Ohio law requires insurers to act in good faith.

posted by Michael Fortney  |  Jan 17, 2012 12:24 PM in Insurance Law

Because of the nature of the relationship between an insurer and its insured, Ohio law requires an insurer to act in good faith in handling and paying the claims of its insured.  Hoskins v. Aetna Life Ins. Co.  A breach of this duty will give rise to a cause of action in tort against the insurer.

When determining whether an insurer has breached its duty to act in good faith, the courts utilize the “reasonable justification” standard.  That is, an insurer is liable for bad faith when (1) without a lawful basis, it intentionally refuses to satisfy an insured's claim, or (2) without reasonable justification, it fails to determine whether its refusal to pay a claim had a lawful basis. Zoppo v. Homestead Ins. Co.  A finding of a particular intent is not an element of bad faith. Wagner v. Midwestern Indem. Co.; see also Zoppo.  

An insurer lacks reasonable justification when it denies a claim in an arbitrary or capricious manner. Great Western Cas. Co. v. Flandrich.   The insurer’s good faith obligations require it to investigate all of the possible bases of an insured's claim. The insurer must give as much consideration to the insured's interests as it does to its own, which obligates it to  investigate a claim thoroughly.  Indeed, an insurer cannot reasonably and in good faith deny benefits to its insured without thoroughly investigating the foundation for its denial.

Bad faith has been found by Ohio courts where an insurer:

Denies coverage without reasonable justification.  Zoppo, supra.   

Fails to thoroughly investigate an insured’s claim and all avenues that could lead to coverage.  Hoskins, supra.

Fails to timely pay insurance benefits. Zaycheck v. Nationwide Mutual Ins. Co.

Delays the processing of a claim and makes an unreasonably low settlement offer.   Mundy v. Roy; Ali v. Jefferson Insurance Co.

Fails to fairly enter into settlement negotiations within the policy limits where there is reason to believe that the claim against their insured is meritorious and that a judgment could exceed the policy limits.  Netzley v. Nationwide Mutual Ins.

Fails to timely reserve rights.  Doetz-Britton v. Smythe Cramer Co.

An insurer that engages in bad faith may be liable to the insured for the costs of defense, the cost of the insured damages, compensatory and punitive damages, interest, the costs incurred to enforce the duty to defend, and the costs incurred to prosecute the bad faith claim.

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