The Lees sued, alleging breach of contract and breach of the duty of good faith and fair dealing.

State Farm moved for summary judgment on the Lees' bad faith claim.

The District Court's Decision

The district court granted the motion.

In its decision, the district court explained that although Arkansas law "generally does not recognize a separate claim for breach of good faith and fair dealing," Arkansas courts "recognize a tort for bad faith against insurance companies."

This tort, the district court continued, applied to an insurer that "actively engaged in dishonest, malicious, or oppressive conduct in order to avoid its liability."

The district court then pointed out that although Arkansas law recognized this tort, the standard for establishing a claim for insurance bad faith was "rigorous and difficult to satisfy." A plaintiff must allege and prove that the "defendant insurance company engaged in affirmative misconduct that was dishonest, malicious, or oppressive."

The district court then found no evidence from which a reasonable jury could conclude that State Farm had acted dishonestly, maliciously, or oppressively in handling the Lees' claim. The district court added that although State Farm had denied coverage under the policy, the tort of insurance bad faith did "not arise from a mere denial of a claim; there must be affirmative misconduct."

Beyond "mere denial of the claim," the district court said, the only other allegations that could serve as the basis for the Lees' claim of bad faith were the "naked assertions" that State Farm:

- had not followed the requirements of the Arkansas Arson Reporting Immunity Act (which requires an insurer that believes a fire to have been of "other than accidental cause" to notify an authorized agency of its finding);

- had not reported the fire to the Arkansas Fire Marshal as indicated in a letter sent to the Lees;

- had not in fact sent a letter to the Fire Marshal; and

- had sent a letter to the Lees indicating that it had reported the fire in an effort to coerce them to drop their claim.

The district court determined that the evidence refuted "each of these allegations" and demonstrated that State Farm was entitled to judgment as a matter of law on the bad faith claim. According to the district court, the evidence confirmed that State Farm had submitted notice of the fire to the proper officials, in accordance with the Arkansas Arson Reporting Immunity Act. The district court also rejected the Lees' attempt to portray State Farm's letter to them (i.e. the one stating that the Arkansas Fire Marshal had been notified) as malicious, explaining that the Arkansas Arson Reporting Immunity Act expressly required the insurance company to promptly notify an insured when it sent information to an authorized agency after concluding that a fire may have been "other than accidental." See Ark. Code Ann. § 12-13-303(d)(2).

In short, the district court concluded, the Lees had not met their burden to demonstrate the requisite malicious conduct necessary to sustain a claim for bad faith against State Farm.

The case is Lee v. State Farm Fire & Casualty Co., No. 3:17-CV-3024 (W.D. Ark. Feb. 6, 2018). Attorneys involved include: For Joe Lee, Donna Lee, Plaintiffs: Benjamin R. Burnett, LEAD ATTORNEY, Mountain Home, AR; Benjamin Gibson, LEAD ATTORNEY, Attorney at Law, Yellville, AR; Mark Franklin Cooper, LEAD ATTORNEY, Cooper & Bayless, P.A., Mountain Home, AR. For State Farm Fire & Casualty Company, Defendant: Emily M. Runyon, LEAD ATTORNEY, Munson Rowlett Moore Boone P.A., Little Rock, AR; John E. Moore, LEAD ATTORNEY, Munson, Rowlett, Moore & Boone, P.A., Little Rock, AR.