had before it the material facts of asingle-vehicle accident with no identified witnesses (other thanthe claimant), where the claimant had not left sufficient space tobrake and avoid crashing, and where the claimant was driving afterthe consumption of alcohol. Bannister's testimony did notcontradict any material facts upon which State Farm based itslegitimate dispute regarding Bannister's negligence. On thecontrary further investigation would show Bannister to be morenegligent, since the fact that he was speeding would have comeout.

Further, if State Farm had obtained Bannister's hospital recordfrom the aftermath of the accident, State Farm would havediscovered that the hospital record indicated that Bannister'sblood-alcohol level was 0.09. Bannister's inadequate-investigationtheory of bad faith is without merit, and JMOL in favor of StateFarm was appropriate.

In Closing

State Farm was lucky. Although it did not conduct a thoroughinvestigation before denying a claim it collected sufficientevidence to establish that Mr. Bannister was more than 50-percentresponsible for the accident and probably 100-percentresponsible.

A thorough investigation is best but an adequate investigationwas, in this case, sufficient.