Judge Rejects Bad Faith Claim Against Shelter Mutual Over Texas Auto Accident

All insurance companies have a “duty of good faith” under Oklahoma law.

An insurer faces tort liability if they fail to investigate, negotiate, defend, or settle a claim in bad faith. At the same time, judges will not assume an insurer acted in bad faith absent compelling evidence to the contrary. On September 27, 2019, a federal judge dismissed a bad faith claim against Shelter Mutual Insurance Company. Shelter insured Johanna Dabbs, a woman involved in an auto accident that occurred in Texas. Dabbs ran a red light, clipped another vehicle, and collided with a third vehicle. Three individuals sustained injuries as a result.

An attorney representing two of the victims demanded Shelter settle for the maximum limit of Dabbs’ policy, which was $30,000.

The attorney placed a five-day time limit on the demand. Shelter said it needed more time to investigate. Specifically, a Shelter adjuster wanted access to the victims’ medical records. Shelter nevertheless decided to accept the $30,000 offer–three days after the attorney’s deadline. The attorney refused to accept. In a subsequent personal injury lawsuit, one of the victims obtained a $700,000 civil judgment against Dabbs. This prompted Dabbs to sue Shelter for breach of contract and bad faith. Chief U.S. District Judge Timothy D. DeGiusti of Oklahoma City said the breach of contract claim could proceed to a jury trial. But he dismissed the bad faith claim. The judge said Dabbs provided “no evidence that could give rise to a reasonable inference that [Shelter] acted tortiously in bad faith.

Under Oklahoma law, which applied to the policy, Dabbs needed to show some “reckless conduct” on Shelter’s part.

DiGuisti noted that Shelter “took immediate action after the accident” to contact the injured victims. The insurer also acted on the advice of counsel and attempted to settle. And when Dabbs was sued, Shelter retained counsel on her behalf. Under these circumstances, DiGuisti said this was not a case of bad faith. Oklahoma City bad faith insurance attorney Tony Gould said this case illustrates the need for obtaining proper legal advice following an accident. “Shelter acted on the advice of a Texas attorney, even though Oklahoma law governed the policy. This led Shelter to make some critical errors in handling its policyholder’s claim. And although the judge said this did not add up to bad faith, Shelter still faces a trial for breach of contract.”