West Virginians can bring bad faith lawsuits against insurance companies under the state’s human rights act, the state Supreme Court of Appeals has ruled.
The court found that the West Virginia Human Rights Act “prohibits unlawful discrimination by a tortfeasor’s insurer in the settlement of a property damage claim when the discrimination is based upon race, religion, color, national origin, ancestry, sex, age, blindness, disability or familial status.”
The ruling rejects the widely-held belief that the sole remedy for third-parties against insurers over bad faith claims is under the West Virginia Unfair Trade Practices Act (UTPA). Reforms to the UTPA passed in 2005 empowered the state insurance commissioner, not the courts, to hear such claims and award damages where appropriate.
The insurance industry may ask the Legislature to override the latest ruling.
The state’s high court was asked to decide whether third-party suits may be brought under the human rights act by a Kanawha Circuit Court judge needing to know whether to proceed with a case involving an African American family’s dispute with the insurer, State Auto, over a settlement it offered on behalf of its insured, Appalachian Heating.
State Auto argued that the family was barred from bringing a human rights action by a provision of the UPTA, which the insurer said provides the only method for bringing a third-party action against an insurance company based upon its settlement practices. State Auto said that if the human rights suit was allowed to go forward, it would “open a flood of baseless litigation which the Legislature has already prohibited.”
But Chief Justice Robin Davis, writing for the majority, said that the two statutes — the human rights and unfair trade practices statutes — fulfill different purposes, provide different remedies and are not in conflict.
The four African-American family members who brought this action lived in a public housing apartment in South Park Village. On Nov. 21, 2006, allegedly due to negligence on the part of Appalachian Heating, their apartment caught fire. The fire caused a total loss of personal property and rendered the apartment temporarily uninhabitable.
Following the fire, State Auto settled the family members’ claims for $2,500, which the plaintiffs complained was inadequate. The family sued, alleging that State Auto failed to properly assess the loss of their personal property and damages because of their race and because they lived in public housing. They claimed that the insurer refused to give them the “same opportunity and consideration when evaluating the plaintiffs’ fire loss claims it extends to those persons not of African American descendant and those who do not reside in public housing.”
The family argued that the human rights act expressly prohibits discrimination based on race or the fact that someone resides in public housing and there is nothing in the UTPA act that grants insurance companies immunity from the human rights act.
In siding with the plaintiffs, the court noted that the UTPA regulates trade practices in the business of insurance, while the Human Rights Act seeks to remedy discrimination, thus the “rights and remedies” of the statutes are “considerably different and serve to fulfill different purposes.” They “seek to remedy different harms and no conflict exists between them,” wrote Chief Justice Davis.
Justice Menis Ketchum dissented, expressing his view that the majority opinion creates a remedy that does not exist in state law.
“Because the Legislature has explicitly created a remedy in the Unfair Trade Practices Act, I am troubled that the majority opinion chose to judicially infer the existence of a similar, separate remedy in the Human Rights Act. The Human Rights Act contains no language purporting to regulate insurance settlements. It is reasonable to assume that there would have been at least some specific reference to insurance settlements in either the language of the Human Rights Act, or the rules of the Human Rights Commission, or in the legislative history of the Act. There is none,” he wrote in his dissent.
Ketchum wrote that he fears the decision will lead to abuse. “Every person making a claim against an insurance company thinks they wrongfully got the short end of the stick. Because of that, I think the majority opinion has created a situation ripe for abuse by a handful of litigation lawyers,” he added.
The insurance industry was surprised by the decision and shares Judge Ketchum’s concerns, according to Jill Bentz, an attorney with Dinsmore & Shohl LLP in Charleston who is also president of the West Virginia Insurance Federation. She said insurers are concerned it will lead to an explosion of lawsuits and drive up insurance costs, as was happening before the Legislature enacted reforms in 2005.
Bentz said third-party suits were costing insurers in the state more than $160 million a year five years ago and discouraging other private insurers from entering the state. According to Bentz, in 2005 the Legislature eliminated private third-party causes of action from the courts, moving them instead under the jurisdiction of the state insurance commissioner.
“Without a doubt the Legislature and Governor intended to prohibit these suits,” Bentz said, claiming the most recent court decision ignores this history. “Now five years later, we have an unraveling of that effort.”
Bentz said she expects insurers will seek a legislative remedy as they did in 2005.
Topics Lawsuits Carriers Auto Virginia West Virginia
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